<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1996
REGISTRATION NO. 333-05369
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PROGENITOR, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2836 31-1344193
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification Number)
organization) Classification Code
Number)
</TABLE>
1507 CHAMBERS ROAD
COLUMBUS, OHIO 43212
(614) 488-6688
(Address, including zip code and telephone number,
including area code, of Registrant's principal executive offices)
------------------------
DOUGLASS B. GIVEN, M.D., PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PROGENITOR, INC.
1507 CHAMBERS ROAD
COLUMBUS, OHIO 43212
(614) 488-6688
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
GAVIN B. GROVER, ESQ. CHARLES W. MULANEY, JR., ESQ.
KRISTIAN E. WIGGERT, ESQ. SKADDEN, ARPS, SLATE,
EDA S.L. TAN, ESQ. MEAGHER & FLOM
MORRISON & FOERSTER LLP 333 WEST WACKER DRIVE
345 CALIFORNIA STREET CHICAGO, ILLINOIS 60606
SAN FRANCISCO, CALIFORNIA 94104 (312) 407-0700
(415) 677-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------
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, please check the following box./ /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering./ /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier 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./ /
------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROGENITOR, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEMS OF FORM S-1 LOCATION IN PROSPECTUS
- -------------------------------------------------------------- --------------------------------------------------
<C> <S> <C>
Item 1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Facing Page of Registration Statement; Outside
Front Cover Page
Item 2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back Cover Pages
Item 3. Summary Information, Risk Factors, and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors
Item 4. Use of Proceeds................................... Use of Proceeds
Item 5. Determination of Offering Price................... Outside Front Cover Page; Underwriting
Item 6. Dilution.......................................... Risk Factors; Dilution
Item 7. Selling Security Holders.......................... Not applicable
Item 8. Plan of Distribution.............................. Outside Front and Inside Front Cover Pages;
Underwriting
Item 9. Description of Securities to be Registered........ Description of Capital Stock
Item 10. Interests of Named Experts and Counsel............ Legal Matters; Experts
Item 11. Information with Respect to the Registrant........ Outside Front and Inside Front Cover Pages;
Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Transactions; Principal
Stockholders; Shares Eligible for Future Sale;
Description of Capital Stock; Financial
Statements
Item 12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 16, 1996
PROSPECTUS
2,500,000 SHARES
[LOGO]
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold by
Progenitor, Inc. ("Progenitor" or the "Company"). Prior to the 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 a discussion of the factors to be
considered in determining the initial public offering price. The Company has
applied to list the Common Stock for quotation on the Nasdaq National Market
under the symbol "PGEN."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total(3)............................... $ $ $
</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 $850,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock on the same terms and conditions
set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares will be made at the
offices of the agent of Vector Securities International, Inc., in New York, New
York on or about , 1996.
---------------------
Vector Securities International, Inc.
Tucker Anthony
Incorporated
Genesis Merchant Group
Securities
, 1996
<PAGE>
[A schematic diagram entitled "Genomic Discoveries through Developmental
Biology" illustrating Progenitor's functional genomics approach for the
development of its three primary discovery programs. The upper portion of the
diagram indicates the basis for Progenitor's approach with arrows denoting the
interaction between Molecular Biology, Developmental Biology and Medically
Relevant Function in Early Cells and Tissues. The middle portion of the diagram
depicts Progenitor's three Primary Discovery Programs: Leptin Receptors; DEL-1
Gene; and BFU-e Factor. The lower portion of the diagram depicts the Potential
Therapeutic Applications for each of Progenitor's three Primary Discovery
Programs.]
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 STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Progenitor and the Progenitor logo are trademarks of the Company. This
Prospectus may contain trademarks and servicemarks of other parties.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS."
THE COMPANY
Progenitor is a functional genomics company engaged in the discovery,
characterization and validation of novel genes, receptors and related proteins
as therapeutic leads and targets for the treatment of major diseases. The
Company's functional genomics approach combines developmental biology expertise
and proprietary technology with gene sequencing and other molecular biology
techniques to accelerate the discovery process. Using its developmental biology
approach to functional genomics, the Company has made several discoveries,
including the discovery of the B219 leptin receptor, for which it filed patent
applications in September and December 1994. Leptin is believed to have roles in
blood cell formation ("hematopoiesis"), reproduction and obesity. The Company
has entered into a collaboration with Chiron Corporation ("Chiron") for the
development and commercialization of the Company's proprietary T7T7 gene
delivery system, and a collaboration with Novo Nordisk A/S ("Novo Nordisk") for
the isolation, development and commercialization of blood cell growth factors.
Developmental biology is the study of the genetic and cellular events that
control the development of a single fertilized egg into a fully-formed, complex
organism. Many genes involved in the process of cell growth and differentiation
may be expressed exclusively, or at enhanced levels, during certain stages of
early development and may become inactive in the cells of adult organisms. By
comparing the sequential expression of genes from one stage of early development
to the next, the Company believes it can identify, isolate and sequence specific
genes, receptors and other proteins which play key roles in cell growth and
differentiation. The Company believes that early developmental cells and tissues
are a rich and largely unexploited source for genes and proteins that may lead
to the development of treatments for diseases characterized by aberrant cell
growth and differentiation, such as cancer, blood and immune system disorders
and degenerative diseases associated with aging.
Progenitor possesses a number of proprietary technologies that it uses in
its discovery programs. The Company has developed proprietary methods and cell
lines using mouse (murine) embryonic stem cells for studying the differentiation
of cells in the early development of tissues and organs. Progenitor also has
developed proprietary techniques to isolate, grow, maintain in culture and
differentiate cells from the murine yolk sac. The yolk sac contains the earliest
cells in development that are committed to differentiate into the blood, immune
and vascular systems. In addition, Progenitor has developed proprietary gene
cloning and screening techniques to identify genes that encode receptors for
growth factors believed to be important in hematopoiesis and cancer therapy, as
well as the growth and development of neural and other tissues.
Progenitor has used its functional genomics approach to make three principal
discoveries. In addition to its B219 leptin receptor discovery, the Company has
discovered, in collaboration with Vanderbilt University ("Vanderbilt"), the
developmentally-regulated endothelial cell locus ("DEL-1") gene. The DEL-1 gene
is involved in the early growth and development of blood vessels and bone. The
Company believes that DEL-1 may have potential applications in diseases
accompanied by excessive blood vessel formation, such as cancer, and in diseases
such as cardiovascular and other disorders that may be treatable by stimulating
blood vessel growth. The Company also has identified a murine burst forming
units-erythroid ("BFU-e") red blood cell growth factor activity. The Company
believes that a BFU-e factor may be useful in the development of treatments for
a variety of blood disorders.
The Company currently is focusing its efforts and resources on the
discovery, characterization and validation process and intends to enter into
strategic alliances for the development and commercialization of drugs and other
products based on its discoveries. In March 1995, the Company entered into an
agreement with Chiron for the development and commercialization of the Company's
T7T7 gene delivery system for selected applications. In May 1995, the Company
entered into a development and commercialization agreement with Novo Nordisk
relating to the BFU-e red blood cell growth factor.
The Company was incorporated in Delaware in February 1992 as a
majority-owned subsidiary of Interneuron Pharmaceuticals, Inc. ("Interneuron"),
and commenced operations in May 1992. Following the Offering, Interneuron will
own 51.8% of the Company's Common Stock (49.3% if the Underwriters'
over-allotment option is exercised in full). The Company's executive offices are
located at 1507 Chambers Road, Columbus, Ohio 43212, and its telephone number is
(614) 488-6688.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered....................................... 2,500,000 shares
Common Stock to be outstanding after the Offering.......... 7,377,936 shares (1)
Use of proceeds............................................ To fund research and development activities, to fund
expansion of facilities and acquisition of equipment,
and for working capital and general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol.............................. PGEN
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
-------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................... $ -- $ -- $ 2,821 $ 2,602 $ 1,150
Expenses:
Research and development................................. 3,116 4,113 4,228 3,270 2,659
General and administrative............................... 1,339 1,275 1,116 857 1,167
Interest................................................. 246 648 352 320 104
--------- --------- ---------- --------- ----------
Total expenses......................................... 4,701 6,036 5,696 4,447 3,930
--------- --------- ---------- --------- ----------
Net loss................................................... $ (4,701) $ (6,036) $ (2,875) $ (1,845) $ (2,780)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Pro forma net loss per share (2)........................... $ (0.63) $ (0.58)
---------- ----------
---------- ----------
Pro forma weighted average shares outstanding (2).......... 4,536,481 4,780,787
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA (3) AS ADJUSTED (4)
--------- ------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 28 $ 178 $ 27,228
Working capital....................................................... (683) (533) 26,517
Total assets.......................................................... 1,400 1,550 28,600
Long-term obligations................................................. 2,408 172 172
Deficit accumulated during development stage.......................... (17,454) (17,454) (17,454)
Total stockholders' equity (deficit).................................. (2,530) (145) 26,905
</TABLE>
- ------------------
(1) Based on shares outstanding as of August 15, 1996 and an assumed initial
public offering price of $12.00 per share. Excludes: (i) 606,625 shares of
Common Stock issuable upon exercise of stock options outstanding as of
August 15, 1996, with a weighted average exercise price of $6.62 per share;
(ii) 26,126 shares of Common Stock issuable upon exercise of warrants
outstanding as of August 15, 1996, with an exercise price of $9.18 per
share; and (iii) 836,700 additional shares of Common Stock reserved for
issuance under the Company's stock plans. See "Capitalization," "Management
-- Stock Plans" and "Description of Capital Stock."
(2) See Note 1 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per share.
(3) Gives pro forma effect, assuming an initial public offering price of $12.00
per share, to: (i) the conversion of a convertible debenture and promissory
note held by Interneuron into Common Stock upon the closing of the Offering;
and (ii) the purchase by The Ohio University Foundation of 25,000 shares of
Common Stock at a price of $6.00 per share, pursuant to a stock purchase
right. See "Capitalization" and "Certain Transactions."
(4) Pro forma as adjusted to give effect to the issuance and sale of the
2,500,000 shares of Common Stock offered hereby (after deducting estimated
underwriting discounts and commissions and the estimated expenses of the
Offering) and the receipt and application of the estimated net proceeds
therefrom at an assumed initial public offering price of $12.00 per share.
See "Use of Proceeds" and "Capitalization."
------------------
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS, INCLUDING
FINANCIAL INFORMATION, SHARE AND PER SHARE DATA: (I) REFLECTS THE CONSUMMATION
OF A 1-FOR-2 REVERSE STOCK SPLIT TO BE EFFECTED PRIOR TO OR CONCURRENTLY WITH
THE OFFERING; (II) REFLECTS THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES
OF PREFERRED STOCK INTO AN AGGREGATE OF 1,774,014 SHARES OF COMMON STOCK UPON
THE CLOSING OF THE OFFERING; (III) REFLECTS THE CONVERSION OF THE CONVERTIBLE
DEBENTURE AND PROMISSORY NOTE HELD BY INTERNEURON INTO AN AGGREGATE OF 226,143
SHARES OF COMMON STOCK (BASED ON THE OUTSTANDING BALANCE AS OF AUGUST 15, 1996)
UPON THE CLOSING OF THE OFFERING; (IV) REFLECTS THE PURCHASE BY THE OHIO
UNIVERSITY FOUNDATION OF 25,000 SHARES OF COMMON STOCK AT A PRICE OF $6.00 PER
SHARE, PURSUANT TO A STOCK PURCHASE RIGHT; AND (V) ASSUMES AN INITIAL PUBLIC
OFFERING PRICE OF $12.00 PER SHARE AND NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. SEE "CERTAIN TRANSACTIONS," "DESCRIPTION OF CAPITAL
STOCK" AND "UNDERWRITING."
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL INVESTORS IN EVALUATING AN
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
SIGNIFICANTLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
UNCERTAINTIES RELATING TO TECHNOLOGICAL APPROACH OF THE COMPANY. To date,
the Company has not developed or commercialized any products. There can be no
assurance that the Company's functional approach to genomics will enable it to
discover genes, receptors or other proteins with functions relevant to the
treatment of diseases. The Company's discovery programs are primarily directed
to complex diseases. There is limited scientific understanding relating to the
role of genes, receptors and other proteins in these diseases and relatively few
products based on genetic discoveries have been developed and commercialized to
date. Accordingly, even if the Company is successful in identifying genes,
receptors or other proteins associated with specific diseases, there can be no
assurance that the Company will be successful in marketing its discoveries to
pharmaceutical companies for use in the development of therapeutic and
diagnostic products or that any such resulting products will be successfully
commercialized.
The development of products based on the Company's discoveries also will be
subject to the risks of failure inherent in the development of products based on
new technologies. These risks include the possibility that any such products
will be found to be ineffective or toxic, or otherwise fail to receive necessary
regulatory approvals; that any such products will be difficult to manufacture on
a commercial scale or will be uneconomical to market; that proprietary rights of
third parties will preclude the Company or its strategic partners from marketing
any such products; or that third parties will market superior or equivalent
products. As a result, there can be no assurance that the Company's research and
development activities or those of its licensees and collaborators will result
in any commercially viable products. See "-- Uncertainty of Patents and
Proprietary Rights," "Business -- Progenitor's Functional Genomics Approach,"
"-- Progenitor's Discovery Programs" and "-- Strategic Collaboration
Agreements."
Genomics, biotechnology, developmental biology and pharmaceutical
technologies have undergone and are expected to continue to undergo rapid and
significant change. The Company's future success will depend in large part on
its ability to maintain a competitive position with respect to these
technologies. Rapid technological developments by the Company or others may
result in compounds, products or processes becoming obsolete before the Company
recovers any expenses it incurs in connection with the development of such
products. See "-- Intense Competition; Rapid Technological Change" and "Business
- -- Competition."
HISTORY OF OPERATING LOSSES; ANTICIPATION OF FUTURE LOSSES. Progenitor is a
development stage company that commenced operations in May 1992. As of June 30,
1996, the Company had an accumulated deficit of approximately $17.5 million and
a working capital deficit of $683,000. Losses have resulted from expenses
incurred in the Company's research and development programs and, to a lesser
extent, from general and administrative and interest expenses. Neither the
Company nor any of its collaborative partners has yet developed any products
which have entered clinical trials or generated any revenues to the Company. To
date, all of the Company's revenues have resulted from payments from strategic
partners and a development grant from a governmental agency. The Company expects
to incur substantial additional losses over the next several years and expects
cumulative losses to increase substantially as it expands its research and
development activities. Payments from collaborative partners, license fees,
payments under governmental grants and investment income, in each case, if any,
are expected to be the only sources of revenue for the foreseeable future. The
Company has not yet generated any revenues from the achievement of milestones
under its collaborative agreements. Royalties or other revenues from commercial
sales of products are not expected for a number of years, if at all. To achieve
profitable
5
<PAGE>
operations, Progenitor, alone or with others, must successfully discover
medically relevant genes, receptors or related proteins and thereafter use these
discoveries to develop products, conduct preclinical studies and clinical
trials, obtain required regulatory approvals and successfully manufacture,
introduce and market such products, of which there can be no assurance. The time
required to reach or sustain profitability is highly uncertain and there can be
no assurance that the Company will be able to achieve profitability on a
sustained basis, if at all. Moreover, if profitability is achieved, the level of
profitability cannot be predicted and may vary significantly from quarter to
quarter. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
EARLY STAGE OF DEVELOPMENT; UNCERTAINTY OF FINAL PRODUCT
DEVELOPMENT. Significant discovery, research and development efforts will be
required prior to the time any of the Company's genes, receptors or other
protein discoveries may develop into product candidates or result in products
that may be brought to the market, if at all. Products, if any, resulting from
the Company's research and development programs are not expected to be
commercially available for a number of years, if at all. Significant additional
research and development efforts and extensive preclinical studies and clinical
trials will be required prior to submission of any regulatory application for
commercial use. There can be no assurance that the Company or any collaborator
or licensee will be permitted to undertake clinical trials of any potential
products, if developed, that sufficient numbers of patients can be enrolled for
such trials, or that such clinical trials will demonstrate that the products
tested are safe and efficacious. Even if clinical trials are successful, there
can be no assurance that the Company or any collaborator or licensee will obtain
regulatory approval for any indication, that an approved product can be produced
and distributed in commercial quantities at reasonable costs or gain acceptance
for use by physicians and other health care providers, or that any potential
products will be successfully marketed at prices that would permit the Company
to operate profitably. The failure of any of these events to occur could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Progenitor's Discovery Programs" and "--
Government Regulation."
NEED FOR ADDITIONAL CAPITAL; UNCERTAINTY OF ADDITIONAL FUNDING. The Company
expects negative cash flow from operations to continue and to increase for the
foreseeable future. The Company will require substantial additional funds to
continue research and development, conduct preclinical studies and clinical
trials, conduct activities relating to commercialization of rights it has
retained in strategic collaboration agreements, if any, and expand
administrative capabilities. The Company estimates that at its planned rate of
spending, any existing cash and cash equivalents, together with the net proceeds
from the Offering and the interest income thereon, will be sufficient to meet
its capital requirements for at least the next 18 months. There can be no
assurance, however, that the Company's assumptions regarding its future levels
of expenditures and operating losses will prove accurate. The Company's future
capital requirements will depend on many factors, including the scientific
progress in and the breadth of the Company's research and development programs;
the results of research and development, preclinical studies and clinical trials
conducted by the Company or its collaborative partners or licensees, if any; the
acquisition and licensing of products and technologies; the Company's ability to
establish and maintain relationships with corporate and academic collaborators;
competing technological and market developments; the time and costs involved in
filing, prosecuting, defending and enforcing patent and intellectual property
claims; the receipt of licensing or milestone fees from any current or future
collaborative arrangements, if established; the continued funding of
governmental research grants; the timing of regulatory approvals; and other
factors. To the extent undertaken by the Company, the time and costs involved in
conducting preclinical studies and clinical trials, seeking regulatory
approvals, and scaling-up manufacturing and commercialization activities also
would increase the Company's capital needs.
The Company will need to raise substantial additional capital to fund
operations. Prior to this Offering, Interneuron has funded substantially all of
the Company's operations. Interneuron, however, is under no obligation to
provide, and the Company does not expect that Interneuron will provide, any
additional funds in the future. The Company intends to seek additional funding
through public or
6
<PAGE>
private equity or debt financing and collaborative arrangements. There can be no
assurance that additional financing will be available when needed, or that, if
available, such financing will be available on terms acceptable to the Company.
If additional funds are raised by issuing equity securities, dilution to
existing stockholders will result. In addition, in the event that additional
funds are obtained through arrangements with collaborative partners, such
arrangements may require the Company to relinquish rights to certain of its
technologies or potential products that it would otherwise seek to develop or
commercialize itself. If funding is insufficient at any time in the future, the
Company may be required to delay, scale back or eliminate some or all of its
research and development programs or cease operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
DEPENDENCE ON COLLABORATORS. The Company's strategy for development and
commercialization of drugs and other products from its discoveries depends upon
the formation of various corporate collaborations. The Company expects to rely
on collaborative partners to research and develop potential products, conduct
clinical trials, obtain regulatory approvals, and manufacture and market any
resulting products. The Company has entered into agreements with Chiron and Novo
Nordisk. The Company's revenues will be dependent on the success of the products
developed by these and any future collaborative partners. The failure of the
Company's collaborative partners to develop, obtain regulatory approval of, and
market products incorporating the Company's discoveries would have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that any collaborative partner will commit
sufficient development resources, technology, regulatory expertise,
manufacturing, marketing and other resources towards developing, promoting and
commercializing products incorporating the Company's discoveries. Further,
competitive conflicts may arise among these third parties that could prevent
them from working cooperatively with the Company. The amount and timing of
resources devoted to these activities by such parties could depend on the
achievement of milestones by the Company and generally will be controlled by
such partners. In addition, the Company's collaborative agreements generally
provide the Company's collaborator with the right to terminate the agreement in
part or in full under certain circumstances. Any such termination would
substantially reduce the likelihood that the collaborative product candidate
will be developed, would obtain regulatory approvals and be manufactured and
successfully commercialized and any such termination could, therefore, have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's royalties from sales of products licensed
to collaborators, if any, may be less than the revenues the Company could have
generated had it commercialized and marketed products itself. There can be no
assurance that the Company will be successful in establishing additional or
maintaining existing collaborative arrangements, that any collaborative partners
will be successful in developing and commercializing products or that the
Company will generate revenues from royalties sufficient to offset the Company's
significant investment in research and development and other costs. See
"Business -- Strategic Collaboration Agreements" and "-- License Agreements."
INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE. Research in the field of
genomics is highly competitive. Competitors of the Company in the genomics area
include, among others, public companies such as Genome Therapeutics Corporation,
Human Genome Sciences, Inc., Incyte Pharmaceuticals, Inc., Millennium
Pharmaceuticals, Inc. ("Millennium"), Myriad Genetics, Inc. and Sequana
Therapeutics, Inc., as well as private companies and major pharmaceutical
companies and universities and other research institutions, including those
receiving funding from the federally funded Human Genome Project. A number of
entities are attempting to rapidly identify and patent randomly-sequenced genes
and gene fragments. In addition, certain other entities are pursuing a gene
identification, characterization and product development strategy based on gene
mapping. The Company's competitors may discover, characterize or develop
important genes in advance of the Company, which could have a material adverse
effect on any related Company discovery program. The Company expects competition
to intensify in genomics research as technical advances in the field are made
and become more widely known.
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In addition, the Company faces, and will continue to face, intense
competition from pharmaceutical and biotechnology companies, as well as academic
and research institutions and governmental agencies. The Company is subject to
significant competition from organizations that are pursuing the same or similar
technologies as those which constitute the Company's discovery platforms, and
from organizations that are pursuing pharmaceutical or other products that are
or may be competitive with the Company's or its collaborators' or licensees'
potential products. Many of the organizations competing with the Company have
greater capital resources, larger research and development staffs and
facilities, greater experience in drug discovery and development, obtaining
regulatory approvals and pharmaceutical product manufacturing, and greater
marketing capabilities than the Company.
The Company also is aware of a number of companies and institutions that are
developing or considering the development of potential gene-based and cell-based
treatments, including early-stage gene therapy companies, large pharmaceutical
companies, academic and research institutions, government agencies and other
health care providers. Many of these entities are more advanced than the Company
in their product development programs for gene and cell-based therapies and have
more experience with regulatory agencies and clinical trials. The fields of gene
and cell-based therapies are new and many competitive approaches are being taken
to discover practical means by which these technologies can be made into
products. Rapid technologic advances could result in actual or proposed
technologies, products or processes of the Company becoming obsolete prior to
successful commercialization.
The Company is and will continue to be reliant on strategic partners for
support of its programs, including preclinical and clinical development,
manufacturing and marketing of its initial products. Each of the Company's
present and future partners is conducting multiple product development efforts
within each disease or technology area that is the subject of the alliance with
the Company. Any product candidate or technology of the Company, therefore, may
be subject to internal competition with a potential product under development or
technology platform under evaluation by a strategic partner. See "-- Dependence
on Collaborators," "Business -- Background -- Overview of Genomics,"
"-- Progenitor's Functional Genomics Approach" and "-- Competition."
UNCERTAINTY OF PATENTS AND PROPRIETARY RIGHTS. The Company's success will
depend to a significant extent on its ability to obtain and enforce patents,
maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. Because the patent positions of
biotechnology and pharmaceutical companies can be highly uncertain and
frequently involve complex legal and factual questions, the breadth of claims
allowed in biotechnology and pharmaceutical patents or their enforceability
cannot be predicted. Commercialization of pharmaceutical products can be subject
to substantial delays as a result of the time required for product development,
testing and regulatory approval. The value of any patents issued or licensed to
the Company may depend upon the remaining term of patent protection available at
the time products that utilize the patented technology are commercialized.
The Company actively pursues a policy of seeking patent protection for a
number of its proprietary products and technologies. Progenitor has licensed
from Ohio University one U.S. patent and pending U.S. patent applications
relating to stem cell technology and to gene delivery technology (and has
received a notice of allowance relating to a gene delivery technology
application), along with certain corresponding foreign patent applications and
one issued foreign patent. Progenitor has filed eight U.S. patent applications
relating to certain leptin receptors (including various isoforms of the leptin
receptor), including patent applications filed in September and December 1994.
In March 1996, Progenitor's international patent application covering certain
leptin receptors was published. The Company believes that there may be
significant litigation regarding patent and other intellectual property rights
relating to leptin and leptin receptors. The Company is aware that Millennium
has filed a patent application relating to a receptor for leptin and its use in
obesity applications, and has licensed to Hoffmann-La Roche Inc. rights to
develop certain therapeutics for obesity using Millennium's discovery of a
leptin receptor.
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Millennium has recently filed a "Protest" in the United States Patent and
Trademark Office (the "USPTO") in connection with the Progenitor applications
relating to leptin receptors, including the applications filed in September and
December 1994. A Protest is an available procedure sometimes used by a third
party to provide the patent examiner who is reviewing the involved application
or applications with what the third party believes to be relevant information.
The Protest procedure does not afford any right to the third party to
participate in the patent prosecution process beyond the filing of its written
Protest. Millennium's Protest primarily argues that any claims allowed to
Progenitor should not be so broad as to cover Millennium's own leptin receptor.
There can be no assurance that Millennium's patent application, or
additional patent applications filed by Millennium or others, will not result in
issued patents covering a leptin receptor, the leptin protein or other ligands,
or any of their respective uses, including obesity. There can be no assurance
that the invention by Millennium will be accorded an invention date later than
Progenitor's invention date, that any patent will issue to Progenitor or that
any such patent issued to Progenitor would be broad enough to cover leptin
receptors of Millennium or others. Progenitor's failure to obtain a patent on a
leptin receptor, or its failure to obtain a patent that covers the leptin
receptors of Millennium or others, or the issuance of a patent to a third party
covering a leptin receptor, the leptin protein or other ligands, or any of their
respective uses, including obesity, could have a material adverse effect on the
Company's business, financial condition and results of operations.
A number of other groups are attempting to identify partial gene sequences
and full-length genes, the functions of which have not been characterized. The
public availability of partial gene sequence information before the Company
applies for patent protection on a corresponding full-length gene could
adversely affect the Company's ability to obtain patent protection with respect
to such gene. To the extent any patents issue to other parties on such partial
or full-length genes, and as other patents issue with the expansion of the
biotechnology industry, the risk increases that the potential products and
processes of the Company or its collaborative partners may give rise to claims
of patent infringement.
The patent positions of pharmaceutical and biotechnology firms, including
the Company, are uncertain and involve complex legal and factual questions for
which important legal principles are largely unresolved, particularly in regard
to human therapeutic uses. Substantial periods of time pass before the USPTO
responds to patent applications. In addition, the coverage claimed in a patent
application can be significantly reduced before a patent is issued.
Consequently, the Company does not know whether any of its pending or future
patent applications will result in the issuance of patents or, if any patents
are issued, whether the patents will be subjected to further proceedings
limiting their scope, and whether they will provide significant proprietary
protection or competitive advantage, or will be circumvented or invalidated.
Because patent applications in the United States are maintained in secrecy until
patents issue and patent applications in certain other countries generally are
not published until more than 18 months after they are filed, and since
publication of discoveries in scientific or patent literature often lags behind
actual discoveries, the Company cannot be certain that it or any licensor was
the first creator of inventions covered by pending patent applications or that
it or such licensor was the first to file patent applications on such
inventions.
There can be no assurance that the Company's patents, if issued, would be
held valid or enforceable by a court or that such patents would cover products
or technologies of the Company's competitors. Competitors or potential
competitors may have filed applications for or received patents, and may obtain
additional patents and proprietary rights relating to compounds or processes
competitive with those of the Company. To protect its proprietary rights, the
Company may be required to participate in interference proceedings declared by
the USPTO to determine priority of invention, which could result in substantial
cost to the Company. Moreover, even if the Company's patents issue, there can be
no assurance that they will provide sufficient proprietary protection or will
not be later limited, circumvented or invalidated. Accordingly, there can be no
assurance that the Company will develop proprietary technologies that are
patentable, that the Company's patent applications will result in patents being
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issued or that, if issued, patents will afford protection against competitors
with similar technology or products, nor can there be any assurance that the
Company's patents will be held valid by a court of competent jurisdiction.
In addition to patent protection, the Company also relies to a significant
extent upon trade secret protection for its unpatented confidential and
proprietary information including many of the Company's key discovery
technologies, such as its proprietary methods of isolating and manipulating
murine ES cells. There can be no assurance that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's trade secrets or disclose such
technology. To protect its trade secrets, the Company requires its employees,
consultants, scientific advisors and parties to collaborative agreements to
execute confidentiality agreements upon the commencement of employment, the
consulting relationship or the collaboration with the Company. In the case of
employees, the agreements also provide that all inventions resulting from work
performed by them while employed by the Company will be the exclusive property
of the Company. There can be no assurance, however, that these agreements will
provide meaningful protection of the Company's trade secrets or adequate
remedies in the event of unauthorized use or disclosure of such information,
that the Company can meaningfully protect its rights in such unpatented
proprietary technology through other means, that any obligation to maintain the
confidentiality of such proprietary technology will not be breached by
employees, consultants, advisors, collaborative partners or others, or that
others will not independently develop substantially equivalent technology. The
loss of trade secret protection of any of the Company's key discovery
technologies would materially and adversely affect the Company's competitive
position and could have a material adverse effect on the Company's business,
financial condition and results of operations. Finally, disputes may arise as to
the ownership of proprietary rights to the extent that outside collaborators or
consultants apply technological information developed independently by them or
others to Company projects or apply Company technology to other projects and, if
adversely determined, such disputes could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company may incur substantial costs if it is required to defend itself
in patent suits brought by third parties or if the Company initiates such a suit
to enforce the Company's patents or to determine the scope and validity of other
parties' proprietary rights. Any legal action against the Company or its
collaborators or licensees claiming damages and seeking to enjoin commercial
activities relating to the affected products and processes could, in addition to
subjecting the Company to potential liability for damages, require the Company
or its collaborators or licensees to obtain a license or licenses in order to
continue to manufacture or market the affected products and processes. There can
be no assurance that the Company or its collaborators or licensees would prevail
in any such action or that any license required under any such patents would be
made available on commercially acceptable terms, if at all. Any adverse outcome
of such litigation could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, if the
Company becomes involved in such litigation, it could consume a substantial
portion of the Company's managerial and financial resources. The Company is
unable to predict how courts will resolve any future issues relating to the
validity and scope of its patents should they be challenged.
It is uncertain whether any third-party patents will require the Company to
alter its products or processes, obtain licenses, cease certain activities or
pay substantial damages. If any licenses are required, there can be no assurance
that the Company will be able to obtain any such license on commercially
acceptable terms, if at all. Failure by the Company or its collaborators and
licensees to obtain a license to any technology required to commercialize the
Company's discoveries may have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Patents and Proprietary Rights."
UNCERTAINTIES RELATED TO CLINICAL TRIALS. Before seeking regulatory
approvals for the commercial sale of any products that may be developed
incorporating the Company's discoveries, the Company or its collaborative
partners will be required to demonstrate through preclinical studies and
clinical trials that such products are safe and effective for use in the target
indications. To date, no product candidates
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incorporating the Company's discoveries have entered clinical trials. The
results from preclinical studies and early clinical trials may not be indicative
of results that will be obtained in large-scale testing, and there can be no
assurance that any clinical trials, if undertaken, will demonstrate sufficient
safety and efficacy to obtain the requisite regulatory approvals or will result
in marketable products. Clinical trials also are often conducted with patients
having 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 product candidate being tested but which can nevertheless
affect clinical trial results. A number of companies in the biotechnology
industry have suffered significant setbacks in advanced clinical trials, even
after achieving promising results in earlier trials. If products developed by
the Company or its collaborative partners are not shown to be safe and effective
in clinical trials, the resulting delays in developing other product candidates
and conducting related preclinical testing and clinical trials, as well as the
need for additional financing, would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Progenitor's Discovery Programs."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL. Prior to
marketing, any new drug or other product developed by the Company or its
collaborative partners 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 studies,
of each product candidate to establish its safety and efficacy, usually takes
many years and require the expenditure of substantial resources. Preclinical
tests include laboratory evaluations and will require animal studies conducted
in accordance the United States Food and Drug Administration's ("FDA") current
Good Laboratory Practices ("cGLP") regulations to assess the product's potential
safety and efficacy. Data obtained from preclinical studies and clinical trials
are susceptible to varying interpretations that could delay, limit or prevent
regulatory approval. Delays or rejections also may be encountered based upon
changes in FDA policies for drug or biologic approval during the period of
product development and FDA regulatory review of each new drug application
("NDA") submitted in the case of new pharmaceutical agents, or product license
application ("PLA") in the case of biologics. Product development of new
pharmaceuticals is highly uncertain, and unanticipated developments, clinical or
regulatory delays, unexpected adverse side effects or inadequate therapeutic
efficacy could slow or prevent the product development efforts of the Company
and its collaborators or licensees, and have a materially adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that regulatory approval will be obtained for any drugs or other
products developed by the Company or its collaborative partners or licensees.
Furthermore, regulatory approval may entail limitations on the indicated use of
a drug or other product. Because certain of the products likely to result from
the Company's discovery programs 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 other
than the FDA and, as a result, regulatory approvals may be obtained more slowly
than for products using conventional technologies. Under current guidelines,
proposals to conduct clinical research involving gene therapy at institutions
supported by the National Institutes of Health ("NIH") must be approved by the
Recombinant DNA Advisory Committee ("RAC") and the NIH. Furthermore, gene
therapies are relatively new technologies and have not been tested extensively
in humans. The regulatory requirements governing these products and related
clinical procedures for their use are uncertain and are subject to change.
Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Among the conditions for product
approval and continued marketing approval is that the quality control and
manufacturing procedures of the Company or its collaborative partners conform to
the FDA's current good manufacturing practice ("cGMP") regulations which must be
followed at all times. In complying with cGMP requirements, manufacturers must
expend time, money and effort on a continuing basis in production, record
keeping and quality control. Manufacturing establishments, both domestic and
foreign, are subject to inspection by or under the authority of the FDA and by
other federal, state and local agencies. Failure to pass such inspections may
subject the manufacturer to
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possible FDA actions such as the suspension of manufacturing, seizure of the
product, withdrawal of approval or other regulatory sanctions. The FDA also may
require the manufacturer to recall a product from the market.
Discovery of previously unknown problems with a product may have adverse
effects on the Company's business, including withdrawal of the product from the
market. Violations of regulatory requirements at any stage, including
preclinical studies and clinical trials, the approval process or post-approval,
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 NDA or PLA holder. The Company has not submitted an
investigational new drug application ("IND") for any product candidate, and no
product candidate has been approved for commercialization in the United States
or elsewhere. The Company intends to rely primarily on its strategic partners to
file INDs and generally direct the regulatory approval process. No assurance can
be given that the Company or any of its strategic partners will be able to
conduct clinical testing or obtain the necessary approvals from the FDA or other
regulatory authorities for any products. Failure to obtain required governmental
approvals will delay or preclude the Company's strategic partners from marketing
drugs or other products developed by the Company 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. See "Business --
Government Regulation."
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent upon the
principal members of its scientific and management staff and the services of Dr.
Douglass B. Given, President and Chief Executive Officer, and Dr. H. Ralph
Snodgrass, Vice President, Research and Chief Scientific Officer, in particular.
The Company has no employment agreements with its executive officers other than
Dr. Given. The loss of any of these persons could have a material adverse effect
on the Company's business, financial condition and results of operations. In
order to support the Company's existing operations, the Company will be required
to hire and retain additional management, administrative and financial
personnel, including a chief financial officer. Recruiting and retaining
qualified scientific personnel and advisors to perform research and development
work in the future also will be critical to the Company's success. There can be
no assurance that the Company will be able to attract and retain such personnel
and advisors on acceptable terms given the competition among numerous
pharmaceutical, biotechnology and other companies, universities and other
research institutions for experienced personnel and advisors. In addition,
Progenitor's anticipated growth and expansion are expected to place increased
demands on the Company's resources and management skills. The failure of the
Company's existing personnel to handle such increased demands or the Company's
failure to attract and to retain additional personnel with such capabilities
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management."
DEPENDENCE ON RESEARCH COLLABORATORS AND SCIENTIFIC ADVISORS. The Company
has relationships with collaborators at academic and other institutions who
conduct research in cooperation with the Company. Such collaborators are not
employees of the Company. All of the Company's consultants are employed by
employers other than the Company and may have commitments to, or consulting or
advisory contracts with, other entities that may limit their availability to the
Company. As a result, the Company has limited control over their activities and,
except as otherwise required by its collaboration and consulting agreements, can
expect only limited amounts of their time to be dedicated to the Company's
activities. The potential success of the Company's discovery programs depends in
part on continued collaborations with researchers at academic and other
institutions. There can be no assurance that the Company will be able to
negotiate additional acceptable collaborations at academic and other
institutions or that its existing collaborations will be maintained or be
successful.
The Company's research collaborators and scientific advisors sign agreements
which provide for confidentiality of the Company's proprietary information and
results of studies. There can be no assurance, however, that the Company will be
able to maintain the confidentiality of its technology and
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other confidential information in connection with every collaboration, and any
unauthorized dissemination of the Company's confidential information could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "-- Uncertainty of Patents and Proprietary Rights."
LACK OF COMMERCIAL MANUFACTURING, DISTRIBUTION OR MARKETING
CAPABILITIES. To date, the Company has focused its hiring on research
scientists and a small administrative and managerial staff and has made no
investment in manufacturing, marketing or product sales resources. The Company
does not generally expect to engage directly in manufacturing, marketing or sale
of products and intends to contract with others in order to pursue the
commercialization of any products developed based upon its discoveries. There
can be no assurance that the Company will be able to enter into such
arrangements on acceptable terms, if at all. The Company will be dependent to a
significant extent on collaborative partners, licensees or other entities for
development, manufacturing and commercialization of products. If the Company is
unable to obtain or retain third-party manufacturing on commercially acceptable
terms, its ability to commercialize products may be delayed or foreclosed. The
Company's dependence upon third parties for the manufacture, marketing and sales
of products may adversely affect the Company's ability to develop and deliver
products on a timely and competitive basis. The Company's current facilities and
staff are inadequate for commercial production and distribution of products. If
the Company chooses in the future to engage directly in the development,
manufacturing and marketing of certain products, it will require substantial
additional funds, personnel and production and other facilities. There can be no
assurance that any of these resources will be available to the Company on
acceptable terms, if at all. See "-- Need for Additional Capital; Uncertainty of
Additional Funding" and "-- Dependence on Collaborators."
UNCERTAINTY OF HEALTH CARE REFORM MEASURES AND THIRD-PARTY
REIMBURSEMENT. The business and financial condition of pharmaceutical and
biotechnology companies will continue to be affected by the efforts of
third-party payors, such as government health administration authorities,
private health insurers and other organizations, to contain or reduce the cost
of health care. In the United States and in certain foreign jurisdictions there
have been, and the Company expects that there will continue to be, a number of
legislative and regulatory proposals aimed at changing the health care system.
While the Company cannot predict whether any such legislative or regulatory
proposals will be adopted or the effect that such proposals may have on its
business, the consideration or approval of such proposals could have a material
adverse effect on the trading and market price of the Common Stock or on the
Company's ability to raise capital or to obtain additional collaborative
partners, and the adoption of such proposals could have a material adverse
effect on the Company's business, financial condition and results of operations.
In both domestic and foreign markets, successful commercial sales of the
Company's or its collaborators' or licensees' potential products will depend in
part on the availability of reimbursement from government and health
administrative authorities, private health insurers or other third-party payors.
Third-party payors are increasingly challenging the price and cost-effectiveness
of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products. Future legislation
and regulations affecting the pricing of pharmaceuticals could further limit
reimbursement for medical products and services. There can be no assurance that
any of the Company's potential products will be considered cost-effective or
that adequate third-party reimbursement will be available to enable Progenitor,
its collaborators or licensees to maintain price levels sufficient to realize an
appropriate return on its investment. In addition, the trend toward managed
health care in the United States and the concurrent growth of managed care
organizations, such as health maintenance organizations, which could control or
significantly influence the purchase of health care services and products, as
well as legislative proposals to reduce government insurance programs, could
result in pricing pressure for any products that might be developed by the
Company. If adequate reimbursement is not provided by government and other
third-party payors for the Company's or its collaborative partners' or
licensees' potential products, there would be a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Government Regulation."
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RISK OF PRODUCT LIABILITY. The testing, manufacture, marketing and sale of
pharmaceutical and other products entail the inherent risk of liability claims
or product recalls and associated adverse publicity. Clinical trials and sales
by the Company or its collaborators or licensees of potential products
incorporating the Company's discoveries may expose the Company to potential
liability resulting from the use of such products. Such liability might result
from claims made directly by consumers or by regulatory agencies, pharmaceutical
companies or others selling such products. The Company currently has a limited
amount of clinical trial and product liability insurance coverage through
Interneuron. The Company will seek to obtain its own coverage upon completion of
this Offering and to maintain and appropriately increase such coverage as
clinical development of any product candidates progresses and if and when its
products are ready to be commercialized. There can be no assurance that the
Company will be able to obtain such insurance or, if obtained, that such
insurance can be acquired at a reasonable cost or in sufficient amounts to
protect the Company against such liability. Certain of the Company's license
agreements require it to indemnify licensors against product liability claims
arising from products developed using the licensed technology. Also, certain of
these agreements and other collaboration agreements require the Company to
maintain minimum levels of insurance coverage. The failure to maintain product
liability coverage, the occurrence of any product liability claim or a recall of
products of the Company or its collaborators or licensees, if developed, could
inhibit or prevent commercialization of products being developed by the Company
and could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, to the extent any product
liability claim exceeds the amount of any insurance coverage, the Company's
business, financial condition and results of operations could be materially and
adversely affected. See "Business -- Strategic Collaboration Agreements" and "--
Product Liability Insurance."
NO PRIOR TRADING MARKET; NO ASSURANCE OF ACTIVE TRADING MARKET; POTENTIAL
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 the Offering. The
initial public offering price will be determined through negotiations between
the Company and representatives of the Underwriters and there can be no
assurance that future market prices for the Common Stock will equal or exceed
the initial public offering price. The stock market has experienced significant
price and volume fluctuations that are often unrelated to the operating
performance of particular companies. In addition, the market prices of
securities of other biotechnology companies in the past have been highly
volatile and the market price of the Company's Common Stock also may experience
such volatility. Factors such as the results of preclinical studies and clinical
trials by the Company or its collaborative partners, licensees or competitors,
evidence of the safety or efficacy of products of the Company or its
competitors, announcements of technological innovations or new discoveries,
product opportunities or products by the Company or its competitors, changes in
governmental regulations or third-party reimbursement policies, developments in
patent or other proprietary rights of the Company or its competitors,
fluctuations in the Company's operating results and changes in general market
conditions for biotechnology stocks could have an adverse impact on the future
price of the Common Stock. See "Underwriting."
CONTROL OF COMPANY BY, AND POTENTIAL CONFLICTS OF INTEREST WITH,
INTERNEURON. Following the Offering, Interneuron will own 51.8% of the
outstanding Common Stock of the Company (49.3% if the Underwriters'
over-allotment option is exercised in full). Accordingly, Interneuron will
continue to control the election of directors of the Company and voting with
respect to matters submitted to stockholders, including extraordinary corporate
transactions such as a merger or sale of substantially all of the Company's
assets. In addition, the Company and Interneuron intend to enter into an
intercompany services agreement that will provide among other things that in the
event of any future equity offering by the Company, Interneuron will have the
right to purchase (at the same price and on the same terms as such equity
offering) a portion of the shares being offered so as to maintain its
fully-diluted interest in Progenitor immediately prior to such equity offering,
subject to certain limitations. Interneuron's ownership of a substantial block
of the Company's voting stock could have the effect of delaying or preventing
sales of additional securities of the Company or a sale of the Company or other
change of control supported by the other stockholders of the Company. In
addition, the Company may be subject
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to various risks arising from Interneuron's influence over the Company,
including conflicts of interest relating to new business opportunities that
could be pursued by the Company or by Interneuron and its other affiliates, and
significant corporate transactions for which stockholder approval is required.
See "Certain Transactions -- Relationship with Interneuron" and "Principal
Stockholders."
ANTI-TAKEOVER CONSIDERATIONS. After the Offering, the Company will have the
authority to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the powers, designations, preferences and relative rights
thereof without any further vote or action by the Company's stockholders. The
Company has no current plans to issue shares of Preferred Stock. However, the
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock would dilute the voting power of
holders of Common Stock and could have the effect of delaying, deferring or
preventing a change in control of the Company. In addition, all outstanding
options under the Company's 1992 Stock Option Plan and 1996 Stock Incentive Plan
become exercisable, and purchase dates under the 1996 Employee Stock Purchase
Plan could be accelerated, upon certain changes in control of the Company. The
Company is subject to the provisions of Section 203 of the Delaware General
Corporation Law, which could delay or make more difficult a merger, tender offer
or proxy contest involving the Company and may have the effect of discouraging
takeovers which could be in the best interest of certain stockholders. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" 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. There can be no assurance that this provision, the rights
of option holders and the Company's ability to issue Preferred Stock will not
have an adverse effect on the market value of the Company's stock in the future.
See "Management -- Stock Plans" and "Description of Capital Stock."
HAZARDOUS AND RADIOACTIVE MATERIALS; ENVIRONMENTAL MATTERS. Research and
development conducted by the Company involves the controlled use of hazardous
materials, chemicals, biological materials and radioactive compounds. The
Company, and its collaborative partners, as applicable, are subject to
international, federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of such substances and certain waste
products. The Company believes that the safety procedures relating to its
in-house research and development and production efforts comply in all material
respects with the standards currently prescribed by such laws and regulations.
However, 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 resulting damages, and any such liability could
exceed the Company's resources. Moreover, there can be no assurance that the
Company's collaborative partners are and will continue to be in compliance with
such standards or that the Company will not be required to incur significant
costs in the future to comply with new or modified standards. In such events,
there would be a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Government Regulation."
MANAGEMENT DISCRETION AS TO USE OF PROCEEDS. The Company anticipates using
the net proceeds of the Offering primarily to fund research and development
activities, the expansion of facilities, working capital and general corporate
purposes. The Company also may use the net proceeds of the Offering for other
purposes, including the acquisition of technology rights, products or
businesses. Accordingly, management will retain broad discretion over the use of
the net proceeds of the Offering. There can be no assurance as to the timing or
application of such proceeds, or that the application thereof will not have a
material adverse effect on the Company's future business, financial condition or
results of operations. See "Use of Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS; POSSIBLE ADVERSE
EFFECT ON STOCK PRICE. Sales of substantial amounts of Common Stock in the
public market after the Offering, or the possibility of such sales occurring,
could adversely affect prevailing market prices for the Common Stock or the
future ability of the Company to raise capital through an offering of equity
securities. Of the 7,377,936 shares to be outstanding after the Offering, the
2,500,000 shares of Common Stock offered hereby will be freely
15
<PAGE>
tradeable without restriction in the public market unless such shares are held
by "affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"). The remaining
4,877,936 shares of Common Stock are restricted securities under the Securities
Act and may be sold in the public market only if they are registered or if they
qualify for exemption from registration under Rule 144 or 701 under the
Securities Act. Pursuant to "lock-up" agreements, all of the Company's executive
officers and directors and certain stockholders who collectively hold 902,541 of
such restricted securities have agreed not to offer, sell or otherwise dispose
of any of their restricted securities for a period of 180 days from the date of
this Prospectus without the prior written consent of Vector Securities
International, Inc. Interneuron will hold 3,820,134 of such restricted
securities and has agreed pursuant to a lock-up agreement not to offer, sell or
otherwise dispose of any of its restricted securities for a period of 365 days
from the date of this Prospectus without the prior written consent of Vector
Securities International, Inc. The Company has also agreed that it will not
offer, sell or otherwise dispose of Common Stock for a period of 180 days from
the date of this Prospectus without the prior written consent of Vector
Securities International, Inc., other than pursuant to existing stock option
plans. Upon termination of the lock-up agreements, approximately 409,413 and
3,593,991 of the restricted securities will be available for immediate sale
beginning 181 days and 366 days, respectively, after the date of this
Prospectus, in the public market subject to certain volume, manner of sale and
other limitations under Rule 144 and 385,450 shares will be eligible for
immediate sale 181 days after the date of this Prospectus without limitation
under Rule 144(k). Vector Securities International, Inc. may, at its sole
discretion and at any time without notice, release all or any portion of the
shares subject to such lock-up agreements. The Securities and Exchange
Commission has proposed revisions to Rule 144, the effect of which would be to
shorten the holding periods under Rule 144. If enacted, these proposed revisions
would increase, potentially substantially, the number of shares that would be
available for sale in the public market following the expiration of the lock-up
agreements. See "Description of Capital Stock" and "Shares Eligible for Future
Sale."
After the Offering, holders of an aggregate of 287,399 shares of Common
Stock (including 26,126 shares of Common Stock issuable upon exercise of
outstanding warrants) will be entitled to certain rights with respect to the
registration of such shares for resale under the Securities Act. In addition,
the Company intends to file Registration Statements on Form S-8 after the date
of this Prospectus to register an aggregate of 606,625 shares of Common Stock
reserved for issuance upon exercise of outstanding options, an aggregate of
736,700 shares of Common Stock reserved for issuance pursuant to future option
grants under the Company's 1992 Stock Option Plan and the Company's 1996 Stock
Incentive Plan and an aggregate of 100,000 shares of Common Stock reserved for
issuance under the Company's 1996 Employee Stock Purchase Plan. If such
registrations 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. See "Description of Capital Stock -- Registration
Rights" and "Shares Eligible for Future Sale."
DILUTION. Investors purchasing shares of Common Stock in the Offering will
incur immediate and substantial dilution equal to $8.33 per share. Additional
dilution is likely to occur upon the exercise of outstanding warrants and stock
options. See "Dilution."
ABSENCE OF DIVIDENDS. The Company has never declared or paid cash dividends
on its Common Stock. The Company currently intends to retain any future earnings
to finance the growth and development of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. See "Dividend
Policy."
16
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 2,500,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $12.00 per share
are estimated to be approximately $27.1 million ($31.2 million if the
Underwriters' over-allotment option is exercised in full), after deducting
estimated underwriting discounts and commissions and estimated expenses of the
Offering payable by the Company.
The Company anticipates using the net proceeds of the Offering primarily to
fund research and development activities, to fund the expansion of facilities
and acquisition of equipment, and for working capital and general corporate
purposes. The Company may also use a portion of the net proceeds of the Offering
to acquire technology rights, products or businesses. No such transactions
involving a material amount of consideration are being negotiated as of the date
of this Prospectus. The amounts actually expended for each purpose will depend
on numerous factors, including the scientific progress in and the breadth of the
Company's research and development programs; the results of research and
development, preclinical studies and clinical trials conducted by the Company or
its collaborative partners or licensees, if any; the acquisition and licensing
of products and technologies; the Company's ability to establish and maintain
relationships with corporate and academic collaborators; competing technological
and market developments; the time and costs involved in filing, prosecuting,
defending and enforcing patent and intellectual property claims; the receipt of
licensing or milestone fees from any current or future collaborative
arrangements, if established; the continued funding of governmental research
grants; the timing of regulatory approvals, if any; and other factors. The
Company estimates that, at its planned rate of spending, the net proceeds of the
Offering and the interest income thereon, together with any existing cash and
cash equivalents, will be sufficient to meet its capital requirements for at
least the next 18 months. There can be no assurance, however, that the Company's
assumptions regarding its future levels of expenditures and operating losses
will prove accurate. Pending such uses, the Company intends to invest the net
proceeds of the Offering in investment grade, interest-bearing securities. See
"Risk Factors -- History of Operating Losses; Anticipation of Future Losses,"
"-- Need for Additional Capital; Uncertainty of Additional Funding," "--
Management Discretion as to Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on shares of its
Common Stock. The Company currently intends to retain any future earnings for
its business and, therefore, does not anticipate paying any dividends in the
foreseeable future.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on an actual basis as if the 1-for-2 reverse stock split had
occurred prior to June 30, 1996; (ii) on a pro forma basis to give effect
(assuming an initial public offering price of $12.00 per share) upon the closing
of the Offering to (a) the automatic conversion of all outstanding shares of
Preferred Stock into an aggregate of 1,774,014 shares of Common Stock, (b) the
conversion of a convertible debenture and promissory note held by Interneuron
into an aggregate of 186,279 shares of Common Stock (based on the outstanding
balance as of June 30, 1996) and (c) the purchase by The Ohio University
Foundation of 25,000 shares of Common Stock at a price of $6.00 per share,
pursuant to a stock purchase right; and (iii) on a pro forma basis as adjusted
to reflect the issuance and sale of the 2,500,000 shares of Common Stock offered
hereby (after deducting estimated underwriting discounts and commissions and the
estimated expenses of the Offering), and the receipt of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Description of Capital Stock."
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
--------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations....................................................... $ 2,408 $ 172 $ 172
Stockholders' equity:
Preferred Stock, Series A, $.01 par value: 2,120,000 shares authorized;
2,020,496 shares issued and outstanding, actual; no shares authorized,
issued or outstanding, pro forma and pro forma as adjusted............... 20 -- --
Preferred Stock, Series B, $.01 par value: 880,000 shares authorized;
349,000 shares issued and outstanding, actual; no shares authorized,
issued or outstanding, pro forma and pro forma as adjusted............... 3 -- --
Preferred Stock, $.001 par value: 5,000,000 shares authorized; no shares
issued or outstanding, actual, pro forma and pro forma as adjusted....... -- -- --
Common Stock, $.001 par value: 39,000,000 shares authorized; 2,852,779
shares issued and outstanding, actual; 4,838,072 shares issued and
outstanding, pro forma; 7,338,072 shares issued and outstanding, pro
forma as adjusted (1).................................................... 3 5 7
Additional paid-in capital................................................ 14,898 17,304 44,352
Deficit accumulated during development stage.............................. (17,454) (17,454) (17,454)
--------- ----------- ------------
Total stockholders' equity (deficit).................................... (2,530) (145) 26,905
--------- ----------- ------------
Total capitalization.................................................. $ (122) $ 27 $ 27,077
--------- ----------- ------------
--------- ----------- ------------
</TABLE>
- ------------------------
(1) Excludes: (i) 606,625 shares of Common Stock issuable upon exercise of stock
options outstanding as of August 15, 1996, with a weighted average exercise
price of $6.62 per share; (ii) 26,126 shares of Common Stock issuable upon
exercise of warrants outstanding as of August 15, 1996, with an exercise
price of $9.18 per share; and (iii) 836,700 additional shares of Common
Stock reserved for issuance under the Company's stock plans. See "Management
-- Stock Plans" and "Description of Capital Stock."
18
<PAGE>
DILUTION
Pro forma net tangible book value per share is equal to the Company's net
tangible assets (tangible assets of the Company less total liabilities) divided
by 4,838,072 shares of Common Stock outstanding as of June 30, 1996 (as if the
1-for-2 reverse split of the Company's Common Stock had occurred prior to June
30, 1996), assuming (i) the automatic conversion of all outstanding shares of
Preferred Stock into an aggregate of 1,774,014 shares of Common Stock upon the
closing of the Offering, (ii) the conversion of a convertible debenture and
promissory note held by Interneuron into an aggregate of 186,279 shares of
Common Stock upon the closing of the Offering (based on the outstanding balance
as of June 30, 1996) and (iii) the purchase by The Ohio University Foundation of
25,000 shares of Common Stock at a price of $6.00 per share, pursuant to a stock
purchase right. The pro forma net tangible book value of the Company as of June
30, 1996 was approximately negative $145,000 or negative $.03 per share. Without
taking into account any other changes in pro forma net tangible book value other
than to give effect to the sale of the 2,500,000 shares of Common Stock in the
Offering (at an assumed initial public offering price of $12.00 per share) and
the receipt of the estimated net proceeds therefrom, the pro forma net tangible
book value of the Company as of June 30, 1996 would have been approximately
$26.9 million or $3.67 per share. This represents an immediate increase in pro
forma net tangible book value of $3.70 per share to existing stockholders and an
immediate dilution of $8.33 per share to new investors. The following table sets
forth the per share dilution to new investors in the Offering:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 12.00
Pro forma net tangible book value per share as of June 30, 1996... $ (.03)
Increase per share attributable to new investors.................. 3.70
---------
Pro forma net tangible book value per share after the Offering...... 3.67
---------
Dilution per share to new investors................................. $ 8.33
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share (at an assumed initial
public offering price of $12.00 per share and before deducting estimated
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 4,838,072 65.9% $ 17,309,599 36.6% $ 3.58
New investors............................... 2,500,000 34.1 30,000,000 63.4 12.00
---------- ----- ------------- -----
Total................................... 7,338,072 100.0% $ 47,309,599 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The foregoing tables reflect no exercise of outstanding options or warrants
subsequent to June 30, 1996. As of August 15, 1996, there were (i) 606,625
shares of Common Stock issuable upon exercise of outstanding stock options, with
a weighted average exercise price of $6.62 per share; and (ii) 26,126 shares of
Common Stock issuable upon exercise of outstanding warrants, with an exercise
price of $9.18 per share. To the extent these options or warrants are exercised,
there will be further dilution to the new investors. Furthermore, the Company
has reserved 836,700 additional shares of Common Stock for issuance under its
stock plans. The Company's currently outstanding shares of Series A and B
Preferred Stock have antidilution and conversion adjustment provisions that will
increase or decrease the number of shares of Common Stock outstanding as of June
30, 1996, above or below the number of shares used in the calculation of
dilution to new investors in the event that the initial public offering price is
less than or greater than $12.00 per share. See "Capitalization," "Management --
Stock Plans," "Description of Capital Stock -- Preferred Stock" and "-- Stock
Purchase Right and Warrants."
19
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company. The
selected financial data for each of the three years in the period ended
September 30, 1995 and the balance sheet data as of September 30, 1994 and 1995
are derived from the financial statements of the Company which have been audited
by Coopers & Lybrand L.L.P., independent accountants. The selected statements of
operations data for the period from May 8, 1992 (date of inception) to September
30, 1992, and the balance sheet data as of September 30, 1992 and 1993, are
derived from audited financial statements not included herein. The statement of
operations data for the nine months ended June 30, 1995 and 1996 and for the
period from May 8, 1992 (date of inception) to June 30, 1996 and the balance
sheet data as of June 30, 1996, have been derived from unaudited financial
statements which include all adjustments, consisting solely of normal recurring
adjustments, which management considers necessary to fairly present the
financial information set forth herein. The results for the nine months ended
June 30, 1995 and 1996, are not necessarily indicative of the results to be
expected for future periods. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and related Notes
thereto and other financial information included elsewhere herein.
<TABLE>
<CAPTION>
MAY 8, 1992
MAY 8, 1992 (DATE OF
(DATE OF NINE MONTHS ENDED INCEPTION)
INCEPTION) TO YEARS ENDED SEPTEMBER 30, JUNE 30, TO
SEPTEMBER 30, -------------------------------- --------------------- JUNE 30,
1992 1993 1994 1995 1995 1996 1996
--------------- --------- --------- ---------- --------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ -- $ -- $ -- $ 2,821 $ 2,602 $ 1,150 $ 3,971
Expenses:
Research and development...... 775 3,116 4,113 4,228 3,270 2,659 14,891
General and administrative.... 264 1,339 1,275 1,116 857 1,167 5,161
Interest...................... 23 246 648 352 320 104 1,373
------- --------- --------- ---------- --------- ---------- ------------
Total expenses.............. 1,062 4,701 6,036 5,696 4,447 3,930 21,425
------- --------- --------- ---------- --------- ---------- ------------
Net loss...................... $ (1,062) $ (4,701) $ (6,036) $ (2,875) $ (1,845) $ (2,780) $ (17,454)
------- --------- --------- ---------- --------- ---------- ------------
------- --------- --------- ---------- --------- ---------- ------------
Pro forma net loss per
share (1)...................... $ (.63) $ (.58)
---------- ----------
---------- ----------
Pro forma weighted average
shares outstanding (1)......... 4,536,481 4,780,787
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------
1992 1993 1994 1995 JUNE 30, 1996
--------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 35 $ 11 $ 10 $ 1,174 $ 28
Working capital......................................... (379) (562) (988) (269) (683)
Total assets............................................ 568 979 977 2,395 1,400
Long-term obligations................................... 1,210 6,150 11,767 705 2,408
Deficit accumulated during development stage............ (1,062) (5,763) (11,799) (14,674) (17,454)
Total stockholders' equity (deficit).................... (1,057) (5,755) (11,791) (101) (2,530)
</TABLE>
- --------------------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
A development stage company, Progenitor was incorporated in February 1992
and commenced operations in May 1992. The Company has devoted substantially all
of its resources since inception to research and development programs. To date,
all of the Company's revenues have resulted from payments from collaborative
partners and a grant from the U.S. Department of Commerce's National Institute
of Standards and Technology Advanced Technology Program ("ATP") that was awarded
to the Company in November 1994. Payments from collaborative partners, license
fees, payments under governmental grants and investment income, in each case, if
any, are expected to be the only sources of revenue for the foreseeable future.
Certain payments under collaborative arrangements are contingent upon the
Company meeting certain milestones. Payments under collaborative or licensing
arrangements, if any, 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. The Company
has not yet received any royalties or other revenues from the sale of products
or services and does not expect to receive any such revenues for the next
several years, if at all. As of June 30, 1996, the Company had a total
stockholders' deficit of $2.5 million, including an accumulated deficit of $17.5
million. See "Risk Factors -- History of Operating Losses; Anticipation of
Future Losses."
Interneuron provided the initial funding of the Company and had invested
$14.9 million in Progenitor in equity and debt financings through June 30, 1996.
Interneuron owns a majority of the outstanding capital stock of the Company and
will own 51.8% (49.3% if the Underwriters' over-allotment option is exercised in
full) of the outstanding Common Stock following the closing of the Offering.
Interneuron has no obligation to invest any additional funds in the Company, and
the Company does not expect Interneuron to do so. Progenitor raised an
additional $1.6 million in net proceeds through a private placement of Preferred
Stock in fiscal 1995. The Company intends to seek additional funding through
public or private equity or debt financing and collaborative arrangements. There
can be no assurance, however, that additional financing will be available when
needed, or that, if available, such financing will be available on terms
acceptable to the Company. See "Risk Factors -- Need for Additional Capital;
Uncertainty of Additional Funding" and "Certain Transactions -- Relationship
With Interneuron."
Significant discovery, research and development efforts will be required
prior to the time any of the Company's gene, receptor or protein discoveries may
develop into product candidates or result in products that may be brought to the
market, if at all. Products, if any, resulting from the Company's research and
development programs are not expected to be commercially available for a number
of years, if at all, even if any are successfully developed and proven safe and
effective. Significant additional research and development efforts and extensive
preclinical studies and clinical trials will be required prior to submission of
any regulatory application for commercial use. See "Risk Factors -- Early Stage
of Development; Uncertainty of Final Product Development."
RESULT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1995 AND 1996
Revenues decreased from $2.6 million for the nine months ended June 30, 1995
to $1.2 million for the nine months ended June 30, 1996. The decrease in
revenues was largely attributable to a decrease in receipts from the Company's
collaboration agreement with Chiron from $2.5 million, paid by Chiron in
21
<PAGE>
April 1995 as a license fee and reimbursement of past research and development
expenses in connection with the execution of the collaboration agreement, to
$500,000, paid by Chiron for continued funding of research and development
expenses pursuant to such collaboration agreement. This decline was partially
offset by an increase in revenues recorded by the Company under its ATP grant
(which began in June 1995 and provides for aggregate payments of $2.0 million
over three years) from $65,000 for the nine months ended June 30, 1995 to
$576,000 for the nine months ended June 30, 1996.
Research and development expense decreased from $3.3 million for the nine
months ended June 30, 1995 to $2.7 million for the nine months ended June 30,
1996. The decrease was largely attributable to a $750,000 reimbursement to
Chiron for certain start-up manufacturing costs that was recorded in June 1995.
Other research and development expenses consisted primarily of salaries and
consulting fees, sponsored research projects and expenditures for laboratory
supplies and animal facilities. The Company expects research and development
expense to increase in the future. Continued growth in such expense, however,
will be dependent on the availability of capital.
General and administrative expense increased from $857,000 for the nine
months ended June 30, 1995 to $1.2 million for the nine months ended June 30,
1996. The increase was largely due to increases in annual salaries, legal fees,
travel expenses and occupancy charges. The Company expects general and
administrative expenses to increase in the future as it expands its operations
and hires additional employees.
Interest expense decreased from $320,000 for the nine months ended June 30,
1995 to $104,000 for the nine months ended June 30, 1996. From its inception,
the Company has incurred interest expense resulting from the debt funding
provided by Interneuron. The decrease in interest expense for the nine month
period ended June 30, 1996 was attributable to a decrease in the Company's
average outstanding borrowings, due to the conversion into equity in January
1995 of $11.5 million of the Company's debt payable to Interneuron.
FISCAL YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
The Company recognized no revenue for fiscal 1993 and 1994. Revenue
increased to $2.8 million in fiscal 1995. The Company's revenues in fiscal 1995
were attributable to an initial cash payment of $2.5 million under the Company's
collaboration agreement with Chiron and recognition of $260,000 of revenue
related to a payment under the Company's ATP grant.
Research and development expense increased from $3.1 million for fiscal
1993, to $4.1 million for fiscal 1994 and to $4.2 million for fiscal 1995. The
increase in fiscal 1994 was largely due to the addition of senior research and
development management in late fiscal 1993 as well as annual salary increases,
increased short-term sponsored research commitments and increased depreciation
expense resulting from additions of laboratory, office and computer equipment.
The increase in research and development expense in fiscal 1995 was largely
attributable to the incurrence of $750,000 as reimbursement for certain start-up
manufacturing costs related to the Chiron collaboration.
General and administrative expense was $1.3 million for fiscal 1993 and
fiscal 1994, and decreased to $1.1 million for fiscal 1995. The slight decrease
between fiscal 1994 and fiscal 1995 resulted from a reimbursement from
Interneuron of employee benefit expenses.
Interest expense increased from $245,000 for fiscal 1993 to $648,000 for
fiscal 1994 and decreased to $352,000 for fiscal 1995. The increase from fiscal
1993 to fiscal 1994 was due to an increase in the Company's borrowings from
Interneuron. The decrease in interest expense in fiscal 1995 was due to the
conversion into equity of $11.5 million of the Company's debt payable to
Interneuron, resulting in a lower average debt balance in fiscal 1995. The
Company began incurring interest expense related to equipment financings in
fiscal 1994. The Company expects to continue financing equipment purchases
through sale-leaseback arrangements, if favorable terms are available, which
could result in an increase in interest expense.
No income tax provision or benefit has been provided for federal income tax
purposes as the Company has incurred losses since inception. As of September 30,
1995, the Company had deferred tax
22
<PAGE>
assets of $5.7 million. Because of uncertainties surrounding the realization of
these favorable tax attributes in future tax periods, all of the net deferred
tax assets have been fully offset by a valuation allowance. As of September 30,
1995, the Company had total net operating loss carryforwards of $13.1 million
and tax credits of approximately $468,000, both of which expire on dates through
2009. The Company's ability to utilize the net operating loss carryforwards in
future years may be limited in some circumstances, including significant changes
in ownership interests, due to certain provisions of the Internal Revenue Code
of 1986, as amended.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Progenitor has financed its operations primarily through
debt and equity financings from Interneuron of $14.9 million through June 30,
1996, a private financing of $1.6 million in net proceeds from the sale of
Preferred Stock in fiscal 1995 and a private financing from The Ohio University
Foundation in February, 1996 of $350,000. In addition, the Company received a
$2.5 million payment from Chiron in April 1995 and received a payment of $65,000
in August 1995 under the ATP grant. The Company also completed sale-leaseback
transactions generating $88,000 in cash during fiscal 1995. The Company used
these sources of financing to fund its operations. During fiscal 1995 and the
first nine months of fiscal 1996, respectively, the Company used $1.6 million
and $3.1 million of cash in operating activities. As of June 30, 1996, the
Company had cash and cash equivalents totaling $28,000.
The Company expects negative cash flow from operations to continue and to
increase for the foreseeable future. The Company will require substantial
additional funds to continue research and development, conduct preclinical
studies and clinical trials, conduct activities relating to commercialization of
rights it has retained in strategic collaboration agreements, if any, and expand
administrative capabilities. The Company estimates that, at its planned rate of
spending, its existing cash and cash equivalents, together with the net proceeds
from the Offering and the interest income thereon, will be sufficient to meet
its capital requirements for at least the next 18 months. There can be no
assurance, however, that the Company's assumptions regarding its future levels
of expenditures and operating losses will prove accurate. The Company's future
capital requirements will depend on many factors, including the scientific
progress in and the breadth of the Company's research and development programs;
the results of research and development, preclinical studies and clinical trials
conducted by the Company or its collaborative partners or licensees, if any; the
acquisition and licensing of products and technologies; the Company's ability to
establish and maintain relationships with corporate and academic collaborators;
competing technological and market developments; the time and costs involved in
filing, prosecuting, defending and enforcing patent and intellectual property
claims; the receipt of licensing or milestone fees from any current or future
collaborative arrangements, if established; the continued funding of
governmental research grants; the timing of regulatory approvals, if any; and
other factors. To the extent undertaken by the Company, the time and costs
involved in conducting preclinical studies and clinical trials, seeking
regulatory approvals, and scaling-up manufacturing and commercialization
activities also would increase the Company's capital needs. The Company will
need to raise substantial additional capital to fund operations. Prior to this
Offering, Interneuron has funded substantially all of the Company's operations.
Interneuron, however, is under no obligation to provide, and the Company does
not expect that Interneuron will provide, any additional funds in the future.
The Company intends to seek additional funding through public or private
equity or debt financing and collaborative arrangements. There can be no
assurance that additional financing will be available when needed, or that, if
available, such financing will be available on terms acceptable to the Company.
If additional funds are raised by issuing equity securities, dilution to
existing stockholders will result. In addition, in the event that additional
funds are obtained through arrangements with collaborative partners, such
arrangements may require the Company to relinquish rights to certain of its
technologies or potential products that it would otherwise seek to develop or
commercialize itself. If funding is insufficient at any time in the future, the
Company may be required to delay, scale back or eliminate some or all of its
research and development programs or cease operations. See "Risk Factors -- Need
for Additional Capital; Uncertainty of Additional Funding."
23
<PAGE>
BUSINESS
Progenitor is a functional genomics company engaged in the discovery,
characterization and validation of novel genes, receptors and related proteins
as therapeutic leads and targets for the treatment of major diseases. The
Company's functional genomics approach combines developmental biology expertise
and proprietary technology with gene sequencing and other molecular biology
techniques to accelerate the discovery process. Using its developmental biology
approach to functional genomics, the Company has made several discoveries,
including the discovery of the B219 leptin receptor, for which it filed patent
applications in September and December 1994. Leptin is believed to have roles in
blood cell formation ("hematopoiesis"), reproduction and obesity. The Company
has entered into a collaboration with Chiron Corporation ("Chiron") for the
development and commercialization of the Company's proprietary T7T7 gene
delivery system, and a collaboration with Novo Nordisk A/S ("Novo Nordisk") for
the isolation, development and commercialization of blood cell growth factors.
BACKGROUND
Genes play an important role in the structure and function of an organism's
cells and therefore provide a fundamental basis for understanding the causes of,
and potentially developing treatments for, many human diseases. Genes consist of
discrete sequences of DNA that are comprised of unique orderings of nucleotide
base pairs. These genetic sequences provide instructions to the cell for the
synthesis of proteins through a process known as gene expression. Proteins are
responsible for the structure and biological functions of all organisms through
their regulation of, and participation in, cell structure, growth and activity,
as well as their involvement in communications and interactions among cells.
Cells often communicate through receptor-mediated interactions using a protein
or other ligand that binds specifically to a cell-surface protein receptor.
These receptor-mediated communications are fundamental to the differentiation
and organization of cells during the early development of an organism.
Although most cells contain an organism's entire genome, or full set of
genes, only a small fraction of an organism's genome is expressed in each cell.
The genes expressed, as well as the order, level and timing of their expression,
determine the function of different cells within an organism. Intrinsic defects
in genes, or defects caused by external stimuli, may lead to inappropriate or
inadequate production of proteins, resulting in abnormal or degenerative cell
functions that characterize various diseases such as cancer. Therefore,
determining the role of specific genes, receptors and related proteins involved
in cell functions may provide a basis for understanding the causes of, and
developing possible treatments for, these diseases.
OVERVIEW OF DEVELOPMENTAL BIOLOGY
Developmental biology is the study of the genetic and cellular events that
control the transformation of a single fertilized egg into a fully-formed,
complex organism. This transformation is orchestrated by the interactive up- and
down-regulation of gene expression by a small fraction of the organism's genes.
The expression of these regulatory genes results in the synthesis of proteins
that regulate the expression of other genes and control cell functions, direct
cell to cell communications and affect development of cells throughout the
embryo. Many genes involved in the process of cell growth and differentiation
may be expressed exclusively, or at enhanced levels, during certain stages of
early development and may become inactive in the normal cells of fully-formed
organisms. The Company believes that the discovery and characterization of genes
involved in early development, and the proteins they produce, may be used to
develop treatments for a range of diseases characterized by aberrant cell growth
or differentiation.
Developmental biology seeks to define the process and mechanisms by which
non-committed, immature cells (stem cells) differentiate into specialized cells
performing specific functions. For example, the blood and immune systems develop
from a few precursor stem cells that grow in the yolk sac, a tissue that
surrounds the developing embryo. In early stages of development, each of these
yolk sac stem cells
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is capable of developing into any of the mature cells of the blood. However, as
development progresses, individual cells differentiate into specific types of
blood and immune cells as a result of patterns of specific gene expression. The
yolk sac also is the source of the earliest endothelial cell precursors that
grow and differentiate to form blood vessels. These endothelial cell precursors
also express proteins that direct the growth and differentiation of the blood
cells. The following diagram illustrates the development of a single fertilized
egg into a seven-day-old mouse embryo.
[Diagram showing five stages in the development of an embryo from a
fertilized egg cell to the blastula stage (fertilized egg cell, cleavage, four
cells, sixteen cells and blastula), above the caption "Embryonic Development"
and a drawing of a seven-day-old mouse embryo with its yolk sac and three types
of mature cells that develop from the yolk sac.]
OVERVIEW OF GENOMICS
Recent developments in the study of the genome (genomics), including the
introduction and improvement of automated equipment, have allowed for the
identification of genes that may contribute to or inhibit abnormal or
degenerative cell activity common to certain diseases. Genomics may therefore
represent a useful first step toward discovering and developing effective
diagnostic processes and therapies to detect and treat these diseases.
Traditional genomics companies may be divided broadly into those employing
high-volume gene sequencing techniques and those engaged in gene mapping. Gene
sequencing companies use high-throughput equipment to identify randomly the DNA
sequences of a large number of genes, generally without any initial reference to
their biological function. Individual gene sequences then are selected from
among these randomly generated sequences by using screening techniques based on
the similarity of the selected sequence to sequences within known genes.
Selected genes then are subjected to an extensive series of assays to define
their biological function and determine their potential therapeutic role, if
any. High-throughput gene sequencing as a primary means of gene discovery is
capital intensive, requires extensive effort to sift through the large volume of
identified sequences, and produces a relatively low yield of potential
therapeutic targets.
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Gene mapping companies analyze the differences between genetic sequences of
well-defined healthy and diseased populations of genetically related
individuals, in order to identify and sequence genes that may play a role in
specific diseases. Gene mapping is a labor intensive, technically-demanding
process that typically seeks to identify a single disease-related gene. This
approach often is even more complex for diseases involving multiple genes. The
success of this approach depends upon identifying a sufficiently large
population of related individuals with strong evidence of a genetically
transmitted disease. As a result, the use of this approach may be limited to
those diseases where discrete populations of genetically related, healthy and
diseased individuals are readily accessible.
PROGENITOR'S FUNCTIONAL GENOMICS APPROACH
Progenitor uses developmental biology as a discovery platform to identify
novel genes, receptors and related proteins that control cell growth and
differentiation through which the blood, immune, vascular and other systems are
developed. By comparing the sequential expression of genes from one stage of
early development to the next, the Company believes it can identify, isolate and
sequence specific genes, receptors and related proteins which play functional
roles in this process. The Company believes that its approach provides a rich
and largely unexploited source for the discovery of medically important leads
and targets to develop treatments for diseases characterized by aberrant cell
growth or differentiation. These diseases include cancer, blood and immune
system disorders and degenerative diseases associated with aging.
Progenitor's approach starts with the identification of medically relevant
biological functions that are involved in the differentiation of early-stage
stem cells, tissues, and systems derived from various murine embryonic sources,
including yolk sac stem cells and embryonic stem ("ES") cells. Progenitor has
isolated proprietary cell lines from these murine sources, which it uses for
analyzing relevant biological functions, such as the normal establishment of
organ systems. The Company then develops and applies proprietary assays and
model systems to further characterize a selected biological function. Following
function characterization, the Company uses gene sequencing and other molecular
biology techniques to identify the genes, receptors or other proteins associated
with that function. The Company also uses a wide variety of other classical
developmental and molecular biology techniques, including enhancer traps,
promoter traps, IN SITU hybridization, subtractive cloning, gene knock-outs and
transgenic methods to supplement its proprietary capabilities. These techniques
allow the Company to correlate gene expression with biological function. The
Company then screens for biological activity in adult tissues in order to
validate the potential of isolated genes, receptors and related proteins as
therapeutic leads and targets. The Company believes that its developmental
biology approach to functional genomics will permit more accelerated and
cost-effective discoveries of therapeutically relevant drug development leads
and targets than traditional genomics approaches.
The Company conducts its initial research in murine systems because murine
cells and tissues are accessible and can be manipulated in ways not feasible
with humans cells and tissues. In addition, the genetic composition and patterns
of gene expression in murine cells are highly similar to those in humans. These
similarities enable the Company first to identify and isolate relevant murine
genes, receptors or proteins and then to identify the equivalent human gene,
receptor or protein without the need for complex and time-consuming assays using
human cells and tissues. See "Risk Factors -- Uncertainties Relating to
Technological Approach of the Company."
PROGENITOR'S PROPRIETARY DISCOVERY TECHNOLOGIES
The Company possesses a number of key proprietary technologies that it uses
in its discovery programs. The Company seeks protection of these proprietary
technologies through maintenance of trade secrets and by filing patent
applications, where appropriate. Progenitor's key proprietary technologies
relate to ES cells, yolk sac stem cells, discovery techniques for hematopoietic
growth factors and receptors and gene delivery systems. See "-- Patents and
Proprietary Rights."
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EMBRYONIC STEM CELL TECHNOLOGY
The Company has developed proprietary methods and cell lines using murine ES
cells for studying cell differentiation in the development of tissues and
organs. The Company maintains murine ES cells in culture in an undifferentiated
state and then modifies the culture conditions to control the progression of the
ES cells from one stage of development to the next. Using this technique, the
Company is able to control and time the cell differentiation process and can
accurately isolate and modify cells from the earliest stages of the formation of
the blood, immune, vascular and other systems. These capabilities enable the
Company to take multiple "molecular snapshots" in order to isolate the genes
associated with these critical developmental stages.
These methods and cell lines also serve as assay systems in which the
expression of discovered genes can be manipulated in order to clarify their
function further. The ES cells can be manipulated in order to study the effect
of the addition or deletion of specific genes on normal cell growth and
differentiation, either IN VITRO or IN VIVO. The Company currently is using this
technology to identify the genes, receptors and related proteins involved in the
development of the blood and vascular systems, and to develop assays for cloning
the murine burst-forming units-erythroid ("BFU-e") red blood cell growth factor
and its human equivalent.
YOLK SAC STEM CELL TECHNOLOGY
Progenitor has developed proprietary techniques to isolate, grow, maintain
in culture and differentiate cells isolated from the murine yolk sac. Yolk sac
stem cells appear later in development than ES cells, and are committed to
develop only into cells of the blood, immune and vascular systems. The Company
believes the mammalian yolk sac to be one of a number of tissues that is an
enriched source of novel genes that may be expressed exclusively or at enhanced
levels during early development.
Progenitor has used cultured yolk sac stem cell lines to identify its murine
BFU-e red blood cell growth factor activity. The Company is using these cell
lines in its program to isolate the factor and clone its gene, and to identify
other genes, receptors and related proteins with potential therapeutic
applications. The Company has a pending patent application relating to cellular
compositions derived from the mammalian yolk sac and methods of obtaining and
using such compositions. See "Risk Factors -- Uncertainty of Patents and
Proprietary Rights."
TECHNOLOGY FOR DISCOVERY OF NOVEL RECEPTORS
Progenitor has developed proprietary gene cloning and screening techniques
to identify novel members of a family of genes that encode receptors for growth
factors involved in normal blood cell formation ("hematopoiesis") as well as in
the growth and development of neural and other tissues. The Company's techniques
rely on enhancements to traditional cloning techniques, including the
development of proprietary screening algorithms used in the selection of a
targeted family of genes. The Company applies its receptor discovery techniques
to enriched gene sources produced through a combination of proprietary cell
lines, freshly isolated cell subpopulations, and proprietary ES cell
differentiation methods. The Company used these methods to discover certain
leptin receptors (including various isoforms of the leptin receptor), for which
it filed U.S. patent applications in September and December 1994. Progenitor
intends to use its discovered receptors to identify and clone novel growth
factors, to screen for small molecules that activate or inhibit receptor
functions, and to identify and purify unique bone marrow cells.
T7T7 GENE DELIVERY SYSTEM
The Company, in collaboration with Ohio University, has developed a
proprietary nonviral gene delivery system known as T7T7. The Company believes
that the T7T7 gene delivery system may enable it
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to express genes in cells in order to facilitate the characterization and
validation of its discoveries. The Company believes that its gene delivery
system, in addition to other gene delivery techniques, may allow it to assess
efficiently the biological effects of discovered genes while saving the time and
expense of producing and characterizing quantities of purified protein that
would otherwise be required for these studies.
The T7T7 system is a nonviral, naked DNA plasmid that can effect expression
of the gene it carries in the cytoplasm of a cell and works IN VIVO and IN VITRO
in both dividing and nondividing cells. In contrast, most other gene delivery
systems must reach the cell nucleus to be effective and function only in
dividing cells.
The Company has exclusively licensed two U.S. patent applications and
corresponding foreign applications relating to the T7T7 gene delivery system. In
March 1996, the USPTO issued a notice of allowance on one patent application for
claims covering the composition of matter and methods for using the T7T7 system.
The Company currently is working with Chiron to explore potential
commercialization of the T7T7 system in clinical gene therapy applications. The
Company has licensed certain technologies incorporated in the T7T7 system from
Associated Universities, Inc. and the Wisconsin Alumni Research Foundation. See
"Risk Factors -- Uncertainty of Patents and Proprietary Rights."
PROGENITOR'S DISCOVERY PROGRAMS
The Company, using its proprietary cell lines and technologies, has made
three principal discoveries to date. These discoveries and their potential
therapeutic applications are described below.
LEPTIN RECEPTORS
The Company has utilized its proprietary receptor discovery technology to
identify gene sequences that encode various isoforms of the B219 leptin
receptor. Leptin receptors recently have been implicated in the regulation of
obesity and the control of appetite and metabolic activity. However, in a recent
publication of NATURE MEDICINE, the Company disclosed findings suggesting that
leptin receptors may play a broader and more fundamental biological role than
has been recognized previously. The Company has demonstrated IN VITRO that
leptin, acting on a leptin receptor, stimulates the growth and differentiation
of certain hematopoietic cells, including cells found in adult bone marrow. In
addition, the Company demonstrated IN VIVO that leptin receptors are expressed
in ovarian cells critical for controlling the growth and development of
reproductive cells, and that leptin is found in high levels in the ovarian fluid
surrounding the reproductive cells. Progenitor believes that these receptors
could provide a means to identify novel proteins, or ligands, and other
molecules that have unique and important therapeutic and diagnostic applications
in hematopoiesis, reproduction and obesity. In addition, leptin receptors
potentially may be used to sort immature blood cells and create subpopulations
of cells expressing a desired receptor for use as therapeutic leads. In order to
characterize further the function of leptin receptors, the Company is
researching the role of the leptin protein in the hematopoietic and immune
systems, as well as its role in the growth and development of reproductive
cells. The Company intends to establish strategic corporate partnerships for the
development and commercialization of its leptin receptors. In September and
December 1994, the Company filed U.S. patent applications relating to the B219
leptin receptor (including varous isoforms of the leptin receptor). There can be
no assurance that patents will issue from these applications, that, if issued,
any resulting patents will provide the Company with meaningful protection or
rights, that the Company will be successful in entering into collaborative
agreements or that any drugs or other products will be developed or
commercialized from the Company's leptin receptor discoveries. See "Risk Factors
- -- Early Stage of Development; Uncertainty of Final Product Development," "--
Dependence on Collaborators," "-- Uncertainty of Patents and Proprietary Rights"
and "-- Dependence upon Research Collaborators and Scientific Advisors."
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DEL-1 GENE
Progenitor has discovered, in collaboration with Vanderbilt, DEL-1, a gene
that encodes a novel cell-surface protein involved in the early growth and
development of blood vessels and bone. The growth of new blood vessels
(angiogenesis) is an important activity in development that is typically absent
in normal adult tissues, but may be present in certain disorders such as cancer
and diabetic retinopathy. Progenitor and Vanderbilt have shown that the DEL-1
gene is expressed uniquely in areas of developing blood vessels and bone but is
inactive in normal, mature animal systems. Moreover, Progenitor has shown that
mice implanted with human tumors express the murine DEL-1 gene in developing
blood vessels that feed the tumor.
The Company believes that targeting the protein expressed by the DEL-1 gene
(Del-1) to inhibit the growth of new blood vessels may represent an important
new therapeutic approach to treating cancer. The rapidly dividing malignant
cells of a tumor require a large, continuous and ever-increasing blood supply. A
substantial body of research in animals and humans suggests that attacking the
growth of tumor blood vessels may be an effective treatment for cancer. Since
the DEL-1 gene is normally not expressed in the adult, and the Del-1 protein is
accessible in the lining of blood vessels, the Company believes the Del-1
protein may be a highly specific, accessible and stable target for the
development of cancer therapeutics, diagnostics and imaging agents. Other genes
identified to date that are involved in the regulation of blood vessel formation
are also expressed in normal adult tissues and thus may not provide the same
potential selectivity as the Del-1 protein as a target for cancer detection and
therapy.
The Company intends to enter into academic and corporate collaborations to
pursue the research, development and commercialization of the DEL-1 gene and the
Del-1 protein for the treatment of diseases characterized by excessive blood
vessel formation, such as cancer, and diseases such as cardiovascular and other
disorders that may be treated by stimulating blood vessel growth.
Progenitor and Vanderbilt have fully sequenced the human and murine DEL-1
genes, respectively. Progenitor and Vanderbilt have filed two joint patent
applications relating to the DEL-1 nucleotide sequences, the proteins they
encode, methods of expressing functional gene products, and methods of using the
DEL-1 gene and protein and engineered cells in various normal and disease
conditions. The Company has an exclusive, worldwide license to Vanderbilt's
commercial rights under these patent applications. There can be no assurance
that patents will issue from these applications, that, if issued, any resulting
patents will provide the Company with meaningful protection or rights, that the
Company will be successful in entering into collaborative agreements or that any
drugs or products will be developed or commercialized from the Company's DEL-1
discoveries. See "Risk Factors -- Early Stage of Development; Uncertainty of
Final Product Development," "-- Dependence on Collaborators," "-- Uncertainty of
Patents and Proprietary Rights" and "-- Dependence on Research Collaborators and
Scientific Advisors."
BFU-E RED BLOOD CELL GROWTH FACTOR
Progenitor has identified from its murine yolk sac stem cell lines a growth
factor activity that stimulates the formation and development of red blood cells
from the BFU-e red blood cell precursors, which are found in adult bone marrow.
The identified activity is distinct from that of erythropoietin ("EPO") and
other known growth factors. The Company is attempting to purify the BFU-e growth
factor and clone its gene.
The Company believes there is a large and growing market for agents that
stimulate new blood cell development. These include support therapy for patients
with inherited anemias, or patients who are undergoing kidney dialysis, cancer
chemotherapy or bone marrow transplantation. In order to address these potential
markets, Progenitor has entered into an agreement with Novo Nordisk, through its
subsidiary, ZymoGenetics, Inc. ("ZymoGenetics"), for the research and
development relating to the BFU-e red blood cell growth factor activity
identified by the Company. Progenitor, along with Novo Nordisk, is seeking to
clone the murine BFU-e red blood cell growth factor and its human equivalent.
There can be no assurance that the Company will be successful in cloning a
murine BFU-e red blood cell
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growth factor or validating its significance as a therapeutic lead or that Novo
Nordisk will be successful in developing or commercializing any drugs or other
products based on the BFU-e red blood cell growth factor. To date, the Company
has not filed any patent applications relating to the BFU-e red blood cell
growth factor activity. See "Risk Factors -- Early Stage of Development;
Uncertainty of Final Product Development," "-- Dependence on Collaborators," "--
Uncertainty of Patents and Proprietary Rights" and "-- Dependence on Research
Collaborators and Scientific Advisors."
OTHER PROGRAMS
GENE THERAPY. The Company believes that the T7T7 gene delivery system will
enable it to deliver genes to cells IN VIVO and IN VITRO in order to facilitate
the characterization and validation of its discoveries. In addition, the Company
has entered into a collaborative agreement with Chiron to explore clinical uses
of the Company's T7T7 gene delivery system. Under this agreement, Chiron has
agreed to develop and potentially to commercialize the T7T7 system for selected
applications. Progenitor has retained the right to market and license the T7T7
system for other applications and to use and license joint technologies of the
collaboration as well as technological improvements to the T7T7 system made by
Chiron. The initial T7T7-based gene therapy product being developed by Chiron is
intended for treatment of solid-tumor cancers. The Company intends to pursue
opportunities with other corporate partners to develop gene therapies using the
T7T7 system for applications retained by Progenitor. See "-- Strategic
Collaboration Agreements -- Chiron Agreement" and "Risk Factors -- Dependence on
Collaborators."
NOVEL RECEPTORS. The Company continues to apply discovery techniques
similar to those used in its early discovery of certain leptin receptors
(including various isoforms of the leptin receptor) in order to identify
additional novel gene sequences and receptors. These techniques have resulted in
the identification of over 30 additional novel genes that are structurally
similar to members of the hematopoietin receptor gene family. While the Company
has not fully characterized the discovered genes, it believes that they may
represent potential targets for discovering additional growth factors and
isolating important cell subpopulations for therapeutic approaches to diseases
characterized by aberrant cell growth or differentiation.
STRATEGY
The Company's strategy includes the following elements:
EMPLOY DEVELOPMENTAL BIOLOGY APPROACH. The Company is using its
developmental biology approach to functional genomics in order to accelerate the
discovery, characterization and validation of medically important genes,
receptors and related proteins as drug development leads and targets for the
pharmaceutical industry. The Company intends to enhance its technology platform
and supplement its internal research and development capabilities through
further academic collaborations. In order to increase the efficiency of the
discovery process once a targeted biological function has been identified, the
Company also intends to acquire additional advanced molecular biology and
genomics equipment and capabilities, including high-throughput gene sequencing,
bio-informatics, robotic cloning, biological assays and protein analysis.
ENTER INTO STRATEGIC ALLIANCES FOR PRODUCT DEVELOPMENT. The Company is
focusing its resources on the discovery, characterization and validation of
novel genes, receptors and related proteins that may play key roles in major
diseases. The Company intends to enter into strategic alliances for the
development and commercialization of drugs and other products based on its
discoveries. This strategy is intended to enable the Company to maximize the
effectiveness of its discovery technologies and to use its collaborators'
expertise and resources in research and development, clinical testing, obtaining
regulatory approvals, and manufacturing and marketing. The Company believes this
strategy will allow it to benefit from the development of any drugs or other
products that may result from its discoveries without incurring
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the substantial costs associated with such development. The Company has entered
into an agreement with Chiron for the development of gene therapies for certain
cancers using the Company's T7T7 gene delivery system, and with Novo Nordisk for
the isolation and development of a BFU-e growth factor.
PURSUE PATENT PROTECTION. The Company will continue to seek protection of
its discoveries and proprietary technologies through maintenance of trade
secrets and by filing patent applications, where appropriate. There is
substantial uncertainty regarding the strength of patents for partially
sequenced genes or for genes without a known function. The Company believes that
its functional genomics approach improves the Company's ability to identify and
correlate gene sequences with known biological functions and thereby may enhance
the likelihood of ultimately securing patent protection for its discoveries of
novel genes, receptors and related proteins and their uses.
STRATEGIC COLLABORATION AGREEMENTS
CHIRON AGREEMENT
In March 1995, Progenitor entered into an agreement with Chiron for the
development and commercialization of the Company's T7T7 gene delivery system for
selected applications. The agreement grants Chiron an exclusive, worldwide
license to the T7T7 gene delivery system for (i) all products carrying a
specified gene, which has potential applications for tumor ablation; (ii) four
infectious disease vaccine constructs; (iii) products used for the prevention,
therapy or diagnosis of human restenosis; (iv) five additional constructs
designated by Chiron; and (v) additional constructs, with certain limitations,
that may be designated by Chiron upon payment of a fee for each such additional
construct. Progenitor also may grant licenses to third parties to constructs for
fields of use not licensed to and not in conflict with the exclusive licenses
granted to Chiron. Any such third-party licenses are subject to Chiron's right
of first refusal for any construct of the T7T7 gene delivery system not already
covered by the agreement for the development of a noninfectious disease vaccine.
Pursuant to the agreement, Chiron and Progenitor will develop jointly the T7T7
tumor ablation product for the treatment of cancer. The parties will own jointly
all preclinical and clinical data from the collaboration, which may be used by
either party for any purpose subject to the exclusive licenses granted to
Chiron. Progenitor has the right to collaborate and jointly invest in Chiron's
development efforts on the tumor ablation product, with the Company's
participation in any resulting product revenues based on its contributions.
Under the agreement, Chiron has committed to use reasonable efforts to
commercialize one or more licensed products and has certain manufacturing rights
and obligations for any resulting products. If Chiron chooses to abandon
development of a construct, its license rights terminate with respect to that
construct. Subject to the foregoing rights, the agreement provides that each
party will retain ownership of all inventions (and any related patents) made
solely by its employees and arising from the activities performed under the
agreement.
The agreement terminates upon the later of the expiration of the patents
upon which it is based or, within any given country, ten years after the first
commercial sale of a product developed under the agreement within such country.
In such events, Chiron's affected license rights become fully-paid and
non-exclusive. Chiron may also terminate the agreement earlier with respect to
any particular construct upon 30 days' notice, and either party may terminate
the agreement in the event of a material breach by the other party of its
obligations under the agreement. In such events, Chiron's license rights would
revert to Progenitor, but Chiron would retain exclusive rights to inventions and
discoveries made solely by its employees, and joint rights to discoveries made
jointly with Progenitor. Chiron also would be required to pay Progenitor all
royalties accrued before termination.
Progenitor received a $2.5 million payment upon execution of the agreement
as a license fee and reimbursement of past research and development expenses,
and an additional $500,000 in January 1996 for continued funding of Progenitor's
research and development expenses. Progenitor has paid Chiron $750,000 pursuant
to the agreement, in full satisfaction of Progenitor's obligation to reimburse
Chiron for certain start-up manufacturing costs. Under the agreement, Progenitor
is entitled to receive up to an
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additional $4.3 million in various fees and milestone payments for each licensed
product if all specified research, clinical development, regulatory and
marketing approval milestones are achieved, plus additional fees for development
of specific constructs and for the first product developed. The agreement
encompasses a minimum of eleven potential products that Chiron may develop. In
the event that all such milestones are achieved and all contemplated products
reach market, Progenitor would receive an aggregate of $51.3 million (including
payments already received) plus royalties on net product sales. There can be no
assurance that the Company and Chiron will be successful in developing or
commercializing any drugs or products utilizing Progenitor's T7T7 gene delivery
system or that such agreement will not terminate prior to its expiration. As
such, there can be no assurance that any milestones will be achieved or that any
royalties or other payments contemplated by the agreement will ever be made. See
"Risk Factors -- Dependence on Collaborators."
NOVO NORDISK AGREEMENT
In May 1995, Progenitor and Novo Nordisk, through its subsidiary
ZymoGenetics, entered into a research, development and commercialization
agreement under which Novo Nordisk received an exclusive, worldwide license to
any and all rights of the Company related to the BFU-e red blood cell growth
factor activity identified by the Company for use in any and all human
therapeutic and small molecule drug design uses. Under the agreement, the
development effort is divided into two stages. During the first stage, if
commenced, Novo Nordisk will attempt to purify, clone and sequence a BFU-e red
blood cell growth factor and other growth factors with similar hematopoietic
functions. If this stage is successfully completed, Novo Nordisk will have the
right to decide whether to proceed to the second stage, in which Progenitor will
conduct research to establish the biological function of the growth factor.
During the second stage, if commenced, Progenitor may be entitled to receive up
to $4.0 million in research fees from Novo Nordisk.
The agreement with Novo Nordisk terminates upon the expiration of the last
patent related to the Company's growth factor discoveries. Novo Nordisk also has
a right to earlier termination of the agreement upon 30 days' notice. If Novo
Nordisk exercises this right before payment of any license fees required under
the agreement, it would be obligated to grant to Progenitor an exclusive
worldwide license to all of Novo Nordisk's rights arising from the research
conducted pursuant to the agreement to make, use and sell related products. In
the event that Novo Nordisk had paid the Company at least $4.0 million in
research fees under the agreement prior to such early termination, Progenitor
would be obligated to pay Novo Nordisk royalties for any sales of products made
using the licensed technology.
If Novo Nordisk decides to develop any licensed products, it will be
obligated to pay Progenitor a one-time license fee of $5.0 million and up to an
additional $18.0 million for each product if certain clinical testing,
regulatory and marketing approval milestones are met, plus an additional $1.0
million for milestones related to the first licensed product. In addition,
Progenitor has the right to royalties for sales of any resulting products. In
the event that all milestones are reached with respect to the BFU-e red blood
cell growth factor, Progenitor would receive an aggregate of $28.0 million under
the agreement, plus royalties on net product sales. Novo Nordisk has the right
to manufacture and market any such products on an exclusive worldwide basis.
There can be no assurance that the Company or Novo Nordisk will successfully
clone the murine BFU-e red blood cell growth factor or its human equivalent, or,
if cloned, that Novo Nordisk will continue the program, that the Company will be
able to establish the biological function of the growth factor or that Novo
Nordisk will be successful in developing and commercializing any drugs or other
products utilizing the BFU-e red blood cell growth factor. As such, there can be
no assurance that any milestones will be achieved, or that any royalties or
other payments contemplated by the agreement will ever be made. See "Risk
Factors -- Dependence on Collaborators."
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LICENSE AGREEMENTS
OHIO UNIVERSITY
Progenitor entered into research and licensing agreements with Ohio
University as of January 1992 relating to yolk sac stem cells and as of April
1993 relating to the T7T7 gene delivery system. The April 1993 research
agreement terminated as of June 30, 1996 upon completion of research thereunder.
The licensing agreements, as amended, grant Progenitor an exclusive worldwide
license to the yolk sac stem cells and T7T7 gene delivery system, respectively,
and related technologies covered in Ohio University's existing patents and
patent applications, as well as any technology developed from its related
sponsored research. In exchange, the Company is obligated to pay certain license
and research fees as well as royalties based on net sales of any resulting
products. In addition, under the 1992 license agreement and the terms of a
related stock purchase agreement, The Ohio University Foundation received a 5%
equity interest in the Company subject to certain antidilution protection and
was granted the right to purchase 25,000 shares of Progenitor's Common Stock in
the event of an initial public offering, merger or other similar corporate
transactions at a price equal to 50% of the anticipated public offering price or
merger or other consideration, as applicable. The Ohio University Foundation has
agreed to exercise such right in full prior to the closing of the Offering.
Under the license agreement, The Ohio University Foundation has the right to
designate two representatives to the Board of Directors of Progenitor until
Progenitor consummates an initial public offering. See "Certain Transactions --
The Ohio University Foundation."
VANDERBILT UNIVERSITY
In July 1995, Progenitor entered into a license agreement with Vanderbilt
pursuant to which Progenitor obtained an exclusive worldwide license to
Vanderbilt's commercial rights under a jointly owned patent application, to
develop and market products and processes utilizing technology relating to the
DEL-1 gene. The gene was co-discovered by Progenitor and Vanderbilt. Under this
agreement, Progenitor is obligated to pay royalties on any resulting product
sales. Vanderbilt University may terminate the agreement after three years if
Progenitor has not made adequate efforts to commercialize products based on the
gene.
ADVANCED TECHNOLOGY PROGRAM GRANT
In November 1994, the Company was awarded a $2.0 million, three-year grant
to study the immunology of yolk-sac-derived endothelial cells for therapeutic
applications under the ATP. The grant specifies the research and development
therapeutics based on an understanding of the biology of development of
endothelial cells. The research agreements between the Company and its
subcontractors under the ATP grant (the University of Colorado, The University
of Wisconsin, Ohio University, Vanderbilt University and Bio Support, Inc.)
require that all parties assign rights to any inventions made by them under the
grant to the Company. The ATP grant provides that the Company retains full
rights to any intellectual property developed as part of the project.
The ATP grant is administered by United States Department of Commerce. As of
June 30, 1996, the Company had received $646,000 under the ATP grant, and had
accrued $188,000 in additional funds payable to the Company through June 30,
1996. Under the terms of the grant, the Company is scheduled to receive an
aggregate of $702,000 payable in equal quarterly installments for the period
from June 1, 1996 through May 31, 1997. The balance of the grant, $518,000, is
payable in equal quarterly installments during the period from June 1, 1997 to
May 31, 1998. The grant is subject to yearly appropriations by the United States
Congress for the ATP program, and legislation has been introduced to eliminate
the program. The National Institute of Standards and Technology has informed the
Company that, although it could not comment on the availability of funds for the
Company's grant for the year ending May 31, 1998, there are sufficient funds in
the ATP grant program's current budget to support grant payments for
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currently funded grants for the year ending May 31, 1997, and that therefore it
is likely that Progenitor will receive grant payments expected through May 31,
1997. There can be no assurance, however, that funding for the ATP program will
not be reduced or eliminated at any time.
PATENTS AND PROPRIETARY RIGHTS
Patents and licenses are important to the Company's businesses. The
Company's policy is to file patent applications to protect technology,
inventions and improvements to inventions that are considered important to the
development of its business. The Company also relies on trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain its competitive position. To date, the Company has filed or exclusively
licensed a number of pending patent applications in the USPTO relating to its
various core technology programs, as well as foreign counterparts of certain of
these applications in Europe, Japan and certain other countries. These pending
patent applications include the following: eight U.S. applications relating to
leptin receptors (including various isoforms of the leptin receptor); two U.S.
applications relating to its vascular biology program (DEL-1); two U.S.
applications relating to its gene delivery system (T7T7); and one U.S.
application relating to yolk sac stem cells. No United States or foreign patent
has issued to the Company to date. However, the Company has an exclusive license
from Ohio University to one issued U.S. patent covering a method of providing
tissue-specific expression of exogenous genetic material in a mammal by
genetically transformed embryonic carrier cells such as yolk sac cells. A notice
of allowance has been received for one patent application with respect to the
Company's T7T7 gene delivery system. The Company has exclusive licenses under
the patent applications relating to the T7T7 gene delivery system from Ohio
University, the patent application relating to yolk sac stem cells from Ohio
University, and the patent applications relating to the DEL-1 gene from
Vanderbilt University. The Company has also licensed two issued patents that
relate to its T7T7 gene delivery program on a nonexclusive basis from Associated
Universities, Inc. and the Wisconsin Alumni Research Foundation.
The Company's success will depend to a significant extent on its ability to
obtain and enforce patents, maintain trade secret protection and operate without
infringing on the proprietary rights of third parties. Because the patent
positions of biotechnology and pharmaceutical companies can be highly uncertain
and frequently involve complex legal and factual questions, the breadth of
claims allowed in biotechnology and pharmaceutical patents or their
enforceability cannot be predicted. Commercialization of pharmaceutical products
can be subject to substantial delays as a result of the time required for
product development, testing and regulatory approval. The value of any patents
issued or licensed to the Company may depend upon the remaining term of patent
protection available at the time products that utilize the patented technology
are commercialized.
The Company actively pursues a policy of seeking patent protection for a
number of its proprietary products and technologies. Progenitor has licensed
from Ohio University one U.S. patent and pending U.S. patent applications
relating to stem cell technology and to gene delivery technology (and has
received a notice of allowance relating to a gene delivery technology
application), along with certain corresponding foreign patent applications and
one issued foreign patent. Progenitor has filed eight patent applications
relating to certain leptin receptors, including applications filed in September
and December 1994. In March 1996, Progenitor's international patent application
covering certain leptin receptors was published. The Company believes that there
may be significant litigation regarding patent and other intellectual property
rights relating to leptin and leptin receptors. The Company is aware that
Millennium has filed a patent application relating to a receptor for leptin and
its use in obesity applications, and has licensed to Hoffmann-La Roche Inc.
rights to develop certain therapeutics for obesity using Millennium's discovery
of a leptin receptor.
Millennium has recently filed a "Protest" in the USPTO in connection with
the Progenitor applications relating to leptin receptors, including the
applications filed in September and December 1994. A Protest is an available
procedure sometimes used by a third party to provide the patent examiner who is
reviewing the involved application or applications with what the third party
believes to be relevant
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<PAGE>
information. The Protest procedure does not afford any right to the third party
to participate in the patent prosecution process beyond the filing of its
written Protest. Millennium's Protest primarily argues that any claims allowed
to Progenitor should not be so broad as to cover Millennium's own leptin
receptor. Progenitor intends to proceed with the prosecution of its leptin
receptor patent applications in the normal course in order to obtain the
broadest allowable claims with regard to its leptin receptor discoveries.
There can be no assurance that Millennium's patent application, or
additional patent applications filed by Millennium or others, will not result in
issued patents covering a leptin receptor, the leptin protein or other ligands,
or any of their respective uses including obesity. There can be no assurance
that the invention by Millennium will be accorded an invention date later than
Progenitor's invention date, that any patent will issue to Progenitor or that
any such patent issued to Progenitor would be broad enough to cover leptin
receptors of Millennium or others. Progenitor's failure to obtain a patent on a
leptin receptor, or its failure to obtain a patent that covers the leptin
receptors of Millennium or others, or the issuance of a patent to a third party
covering a leptin receptor, the leptin protein or other ligands, or any of their
respective uses, could have a material adverse effect on the Company's business,
financial condition and results of operations.
A number of other groups are attempting to identify partial gene sequences
and full-length genes, the functions of which have not been characterized. The
public availability of partial gene sequence information before the Company
applies for patent protection on a corresponding full-length gene could
adversely affect the Company's ability to obtain patent protection with respect
to such gene. To the extent any patents issue to other parties on such partial
or full-length genes, and as other patents issue with the expansion of the
biotechnology industry, the risk increases that the potential products and
processes of the Company or its collaborative partners may give rise to claims
of patent infringement.
The patent positions of pharmaceutical and biotechnology firms, including
the Company, are uncertain and involve complex legal and factual questions for
which important legal principles are largely unresolved, particularly in regard
to human therapeutic uses. Substantial periods of time pass before the USPTO
responds to patent applications. In addition, the coverage claimed in a patent
application can be significantly reduced before a patent is issued.
Consequently, the Company does not know whether any of its pending or future
patent applications will result in the issuance of patents or, if any patents
are issued, whether the patents will be subjected to further proceedings
limiting their scope, and whether they will provide significant proprietary
protection or competitive advantage, or will be circumvented or invalidated.
Because patent applications in the United States are maintained in secrecy until
patents issue and patent applications in certain other countries generally are
not published until more than 18 months after they are filed, and since
publication of discoveries in scientific or patent literature often lags behind
actual discoveries, the Company cannot be certain that it or any licensor was
the first creator of inventions covered by pending patent applications or that
it or such licensor was the first to file patent applications on such
inventions.
There can be no assurance that the Company's patents, if issued, would be
held valid or enforceable by a court or that such patents would cover products
or technologies of the Company's competitors. Competitors or potential
competitors may have filed applications for or received patents, and may obtain
additional patents and proprietary rights relating to compounds or processes
competitive with those of the Company. To protect its proprietary rights, the
Company may be required to participate in interference proceedings declared by
the USPTO to determine priority of invention, which could result in substantial
cost to the Company. Moreover, even if the Company's patents issue, there can be
no assurance that they will provide sufficient proprietary protection or will
not be later limited, circumvented or invalidated. Accordingly, there can be no
assurance that the Company will develop proprietary technologies that are
patentable, that the Company's patent applications will result in patents being
issued or that, if issued, patents will afford protection against competitors
with similar technology or products, nor can there be any assurance that the
Company's patents will be held valid by a court of competent jurisdiction.
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In addition to patent protection, the Company also relies to a significant
extent upon trade secret protection for its unpatented confidential and
proprietary information including many of the Company's key discovery
technologies, such as its proprietary methods of isolating and manipulating
murine ES cells. There can be no assurance that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's trade secrets or disclose such
technology. To protect its trade secrets, the Company requires its employees,
consultants, scientific advisors and parties to collaborative agreements to
execute confidentiality agreements upon the commencement of employment, the
consulting relationship or the collaboration with the Company. In the case of
employees, the agreements also provide that all inventions resulting from work
performed by them while employed by the Company will be the exclusive property
of the Company. There can be no assurance, however, that these agreements will
provide meaningful protection of the Company's trade secrets or adequate
remedies in the event of unauthorized use or disclosure of such information,
that the Company can meaningfully protect its rights in such unpatented
proprietary technology through other means, that any obligation to maintain the
confidentiality of such proprietary technology will not be breached by
employees, consultants, advisors, collaborative partners or others, or that
others will not independently develop substantially equivalent technology. The
loss of trade secret protection of any of the Company's key discovery
technologies would materially and adversely affect the Company's competitive
position and could have a material adverse effect on the Company's business,
financial condition and results of operations. Finally, disputes may arise as to
the ownership of proprietary rights to the extent that outside collaborators or
consultants apply technological information developed independently by them or
others to Company projects or apply Company technology to other projects and, if
adversely determined, such disputes could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company may incur substantial costs if it is required to defend itself
in patent suits brought by third parties or if the Company initiates such a suit
to enforce the Company's patents or to determine the scope and validity of other
parties' proprietary rights. Any legal action against the Company or its
collaborators or licensees claiming damages and seeking to enjoin commercial
activities relating to the affected products and processes could, in addition to
subjecting the Company to potential liability for damages, require the Company
or its collaborators or licensees to obtain a license or licenses in order to
continue to manufacture or market the affected products and processes. There can
be no assurance that the Company or its collaborators or licensees would prevail
in any such action or that any license required under any such patents would be
made available on commercially acceptable terms, if at all. Any adverse outcome
of such litigation could have a material adverse effect on the Company's
business, financial position and results of operations. In addition, if the
Company becomes involved in such litigation, it could consume a substantial
portion of the Company's managerial and financial resources. The Company is
unable to predict how courts will resolve any future issues relating to the
validity and scope of its patents should they be challenged.
It is uncertain whether any third-party patents will require the Company to
alter its products or processes, obtain licenses, cease certain activities or
pay substantial damages. If any licenses are required, there can be no assurance
that the Company will be able to obtain any such license on commercially
acceptable terms, if at all. Failure by the Company or its collaborators and
licensees to obtain a license to any technology required to commercialize the
Company's discoveries may have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk Factors --
Uncertainty of Patents and Proprietary Rights."
COMPETITION
Research in the field of genomics is highly competitive. Competitors of the
Company in the genomics area include, among others, public companies such as
Genome Therapeutics Corporation, Human Genome Sciences, Inc., Incyte
Pharmaceuticals, Inc., Millennium, Myriad Genetics, Inc. and Sequana
Therapeutics, Inc., as well as private companies and major pharmaceutical
companies and
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universities and other research institutions, including those receiving funding
from the federally funded Human Genome Project. A number of entities are
attempting to rapidly identify and patent randomly-sequenced genes and gene
fragments. In addition, certain other entities are pursuing a gene
identification, characterization and product development strategy based on gene
mapping. The Company's competitors may discover, characterize or develop
important genes in advance of the Company, which could have a material adverse
effect on any related Company discovery program. The Company expects competition
to intensify in genomics research as technical advances in the field are made
and become more widely known.
In addition, the Company faces, and will continue to face, intense
competition from pharmaceutical and biotechnology companies, as well as academic
and research institutions and governmental agencies. The Company is subject to
significant competition from organizations that are pursuing the same or similar
technologies as those which constitute the Company's discovery platform, and
from organizations that are pursuing pharmaceutical or diagnostic products that
are competitive with the Company's or its collaborators' potential products.
Many of the organizations competing with the Company have greater capital
resources, larger research and development staffs and facilities, greater
experience in drug discovery and development, obtaining regulatory approvals and
pharmaceutical product manufacturing, and greater marketing capabilities than
the Company.
The Company also is aware of a number of companies and institutions that are
developing or considering the development of potential gene-based and cell-based
treatments, including early-stage gene therapy companies, large pharmaceutical
companies, academic and research institutions, government agencies and other
health care providers. Many of these entities are more advanced than the Company
in their product development programs for gene and cell-based therapies and have
more experience with regulatory agencies and clinical trials. The field of gene
and cell-based therapy is new and many competitive approaches are being taken to
discover practical means by which these technologies can be made into products.
Rapid technologic advances could result in actual or proposed technologies,
products or processes of the Company becoming obsolete prior to successful
commercialization. See "Risk Factors -- Intense Competition; Rapid Technological
Change."
The Company is and will continue to be reliant on strategic partners for
support of its programs, including preclinical and clinical development,
manufacturing and marketing of its initial products. Each of the Company's
present and future partners is conducting multiple product development efforts
within each disease or technology area that is the subject of the alliance with
the Company. Any product candidate or technology of the Company, therefore, may
be subject to internal competition with a potential product under development or
technology platform under evaluation by a strategic partner. See "Risk Factors
- -- Dependence on Collaborators."
GOVERNMENT REGULATION
Prior to marketing, any new drug or other product developed by the Company
and its collaborative partners 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
studies, of each product candidate to establish its safety and efficacy, usually
takes many years and require the expenditure of substantial resources.
Preclinical tests include laboratory evaluations and will require animal studies
conducted in accordance the FDA's cGLP regulations to assess the product's
potential safety and efficacy. Data obtained from preclinical studies and
clinical trials are susceptible to varying interpretations that could delay,
limit or prevent regulatory approval. Delays or rejections also may be
encountered based upon changes in the FDA's policies for drug or biologic
approval during the period of product development and FDA regulatory review of
each NDA submitted in the case of new pharmaceutical agents, or PLA in the case
of biologics. Product development of new pharmaceuticals is highly uncertain,
and unanticipated developments, clinical or regulatory delays, unexpected
adverse side effects or inadequate therapeutic efficacy could slow or prevent
the product development efforts of the Company and its collaborators or
licensees, and have a materially adverse effect on the Company's
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business, financial condition and results of operations. There can be no
assurance that regulatory approval will be obtained for any drugs or other
products developed by the Company or its collaborative partners or licensees.
Furthermore, regulatory approval may entail limitations on the indicated use of
a drug or other product. Because certain of the products likely to result from
the Company's discovery programs 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 other
than the FDA and, as a result, regulatory approvals may be obtained more slowly
than for products using conventional technologies. Under current guidelines,
proposals to conduct clinical research involving gene therapy at institutions
supported by the NIH must be approved by the RAC and the NIH. Furthermore, gene
therapies are relatively new technologies and have not been tested extensively
in humans. The regulatory requirements governing these products and related
clinical procedures for their use are uncertain and are subject to change.
Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Among the conditions for product
approval and continued marketing approval is that the quality control and
manufacturing procedures of the Company or its collaborative partners conform to
the FDA's cGMP regulations which must be followed at all times. In complying
with cGMP requirements, manufacturers must expend time, money and effort on a
continuing basis in production, record keeping and quality control.
Manufacturing establishments, both domestic and foreign, are subject to
inspection by or under the authority of the FDA and by other federal, state and
local agencies. Failure to pass such inspections may subject the manufacturer to
possible FDA actions such as the suspension of manufacturing, seizure of the
product, withdrawal of approval or other regulatory sanctions. The FDA also may
require the manufacturer to recall a product from the market.
Discovery of previously unknown problems with a product may have adverse
effects on the Company's business, including withdrawal of the product from the
market. Violations of regulatory requirements at any stage, including
preclinical studies and clinical trials, the approval process or post-approval,
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 NDA or PLA holder. The Company has not submitted an IND for any
product candidate, and no product candidate has been approved for
commercialization in the United States or elsewhere. The Company intends to rely
primarily on its strategic partners to file INDs and generally direct the
regulatory approval process. No assurance can be given that the Company or any
of its strategic partners will be able to conduct clinical testing or obtain the
necessary approvals from the FDA or other regulatory authorities for any
products. Failure to obtain required governmental approvals will delay or
preclude the Company's strategic partners from marketing drugs or other products
developed by the Company 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.
In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other federal, state and local regulations. The Company's
research and development activities involve the controlled use of hazardous
materials, chemicals, biological materials and radioactive compounds. Although
the Company believes that its safety procedures for handling and disposing of
such materials comply with the current standards prescribed by state and federal
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 resulting damages and any such liability
could exceed the Company's resources. See "Risk Factors -- Government
Regulation" and "-- Hazardous and Radioactive Materials; Environmental Matters."
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PRODUCT LIABILITY INSURANCE
The testing, manufacture, marketing and sale of pharmaceutical and other
products entail the inherent risk of liability claims or product recalls and
associated adverse publicity. Clinical trials and sales by the Company or its
collaborators or licensees of potential products incorporating the Company's
discoveries may expose the Company to potential liability resulting from the use
of such products. Such liability might result from claims made directly by
consumers or by regulatory agencies, pharmaceutical companies or others selling
such products. The Company currently has a limited amount of clinical trial and
product liability insurance coverage through Interneuron. The Company will seek
to obtain its own coverage upon completion of this Offering and to maintain and
appropriately increase such coverage as clinical development of any product
candidates progresses and if and when its products are ready to be
commercialized. There can be no assurance that the Company will be able to
obtain such insurance or, if obtained, that such insurance can be acquired at a
reasonable cost or in sufficient amounts to protect the Company against such
liability. Certain of the Company's license agreements require the Company to
indemnify licensors against product liability claims arising from products
developed using the licensed technology. Also, certain of these agreements and
other collaboration agreements require the Company to maintain minimum levels of
insurance coverage. The failure to maintain product liability coverage, or the
occurrence of any product liability claim, or a recall of any products of the
Company or its collaborators or licensees, if developed, could inhibit or
prevent commercialization of products being developed by the Company and could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, to the extent any product liability
claim exceeds the amount of any insurance coverage, the Company's business,
financial condition and results of operations could be materially and adversely
affected. See "Risk Factors -- Risk of Product Liability."
HUMAN RESOURCES
As of June 30, 1996, Progenitor had 24 full-time employees, of whom 11 hold
Ph.D. or M.D. degrees. Of the Company's full-time employees, 19 are engaged in
research and development activities and five are engaged in business
development, finance and administration. None of the Company's employees is
covered by a collective bargaining agreement, and the Company has never
experienced any strike or work stoppage. The Company believes its relations with
its employees to be good.
In order to support the Company's existing operations, it will be required
to hire and retain additional management, administrative and financial
personnel, including a chief financial officer. The Company's success will
depend in large part on its ability to attract and retain key employees and
scientific advisors. Competition among biotechnology and pharmaceutical and
other companies for highly skilled scientific and management personnel is
intense. There can be no assurance that the Company will be successful in
retaining its existing personnel or advisors, or in attracting additional
qualified employees. See "Risk Factors -- Dependence on Collaborators," "--
Dependence on Research Collaborators and Scientific Advisors" and "-- Dependence
on Key Personnel."
FACILITIES
Progenitor currently occupies approximately 19,000 square feet of laboratory
and office space in a single facility in Columbus, Ohio. Total lease payments
for fiscal 1995 were $106,970. In addition, the Company leases a separate
facility with approximately 7,000 square feet of space from The Ohio State
University for laboratory animals. Space in this facility is leased on the basis
of a per diem for each animal housed. Total lease payments to The Ohio State
University in fiscal 1995 were $23,582. The current lease on the laboratory and
office facility expires on December 31, 1996 and includes an option for an
additional one-year extension. Although the Company believes that these
facilities will be adequate to meet its projected needs for the next two years,
it may be required to locate additional or alternative facilities within this
time frame, depending on the Company's growth and development.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Douglass B. Given, M.D., Ph.D................ 44 President, Chief Executive Officer and Director
H. Ralph Snodgrass, Ph.D..................... 46 Vice President, Research and Chief Scientific Officer
Stephen J. Williams, Ph.D.................... 42 Vice President, Corporate Development
Glenn L. Cooper, M.D.(1)..................... 43 Chairman of the Board
Robert P. Axline(2).......................... 60 Director
Alexander. M. Haig, Jr....................... 71 Director
Morris Laster, M.D........................... 32 Director
Jerry P. Peppers(2).......................... 50 Director
David B. Sharrock(1)......................... 60 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
DOUGLASS B. GIVEN, M.D., PH.D. has served as President, Chief Executive
Officer and Director of the Company since June 1994 and served as Executive Vice
President and Chief Operating Officer from January 1993 to June 1994. Prior to
joining Progenitor, Dr. Given was Vice President at the Schering Plough Research
Institute, a pharmaceutical research facility, from March 1989 to December 1992.
Dr. Given also serves as a Director of the Edison BioTechnology Center, is on
the Dean's Advisory Council of the University of Chicago and is on the Dean's
Advisory Council of The Ohio State University. Dr. Given received an M.D. and
Ph.D. in Biological Sciences from the University of Chicago, performed his
post-doctoral training in Internal Medicine and Infectious Diseases at Harvard
Medical School and Massachusetts General Hospital and received an M.B.A. from
the Wharton School of Business at the University of Pennsylvania.
H. RALPH SNODGRASS, PH.D. has served as Chief Scientific Officer since May
1996 and has served as Vice President, Research since he joined the Company in
July 1993. Prior to joining Progenitor, Dr. Snodgrass was Assistant Professor of
Microbiology and Immunology at the University of North Carolina, Chapel Hill
from January 1988 to June 1993. Dr. Snodgrass has held appointments at The Ohio
State University as Clinical Associate Professor, Division of Bone Marrow
Transplantation, Department of Internal Medicine since July 1994, and as Adjunct
Associate Professor, Department of Medical Microbiology and Immunology since
July 1995. Dr. Snodgrass received his Ph.D. in Immunology from the University of
Pennsylvania and performed his post-doctoral training at The Fox Chase Cancer
Center, Philadelphia.
STEPHEN J. WILLIAMS, PH.D. has served as Vice President, Corporate
Development since May 1996 and previously served as Vice President, Business
Development from June 1994 to May 1996. Prior to joining Progenitor, Dr.
Williams was Medical Director, Strategic Product Planning at Bristol-Myers
Squibb from March 1993 to June 1994; and Associate Director, New Product
Planning at DuPont Merck Pharmaceutical Company from January 1991 to March 1993.
Dr. Williams received his Ph.D. in Pharmacology from Duke University.
GLENN L. COOPER, M.D. has served as Chairman of the Board of Directors of
the Company since June 1994, and has been a director since December 1992. Dr.
Cooper has been President, Chief Executive Officer and a director of Interneuron
since May 1993 and served as President and Chief Executive Officer of Progenitor
from September 1992 until June 1994. Prior to joining Progenitor in 1992, Dr.
Cooper was Executive Vice President and Chief Operating Officer of Sphinx
Pharmaceuticals Corporation from
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August 1990. Dr. Cooper serves as Chairman of the Boards of Directors of
Intercardia, Inc. and Transcell Technologies, Inc., and is a director of
InterNutria, Inc., each of which is a subsidiary of Interneuron. Dr. Cooper
received his M.D. from Tufts University School of Medicine and performed his
post-doctoral training in Internal Medicine and Infectious Diseases at the New
England Deaconess Hospital and Massachusetts General Hospital.
ROBERT P. AXLINE has been a Director of Progenitor since June 1992 as a
designee of The Ohio University Foundation. Mr. Axline has been President of
Image Data Systems Inc. since 1995 and Chairman of Plastic Card Systems Inc.
since 1987. Both companies are engaged in the manufacture and sale of plastic
identification card machines and supplies.
ALEXANDER M. HAIG, JR. has been a Director of Progenitor since December
1992. General Haig has served as Chairman and President of Worldwide Associates,
Inc., a marketing consulting firm, since 1984. Previously, General Haig served
as Secretary of State of the United States from January 1981 to July 1982, and
President and Chief Operating Officer of United Technologies Corporation from
November 1979 to January 1981, where he remains a Senior Consultant. General
Haig has also served as Supreme Allied Commander of NATO and White House Chief
of Staff under the Nixon and Ford Administrations. General Haig also serves on
the Board of Directors of Interneuron, MGM Grand, Inc. and America Online, Inc.
MORRIS LASTER, M.D. has served as a Director of Progenitor since its
inception and served as Chief Executive Officer from its inception to September
1992. Dr. Laster has been Vice President of The Castle Group, Ltd. since
February 1990. He has also served as Chief Executive Officer of Synpro, Ltd., a
biotechnology firm, since November 1995. Previously, he was interim Chief
Executive Officer of Xenograft Technologies, Ltd., a biopharmaceuticals firm,
from January 1993 to September 1993. Dr. Laster received his M.D. from Downstate
Medical Center, New York, and received post-doctoral training in surgery at Case
Western Reserve University Hospital.
JERRY P. PEPPERS joined Progenitor's Board of Directors in June 1992 as a
designee of The Ohio University Foundation. He is a partner in the law firm of
Winthrop, Stimson, Putnam & Roberts, where he has served as an attorney since
1971. Mr. Peppers received his J.D. from Duke University.
DAVID B. SHARROCK has been a Director of Progenitor since January 1994 and a
Director of Interneuron since January 1995. Mr. Sharrock has been associated
with Marion Merrell Dow, a pharmaceuticals company, or its predecessors since
1958, most recently as Executive Vice President and Chief Operating Officer and
Director from January 1990 until his retirement in December 1993. Since that
time he has served as an independent consultant. Mr. Sharrock also serves as a
Director of Cincinnati Bell Inc., Unitog Company, Inc. and Intercardia, Inc.
BOARD OF DIRECTORS COMMITTEES AND OTHER INFORMATION
At present, all directors are elected annually and serve until the next
meeting of stockholders or until the election and qualification of their
successors. In addition, The Ohio University Foundation is entitled to designate
two directors. Messrs. Axline and Peppers currently serve as the designees of
The Ohio University Foundation. The rights of The Ohio University Foundation to
designate two members of the Board of Directors will terminate upon the closing
of the Offering. Pursuant to the intercompany services agreement to be entered
into by the Company with Interneuron, Interneuron will have the right to
nominate one designee for election to Progenitor's Board of Directors, for so
long as Interneuron reports Progenitor's financial results on a consolidated
basis, on an equity basis or otherwise on a basis pursuant to which a portion of
Progenitor's results of operations appear in the financial results of operations
of Interneuron. See "Certain Transactions --Relationship with Interneuron and --
The Ohio University Foundation."
Effective August 9, 1996, the Board of Directors established an Audit
Committee and a Compensation Committee. The Audit Committee, which consists of
Messrs. Axline and Peppers, is responsible for
41
<PAGE>
overseeing the actions by the Company's independent auditors and review the
Company's internal financial and accounting controls and policies. The
Compensation Committee, which consists of Dr. Cooper and Mr. Sharrock, is
responsible for determining salaries, incentives and other forms of compensation
for officers and other employees of the Company and will administer various
incentive compensation and benefit plans.
All executive officers serve at the discretion of the Board of Directors,
subject to the terms of any employment agreements. Currently, the Company has an
employment agreement only with Dr. Given. There are no family relationships
among the Company's directors and executive officers. See "-- Employment
Agreement."
Mr. Mark N. K. Bagnall has agreed in principle to serve as the Company's
Chief Financial Officer effective as of the closing of the Offering. Mr. Bagnall
has served as Vice President of Finance, Chief Financial Officer and Secretary
of Somatix Therapy Corporation ("Somatix"), a biotechnology company, since July
1992. Previously, he served as Treasurer and Secretary of Somatix from January
1991 to July 1992, and of its predecessor, Hana Biologics, Inc. ("Hana"), from
January 1990 to January 1991. He also served as Hana's Controller from May 1988
to January 1990. Mr. Bagnall is a Certified Public Accountant. In connection
with Mr. Bagnall's appointment, the Board of Directors has approved a grant of
options under its 1996 Stock Incentive Plan to purchase 110,000 shares of the
Company's Common Stock, to be effective upon the closing of the Offering. The
exercise price of these options shall be equal to the price of the Common Stock
sold in the Offering.
DIRECTORS' COMPENSATION
Effective after the Offering, the Company's non-employee directors (other
than those who are employees of Interneuron) will receive cash compensation in
the amount of $2,000 for attendance at meetings of the Board of Directors and
any committee thereof, and directors may be reimbursed for certain expenses in
connection with attendance at Board of Directors and committee meetings. A total
of 75,000 shares of Common Stock under Progenitor's 1996 Stock Incentive Plan
have been reserved for issuance to non-employee directors of Progenitor (other
than those who are employees of Interneuron) pursuant to compensation policies
for such directors to be adopted by Progenitor in the future. To date none of
such shares have been granted.
Pursuant to a letter agreement dated January 26, 1994, the Company has paid
Mr. Sharrock $2,000 for each meeting of the Board that he attends. Upon
execution of this agreement, the Company also granted Mr. Sharrock options to
purchase 2,500 shares of Common Stock, at an exercise price of $4.00 per share,
one-third of which vest each January 21 beginning January 21, 1995. During
fiscal 1995, the Company paid Mr. Sharrock $6,000 pursuant to this arrangement
and accrued an additional $2,000 in fees.
The Company, along with Interneuron and Transcell Technologies, Inc., a
subsidiary of Interneuron ("Transcell"), is a party to a consulting agreement
with Mr. Sharrock, entered into on February 1, 1994, pursuant to which Mr.
Sharrock receives $2,000 per day in exchange for his service as a consultant on
the development and commercialization of each company's technology.
Collectively, the three companies must use Mr. Sharrock's services for a minimum
of 20 days per year during the term of the agreement. The Company paid Mr.
Sharrock $4,000 during fiscal 1995 under this arrangement. The agreement
provides that Mr. Sharrock will not compete with the Company during the term of
the agreement and for a period of one year thereafter. This agreement terminates
on February 1, 1997, with automatic one-year extensions with respect to each
company unless Mr. Sharrock or such company gives notice at least sixty days
prior to expiration of the then-current term. The Company intends to amend such
agreement with Mr. Sharrock such that cash compensation paid to him for
attendance of meetings of the Board of Directors or any committee thereof
pursuant to the Company's director compensation policy will be in lieu of such
consulting fees and will be credited towards the aggregate 20 days of consulting
per year required to be granted to Mr. Sharrock under the consulting agreement.
42
<PAGE>
During fiscal 1995, the Company was party to a consulting agreement with Dr.
Laster, pursuant to which the Company paid him $500 per month for his services
as a scientific advisor. Dr. Laster received $7,000 pursuant to this agreement
in fiscal 1995, including $1,000 in fees accrued but not paid in fiscal 1994.
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal year ended September 30, 1995
the compensation for services rendered to the Company in all capacities with
respect to its Chief Executive Officer and each of its other executive officers
with annual compensation in excess of $100,000 (the Chief Executive Officer and
such other executive officers are hereinafter referred to as the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS (#) COMPENSATION
- ----------------------------------------------------------- ---------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
Douglass B. Given, M.D., Ph.D. ........................... $ 185,000 $ 46,250 95,000 $ 1,065(1)
President and Chief Executive Officer
Doros Platika, M.D.(2) .................................... 153,000 35,700 40,000(3) --
Executive Vice President, Research and
Development
H. Ralph Snodgrass, Ph.D. ................................ 123,000 30,000 30,000(4) --
Vice President, Research and Chief Scientific
Officer
Stephen J. Williams, Ph.D. ............................... 135,000 -- 17,500 --
Vice President, Corporate Development
</TABLE>
- --------------
(1) Consists of premiums paid by the Company on a term life insurance policy for
Dr. Given.
(2) Dr. Platika's employment with the Company terminated effective as of May 24,
1996, pursuant to a Separation Agreement and Release. See "Certain
Transactions -- Transactions with Directors and Executive Officers."
(3) Includes options exercisable for 7,500 shares of Common Stock, all of which
vested on September 14, 1995, the date of grant. As a result of the
termination of Dr. Platika's employment by the Company, options granted
during fiscal 1995 that were vested as of May 24, 1996 remain exercisable
until August 24, 1996, and all other options granted during fiscal 1995
terminated effective May 24, 1996 in accordance with the terms of the 1992
Stock Option Plan. See "Certain Transactions -- Transactions with Directors
and Executive Officers."
(4) Includes options exercisable for 12,500 shares of Common Stock, all of which
vest upon the earliest of the achievement of performance milestones relating
to the leptin receptor program or the BFU-e growth factor program, or
September 14, 2002.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors did not have a Compensation Committee in fiscal 1995.
All deliberations with regard to executive compensation were by the full Board
of Directors. Dr. Cooper, the former President and Chief Executive Officer of
the Company, participated as a director in these deliberations. Dr. Given
43
<PAGE>
participated as a director in deliberations and voting with regard to the
compensation of Drs. Platika, Snodgrass and Williams, but abstained from
deliberations and voting with regard to his own compensation.
STOCK PLANS
1992 STOCK OPTION PLAN
The 1992 Stock Option Plan was adopted and approved by the Board of
Directors in December 1992 and by the stockholders of the Company in February
1993. The plan was amended with the approval of the Board of Directors and the
stockholders in September 1995 to increase the number of shares of Common Stock
available for grant. A total of 500,000 shares of Common Stock have been
reserved for issuance under the 1992 Stock Option Plan, as amended. As of August
15, 1996, options to purchase 6,675 shares of Common Stock granted under the
1992 Stock Option Plan had been exercised, options to purchase 331,625 shares of
Common Stock were outstanding and options to purchase 161,700 shares of Common
Stock remained available for grant. The outstanding options were held by 37
individuals and were exercisable at a weighted average exercise price of $4.68
per share. Outstanding options to purchase an aggregate of 32,500 shares were
held by employees who are not officers or directors of the Company. The 1992
Stock Option Plan will terminate in 2002, unless sooner terminated by the Board
of Directors.
The Board of Directors currently administers the 1992 Stock Option Plan. The
Board has designated a Compensation Committee and intends to delegate to it the
administration of the 1992 Stock Option Plan. Awards under the 1992 Stock Option
Plan may consist of (i) options to purchase Common Stock that are designed to
qualify, under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), as "incentive stock options" ("Incentive Stock Options") or (ii)
options to purchase Common Stock that are not described in Sections 422 or 423
of the Code ("Non-Qualified Stock Options" and, collectively with Incentive
Stock Options, "Options").
The Board of Directors has discretion to grant Incentive Stock Options to
employees and officers (including officers who are directors) of the Company and
Non-Qualified Stock Options to employees, officers (including officers who are
directors), directors, independent contractors and consultants of the Company.
The Board may set the terms of such grants, subject to applicable restrictions
in the 1992 Stock Option Plan. Incentive Stock Option grants are subject to the
following limitations: (i) the term of any Incentive Stock Option may not be
longer than ten years, provided that the term of any Incentive Stock Option
granted to an individual possessing more than 10% of the combined voting power
of the Company or an affiliate (a "10% Holder") may not be longer than five
years; (ii) the aggregate fair market value of all shares underlying Incentive
Stock Options granted to an individual that first become exercisable in any
calendar year may not exceed $100,000; and (iii) the exercise price of Incentive
Stock Options may not be less than the fair market value of the underlying
shares on the grant date, provided that the exercise price of any Incentive
Stock Option granted to a 10% Holder may not be less than 110% of the fair
market value of the underlying shares on the grant date. With respect to
Non-Qualified Stock Options, the Board has discretion to grant such Options with
an exercise price below the fair market value of the Common Stock. As of August
15, 1996, no such below-market grants had been made.
During an optionee's lifetime, an Option is exercisable only by the optionee
and no Option may be transferred by the optionee other than by will or the laws
of descent and distribution. An optionee whose relationship with the Company or
any related corporation ceases for any reason (other than termination because of
death or total disability) may exercise, in the three-month period following
such cessation (unless such Options terminate or expire sooner by their terms),
or such longer period as determined by the Board, that portion of the optionee's
Options that is exercisable at the time of such cessation. In the event the
optionee dies or becomes totally disabled, the Options vested as of the date of
death or total disability may be exercised prior to the earlier of such Option's
specified expiration date or one year from the date of the optionee's death or
disability.
44
<PAGE>
Unexercised Options granted under the 1992 Stock Option Plan terminate upon
the occurrence of certain events, including a dissolution, liquidation or merger
or consolidation of the Company in which the Company is not the surviving
corporation. All outstanding Options vest and become immediately exercisable
prior to the effective time of any such event. In a merger or consolidation in
which the Company is the surviving corporation, Options will be deemed to apply
to the numbers of shares to which the holders thereof prior to such merger would
be entitled. The converted Options would continue to vest in accordance with the
vesting schedule set by the Board for such Options.
The Board of Directors may amend the 1992 Stock Option Plan, insofar as
permitted by law, with respect to any shares of Common Stock reserved for
issuance but not yet subject to Options. Shares subject to Options granted under
the 1992 Stock Option Plan that have lapsed or terminated may again be subject
to Options granted under the 1992 Stock Option Plan. Furthermore, the Board may
offer to exchange new Options for existing Options, with the shares subject to
the existing Options being again available for grant under the 1992 Stock Option
Plan.
1996 STOCK INCENTIVE PLAN
The 1996 Stock Incentive Plan (the "1996 Plan") was adopted and approved by
the Board of Directors in May 1996 and will be presented for approval by the
stockholders of the Company prior to the closing of the Offering. A total of
850,000 shares of Common Stock have been reserved for issuance under the 1996
Plan. As of August 15, 1996, no options issued under the 1996 Plan had been
exercised, options to purchase 275,000 shares of Common Stock were outstanding
and options to purchase 575,000 shares of Common Stock remained available for
grant. Outstanding options under the 1996 Plan were held by three Named
Executive Officers and were exercisable at an exercise price of $9.00 per share.
No options were held by persons who are not officers or directors of the
Company. A total of 75,000 shares of Common Stock under the 1996 Plan have been
reserved for issuance to non-employee directors of Progenitor (other than those
who are employees of Interneuron) pursuant to director compensation policies to
be adopted by Progenitor in the future. The 1996 Plan will terminate in May
2006, unless sooner terminated by the Board of Directors.
Upon the adoption and approval of the 1996 Plan by the stockholders of the
Company, the Board of Directors will delegate administration of the 1996 Plan to
the Compensation Committee (the "Committee"). Awards under the 1996 Plan may
consist of (i) Incentive Stock Options, (ii) Non-Qualified Stock Options, (iii)
the sale or bonus grant of restricted shares of Common Stock ("Restricted
Stock"), (iv) the grant of stock appreciation rights ("SARs"), either alone or
together with Options, (v) the grant of dividend equivalent rights measured by
dividends paid with respect to the Common Stock ("DERs"), and (vi) the grant of
any of the abovementioned options, rights or shares based upon attainment of
certain performance criteria ("Performance Shares").
The Committee will have discretion to grant Options, Restricted Stock, SARs,
DERs and Performance Shares to employees, officers (including officers who are
directors of the Company), directors and consultants of the Company, provided
that only employees and officers of the Company may receive Incentive Stock
Options. The Committee may set the terms of such grants, subject to applicable
restrictions in the 1996 Plan. Incentive Stock Option and Non-Qualified Stock
Option grants are subject to the same limitations under the 1996 Plan as those
discussed above for the 1992 Stock Option Plan. With respect to Non-Qualified
Stock Options, the Committee will have discretion to grant such Options with an
exercise price below the fair market value of the Common Stock. As of August 15,
1996, no such below-market grants had been made.
Upon certain changes in control of the Company (as defined in the 1996
Plan), or upon the merger or consolidation, reverse merger, dissolution,
liquidation or sale of all or substantially all of the assets of the Company,
all outstanding Options, SARs, Restricted Stock, DERs and Performance Shares
will, unless otherwise determined by the plan administrator, become fully
vested, nonforfeitable and exercisable, and any Restricted Stock will be
released from all restrictions on transfer and all repurchase and
45
<PAGE>
forfeiture restrictions. Each Option, SAR or DER shall remain exercisable for
the remaining term of the Option, SAR or DER, except that each Option, SAR or
DER shall terminate as of the effective date of a merger or consolidation,
reverse merger, dissolution, liquidation or sale of all or substantially all of
the assets of the Company.
The Board of Directors may amend the 1996 Plan, and any agreements
evidencing awards granted thereunder, at any time and for any reason, subject to
certain restrictions on the ability to adversely affect awards previously
granted thereunder and to any legal requirement to obtain stockholder approval.
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Stock Purchase Plan"),
was approved by the Board of Directors and stockholders in August, 1996, and is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Code in order to provide employees of the Company with an opportunity to
purchase Common Stock through payroll deductions. An aggregate of 100,000 shares
of the Company's Common Stock have been reserved for issuance under the Stock
Purchase Plan and available for purchase thereunder, subject to adjustment in
the event of a stock split, stock dividend or other similar change in the Common
Stock or the capital structure of the Company. All employees of the Company (and
employees of "subsidiary corporations" and "parent corporations" of the Company
(as defined by the Code) designated by the administrator of the Stock Purchase
Plan) whose customary employment is for more than five months in any calendar
year and more than 20 hours per week are eligible to participate in the Stock
Purchase Plan. Employees of Interneuron are not expected to participate in the
Stock Purchase Plan. Non-employee directors, consultants, and employees subject
to the rules or laws of a foreign jurisdiction that prohibit or make impractical
the participation of such employees in the Stock Purchase Plan are not eligible
to participate in the Stock Purchase Plan.
The Stock Purchase Plan designates Purchase Periods, Accrual Periods and
Exercise Dates. Purchase Periods are generally overlapping periods of 24 months.
A Purchase Period will initiate and additional Purchase Periods will commence
each subsequent April 1 and October 1. The initial Purchase Period will begin on
the effective date of the Stock Purchase Plan, which is the date on which the
Company and the Underwriters agree as to the pricing with respect to the
Offering, and end on September 30, 1998. Accrual Periods are generally six month
periods, with the initial Accrual Period commencing on the effective date of the
Stock Purchase Plan and ending on March 31, 1997. Thereafter Accrual Periods
will commence each April 1 and October 1. Exercise Dates are the last day of
each Accrual Period. In the event of a merger of the Company with or into
another corporation, of the sale of all or substantially all of the assets of
the Company, or certain other transactions in which the stockholders of the
Company before the transaction own less than 50% of the total combined voting
power of the Company's outstanding securities following the transaction, the
administrator of the Stock Purchase Plan may elect to shorten the Purchase
Period then in progress.
On the first day of each Purchase Period, a participating employee is
granted a purchase right which is a form of option to be automatically exercised
on the forthcoming Exercise Dates within the Purchase Period during which
deductions are to be made from the pay of participants (in accordance with their
authorizations) and credited to their accounts under the Stock Purchase Plan.
When the purchase right is exercised, the participant's withheld salary is used
to purchase shares of Common Stock of the Company. The price per share at which
shares of Common Stock are to be purchased under the Stock Purchase Plan during
any Accrual Period is the lesser of (a) 85% of the fair market value of the
Common Stock on the date of the grant of the option (the commencement of the
Purchase Period) or (b) 85% of the fair market value of the Common Stock on the
Exercise Date (the last day of an Accrual Period). The participant's purchase
right is exercised in this manner on all four Exercise Dates arising in the
Purchase Period unless, on the first day of any Accrual Period, the fair market
value of the Common Stock is lower than the fair market value of the Common
Stock on the first day of the Purchase Period. If so, the participant's
participation in the original Purchase Period is terminated, and the participant
is automatically enrolled in the new Purchase Period effective the same date.
46
<PAGE>
Payroll deductions may range from 1% to 10% (in whole percentage increments)
of a participant's regular base pay, exclusive of overtime, bonuses,
shift-premiums or commissions. Participants may not make direct cash payments to
their accounts. The maximum number of shares of Common Stock which any employee
may purchase under the Stock Purchase Plan during an Accrual Period is 5,000
shares. Certain additional limitations on the amount of Common Stock which may
be purchased during any calendar year are imposed by the Code.
The Stock Purchase Plan will be administered by the Board of Directors or a
commitee designated by the Board, which will have the authority to terminate or
amend the Stock Purchase Plan (subject to specified restrictions) and otherwise
to administer the Stock Purchase Plan and to resolve all questions relating to
the administration of the Stock Purchase Plan.
EMPLOYMENT AGREEMENT
On January 3, 1993, the Company entered into a four-year employment
agreement with Dr. Given. The agreement provides for an initial annual base
salary of $175,000, reviewable annually by the Board of Directors, and annual
bonuses based on the achievement of performance milestones as mutually agreed by
the Board of Directors and Dr. Given. Under the agreement, Dr. Given was granted
the right to purchase 3% of the shares of Common Stock of the Company
outstanding as of the date of the agreement, or 82,907 shares, at a purchase
price of $.02 per share. Such stock is subject to a repurchase option in favor
of the Company, exercisable upon termination of Dr. Given's employment for any
reason, that expires equally with respect to one-fourth of such shares on each
anniversary date of the agreement beginning on the first anniversary date.
Under the agreement, Dr. Given received the right to a $100,000 loan bearing
interest at 7% annually for the purchase of a home in Ohio. Upon the granting of
the loan, the Company waived the charging of interest on the loan, and certain
other provisions of the agreement relating to the loan, and received from Dr.
Given an interest-free promissory note in the amount of $100,796 secured by the
property purchased. The note requires Dr. Given to repay at least $60,796 of the
loan on or before April 1, 1997. Of this portion, $20,000 was forgiven effective
in fiscal 1996 at the approval of the Board of Directors, and $40,796 remains
payable. The balance of $40,000 is payable on or before April 15, 1997 or upon
the termination of Dr. Given's employment and is subject to forgiveness in
$10,000 increments upon the achievement of certain performance milestones,
including a successful initial public offering of the Company's Common Stock. As
of June 30, 1996, the Company had forgiven, effective in fiscal 1996, $10,000 of
the loan pursuant to this provision. See "Certain Transactions -- Transactions
with Directors and Executive Officers."
The agreement also provides that, during the term of the agreement and,
unless Dr. Given terminates his employment for cause as defined in the
agreement, for a period of two years after termination of Dr. Given's
employment, he will not compete with the Company, directly or indirectly. In the
event the Board of Directors terminates Dr. Given's employment without cause, as
defined in the agreement, he would be entitled to his base salary plus pro-rated
average bonuses, subject to reduction for compensation received from other
employment, for a period of six months from the date of termination.
47
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options to the Named Executive Officers during the fiscal year ended September
30, 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM($)(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SHARE)(2) DATE 5% 10%
- ---------------------------------------------- ------------- --------------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Douglass B. Given, M.D., Ph.D................. 50,000(4) 26.60% $ 6.00 9/14/05 $ 188,668 $ 478,123
45,000(5) 23.94 6.00 9/14/05 169,802 430,310
Doros Platika, M.D.(6)........................ 32,500(5) 17.29 6.00 5/24/96 -- --
7,500(7) 4.00 6.00 8/24/96 2,121 4,242
H. Ralph Snodgrass, Ph.D...................... 17,500(5) 9.31 6.00 9/14/05 66,034 167,343
12,500(8) 6.65 6.00 9/14/05 47,167 119,531
Stephen J. Williams, Ph.D..................... 17,500(5) 9.31 6.00 9/14/05 66,034 167,343
</TABLE>
- --------------
(1) Based on an aggregate of 188,000 options granted to employees in fiscal
1995.
(2) All options were granted at an exercise price equal to the fair market value
of the Common Stock on the date of grant, as determined by the Board of
Directors.
(3) The potential realizable value is based on the term of the option at its
time of grant (ten years, except for options granted to Dr. Platika (see
footnotes (6) and (7)). It is calculated by 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. No
gain to the optionee is possible unless the stock price increases over the
option term, which will benefit all stockholders.
(4) Consists of options that vest equally over three years on each anniversary
of the date of grant, September 14, 1995.
(5) Consists of options that were under the terms of the original grant to vest
on the earlier of September 14, 2002 or a prior change in the control of the
Company. On May 13, 1996, the Company's Board of Directors amended the terms
of options to acquire an aggregate of 80,000 shares that had been granted to
Drs. Given, Snodgrass and Williams so that they vest equally over three
years on each anniversary of the date of grant, September 14, 1995. See
"Certain Transactions -- Transactions with Directors and Executive
Officers."
(6) Dr. Platika's employment with the Company terminated effective as of May 24,
1996, pursuant to a Separation Agreement and Release. Of the options granted
during fiscal 1995, those vested as of May 24, 1996, remain exercisable
until August 24, 1996, and all other options granted during fiscal 1995
terminated effective May 24, 1996 in accordance with the terms of the 1992
Stock Option Plan. See "Certain Transactions -- Transactions with Directors
and Executive Officers."
(7) Consists of options that vested immediately on the date of grant, September
14, 1995.
(8) Consists of options that vest upon the earliest of the achievement of
performance milestones relating to the leptin receptor program or the BFU-e
growth factor program, or September 14, 2002.
48
<PAGE>
FISCAL YEAR-END OPTION VALUES
For each of the Named Executive Officers, the following table shows
information about the value of unexercised options as of September 30, 1995. No
options were exercised by the Named Executive Officers during fiscal 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END(#) FISCAL YEAR-END($)(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Douglass B. Given, M.D., Ph.D............................ 4,125 107,375 $ 8,250 $ 24,750
Doros Platika, M.D.(2)................................... 23,750 53,750 84,750 94,750
H. Ralph Snodgrass, Ph.D................................. 8,333 41,667 34,331 34,669
Stephen J. Williams, Ph.D................................ 5,000 32,500 10,000 30,000
</TABLE>
- --------------
(1) Based on the fair market value of the Common Stock as of September 30, 1995
($6.00 per share), minus the exercise price, multiplied by the number of
shares underlying the option.
(2) Dr. Platika's employment with the Company terminated effective as of May 24,
1996, pursuant to a Separation Agreement and Release. See "Certain
Transactions -- Transactions with Directors and Executive Officers."
49
<PAGE>
CERTAIN TRANSACTIONS
RELATIONSHIP WITH INTERNEURON
Progenitor was incorporated in February 1992 as a majority-owned subsidiary
of Interneuron and assumed all rights and obligations of Scimark Corp. under the
January 1992 research and licensing agreement with Ohio University. See
"Business -- License Agreements -- Ohio University." Upon Progenitor's
organization, Interneuron purchased 2,081,250 shares of Common Stock for $.002
per share. Progenitor also issued 112,500 and 56,250 shares of Common Stock,
respectively, to Morris Laster, M.D., a director of the Company, and Steven
Kanzer, then Assistant Secretary of the Company, for a purchase price of $.002
per share. Lindsay Rosenwald, M.D., the Chairman of the Board and a principal
stockholder of Interneuron, was the Company's President until September 1992,
and was a director of the Company until May 1996. Dr. Rosenwald also owns the
Castle Group Ltd. ("Castle"), a venture capital firm. Dr. Laster was the
Company's Chief Executive Officer until September 1992, and Dr. Laster and Mr.
Kanzer were and continue to be employees of Castle.
From Progenitor's inception through December 1994, Interneuron funded
Progenitor's operations through advances evidenced by promissory notes payable
on demand and bearing interest at 1% over the prime rate. In December 1994, upon
the initial closing of the private placement referred to below, the aggregate
amount of such advances of approximately $11.5 million, plus accrued interest of
approximately $1.1 million, was converted by Interneuron into an aggregate of
2,020,496 shares of Series A Preferred Stock of the Company at a conversion
price of $6.25 per share. These shares will convert into 1,512,741 shares of
Common Stock upon the closing of the Offering. See "Description of Capital Stock
- -- Preferred Stock."
Between December 1994 and July 1995, Progenitor issued and sold an aggregate
of 349,000 shares of Series B Preferred Stock in a private placement. These
shares will convert into 261,273 shares of Common Stock upon the closing of the
Offering. See "Description of Capital Stock -- Preferred Stock." The private
placement was a sale of units, each unit consisting of Series B shares of
Preferred Stock of the Company, shares of preferred stock of Transcell, a
subsidiary of Interneuron, a put protection right from Interneuron and warrants
to purchase Interneuron's common stock. The put protection right provides that
on the third anniversary of the final closing date of the private placement,
holders of such Series B Preferred Stock have the right to sell to Interneuron
their Series B Preferred Stock of Progenitor at a purchase price equal to the
purchase price of such shares in the private placement. The put protection right
will expire upon the closing of the Offering. Of the approximately $4.4 million
gross proceeds of the private placement, Progenitor received approximately $1.6
million, net of placement agent fees and Interneuron received approximately
$833,000 from the proceeds of the private placement as its consideration for the
issuance of warrants for its common stock and the put protection right. Of this
amount, Interneuron loaned approximately $417,000 to Progenitor in exchange for
a convertible debenture dated March 31, 1995, bearing interest at 1% over the
prime rate. The principal amount of this debenture and accrued interest thereon
(approximately $471,000 as of August 15, 1996), will automatically be converted
at the closing of the Offering into shares of Common Stock at a conversion price
equal to the initial public offering price. See "Description of Capital Stock --
Interneuron Convertible Debenture and Promissory Note."
Paramount Capital, Inc. ("Paramount") acted as the placement agent for the
private placement and D.H. Blair & Co., Inc. ("Blair") was a selected dealer.
Paramount is owned by Dr. Rosenwald. Progenitor paid Paramount approximately
$129,000 as its share of placement agent fees. Pursuant to Paramount's rights
under its placement agent agreement, designees of Paramount received in the
private placement warrants to purchase an aggregate of 22,201 shares of Series B
Preferred Stock (representing the right to purchase 16,619 shares of Common
Stock following the closing of the Offering). Dr. Rosenwald received warrants to
purchase 12,274 of these shares of Series B Preferred Stock (representing the
right to purchase 9,189 shares of Common Stock following the closing of the
Offering). Blair is substantially owned by family members of J. Morton Davis
(including members of Dr. Rosenwald's family), a principal
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stockholder of Interneuron. Blair received fees for acting as selected dealer,
aggregating $45,094. Designees of Blair also received in the private placement
warrants to purchase an aggregate of 12,700 shares of Series B Preferred Stock
(representing the right to purchase 9,507 shares of Common Stock following the
closing of the Offering). All of these warrants are exercisable until five years
after the closing of the Offering at an exercise price of $9.18 per share of
Common Stock, and pursuant to a cashless exercise provision may be exercised
without the need to pay any cash. See "Description of Capital Stock -- Stock
Purchase Right and Warrants." The Company also agreed to indemnify Paramount and
Blair against certain liabilities, including liabilities under the Securities
Act in connection with the private placement. See "Description of Capital Stock
- -- Stock Purchase Right and Warrants."
Since March 1996, Interneuron has continued to provide advances to
Progenitor. These advances are evidenced by a promissory note dated March 31,
1996, in the principal amount of approximately $523,000, as updated from time to
time, payable on the earlier of five years from the date of the note or the
closing of the Offering. Interneuron has agreed to convert at the closing of
this Offering the entire indebtedness evidenced by the note, including the
original principal balance, additional advances from April 1, 1996 through the
closing of the Offering, and all accrued interest (an aggregate of $2.2 million
of principal and accrued interest as of August 15, 1996) into shares of
Progenitor Common Stock at a conversion price equal to the initial public
offering price. See "Description of Capital Stock -- Interneuron Convertible
Debenture and Promissory Note."
Based on the amount owed by Progenitor to Interneuron under the promissory
note as of August 15, 1996, and as a result of the conversion upon the closing
of the Offering of the Series A Preferred Stock, convertible debenture and
promissory note held by Interneuron, Interneuron will own 3,820,134 shares, or
51.8% of Progenitor's outstanding Common Stock after closing of the Offering.
During fiscal 1995, Interneuron paid for certain Progenitor expenses which
were reimbursed by Progenitor at cost. In addition, Interneuron guaranteed
Progenitor's office lease (which guarantee will be released upon the closing of
the Offering as to obligations arising after the closing of the Offering) and
its equipment leases. Prior to the closing of the Offering, the Company and
Interneuron intend to enter into a tax allocation agreement to provide, among
other things, for the payment of tax liabilities, the entitlement to tax
refunds, and the allocation of responsibility and cooperation in the filing of
tax returns. In addition, the Company and Interneuron intend to enter into an
intercompany services agreement which will provide, among other things, for: the
participation of the Company and its employees in certain programs administered
by Interneuron, at cost, such as certain insurance programs; and the provision
of certain services by Interneuron at Progenitor's request at agreed upon prices
in areas such as clinical and regulatory affairs, quality control, finance,
administration, human resources and management information systems. The
intercompany services agreement will also provide that in the event of any
future equity offering by the Company, Interneuron will have the right to
purchase (at the same price and on the same terms as such equity offering) a
portion of the shares being offered so as to maintain its fully-diluted interest
in Progenitor immediately prior to such equity offering, subject to certain
limitations. The intercompany services agreement will also provide that all
future transactions between the Company and Interneuron must be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
and must be approved or ratified by a majority of the independent members of the
Company's Board of Directors. As defined in the intercompany services agreement,
independent directors are those who are not employees, officers, directors or
affiliates of, or persons with other material financial interests involving,
Interneuron, Progenitor or any of their respective affiliates.
The intercompany services agreement will also provide to Interneuron the
right to nominate one designee for election to Progenitor's Board of Directors,
for so long as Interneuron reports Progenitor's financial results on a
consolidated basis, on an equity basis or otherwise on a basis pursuant to which
a portion of Progenitor's results of operations appear in the financial results
of operations of Interneuron. After the Offering, Interneuron will continue to
control the election of directors of the Company and voting with respect to
matters submitted to stockholders, including extraordinary corporate
transactions such as a merger or sale of substantially all of the Company's
assets. Interneuron's ownership of a
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substantial block of the Company's voting stock could have the effect of
delaying or preventing sales of additional securities of the Company or a sale
of the Company or other change of control supported by the other stockholders of
the Company. In addition, the Company may be subject to various risks arising
from Interneuron's influence over the Company, including conflicts of interest
relating to new business opportunities that could be pursued by the Company or
by Interneuron and its other affiliates, and significant corporate transactions
for which stockholder approval is required. See "Risk Factors -- Control of
Company By, and Potential Conflicts of Interest With, Interneuron."
Interneuron has no obligation to invest any further funds in the Company or
otherwise provide funding to the Company after the Offering, and the Company
does not expect Interneuron to do so. The Company intends to seek additional
funding through public or private equity or debt financing and collaborative
arrangements. There can be no assurance that additional financing will be
available when needed, or that, if available, such financing will be available
on terms acceptable to the Company. See "Risk Factors -- Need for Additional
Capital; Uncertainty of Additional Funding."
Interneuron has entered into a lock-up agreement which limits its ability to
sell shares of the Company's Common Stock during the 365-day period following
the date of this Prospectus. See "Shares Eligible for Future Sale" and
"Underwriting."
THE OHIO UNIVERSITY FOUNDATION
Upon the Company's formation in February 1992, The Ohio University
Foundation purchased 125,000 shares of Common Stock at a purchase price of $.002
per share, and Dr. Thomas Wagner, an employee of Ohio University and an
affiliate of The Ohio University Foundation, purchased 125,000 shares of Common
Stock at $.002 per share. Pursuant to certain antidilution rights, The Ohio
University Foundation was issued an additional 53,750 shares of Common Stock
from fiscal 1992 through fiscal 1994. Also, in December 1994, Dr. Wagner
received an additional 53,750 shares of Common Stock pursuant to similar
antidilution provisions contained in a related stock purchase agreement. In
February 1996, The Ohio University Foundation purchased an additional 58,333
shares of Common Stock for a purchase price of $6.00 per share pursuant to a
stock purchase agreement. In the event the initial public offering price is less
than $12.00 per share, pursuant to such stock purchase agreement, The Ohio
University Foundation will be entitled to receive additional shares of Common
Stock such that the effective price per share paid by The Ohio University
Foundation under the agreement is equal to 50% of the initial public offering
price. In connection with such purchase, the Company and The Ohio University
Foundation amended certain provisions of the 1992 stock purchase agreement in
exchange for which Progenitor granted The Ohio University Foundation the right
to purchase 25,000 shares of Progenitor Common Stock at a price equal to 50% of
the initial public offering price. The Ohio University Foundation has agreed to
exercise such right to purchase 25,000 shares immediately prior to the Offering
at a price of $6.00 per share.
Ohio University entered into license and sponsored research agreements with
the Company (or its predecessor) in January 1992 and April 1993. The April 1993
sponsored research agreement terminated as of June 30, 1996 upon completion of
the research thereunder. Pursuant to the initial license agreement, The Ohio
University Foundation has the right to designate two members of Progenitor's
Board of Directors until the completion of Progenitor's initial public offering.
Messrs. Axline and Peppers are Trustees of The Ohio University Foundation and
serve as The Ohio University Foundation's designees to Progenitor's Board of
Directors. Under the Ohio University license and sponsored research agreements,
Progenitor paid Ohio University an aggregate of approximately $570,000,
$246,000, $397,000 and $109,000 in fiscal 1993, 1994, 1995, and for the nine
months ended June 30, 1996, respectively. Ohio University also is entitled to
receive royalties based on any sales of licensed products resulting from such
arrangements. Under a consulting agreement with Dr. Wagner entered into in
February 1992, Progenitor paid Dr. Wagner consulting fees of approximately
$93,000, $93,000, $113,000 and $45,000 during fiscal 1993, 1994, 1995, and for
the nine months ended June 30, 1996, respectively. See "Business -- License
Agreements."
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TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
Dr. Cooper served as the Company's President from September 1992 until June
1994. In September 1992, the Company loaned Dr. Cooper $150,000 to assist him in
purchasing a new home in the state of Ohio. In October 1993, Dr. Cooper repaid
the loan in full. Pursuant to Dr. Cooper's employment agreement, Dr. Cooper
purchased 133,681 shares of Common Stock at $.02 per share, subject to the
Company's right to repurchase such shares over a three-year period. In May 1993,
upon Dr. Cooper's appointment as president of Interneuron, the repurchase option
was modified at the approval of the Board of Directors and the Company
repurchased 74,267 of Dr. Cooper's shares.
On January 3, 1993, the Company entered into an employment agreement with
Dr. Given. Under the agreement, Dr. Given received the right to a $100,000 loan
bearing interest at 7% annually for the purchase of a home in Ohio. Upon the
granting of the loan, the Company waived the charging of interest on the loan,
and certain other provisions of the agreement relating to the loan, and received
from Dr. Given an interest-free promissory note in the amount of $100,796
secured by the property purchased. The note requires Dr. Given to repay at least
$60,796 of the loan on or before April 1, 1997. Of this portion, $20,000 was
forgiven effective in fiscal 1996 at the approval of the Board of Directors, and
$40,796 remains payable. The balance of $40,000 is payable on or before April
15, 1997 or upon the termination of Dr. Given's employment and is subject to
forgiveness in $10,000 increments upon the achievement of certain performance
milestones, including a successful initial public offering of the Company's
Common Stock. As of June 30, 1996, the Company had forgiven, effective in fiscal
1996, $10,000 of the loan pursuant to this provision. Upon completion of the
Offering, an additional $10,000 of the loan will be forgiven pursuant to this
provision. See "Management -- Employment Agreement."
The Company provided Dr. Williams with a $55,000 down payment loan for the
purchase of a home in Ohio upon the commencement of his employment in June 1994.
This loan is evidenced by a promissory note executed in fiscal 1995 which
accrues interest at 9% annually and is secured by Dr. Williams' home. Under the
terms of the promissory note, $40,000 of this loan, plus accrued interest, is
subject to forgiveness by the Board of Directors upon the achievement of certain
performance milestones. Pursuant to this arrangement, the Board of Directors
approved forgiveness effective in fiscal 1996 of $20,000 of the loan, plus
associated accrued interest. The Board of Directors also approved forgiveness
effective in fiscal 1996 of an additional $8,000 of the loan, plus associated
accrued interest, in lieu of a salary increase. The balance of $30,674,
including accrued interest as of June 30, 1996, remains outstanding. Upon
completion of the Offering, an additional $10,000 of the loan, plus associated
accrued interest, will be forgiven. In addition, the Company loaned Dr. Williams
$21,448 in fiscal 1995. This amount was repaid in May 1996.
Effective as of May 24, 1996, Dr. Doros Platika's employment terminated
pursuant to a Separation Agreement and Release (the "Release") among the
Company, Dr. Platika and Interneuron. The Release obligates Dr. Platika to
provide services to the Company in a consulting capacity for a minimum of twenty
hours per month for the six-month period following May 24, 1996. Dr. Platika
also agreed not to compete with the Company for a period of two years after his
termination. The Release also contains arrangements with respect to loans made
by the Company to Dr. Platika and certain stock options to acquire securities of
the Company and Interneuron. Prior to termination, the Company had made loans to
Dr. Platika that had a balance of $216,426, including accrued interest as of
July 23, 1996, which amount reflects the forgiveness effective in fiscal 1996 of
$26,424 of such loans previously approved by the Board of Directors. Pursuant to
the Release, an additional $120,000 of this balance was forgiven subject to Dr.
Platika's payment to the Company of withholding payments required with respect
thereto and with respect to the loans to Dr. Platika previously forgiven by the
Company effective in fiscal 1996. The remaining balance of $96,426, along with
applicable withholding payments, was paid by Dr. Platika as of July 23, 1996.
The Company will incur a charge to operations equal to the amount of loan
forgiveness in connection with the Release. Prior to the Release, the Company
had granted Dr. Platika options to purchase a total of 77,500 shares of Common
Stock, at exercise prices ranging from $0.20 to $6.00 per share. Of these,
options to purchase a total of 23,750 shares of Common Stock had previously
vested. The
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Release provides for the vesting as of June 1, 1996 of options to purchase 6,875
shares of Common Stock at $0.20 per share and the vesting as of June 15, 1996 of
options to acquire 2,500 shares of Common Stock at $4.00 per share. All of Dr.
Platika's other unvested options were canceled pursuant to the Release. As of
August 15, 1996, Dr. Platika held options exercisable for 33,125 shares of
Common Stock, which options will expire on August 24, 1996 in accordance with
the terms of the 1992 Stock Option Plan. Dr. Platika has tendered notices of
exercise and payment for the exercise of all of these options effective as of
August 23, 1996. In connection with the Release, Interneuron agreed to
accelerate vesting of stock options to purchase 2,500 shares of Interneuron
Common Stock at a price per share of $8.75, which options were exercisable by
Dr. Platika on or prior to August 24, 1996. As of August 15, 1996, Dr. Platika
had exercised all of these Interneuron options.
The Company has granted stock options to its directors and executive
officers on several occasions since the beginning of fiscal 1993, all of which
vest over a four-year period from the date of grant, except as indicated below.
In fiscal 1993, Dr. Snodgrass received options to purchase 5,000 shares of
Common Stock at an exercise price of $0.20 per share, and options to purchase
5,000 shares of Common Stock at an exercise price of $2.00 per share.
During fiscal 1994, Mr. Sharrock received options to purchase 2,500 shares
of Common Stock at an exercise price of $4.00 per share, which vest over three
years. Also in fiscal 1994, the Company granted Drs. Cooper, Given, Snodgrass
and Williams options to purchase 8,500, 16,500, 10,000 and 20,000 shares of
Common Stock, respectively, at an exercise price of $4.00 per share.
In September 1995, the Company granted options to Drs. Given, Snodgrass and
Williams to purchase 45,000, 17,500 and 17,500 shares, respectively, at an
exercise price of $6.00 per share, which originally were intended to vest on
September 14, 2002. These options were amended by the Board of Directors on May
13, 1996, so that one-third of such options vest on each anniversary date of the
date of grant. In September 1995, the Company granted to Dr. Given options to
purchase an additional 50,000 shares at an exercise price of $6.00 per share,
which also vest over three years from the date of grant. In September 1995 the
Company also granted to Dr. Snodgrass options to purchase 12,500 shares of
Common Stock, all of which vest upon the earliest of the achievement of
performance milestones relating to the leptin receptor program or the BFU-e
growth factor program, or September 14, 2002.
On February 21, 1996, each of Messrs. Axline, Haig, Peppers and Sharrock
received options to purchase 7,500 shares of Common Stock at an exercise price
of $6.00 per share.
All of the option grants described above were made pursuant to the 1992
Stock Option Plan.
On May 13, 1996, in connection with the Board of Directors' adoption of the
Company's 1996 Stock Incentive Plan, Drs. Given, Snodgrass and Williams were
granted options, which vest over three years, to purchase 100,000, 100,000 and
75,000 shares of Common Stock, respectively, at an exercise price of $9.00 per
share.
INSIDER TRANSACTIONS
The Company has adopted a policy that all future transactions between the
Company and its executive officers, directors and other affiliates must be
approved by a majority of the disinterested members of the Company's Board of
Directors, and must be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties. In addition, this policy requires that
any loans by the Company to its executive officers, directors or other
affiliates be for bona fide business purposes only. A determination of which
directors are disinterested with respect to a particular transaction will depend
upon the totality of circumstances including whether the directors possess a
direct or indirect material interest in the transaction or in another party
involved in the transaction.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of August 15, 1996, and as adjusted
to reflect the sale of the shares of Common Stock being offered hereby, by (i)
each stockholder who is known by the Company to own beneficially more than 5% of
the Company's outstanding Common Stock, (ii) each director and Named Executive
Officer of the Company and (iii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY
NUMBER OF OWNED(2)
SHARES --------------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- --------------------------------------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Glenn L. Cooper, M.D.(3) ............................................ 3,885,298 79.6% 52.6%
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02173
Interneuron Pharmaceuticals, Inc. ................................... 3,820,134 78.3 51.8
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02173
The Ohio University Foundation (4) .................................. 262,083 5.4 3.6
102 Research and Technology Center
Athens, Ohio 45701
Morris Laster, M.D................................................... 112,500 2.3 1.5
Douglass B. Given, M.D., Ph.D. (5)................................... 122,824 2.5 1.7
H. Ralph Snodgrass, Ph.D. (6)........................................ 19,583 * *
Stephen J. Williams, Ph.D. (7)....................................... 15,833 * *
David B. Sharrock (8)................................................ 1,667 * *
Robert P. Axline..................................................... -- * *
Alexander M. Haig, Jr................................................ -- * *
Jerry P. Peppers..................................................... -- * *
4,157,705 83.8 55.7
All executive officers and directors as a group
(9 persons) (9).....................................................
</TABLE>
- ------------------
* Less than one percent.
(1) To the Company's knowledge, except as indicated in the footnotes to this
table and subject to applicable community property laws, each of the persons
named in this table has sole voting and investment power with respect to all
shares of Common Stock indicated opposite such person's name.
(2) Percentage of beneficial ownership is based on 4,877,936 shares of Common
Stock outstanding as of August 15, 1996, and 7,377,936 shares of Common
Stock outstanding after completion of this Offering, reflecting the
conversion of the convertible debenture and promissory note held by
Interneuron and all outstanding shares of Preferred Stock into Common Stock
and the purchase by The Ohio University Foundation of 25,000 shares of
Common Stock pursuant to a stock purchase right. See "Capitalization" and
"Description of Capital Stock." Shares of Common Stock subject to options,
warrants and convertible notes currently exercisable or convertible, or
exercisable or convertible within 60 days of August 15, 1996, are deemed
outstanding for computing the percentage of the person or entity holding
such securities but are not deemed outstanding for computing the percentage
of any other person or entity.
(3) Includes 3,820,134 shares held by Interneuron, options exercisable for 4,250
shares of Common Stock held by Dr. Cooper and options exercisable for 1,500
shares of Common Stock held by Dr. Cooper's wife. Dr. Cooper is President,
Chief Executive Officer and a director of Interneuron. Dr. Cooper disclaims
beneficial ownership of the shares held by Interneuron.
(4) Includes a stock purchase right for 25,000 shares of Common Stock.
(5) Includes 82,907 shares held by a limited partnership of which Dr. Given is a
general partner and options exercisable for 39,917 shares of Common Stock.
(6) Includes options exercisable for 19,583 shares of Common Stock.
(7) Includes options exercisable for 15,833 shares of Common Stock.
(8) Includes options exercisable for 1,667 shares of Common Stock.
(9) Includes options exercisable for 82,750 shares of Common Stock. See
footnotes 3, 5, 6, 7 and 8 above.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation") currently authorizes 42,000,000 shares of capital stock,
consisting of 39,000,000 shares of Common Stock, Class A, $.001 par value, and
3,000,000 shares of Preferred Stock, $.01 par value. In connection with the
Offering, the Company's Certificate of Incorporation will be amended and
restated (the "Restated Certificate of Incorporation"). Upon completion of the
Offering, the Restated Certificate of Incorporation will authorize the issuance
of 44,000,000 shares of capital stock, consisting of 39,000,000 shares of Common
Stock, par value $.001 per share, and 5,000,000 shares of Preferred Stock, par
value $.001 per share. Set forth below is a description of the capital stock of
the Company.
COMMON STOCK
As of August 15, 1996, assuming the conversion of all outstanding shares of
Preferred Stock and the convertible debenture and promissory note into Common
Stock, and the exercise of the stock purchase right described below, there were
4,877,936 shares of Common Stock issued and outstanding held of record by 55
stockholders, 606,625 shares of Common Stock issuable upon the exercise of
outstanding stock options and 26,126 shares of Common Stock issuable upon the
exercise of outstanding warrants.
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders and are not entitled to cumulative
voting rights with respect to the election of directors. Accordingly, holders of
a majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor,
subject to preferences that may be applicable to any outstanding Preferred
Stock. In the event of liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all net assets
remaining after payment of liabilities and the liquidation preference of any
outstanding Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption, conversion or other subscription rights, and there are
no sinking fund provisions applicable to the Common Stock. All currently
outstanding shares of Common Stock are, and the shares of Common Stock being
issued and sold in the Offering will be, duly authorized, validly issued, fully
paid and nonassessable.
PREFERRED STOCK
The Company currently has outstanding 2,020,496 shares of Series A Preferred
Stock and 349,000 shares of Series B Preferred Stock. Such shares will
automatically convert into Common Stock upon consummation of this Offering. Both
the Series A and Series B Preferred Stock have antidilution and conversion
adjustment provisions that will increase or decrease the number of shares of
Common Stock outstanding as of August 15, 1996 above or below the number of
shares set forth herein and will increase or decrease the number of shares used
in calculations for purposes of, among other things, dilution to new investors,
shares held by certain principal stockholders, shares subject to registration
rights and shares eligible for future sale, in the event that the initial public
offering price of the Common Stock offered hereby, is less than or greater than
$12.00 per share, as the case may be. See "Dilution," "Principal Stockholders,"
"-- Registration Rights," and "Shares Eligible for Future Sale."
The actual number of shares of Common Stock issuable to each holder of
Preferred Stock upon conversion of the Series A and Series B Preferred Stock
will equal the product of (a) the number of shares of Preferred Stock held by
such holder multiplied by (b) the greater of (x) one or (y) a fraction, the
numerator of which is $12.50 and the denominator of which is .6957 multiplied by
the initial public offering price of the Common Stock offered hereby. At the
assumed initial public offering price of $12.00 per share, 1,774,014 shares of
Common Stock will issue upon conversion of the Preferred Stock.
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<PAGE>
Following completion of the Offering and the conversion of all outstanding
shares of Preferred Stock, the Board of Directors will have the authority to
issue from time to time up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the powers, designations, preferences and relative,
participating, optional or other rights thereof, including dividend rights,
conversion rights, voting rights, redemption terms, liquidation preferences and
the number of shares constituting each such series, without any further vote or
action by the Company's stockholders. The issuance of Preferred Stock could
adversely affect the rights of holders of Common Stock and could have the effect
of delaying, deferring or preventing a change in control of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
STOCK PURCHASE RIGHT AND WARRANTS
Pursuant to a Stock Purchase Agreement entered into on March 27, 1992, as
amended on February 26, 1996, the Company granted The Ohio University Foundation
the right to purchase up to 25,000 shares of Common Stock in the event of an
initial public offering, merger or other similar corporate transaction involving
Progenitor, at a price equal to 50% of the assumed initial public offering price
per share or other per share consideration. The Ohio University Foundation has
agreed to exercise such right in full prior to the closing of the Offering. See
"Certain Transactions -- The Ohio University Foundation."
As of June 30, 1996, there were warrants outstanding to purchase an
aggregate of 26,126 shares of Common Stock at an exercise price of $9.18 per
share. The warrants also contain a cashless exercise right that allows the
holder to receive the number of shares of Common Stock subject to the warrant
multiplied by a fraction, the numerator of which is the difference between the
then current per share market price of the Common Stock and $9.18 and the
denominator of which is the then current per share market price of the Common
Stock. These warrants were issued in connection with a private placement of
Preferred Stock for which Paramount, an affiliate of Interneuron, acted as
placement agent. See "Certain Transactions -- Relationship with Interneuron."
The warrants expire five years from the date of this Offering. Upon automatic
conversion of the outstanding Preferred Stock in connection with the
consummation of this Offering, all such warrants will be converted into warrants
to purchase shares of Common Stock. The number of shares of Common Stock for
which such warrants are exercisable is subject to adjustment if the initial
public offering price of the Common Stock offered hereby is less than or greater
than $12.00 per share in the same manner and according to the same formula
described above for the conversion of the Company's currently outstanding
Preferred Stock. See "-- Preferred Stock." The warrants do not confer upon the
holder thereof any voting or preemptive rights, or any other rights as a
stockholder of Progenitor prior to exercise. Upon exercise of such warrants,
holders of the underlying shares of Common Stock will be entitled to certain
registration rights with respect to such shares. See "-- Registration Rights."
REGISTRATION RIGHTS
Pursuant to Investors' Rights Agreements (the "Investors' Agreements"), the
holders of 261,273 shares of Common Stock (the "Registrable Securities") or
their transferees are entitled to certain rights with respect to the
registration of such shares under the Securities Act. Pursuant to the Investors'
Agreements, subject to certain exceptions and limitations, the holders of at
least 50% of the Registrable Securities may require, on one occasion during the
four-year period commencing 12 months after the closing of the Offering (the
"Registration Period"), that the Company use its best efforts to register the
Registrable Securities for public resale. During the Registration Period, the
holders of the Registrable Securities may also require the Company (but not more
than twice in any calendar year) to register all or a portion of their
Registrable Securities on Form S-3 under the Securities Act when use of such
form becomes available to the Company; provided, among other limitations, that
the anticipated aggregate offering price, net of underwriting discounts and
commissions, will exceed $500,000 or the number of shares of Registrable
Securities exceeds 20,000, whichever has a greater value. In addition, in the
event
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<PAGE>
the Company elects to register any Common Stock under the Securities Act, either
for its own account or for the account of any other stockholders, the Company,
on two such occasions during the Registration Period, is required to notify, and
subject to certain marketing and other limitations, is required to include in
such registration the Registrable Securities of holders requesting registration.
The holders of 26,126 shares of Common Stock issuable, after completion of the
Offering, upon exercise of outstanding warrants are entitled to similar
registration rights with respect to the registration of the underlying shares on
a Form S-3 or in the event the Company files a registration statement during the
Registration Period pursuant to the terms of the warrants. All registration
expenses of any such registration are to be borne by the Company and all selling
expenses relating to Registrable Securities are to be borne by the holders of
the securities being registered. See "Certain Transactions -- Relationship with
Interneuron."
INTERNEURON CONVERTIBLE DEBENTURE AND PROMISSORY NOTE
On March 31, 1995, the Company issued a convertible debenture in the amount
of $387,968 to Interneuron, and procured an additional advance of $28,651 under
such debenture on June 30, 1995. The debenture is convertible immediately prior
to the consummation of this Offering into a number of shares of Common Stock
equal to the outstanding principal amount and any accrued interest divided by
the initial public offering price of the Common Stock, plus a cash payment in
lieu of fractional shares.
Interneuron has provided and continues to provide advances to Progenitor
evidenced by a promissory note dated March 31, 1996, in the principal amount of
approximately $523,000, as updated from time to time, payable on the earlier of
five years from the date of the note or the closing of this Offering.
Interneuron has agreed to convert the indebtedness evidenced by the note
(approximately $2.2 million as of August 15, 1996), including additional
advances from April 1, 1996 through the closing of the Offering and accrued
interest thereon, into shares of Common Stock upon the closing of the Offering
at a conversion price equal to the initial public offering price. See "Certain
Transactions -- Relationship with Interneuron."
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("DGCL"), an anti-takeover law. In general, the statute
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" 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, or the transaction in which the
person became an interested stockholder was, approved in a prescribed manner or
another prescribed exemption applies. For purposes of Section 203, a "business
combination" is defined broadly to include a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder. In
general, an "interested stockholder" is a person who, together with affiliates
and associates, owns (or within the three years prior to such transaction, did
own) 15% or more of the corporation's voting stock.
In addition, certain provisions of the Company's Restated Certificate of
Incorporation may have the effect of preventing, discouraging or delaying any
change in control of Progenitor. 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. See "-- Preferred Stock."
LIMITATION OF LIABILITY
Section 145 ("Section 145") of the DGCL provides a detailed statutory
framework covering indemnification of officers and directors against liabilities
and expenses arising out of legal proceedings brought against them by reason of
their being or having been directors or officers. Section 145 generally provides
that a director or officer of a corporation (i) shall be indemnified by the
corporation for all expenses of
58
<PAGE>
such legal proceedings when he is successful on the merits, (ii) may be
indemnified by the corporation for the expenses, judgments, fines and amounts
paid in settlement of such proceedings (other than a derivative suit), even if
he is not successful on the merits, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, and (iii) may be
indemnified by the corporation for the expenses of a derivative suit (a suit by
a stockholder alleging a breach by a director or officer of a duty owed to the
corporation), even if he is not successful on the merits, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation. No indemnification may be made under clause (iii)
above, however, if the director or officer is adjudged liable for negligence or
misconduct in the performance of his duties to the corporation, unless a
corporation determines that, despite such adjudication, but in view of all the
circumstances, he is entitled to indemnification. The indemnification described
in clauses (ii) and (iii) above may be made only upon a determination that
indemnification is proper because the applicable standard of conduct has been
met. Such a determination may be made by a majority of a quorum of disinterested
directors, independent legal counsel, the stockholders or a court of competent
jurisdiction.
The Company's Restated Certificate of Incorporation will provide that the
Company shall indemnify to the fullest extent permitted by Section 145, as it
now exists or as amended, all persons whom it may indemnify pursuant thereto.
The Company has entered into agreements to indemnify its directors and executive
officers, in addition to indemnification provided for in the Company's charter
documents. These agreements, among other things, provide for the indemnification
of the Company's directors and executive officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred by
any such person in any action or proceeding, including any action by or in the
right of the Company, arising out of such person's services as a director or
executive officer of the Company, any subsidiary of the Company or any other
company or enterprise to which such person provides services at the request of
the Company to the fullest extent permitted by applicable law. The Company
believes that these provisions and agreements will assist the Company in
attracting and retaining qualified persons to serve as directors and executive
officers.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) for any transaction from which the director derived an improper personal
benefit. The Company's Restated Certificate of Incorporation will provide for
the elimination of personal liability of a director for breach of fiduciary
duty, as permitted by Section 102(b)(7) of the DGCL.
The Underwriting Agreement provides for indemnification by the Underwriters
under certain circumstances of directors, officers and controlling persons of
the Company against certain liabilities, including liabilities under the
Securities Act.
Prior to the closing of the Offering, the Company intends to obtain
liability insurance insuring the Company's officers and directors against
liabilities that they may incur in such capacities.
The Investors' Agreements provide for cross-indemnification of stockholders
of the Company whose shares with registration rights are included in a
registration under the Securities Act, and of the Company, its officers and
directors for certain liabilities arising in connection with such registration.
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company has been appointed as the
transfer agent and registrar for the Company's Common Stock.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has not been any public market for the Common
Stock and there can be no assurance that a significant public market for the
Common Stock will be developed or be sustained after the Offering. Sales of
substantial amounts of Common Stock in the public market after the Offering, or
the possibility of such sales occurring, could adversely affect prevailing
market prices for the Common Stock or the future ability of the Company to raise
capital through an offering of equity securities.
After the Offering, the Company will have outstanding 7,377,936 shares of
Common Stock (7,752,936 shares if the Underwriters' over-allotment option is
exercised in full). Of these shares, the 2,500,000 shares offered hereby will be
freely tradable in the public market without restriction under the Securities
Act, unless such shares are held by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act.
The remaining 4,877,936 shares of Common Stock outstanding upon completion
of the Offering will be "restricted securities" as that term is defined in Rule
144 ("Restricted Shares"). The Restricted Shares were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act. Restricted Shares may be sold in the public market
only if they are registered or if they qualify for an exemption from
registration under the Securities Act, including an exemption under Rule 144 or
701, which are summarized below.
Pursuant to "lock-up" agreements, all of the Company's executive officers
and directors and certain stockholders, who collectively hold 902,541 of such
Restricted Shares, have agreed not to offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of any such shares for a period of 180
days from the date of this Prospectus without the prior written consent of
Vector Securities International, Inc. Interneuron will hold 3,820,134 Restricted
Shares and has agreed pursuant to a lock-up agreement not to offer, sell or
otherwise dispose of any of its Restricted Shares for a period of 365 days from
the date of this Prospectus without the prior written consent of Vector
Securities International, Inc. The Company has also agreed that it will not
offer, sell or otherwise dispose of Common Stock for a period of 180 days from
the date of this Prospectus, other than pursuant to existing stock option plans,
without the prior written consent of Vector Securities International, Inc. Upon
termination of such lock-up agreements, approximately 409,413 and 3,593,591 of
the Restricted Shares will be eligible for immediate sale beginning 181 days and
366 days, respectively, after the date of this Prospectus, in the public market
subject to certain volume, manner of sale and other limitations under Rule 144
and approximately 385,450 of such Restricted Shares will be eligible for
immediate sale 181 days after the date of this Prospectus without limitation
under Rule 144(k).
The Securities and Exchange Commission has recently proposed amendments to
Rule 144 and Rule 144(k) that would permit resale of restricted shares under
Rule 144 after a one-year, rather than a two-year holding period, subject to
compliance with the other provisions of Rule 144, and would permit resale of
restricted shares by non-affiliates under Rule 144(k) after a two-year, rather
than a three-year holding period. Adoption of such amendments could result in
resale of restricted shares sooner than would be the case under Rule 144 and
Rule 144(k) as currently in effect.
Following the expiration of such lock-up periods, certain shares issued upon
exercise of options granted by the Company prior to the date of this Prospectus
will also be available for sale in the public market pursuant to Rule 701 under
the Securities Act. Rule 701 permits resales of such shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirement, imposed under Rule 144. In general, under Rule 144 as
currently in effect, beginning on , 1996 (90 days after the date of
this Prospectus), a person (or persons whose shares of the Company are
aggregated) who has beneficially owned Restricted Shares for at least two years
(including the holding period of any prior owner who is not an affiliate of the
Company) would be 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 Common Stock (approximately 73,779 shares immediately
after the Offering), or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 are also subject to
60
<PAGE>
certain manner of sale and notice requirements and to the availability of
current public information about the Company. Under Rule 144(k), a person who is
not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale and who has beneficially owned the shares proposed to be
sold for at least three years (including the holding period of any prior owner
who is not an affiliate of the Company) is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
As of August 15, 1996, options to purchase a total of 606,625 shares of
Common Stock were outstanding under the Company's stock option plans. Of such
shares, approximately 508,625 shares are subject to lock-up agreements for a
period of 180 days from the date of this Prospectus and the remaining 98,000
shares will be available for sale in the public market 90 days after the date of
this Prospectus pursuant to Rule 701. As of August 15, 1996, 736,700 shares were
available for future option grants under such plans.
The Company intends to file after the effective date of the Offering
Registration Statements on Form S-8 to register an aggregate of 1,443,325 shares
of Common Stock reserved for issuance under its 1992 Stock Option Plan, 1996
Stock Incentive Plan and 1996 Employee Stock Purchase Plan. Such Registration
Statements will become effective automatically upon filing. Shares issued under
the foregoing plans, after the filing of the Registration Statements on Form
S-8, may be sold in the open market, subject, in the case of certain holders, to
the Rule 144 limitations applicable to affiliates, the above-referenced lock-up
agreements and vesting restrictions imposed by the Company.
After the closing of the Offering, holders of an aggregate of 261,273 shares
of Common Stock issued upon the conversion of Preferred Stock will be entitled
to certain rights with respect to the registration of such shares under the
Securities Act. In addition, the 26,126 shares issuable upon exercise of
outstanding warrants have similar registration rights during the four-year
period commencing 12 months after consummation of the Offering. See "Description
of Capital Stock -- Registration Rights."
61
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters (the "Underwriters") named below, for whom Vector Securities
International, Inc., Tucker Anthony Incorporated and Genesis Merchant Group
Securities are acting as representatives (the "Representatives"), have severally
agreed to purchase, subject to the terms and conditions of the Underwriting
Agreement, and the Company has agreed to sell to the Underwriters, the following
respective number of shares of Common Stock.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
Vector Securities International, Inc.................................................
Tucker Anthony Incorporated..........................................................
Genesis Merchant Group Securities....................................................
--------
Total.............................................................................. 2,500,000
--------
--------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock to the public
at the offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow to selected dealers and such dealers may
reallow a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares of Common Stock, the
offering price and other selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable at any
time 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 initial public offering
price set forth on the cover page of this Prospectus, less underwriting
discounts and commissions. The Underwriters may exercise such option solely for
the purpose of covering over-allotments, if any, in connection with the
Offering. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares listed in the table.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
At the request of the Company, the Underwriters have reserved 50,000 shares
for sale to employees, directors and other persons and entities associated with
the Company. The number of shares available for sale to the general public will
be reduced to the extent that the reserved shares are purchased by persons or
entities designated by the Company. Any reserved shares that are not purchased
by persons or entities designated by the Company will be offered by the
Underwriters to the general public on the same basis as other shares offered
hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
62
<PAGE>
The executive officers, directors and certain employees of the Company and
other stockholders have agreed that they will not, without the prior written
consent of Vector Securities International, Inc., offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock or securities exchangeable
for or convertible into shares of Common Stock for a period of 180 days (365
days in the case of Interneuron) after the date of this Prospectus. The Company
has agreed that it will not, without the prior written consent of Vector
Securities International, Inc., offer, sell, contract to sell, grant any option
to purchase or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock for a period of 180 days after the date
of this Prospectus, except for securities issued under its stock option plans.
See "Shares Eligible for Future Sale."
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the shares of Common Stock
included in the Offering will be determined by negotiations between the Company
and the Representatives. Among the factors considered in determining such price
will be the history of and prospects for the Company's business and the industry
in which it competes, an assessment of the Company's management and the present
state of the Company's development, its past and present operations and
financial performance, the prospects for future earnings of the Company, the
present state of the Company's discovery programs, the current state of the
economy in the United States and the current level of economic activity in the
industry in which the Company competes and in related or comparable industries,
and the current prevailing condition in the securities markets, including
current market valuations of publicly traded companies that are comparable to
the Company.
In February 1996, the Company engaged Vector Securities International, Inc.
as its primary financial advisor for a period of one year with automatic
six-month extensions, unless terminated in accordance with the terms of the
agreement, to provide certain financial advisory services to the Company. As
compensation for such services, the Company paid Vector Securities
International, Inc. a non-refundable retainer fee of $75,000 to be credited
against additional advisory fees payable upon completion of certain
transactions.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
and certain matters relating to the Offering will be passed upon for the Company
by Morrison & Foerster LLP, San Francisco, California. Certain legal matters
relating to the Offering will be passed upon for the Underwriters by Skadden,
Arps, Slate, Meagher & Flom, Chicago, Illinois.
EXPERTS
The financial statements of Progenitor, Inc. (a Development Stage Company)
as of September 30, 1994 and 1995 and for each of the three years in the period
ended September 30, 1995, and for the period from May 8, 1992 (date of
inception) to September 30, 1995, appearing in this Prospectus and Registration
Statement have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their report thereon appearing elsewhere herein and
in this Registration Statement, which includes an explanatory paragraph
regarding the Company's ability to continue as a going concern, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The statements in this Prospectus under the captions "Risk Factors --
Uncertainty of Patents and Proprietary Rights," "Business -- Progenitor's
Functional Genomics Approach," "Business -- Progenitor's Proprietary Discovery
Technologies," "Business -- Progenitor's Discovery Programs" and "Business --
Patents and Proprietary Rights" relating to patent matters have been reviewed
and approved by Pennie & Edmonds, New York, New York, patent counsel to the
Company, and have been included herein in reliance upon the review and approval
by such firm as experts in patent law.
63
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, a
Registration Statement on Form S-1, including amendments thereto, under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules filed therewith. For further information with
respect to the Company and such Common Stock, reference is hereby made to the
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document referred to 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. Copies of the Registration Statement, including
the exhibits and schedules thereto, may be inspected without charge at the
principal office of the Securities and Exchange Commission at 450 Fifth Street,
N.W, Room 1024, Washington, D.C. 20549, and at the following regional offices of
the Securities and Exchange Commission: Midwest Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional
Office, Seven World Trade Center, New York, New York 10048. Copies can be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W, Room 1024, Washington, D.C. 20549.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent public accountants
and will make available copies of quarterly reports for the first three quarters
of each fiscal year containing unaudited financial information.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statements of Stockholders' Deficit........................................................................ F-5
Statements of Cash Flows................................................................................... F-6
Notes to the Financial Statements.......................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders of
Progenitor, Inc.
We have audited the accompanying balance sheets of Progenitor, Inc. (a
Development Stage Company) as of September 30, 1994 and 1995, and the related
statements of operations, stockholders' deficit, and cash flows for the years
ended September 30, 1993, 1994 and 1995, and for the period from May 8, 1992
(date of inception) to September 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Progenitor, Inc. (a Development
Stage Company) as of September 30, 1994 and 1995, and the results of its
operations and its cash flows for the years ended September 30, 1993, 1994 and
1995, and for the period from May 8, 1992 (date of inception) to September 30,
1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company is in the development stage. The Company's lack of
revenues and its need for additional financing to fund its operations raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
June 5, 1996
F-2
<PAGE>
PROGENITOR, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, PRO FORMA
------------------------ JUNE 30, JUNE 30,
1994 1995 1996 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Current assets:
Cash and cash equivalents..................................... $ 9,544 $ 1,173,743 $ 28,020 $ 178,020
Accounts receivable........................................... -- 193,898 187,764 187,764
Accounts receivable -- parent................................. -- 131,600 -- --
Prepaid expenses and other current assets..................... 3,000 22,618 624,310 624,310
----------- ----------- ----------- -----------
Total current assets........................................ 12,544 1,521,859 840,094 990,094
----------- ----------- ----------- -----------
Property and equipment, at cost:
Equipment..................................................... 908,788 1,063,602 1,086,562 1,086,562
Leasehold improvements........................................ 121,173 -- -- --
----------- ----------- ----------- -----------
1,029,961 1,063,602 1,086,562 1,086,562
Less accumulated depreciation............................... (268,030) (409,120) (598,542) (598,542)
----------- ----------- ----------- -----------
761,931 654,482 488,020 488,020
Notes receivable officers, net.................................. 202,096 218,734 72,222 72,222
----------- ----------- ----------- -----------
Total assets................................................ $ 976,571 $ 2,395,075 $1,400,336 $1,550,336
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.............................................. $ 173,166 $ 232,656 $ 397,425 $ 397,425
Accrued expenses.............................................. 679,394 1,343,718 879,588 879,588
Capital lease obligation -- current........................... 147,907 214,485 245,718 245,718
----------- ----------- ----------- -----------
Total current liabilities................................... 1,000,467 1,790,859 1,522,731 1,522,731
----------- ----------- ----------- -----------
Note payable -- parent.......................................... 10,453,193 -- 1,769,387 --
Convertible debenture -- parent................................. -- 436,740 465,963 --
Accrued interest -- parent...................................... 871,585 -- -- --
Capital lease obligation........................................ 441,976 268,382 172,333 172,333
----------- ----------- ----------- -----------
Total liabilities......................................... 12,767,221 2,495,981 3,930,414 1,695,064
----------- ----------- ----------- -----------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, Series A, $.01 par value: 2,120,000 shares
authorized; 2,020,496 shares issued and outstanding as of
September 30, 1995 and June 30, 1996......................... -- 20,205 20,205 --
Preferred stock, Series B, $.01 par value: 880,000 shares
authorized; 349,000 shares issued and outstanding as of
September 30, 1995 and June 30, 1996......................... -- 3,490 3,490 --
Common stock, Class A, $.001 par value: 39,000,000 shares
authorized; 2,568,668, 2,789,271, 2,852,779 and 4,838,072
(pro forma) shares issued and outstanding as of September 30,
1993, 1994 and 1995, and June 30, 1996, respectively......... 2,569 2,789 2,853 4,838
Common stock, Class B, $.001 par value: 1,000,000 shares
authorized; 250,000 shares issued and outstanding as of
September 30, 1994........................................... 250 -- -- --
Additional paid-in capital.................................... 5,094 14,546,640 14,897,701 17,304,761
Deficit accumulated during development stage.................. (11,798,563) (14,674,030) (17,454,327) (17,454,327)
----------- ----------- ----------- -----------
Total stockholders' deficit................................. (11,790,650) (100,906) (2,530,078) (144,728)
----------- ----------- ----------- -----------
Total liabilities and stockholders' deficit................. $ 976,571 $ 2,395,075 $1,400,336 $1,550,336
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
PROGENITOR, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MAY 8, 1992 MAY 8, 1992
(DATE OF NINE MONTHS ENDED JUNE (DATE OF
YEARS ENDED SEPTEMBER 30, INCEPTION) TO 30, INCEPTION)
------------------------------------- SEPTEMBER 30, ------------------------ TO JUNE 30,
1993 1994 1995 1995 1995 1996 1996
----------- ----------- ----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenue $ -- $ -- $ 2,821,386 $ 2,821,386 $2,602,372 $1,149,570 $ 3,970,956
Operating expenses:
Research and
development.............. 3,116,062 4,112,991 4,227,959 12,231,899 3,269,871 2,658,472 14,890,371
General and
administrative........... 1,339,086 1,274,896 1,116,652 3,995,433 857,043 1,167,275 5,162,708
----------- ----------- ----------- ------------- ----------- ----------- ------------
Total operating
expenses............... 4,455,148 5,387,887 5,344,611 16,227,332 4,126,914 3,825,747 20,053,079
----------- ----------- ----------- ------------- ----------- ----------- ------------
Interest expense capital
lease...................... -- 44,257 62,945 107,202 51,054 48,188 155,390
Interest expense parent..... 245,391 603,581 289,297 1,160,882 269,175 55,932 1,216,814
----------- ----------- ----------- ------------- ----------- ----------- ------------
Net loss................ $(4,700,539) $(6,035,725) $(2,875,467) $(14,674,030) ($1,844,771) ($2,780,297) $(17,454,327)
----------- ----------- ----------- ------------- ----------- ----------- ------------
----------- ----------- ----------- ------------- ----------- ----------- ------------
Pro forma net loss per
share...................... $ (0.63) $ (0.58)
----------- -----------
----------- -----------
Pro forma weighted-average
shares outstanding......... 4,536,481 4,780,787
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
PROGENITOR, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
FROM MAY 8, 1992 (DATE OF INCEPTION) TO SEPTEMBER 30, 1995,
AND (UNAUDITED) FOR THE NINE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------------------------------------- ---------------------------------
SERIES A SERIES B CLASS A CLASS B
---------------------- ---------------------- ---------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
--------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 8, 1992 (inception)
Issued in May 1992 at $.002 per share....... -- $ -- -- $ -- 2,412,950 $ 2,413 --
Issued in May 1992 at $.001 per share....... -- -- -- -- -- -- 250,000
Net loss.................................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- ---------
Balance, September 30, 1992................... -- -- -- -- 2,412,950 2,413 250,000
Issued in December 1992 and January 1993 at
$.000 per share under anti-dilution
provisions................................. -- -- -- -- 13,397 13 --
Issued in December 1992 and January 1993 at
$.02 per share............................. -- -- -- -- 216,588 217 --
Repurchased at $.02 per share............... -- -- -- -- (74,267) (74) --
Net loss.................................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- ---------
Balance, September 30, 1993................... -- -- -- -- 2,568,668 2,569 250,000
Net loss.................................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- ---------
Balance, September 30, 1994................... -- -- -- -- 2,568,668 2,569 250,000
--------- ----------- ---------
Issued preferred stock at $6.25 for
conversion of debt to equity............... 2,020,496 20,205 -- -- -- -- --
Conversion of Class B common to Class A
common under anti-dilution provisions...... -- -- -- -- 178,750 179 (250,000)
Issued in December 1994 at $.000 per share
under anti-dilution provisions............. -- -- -- -- 40,353 40 --
Stock options exercised at $.20 per share... -- -- -- -- 1,500 1 --
Issued preferred stock in December-April at
$4.47 per share, net of offering costs..... -- -- 349,000 3,490 -- -- --
Net loss.................................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- ---------
Balance, September 30, 1995................... 2,020,496 20,205 349,000 3,490 2,789,271 2,789 --
--------- ----------- --------- ----------- --------- ----------- ---------
Stock options exercised at $.20-$2.00 per
share...................................... -- -- -- -- 5,175 5 --
Issued common stock in February 1996 at
$6.00 per share............................ -- -- -- -- 58,333 59 --
Net loss.................................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- ---------
Balance, June 30, 1996 (Unaudited)............ 2,020,496 $ 20,205 349,000 $ 3,490 2,852,779 $ 2,853 --
--------- ----------- --------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- --------- ----------- ---------
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
PAID-IN DEVELOPMENT
AMOUNT CAPITAL STAGE TOTAL
----------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Balance, May 8, 1992 (inception)
Issued in May 1992 at $.002 per share....... $ -- $ 2,413 $ -- $ 4,826
Issued in May 1992 at $.001 per share....... 250 -- -- 250
Net loss.................................... -- -- (1,062,299) (1,062,299)
--- ---------- ------------- -----------
Balance, September 30, 1992................... 250 2,413 (1,062,299) (1,057,223)
Issued in December 1992 and January 1993 at
$.000 per share under anti-dilution
provisions................................. -- (13) -- --
Issued in December 1992 and January 1993 at
$.02 per share............................. -- 4,105 -- 4,322
Repurchased at $.02 per share............... -- (1,411) -- (1,485)
Net loss.................................... -- -- (4,700,539) (4,700,539)
--- ---------- ------------- -----------
Balance, September 30, 1993................... 250 5,094 (5,762,838) (5,754,925)
Net loss.................................... -- -- (6,035,725) (6,035,725)
--- ---------- ------------- -----------
Balance, September 30, 1994................... 250 5,094 (11,798,563) (11,790,650)
--- ---------- ------------- -----------
Issued preferred stock at $6.25 for
conversion of debt to equity............... -- 12,607,895 -- 12,628,100
Conversion of Class B common to Class A
common under anti-dilution provisions...... (250) 161,751 -- 161,680
Issued in December 1994 at $.000 per share
under anti-dilution provisions............. -- 214,960 -- 215,000
Stock options exercised at $.20 per share... -- 299 -- 300
Issued preferred stock in December-April at
$4.47 per share, net of offering costs..... -- 1,556,641 -- 1,560,131
Net loss.................................... -- -- (2,875,467) (2,875,467)
--- ---------- ------------- -----------
Balance, September 30, 1995................... -- 14,546,640 (14,674,030) (100,906)
--- ---------- ------------- -----------
Stock options exercised at $.20-$2.00 per
share...................................... -- 1,120 -- 1,125
Issued common stock in February 1996 at
$6.00 per share............................ -- 349,941 -- 350,000
Net loss.................................... -- -- (2,780,297) (2,780,297)
--- ---------- ------------- -----------
Balance, June 30, 1996 (Unaudited)............ $ -- $14,897,701 $(17,454,327) $ 2,530,078
--- ---------- ------------- -----------
--- ---------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
PROGENITOR, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MAY 8, 1992 MAY 8, 1992
(DATE OF NINE MONTHS ENDED JUNE (DATE OF
YEARS ENDED SEPTEMBER 30, INCEPTION) TO 30, INCEPTION)
---------------------------------- SEPTEMBER 30, ------------------------ TO JUNE 30
1993 1994 1995 1995 1995 1996 1996
---------- ---------- ---------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash flows from operating
activities:
Net loss................... $(4,700,539) $(6,035,725) $(2,875,467) $(14,674,030) ($1,844,771) ($2,780,297) ($17,454,327)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization............ 193,539 289,340 262,263 749,668 199,508 216,790 966,458
Gain on sale of
equipment............... -- -- -- -- -- (30,729) (30,729)
Noncash expense for anti-
dilution stock
issuances............... -- -- 376,680 376,680 -- -- 376,680
Changes in operating
assets and liabilities:
Notes receivable
officers, net......... 16,408 (66,146) (16,638) (218,734) (76,448) 146,512 (72,222)
Accounts receivable.... -- -- (193,898) (193,898) (64,633) 6,134 (187,764)
Accounts receivable --
parent................ -- -- (131,600) (131,600) -- 131,600 --
Prepaid expenses and
other current
assets................ (8,526) 7,000 (19,618) (22,618) (33,283) (601,692) (624,310)
Accounts payable....... (177,065) 59,847 59,490 232,656 (97,242) 164,770 397,426
Accrued expenses....... 279,992 274,529 664,324 1,343,718 910,832 (464,130) 879,588
Accrued interest --
parent................ 245,391 603,581 261,350 1,132,935 269,175 29,223 1,162,158
---------- ---------- ---------- ------------- ----------- ----------- ------------
Cash used in operating
activities.............. (4,150,800) (4,867,574) (1,613,114) (11,405,223) (736,862) (3,181,819) (14,587,042)
---------- ---------- ---------- ------------- ----------- ----------- ------------
Cash flows from investing
activities:
Purchase of property and
equipment................. (571,419) (294,623) (154,814) (1,404,150) (140,293) (19,599) (1,423,749)
---------- ---------- ---------- ------------- ----------- ----------- ------------
Cash used in investing
activities.............. (571,419) (294,623) (154,814) (1,404,150) (140,293) (19,599) (1,423,749)
---------- ---------- ---------- ------------- ----------- ----------- ------------
Cash flows from financing
activities:
Proceeds from note payable
-- parent................. 4,695,371 4,570,771 1,041,972 11,495,165 1,034,147 1,769,387 13,264,552
Proceeds from convertible
debenture -- parent....... -- -- 436,740 436,740 407,068 -- 436,740
Proceeds from issuance of
stock, net................ 2,837 -- 1,560,431 1,568,344 1,523,980 351,125 1,919,469
Proceeds from sale
leaseback................. -- 662,602 87,771 750,373 87,771 117,325 867,698
Principal payments on
capital lease
obligation................ -- (72,719) (194,787) (267,506) (133,229) (182,142) (449,648)
---------- ---------- ---------- ------------- ----------- ----------- ------------
Cash provided by
financing activities.... 4,698,208 5,160,654 2,932,127 13,983,116 2,919,737 2,055,695 16,038,811
---------- ---------- ---------- ------------- ----------- ----------- ------------
Net (decrease) increase
in cash and cash
equivalents............. (24,011) (1,543) 1,164,199 1,173,743 2,042,582 (1,145,723) 28,020
Cash and cash equivalents,
beginning of period......... 35,098 11,087 9,544 -- 9,544 1,173,743 --
---------- ---------- ---------- ------------- ----------- ----------- ------------
Cash and cash
equivalents, end of
period.................. $ 11,087 $ 9,544 $1,173,743 $ 1,173,743 $2,052,126 $ 28,020 $ 28,020
---------- ---------- ---------- ------------- ----------- ----------- ------------
---------- ---------- ---------- ------------- ----------- ----------- ------------
Supplemental disclosure of
cash flow information:
Cash paid for interest,
net....................... $ -- $ 22,937 $ 84,265 $ 107,202
---------- ---------- ---------- -------------
---------- ---------- ---------- -------------
Supplemental schedule of
noncash investing and
financing activities:
</TABLE>
In 1995, the parent company converted debt of $11,495,165 and accrued
interest of $1,132,935 into 2,020,496 shares of Series A preferred stock
(see Note 11).
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
PROGENITOR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. ORGANIZATION: Progenitor, Inc. (the Company), a Delaware Corporation,
is a functional genomics company engaged in the discovery, characterization and
validation of novel genes, receptors and related proteins as therapeutic leads
and targets for the treatment of major diseases.
B. BASIS OF PRESENTATION: The accompanying financial statements have been
prepared on a going-concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
During the year ended September 30, 1995, the Company arranged for the
financing of its operating activities by borrowing approximately $1,458,000 from
its parent company, Interneuron Pharmaceuticals, Inc. ("Interneuron"), by
obtaining a $2,500,000 licensing fee from Chiron Corporation ("Chiron"), and by
raising approximately $1,560,000 from a private placement offering. Significant
additional research and development activities, clinical testing, and regulatory
approvals must be completed before commercial sales, if any, will commence. The
Company is actively pursuing research and development grants and negotiating
equity and corporate partnership arrangements to fund its research and
development activities.
C. PROPERTY AND EQUIPMENT: Depreciation is computed using the
straight-line method over the estimated useful lives of the depreciable assets.
Equipment leased under capital leases is amortized using the straight-line
method over the lease term. Leasehold improvements are amortized over the
estimated useful life of the asset or lease term, whichever is the shorter
period. Maintenance and repairs are charged to expense as incurred, while
renewals and improvements are capitalized. Equipment includes $707,972 and
$795,743 of equipment under capital lease and accumulated amortization of
$83,924 and $298,741 as of September 30, 1994 and 1995, respectively.
D. REVENUE RECOGNITION: The Company recognizes revenue under strategic
alliances as certain agreed upon milestones are achieved or license fees are
earned.
E. RESEARCH AND DEVELOPMENT COSTS: All costs related to research and
development are expensed as incurred.
F. CASH AND CASH EQUIVALENTS: For purposes of the statement of cash flows,
cash and cash equivalents consist of cash in banks, highly liquid debt
instruments and money market funds with original maturities of three months or
less.
G. INTERIM FINANCIAL STATEMENTS (UNAUDITED): The interim financial
statements reflect all adjustments, consisting only of normal recurring
accruals, which are, in the opinion of the Company's management, necessary for a
fair presentation of the financial position and results of operations for the
periods presented. Revenues and expenses for any interim period are not
necessarily indicative of results for a full year.
H. PRO FORMA PRESENTATION (UNAUDITED): The pro forma unaudited balance
sheet as of June 30, 1996 reflects (a) the automatic conversion of all
outstanding shares of Preferred Stock into an aggregate of 1,774,014 shares of
Common Stock, (b) the conversion of the convertible debenture and promissory
note held by Interneuron into an aggregate of 186,279 shares of Common Stock and
(c) the purchase by the Ohio University Foundation of 25,000 shares of Common
Stock at a price of $6.00 per share pursuant to a stock purchase right. Such
conversions will occur upon the closing of the Company's proposed initial public
offering ("IPO") of common stock.
F-7
<PAGE>
PROGENITOR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
I. PRO FORMA NET INCOME PER SHARE (UNAUDITED): Pro forma unaudited net
income per share is computed using the weighted-average number of outstanding
shares of common stock and common stock equivalents, assuming conversion of all
outstanding Preferred Stock, the convertible debenture and promissory note held
by Interneuron into common stock (as of their original date of issuance), which
will occur upon completion of the Company's proposed IPO. Common stock
equivalents are excluded from the computation when their effect is
anti-dilutive; however, pursuant to the requirements of the Securities and
Exchange Commission ("SEC"), common stock equivalent shares relating to stock
options and warrants (using the treasury stock method and an assumed IPO price
of $12.00 per share) issued during the 12-month period prior to the initial
filing of IPO are included for all periods presented whether or not they are
anti-dilutive. Historical earnings per share have not been presented because
such amounts are not meaningful due to the significant change in the Company's
capital structure that will occur in connection with the Company's proposed IPO.
J. RECLASSIFICATIONS: Certain reclassifications have been made to the
prior year's financial statements to conform to the current-year presentation.
K. USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
L. STOCK SPLIT: In May 1996, the Board of Directors authorized a
one-for-two reverse stock split on Class A common shares effective prior to the
effective date of the proposed IPO. All references to Class A common shares,
underlying stock options and warrants and per share data have been restated to
reflect the reverse stock split.
2. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ------------
<S> <C> <C>
Sponsored research.................................................. $ 494,855 $ 438,794
Chiron.............................................................. -- 701,296
Other............................................................... 184,539 203,628
---------- ------------
$ 679,394 $ 1,343,718
---------- ------------
---------- ------------
</TABLE>
3. INCOME TAXES:
No income tax provision or benefit has been provided for federal income tax
purposes as the Company has incurred losses since inception. As of September 30,
1995, net deferred tax assets totaled approximately $5,688,000 on total net
operating loss carryforwards of approximately $13,050,000 and tax credits of
approximately $468,000 that expire on various dates through 2009. Due to the
uncertainty surrounding the realization of these favorable tax attributes in
future tax returns, all of the net deferred tax assets have been fully offset by
a valuation allowance.
4. STOCK OPTIONS AND WARRANTS:
A. STOCK OPTIONS: Under the Company's Stock Option Plan adopted in 1992,
incentive stock options and nonqualified stock options may be granted. The
number of Class A common shares
F-8
<PAGE>
PROGENITOR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
4. STOCK OPTIONS AND WARRANTS: (CONTINUED)
authorized and reserved for issuance is 500,000. The outstanding options vest
over a period of three to four years. As of September 30, 1994 and 1995, 32,356
and 81,695 stock options were exercisable, respectively. Options granted to
stockholders with 10% or greater ownership expire after five years.
Stock option activity is summarized below:
<TABLE>
<CAPTION>
NUMBER OF OPTION
SHARES PRICE
----------- -----------
<S> <C> <C>
Outstanding at September 30, 1992................................... -- --
Granted........................................................... 104,700 $ 0.20-4.00
Forfeited......................................................... 250 0.20
-----------
Outstanding at September 30, 1993................................... 104,450 0.20-4.00
Granted........................................................... 75,875 4.00
Forfeited......................................................... 1,700 0.20-4.00
-----------
Outstanding at September 30, 1994................................... 178,625 0.20-4.00
Granted........................................................... 192,250 4.00-6.00
Forfeited......................................................... 20,472 0.20-4.00
Exercised......................................................... 1,500 0.20
-----------
Outstanding at September 30, 1995................................... 348,903 0.20-6.00
-----------
-----------
</TABLE>
In September 1995, the Company issued 112,500 stock options to certain
executives. These options vest in September 2002. An additional 12,500 stock
options were issued that vest upon the achievement of certain milestones.
The Company issued 43,250 stock options to certain employees at an exercise
price of $6.00 per share. In May 1996, the Company amended the terms of 80,000
stock options by changing the vesting period to three years and 12,500 stock
options by changing the vesting period to four years.
In December 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, which changes the measurement, recognition and
disclosure standards for stock-based compensation. The Company will adopt the
disclosure requirements of SFAS No. 123 in fiscal year 1997, but will elect to
continue to measure compensation cost following present accounting rules.
In May 1996, the Company adopted the 1996 Stock Incentive Plan (the "Plan").
The number of common shares authorized and available for issuance is 850,000.
Under the Plan, incentive stock options, nonqualified stock options, stock
appreciation rights and stock grants may be granted. In May 1996, 275,000 stock
options were granted to officers of the Company at an exercise price of $9.00
per share.
B. WARRANTS: In June 1995, the Company issued to designees of the
Placement Agent, which is an affiliate of the parent company, warrants to
purchase a total of 34,901 shares of Series B convertible preferred stock. The
warrants were issued in conjunction with the private placement offering
discussed in Note 10. The warrants are exercisable at a price of $6.875 per
share and expire on the earlier of (i) five years from an initial public
offering of the Company's common stock, or (ii) June 30, 2005. The Company paid
the Placement Agent approximately $129,000 as its share of placement agent fees.
5. COMMITMENTS:
The Company has entered into various operating leases for furniture,
fixtures, and equipment which expire through the year 1998.
F-9
<PAGE>
PROGENITOR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
5. COMMITMENTS: (CONTINUED)
In April 1994, the Company entered into a sale-lease back equipment lease
financing agreement with a leasing company providing for funding of up to an
aggregate of $2,200,000 for equipment purchased prior to June 30, 1995. The book
value of the assets leased under this arrangement totaled $795,743, and the net
asset value of the equipment totaled $750,373. During the year ended September
30, 1994, the Company recorded and deferred a loss on the leased assets of
$45,370, which it is amortizing over the life of the lease. The lease is being
treated as a capital lease and is guaranteed by Interneuron.
In November 1994, the Company entered into a one-year lease for laboratory
and administrative space that expires in December 1995. The lease provides for
monthly rental payments of approximately $10,900. The Company has extended the
lease through 1996. The Company has the option to extend the lease on a yearly
basis for 1997. The minimum rental commitments under these agreements are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL LEASE
YEARS ENDING SEPTEMBER 30, LEASES OBLIGATION
- ------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
1996............................................................... $ 174,679 $ 258,699
1997............................................................... 16,138 258,699
1998............................................................... 11,783 29,466
1999............................................................... 10,331 --
2000............................................................... 3,444 --
---------- -------------
Total lease payments............................................... $ 216,375 546,864
----------
----------
Less amount representing interest.................................. (63,997)
-------------
Present value of future lease payments............................. 482,867
Less current portion............................................... (214,485)
-------------
Noncurrent portion of capital lease obligation..................... $ 268,382
-------------
-------------
</TABLE>
Rent expense approximated $97,000, $140,000 and $186,000 during the years
ended September 30, 1993, 1994 and 1995, respectively, and $514,000 for the
period May 8, 1992 (date of inception) through September 30, 1995.
6. RELATED-PARTY TRANSACTIONS:
Under employment agreements with certain executives, the Company advanced
loans to assist in purchasing new homes. As of September 30, 1995, there were
loans to three executives for a total of $359,744. The first loan of $100,796 is
interest-free, with $60,796 due upon the earlier of April 1997 or the
termination of the officer's employment. The remaining balance is to be forgiven
upon the achievement of specified milestones. The second loan of $182,500 bears
interest at 7% per annum, with $142,500 due upon the earlier of the sale of the
officer's existing home, June 1997, or termination of the officer's employment.
The remaining balance is to be forgiven upon the achievement of specified
milestones. During 1995, loans totaling $76,448 were made to a third executive,
$21,448 of which is non-interest-bearing and was repaid in May 1996. The
remaining loans bear interest at 9% per annum, with $15,000 due upon the earlier
of March 1999, or the termination of the officer's employment. The balance of
$40,000 is to be forgiven upon the achievement of specified milestones.
The Company has recorded $81,200 and $141,010 as of September 30, 1994 and
1995, respectively, as a note receivable reserve in anticipation of the
potential forgiveness of certain loan amounts.
F-10
<PAGE>
PROGENITOR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
7. CONSULTING AGREEMENTS:
The Company has entered into various consulting agreements which range from
one to three years and are subject to renewals, whereby outside consultants
provide scientific advice and administrative services to the Company. Payments
to consultants made during 1993, 1994 and 1995, totaled approximately $203,500,
$309,000 and $243,000, respectively, and $914,000 for the period May 8, 1992
(date of inception) through September 30, 1995. Of these amounts, approximately
$181,000, $190,000 and $177,400 represented payments to certain stockholders in
1993, 1994 and 1995, respectively, and $707,400 for the period May 8, 1992 (date
of inception) through September 30, 1995.
8. LICENSE AND RESEARCH AGREEMENTS:
The Company entered into a license agreement and a sponsored research
agreement with Ohio University in January 1992, certain terms of which were
amended in October 1993. The license agreement grants the Company the exclusive
worldwide license to patent and other rights to yolk sac stem cells and related
technologies in exchange for royalties based on sales. The research agreement
requires the Company to fund specified minimum levels of research and related
expenses, as well as any additional costs approved in advance by the Company.
In addition, the Company agreed to issue 5% of its equity to The Ohio
University Foundation and agreed to preserve this percentage ownership position
until the parent company's total investment in the Company is at least $10.0
million or the date of an IPO by the Company. The $10.0 million investment was
achieved during 1995, thus the percentage ownership position no longer needs to
be preserved. Until an initial public offering of the Company is consummated,
The Ohio University Foundation was entitled to increase its interest to 6.25% by
purchasing additional equity at a price equal to 50% of the offering price of
common stock in any such initial public offering. This provision was canceled in
February 1996, at which time The Ohio University Foundation entered into a stock
purchase agreement with the Company pursuant to which The Ohio University
Foundation purchased 58,333 shares of common stock for $350,000 ($6.00 per
share). If the IPO price is less than $12.00 per share, additional shares will
be issued until The Ohio University Foundation has paid a maximum of 50% of the
IPO price. Additionally, a stock purchase right was issued to The Ohio
University Foundation to purchase 25,000 shares of the common stock at 50% of
the IPO price.
The license agreement also contains certain requirements related to the
management and operation of the Company, including the nomination of two
designees of The Ohio University Foundation to the Board of Directors of the
Company. The Castle Group, Ltd. ("Castle"), which is controlled by a former
director of the Company and a principal stockholder of Interneuron, has
unconditionally guaranteed to Ohio University the performance of the Company's
obligations under the license agreement until the earlier of five years or an
initial public offering by the Company. Certain employees of Castle own common
stock of the Company.
In April 1993, the Company entered into a second license agreement and a
sponsored research agreement with Ohio University pursuant to which the Company
agreed to fund research relating to the T7T7 gene delivery system, developing an
active cell membrane transport system. The license agreement grants the Company
the exclusive worldwide license to all patent and other rights derived from this
and related technologies in exchange for royalties based on sales.
In February 1994, the Company entered into a license agreement with Albert
Einstein College of Medicine of Yeshiva University ("AECOM"). The agreement
grants the Company the exclusive worldwide license to all patent and other
rights from research done on retroviral vectors by AECOM in exchange for a
license fee and royalties based on sales.
F-11
<PAGE>
PROGENITOR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
8. LICENSE AND RESEARCH AGREEMENTS: (CONTINUED)
In September 1994, the Company entered into a license agreement with
Wisconsin Alumni Research Foundation ("WARF"). The agreement grants the Company
a nonexclusive license to certain patents developed by WARF in exchange for a
license fee, maintenance fees, and royalties based on sales.
In November 1994, the Company was awarded a competitive grant of $2.0
million through the Advanced Technology Program ("ATP") of the U.S. Department
of Commerce. The funds will be received over a three-year period commencing June
1, 1995.
In March 1995, the Company entered into a license and collaboration
agreement with Chiron. As required by the agreement, an initial cash payment of
$2.5 million was paid by Chiron to the Company in April 1995. The Company has
committed to reimburse Chiron the start-up manufacturing costs incurred related
to this agreement up to $750,000. Chiron paid $500,000 to the Company in January
1996, for continued research funding. The agreement also calls for future
payments contingent upon the achievement of certain milestones.
In May 1995, the Company entered into a sponsored research and license
agreement with Novo Nordisk, through its subsidiary, ZymoGenetics, Inc. The
agreement calls for research and license fees to be paid to the Company,
contingent upon certain conditions and the meeting of certain milestones.
Additionally, the Company has entered into various sponsored research
agreements with varying terms up to two years in length. The total sponsored
research expense was $882,217, $890,000 and $601,103 for the years ended
September 30, 1993, 1994 and 1995, respectively, and $2,690,680 for the period
from May 8, 1992 (date of inception) through September 30, 1995. Payments to
Ohio University for sponsored research totaled $485,480, $245,888 and $398,064,
for the years ended September 30, 1993, 1994 and 1995, respectively, and
$1,281,132 for the period May 8, 1992 (date of inception) through September 30,
1995. Amounts owed to Ohio University for sponsored research were $424,401 and
$215,600 at September 30, 1994 and 1995, respectively. In addition, at September
30, 1995, the Company had commitments to fund additional sponsored research of
approximately $824,000, including a commitment of $52,390 to Ohio University.
9. COMMON STOCK:
The Company is authorized to issue two classes of shares of common stock,
designated Class A and Class B. Shares of the Company's Class B common stock are
convertible, at any time at the option of the holder, into shares of Class A
common stock. The conversion ratio is subject to adjustment based on several
factors, including the issuance of additional Class A shares.
Holders of Class B shares are entitled to pro rata dividend, liquidation,
and voting rights based on the number of Class A shares into which such Class B
shares are convertible. Class B shares are automatically converted to Class A
shares upon the receipt by the Company of capital contributions of $10.0 million
in aggregate amount from the date of incorporation. When this was achieved in
1995, all Class B shares were converted into a total of 357,500 Class A common
shares.
10. PREFERRED STOCK:
In December 1994, the Company's Board of Directors approved the
authorization of 2,120,000 shares of Series A and 880,000 shares of Series B
preferred stock. These preferred shares are convertible into shares of Class A
common stock and have preferential rights in terms of dividends and liquidation
over common stock. Shares of preferred stock have voting rights equal to the
number of shares of their common stock equivalent.
F-12
<PAGE>
PROGENITOR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
10. PREFERRED STOCK: (CONTINUED)
Shares of Series A preferred stock are convertible, at any time at the
option of the holder, into shares of Class A common stock. The initial
conversion ratio is based on a Series A price of $6.25, subject to adjustment
based on several factors. Series A preferred shares are automatically converted
upon a qualified public offering.
Through July 7, 1995, the Company has issued 349,000 shares of Series B
preferred stock in connection with private placements. The private placement was
a sale of units, each unit consisting of shares of preferred stock of the
Company, shares of preferred stock of another subsidiary of Interneuron,
Transcell Technologies, Inc., and a put protection right from Interneuron. The
put protection right provides that on the third anniversary of the final closing
date of the private placement, the owner has the right to sell to Interneuron a
percentage of the preferred stock of the Company that is deemed to be illiquid,
as defined in the agreement. The Company received approximately $1,560,000, net
of offering costs, as its share of the proceeds from the private placement.
Shares of Series B preferred stock are convertible, at any time at the option of
the holder, into shares of Class A common stock. The initial conversion ratio is
based on a Series B price of $6.25, subject to adjustment based on several
factors. Series B preferred shares are automatically converted upon a qualified
public offering.
Shares of authorized common stock have been reserved for the exercise of all
convertible preferred stock outstanding.
11. NOTE PAYABLE TO THE PARENT COMPANY:
The note payable to the parent company, Interneuron, bore interest at a rate
of 1% over the prime lending rate (7 3/4% prime plus 1% at September 30, 1994)
and was payable on demand. Periodic advances were made available under this note
at the discretion of Interneuron. In January 1995, the outstanding balance on
the Note Payable -- parent of $11,495,165 and accrued interest of $1,132,935 was
converted into 2,020,496 shares of Series A preferred stock.
In March 1996, the Company entered into a promissory note with the parent
company, bearing interest at a rate of 1% over the prime lending rate. The note
is due on the earlier of March 31, 2001 or the closing of an initial public
offering.
Since the inception of the Company, Interneuron has paid for certain Company
expenses which were reimbursed by the Company at cost.
12. CONVERTIBLE DEBENTURE-PARENT:
In March 1995, the Company entered into a convertible debenture agreement
with IPI, at a rate of 1% over the prime lending rate. The prime lending rate
was 8.75% as of September 30, 1995. Principal and interest are due at the
earlier of five years from the final closing date or upon a qualified public
offering as defined in the agreement. The debenture is convertible, at any time
at the option of the holder, into shares of Class A common stock. The conversion
price is equal to the fair market value of the common stock at the time of the
conversion. The debenture is automatically converted upon a qualified public
offering.
13. EMPLOYEE BENEFITS:
Employees of the Company are eligible to participate in the Interneuron
Pharmaceuticals, Inc. 401(k) Savings Plan under which employees may defer a
portion of their annual compensation. Company contributions to the 401(k)
Savings Plan may be made on a discretionary basis. As of September 30, 1995, no
Company contributions have been made.
F-13
<PAGE>
[Two color photographs showing the following: 1. The location of the human B219
leptin receptor gene on human chromosome lp32; and 2. Staining of the Del-1
protein in the endothelial cells of blood vessels in a human tumor grown in a
mouse.]
<PAGE>
- --------------------------------------------
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- --------------------------------------------
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON IS AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. 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 DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 5
Use of Proceeds.................................. 17
Dividend Policy.................................. 17
Capitalization................................... 18
Dilution......................................... 19
Selected Financial Data.......................... 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 21
Business......................................... 24
Management....................................... 40
Certain Transactions............................. 48
Principal Stockholders........................... 53
Description of Capital Stock..................... 54
Shares Eligible for Future Sale.................. 58
Underwriting..................................... 60
Legal Matters.................................... 61
Experts.......................................... 61
Additional Information........................... 62
Index to Financial Statements.................... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS 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.
2,500,000 SHARES
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
Vector Securities International, Inc.
Tucker Anthony
Incorporated
Genesis Merchant Group
Securities
, 1996
- --------------------------------------------
--------------------------------------------
- --------------------------------------------
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates except
for the SEC registration fee, the NASD filing fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 12,888
NASD Filing Fee................................................... 4,238
Nasdaq National Market Listing Fee................................ 38,971
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue sky fees and expenses........................................ 15,000
Transfer agent and registrar fees................................. *
Miscellaneous..................................................... *
---------
Total......................................................... $ 850,000
---------
---------
</TABLE>
- --------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 ("Section 145") of the Delaware General Corporation Law ("DGCL")
provides a detailed statutory framework covering indemnification of officers and
directors against liabilities and expenses arising out of legal proceedings
brought against them by reason of their being or having been directors or
officers. Section 145 generally provides that a director or officer of a
corporation (i) shall be indemnified by the corporation for all expenses of such
legal proceedings when he is successful on the merits, (ii) may be indemnified
by the corporation for the expenses, judgments, fines and amounts paid in
settlement of such proceedings (other than a derivative suit), even if he is not
successful on the merits, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, and (iii) may be
indemnified by the corporation for the expenses of a derivative suit (a suit by
a stockholder alleging a breach by a director or officer of a duty owed to the
corporation), even if he is not successful on the merits, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation. No indemnification may be made under clause (iii)
above, however, if the director or officer is adjudged liable for negligence or
misconduct in the performance of his duties to the corporation, unless a
corporation determines that, despite such adjudication, but in view of all the
circumstances, he is entitled to indemnification. The indemnification described
in clauses (ii) and (iii) above may be made only upon a determination that
indemnification is proper because the applicable standard of conduct has been
met. Such a determination may be made by a majority of a quorum of disinterested
directors, independent legal counsel, the stockholders or a court of competent
jurisdiction. The Company's Certificate of Incorporation provides that the
Company shall indemnify to the fullest extent permitted by Section 145, as it
now exists or as amended, all persons whom it may indemnify pursuant thereto.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
Certificate of Incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
II-1
<PAGE>
DGCL, or (iv) for any transaction from which the director derived an improper
personal benefit. The Company's Certificate of Incorporation provides for the
elimination of personal liability of a director for breach of fiduciary duty, as
permitted by Section 102(b)(7) of the DGCL.
Section 7 of the Form of Underwriting Agreement, filed as Exhibit 1.1
hereto, contains certain provisions relating to indemnification.
Prior to the closing of the Offering, the Company intends to obtain
liability insurance insuring the Company's officers and directors against
liabilities that they may incur in such capacities.
The Company has entered into agreements to indemnify its directors and
executive officers, in addition to indemnification provided for in the Company's
charter documents. These agreements, among other things, provide for the
indemnification of the Company's directors and executive officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by any such person in any action or proceeding, including any action by
or in the right of the Company, arising out of such person's services as a
director or executive officer of the Company, any subsidiary of the Company or
any other company or enterprise to which such person provides services at the
request of the Company to the fullest extent permitted by applicable law. The
Company believes that these provisions and agreements will assist the Company in
attracting and retaining qualified persons to serve as directors and executive
officers.
The Investors' Agreements provide for cross-indemnification of stockholders
of the Company whose shares with registration rights are included in a
registration under the Securities Act, and of the Company, its officers and
directors for certain liabilities arising in connection with such registration.
See also the undertakings set out in response to Item 17 herein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1993, the Company has issued and sold the following
unregistered securities:
(1) In 1993, the Company (a) sold 82,907 shares of Common Stock to Dr. Given
for $.02 per share pursuant to the terms of his employment agreement, (b)
issued 11,400 shares of Common Stock to The Ohio University Foundation
without additional consideration pursuant to certain antidilution rights
contained in a stock purchase agreement with the Company and (c) issued a
certificate for 14,854 shares of Common Stock to Dr. Cooper in exchange
for certificates for 89,121 shares of Common Stock pursuant to a
repurchase of Common Stock in connection with the termination of Dr.
Cooper's employment agreement with the Company.
(2) In 1994, the Company (a) issued 178,750 shares of Common Stock to Dr.
Thomas Wagner upon the conversion of the shares of Class B Common Stock
held by Dr. Wagner and (b) issued 40,353 shares of Common Stock to The
Ohio University Foundation without additional consideration pursuant to
certain antidilution rights contained in a stock purchase agreement with
the Company.
(3) Between December 1994 and July 1995, the Company issued and sold an
aggregate of 349,000 shares of Series B Preferred Stock to certain
persons and entities for $4.48 per share. In connection with such
transaction, the Company issued warrants to purchase 22,627 shares of
Series B Preferred Stock to designees of Paramount Capital, Inc., the
placement agent for such transaction, and warrants to purchase 12,274
shares of Series B Preferred Stock to designees of D.H. Blair & Co.,
Inc., selected dealer for such transaction, pursuant to rights of such
entities under agreements with the Company.
(4) In December 1994, upon the initial closing of the issuance and sale of
Series B Preferred Stock described in paragraph (3) above, in exchange
for the cancellation of an aggregate of approximately $12.6 million of
debt owed by the Company to Interneuron, the Company issued and sold
2,020,496 shares of Series A Preferred Stock to Interneuron for $6.25 per
share.
II-2
<PAGE>
(5) In 1996, the Company issued (a) 58,333 shares of Common Stock to The
Ohio University Foundation pursuant to a Stock Purchase Agreement dated
as of February 26, 1996, for $6.00 per share, (b) issued and sold 6,625
shares of Common Stock for $0.20 per share to certain former employees
pursuant to the exercise of stock options granted under the 1992 Stock
Option Plan and (c) issued and sold 50 shares of Common Stock for $2.00
per share to a former employee pursuant to the exercise of stock options
granted under the 1992 Stock Option Plan.
(6) Since January 1, 1993, the Company granted stock options to employees,
consultants, directors, officers and affiliates of the Company as
described below. From February 1 to June 1, 1993, the Company granted
stock options under the 1992 Stock Option Plan covering an aggregate of
82,450 shares of Common Stock at an exercise price of $0.20 per share. On
June 21, 1993, the Company granted stock options under the 1992 Stock
Option Plan covering an aggregate of 14,250 shares of Common Stock at an
exercise price of $2.00 per share. From June 2, 1993 to December 31,
1994, the Company granted stock options under the 1992 Stock Option Plan
covering an aggregate of 84,375 shares of Common Stock at an exercise
price of $4.00 per share. From March 1, 1995 to February 21, 1996, the
Company granted stock options under the 1992 Stock Option Plan covering
an aggregate of 235,000 shares of Common Stock at an exercise price of
$6.00 per share. On May 13, 1996, the Company granted stock options under
the 1996 Stock Incentive Plan covering an aggregate of 275,000 shares of
Common Stock at an exercise price of $9.00 per share.
The sales and issuances of Common Stock in the transactions described in
paragraphs (1), (2) and (5) above other than pursuant to the exercise of stock
options were deemed to be exempt from registration under the Securities Act
pursuant to Section 4(2) thereof.
The issuance and sale of the Series B Preferred Stock in the transactions
described in paragraph (3) were deemed to be exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act and/or Regulation
D promulgated thereunder.
The issuance of the warrants in the transactions described in paragraph (3)
was deemed to be exempt from registration under the Securities Act pursuant to
Section 4(2) thereof.
The issuance and sale of the Series A Preferred Stock in the transaction
described in paragraph (4) were deemed to be exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.
The issuances and sales of Common Stock pursuant to the exercise of stock
options described in paragraph (5) were deemed to be exempt from registration
under the Securities Act by virtue of Rule 701 promulgated thereunder, or were
deemed to be exempt pursuant to Section 4(2) thereof.
With respect to the grant of stock options described in paragraph (6),
exemption from registration under the Securities Act was unnecessary in that
none of such transactions involved a "sale" of securities as such term is used
in Section 2(3) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation of the Company.
**3.2 Amended and Restated Bylaws of the Company.
4.1 Specimen Stock Certificate of the Company.
4.2 Reference is made to Exhibits 3.1 and 3.2.
**5.1 Opinion of Morrison & Foerster LLP.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.1 Form of Indemnification Agreement entered into between the Company and its
directors and executive officers.
**10.2 The Company's 1992 Stock Option Plan.
**10.3 Form of Incentive Stock Option Agreement under the 1992 Stock Option Plan.
**10.4 Form of Non-Qualified Stock Option Agreement under the 1992 Stock Option Plan.
10.5 The Company's 1996 Stock Incentive Plan and form of Stock Option Agreement.
**10.6 Form of Investors' Rights Agreement, entered into among the Company, Interneuron
Pharmaceuticals, Inc., Transcell Technologies, Inc., and the holders of the
Company's Preferred Stock, Series B.
*/**10.7 License Agreement, dated as of January 28, 1992, by and between Scimark Corp.,
The Castle Group Ltd. and Ohio University, as amended October 15, 1993.
*/**10.8 Sponsored Research Agreement, dated January 31, 1992, by and between Scimark
Corp. and Ohio University, as amended October 15, 1993, February 16, 1994,
November 16, 1994 and November 22, 1995.
*/**10.9 License Agreement, dated as of April 1, 1993, by and between the Company and Ohio
University.
**10.11 License Agreement, dated as of June 8, 1994, by and between the Company and
Associated Universities, Inc.
*/**10.12 Standard License Agreement, dated as of September 1, 1994, by and between the
Company and the Wisconsin Alumni Research Foundation, as amended June 2, 1995.
*/**10.13 License and Collaboration Agreement, dated as of March 31, 1995, by and between
the Company and Chiron Corporation, as amended April 10, 1996.
*/**10.14 Sponsored Research and License Agreement, dated as of May 1, 1995, by and between
the Company and Novo Nordisk A/S, as amended January 17, 1996 and March 17, 1996.
*/**10.15 License Agreement, dated as of July 17, 1995, by and between the Company and
Vanderbilt University.
*/**10.16 License Agreement, dated as of May 30, 1996, by and between the Company and AMRAD
Developments PTY Ltd.
**10.17 Lease Agreement, dated as of November 1994, by and between the Company and Thomas
R. Eggers.
**10.18 Lease, Service and Affiliation Agreement, entered into as of February 1995, by
and between the Company and The Ohio State University.
**10.19 Employment Agreement, dated January 3, 1993, by and between the Company and
Douglass B. Given.
+10.20 Form of Intercompany Services Agreement, dated as of June , 1996, by and between
the Company and Interneuron Pharmaceuticals, Inc.
10.21 Form of Tax Allocation Agreement, dated as of June , 1996, by and between the
Company and Interneuron Pharmaceuticals, Inc.
10.22 The Company's 1996 Employee Stock Purchase Plan.
23.1 Consent of Coopers & Lybrand L.L.P.
**23.2 Consent of Pennie & Edmonds.
**23.3 Consent of Morrison & Foerster LLP (included in Exhibit 5.1).
**24.1 Power of Attorney.
**27 Financial Data Schedule.
</TABLE>
II-4
<PAGE>
- --------------
* Documents for which confidential treatment has been requested.
** Exhibit previously filed.
(B) FINANCIAL STATEMENT SCHEDULES.
None.
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 to provide to the Underwriters
at the closing 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, the Underwriting
Agreement, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered hereunder,
the registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of the
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.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be in the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Columbus,
State of Ohio, on August 16, 1996.
PROGENITOR, INC.
By: /s/ DOUGLASS B. GIVEN
-----------------------------------
Douglass B. Given, M.D., Ph.D.
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------- ------------------
<C> <S> <C>
/s/ DOUGLASS B. GIVEN
------------------------------------------- President, Chief Executive Officer August 16, 1996
Douglass B. Given, M.D., Ph.D. and Director
/s/ DAVID B. BITTNER*
------------------------------------------- Acting Chief Financial Officer August 16, 1996
David B. Bittner
/s/ ROBERT P. AXLINE*
------------------------------------------- Director August 16, 1996
Robert P. Axline
/s/ GLENN L. COOPER*
------------------------------------------- Director August 16, 1996
Glenn L. Cooper M.D.
/s/ ALEXANDER M. HAIG, JR.*
------------------------------------------- Director August 16, 1996
Alexander M. Haig, Jr.
/s/ MORRIS LASTER*
------------------------------------------- Director August 16, 1996
Morris Laster, M.D.
/s/ JERRY P. PEPPERS*
------------------------------------------- Director August 16, 1996
Jerry P. Peppers
/s/ DAVID B. SHARROCK*
------------------------------------------- Director August 16, 1996
David B. Sharrock
*By: /S/ DOUGLASS B. GIVEN
-------------------------------------------
Douglass B. Given, M.D., Ph.D.
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT PAGE
- ---------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement................................................................
3.1 Form of Amended and Restated Certificate of Incorporation of the Company......................
**3.2 Amended and Restated Bylaws of the Company....................................................
4.1 Specimen Stock Certificate of the Company.....................................................
4.2 Reference is made to Exhibits 3.1 and 3.2.....................................................
**5.1 Opinion of Morrison & Foerster LLP............................................................
10.1 Form of Indemnification Agreement entered into between the Company and its directors and
executive officers............................................................................
**10.2 The Company's 1992 Stock Option Plan..........................................................
**10.3 Form of Incentive Stock Option Agreement under the 1992 Stock Option Plan.....................
**10.4 Form of Non-Qualified Stock Option Agreement under the 1992 Stock Option
Plan..........................................................................................
10.5 The Company's 1996 Stock Incentive Plan and form of Stock Option Agreement....................
**10.6 Form of Investors' Rights Agreement, entered into among the Company, Interneuron
Pharmaceuticals, Inc., Transcell Technologies, Inc., and the holders of the Company's
Preferred Stock, Series B.....................................................................
*/**10.7 License Agreement, dated as of January 28, 1992, by and between Scimark Corp., The Castle
Group Ltd. and Ohio University, as amended October 15, 1993...................................
*/**10.8 Sponsored Research Agreement, dated January 31, 1992, by and between Scimark Corp. and Ohio
University, as amended October 15, 1993, February 16, 1994, November 16, 1994 and November 22,
1995..........................................................................................
*/**10.9 License Agreement, dated as of April 1, 1993, by and between the Company and Ohio
University....................................................................................
**10.11 License Agreement, dated as of June 8, 1994, by and between the Company and Associated
Universities, Inc.............................................................................
*/**10.12 Standard License Agreement, dated as of September 1, 1994, by and between the Company and the
Wisconsin Alumni Research Foundation, as amended June 2, 1995.................................
*/**10.13 License and Collaboration Agreement, dated as of March 31, 1995, by and between the Company
and Chiron Corporation, as amended April 10, 1996.............................................
*/**10.14 Sponsored Research and License Agreement, dated as of May 1, 1995, by and between the Company
and Novo Nordisk A/S, as amended January 17, 1996 and March 17, 1996..........................
*/**10.15 License Agreement, dated as of July 17, 1995, by and between the Company and Vanderbilt
University....................................................................................
*/**10.16 License Agreement, dated as of May 30, 1996, by and between the Company and AMRAD Developments
PTY Ltd.......................................................................................
**10.17 Lease Agreement, dated as of November 1994, by and between the Company and Thomas R.
Eggers........................................................................................
**10.18 Lease, Service and Affiliation Agreement, entered into as of February 1995, by and between the
Company and The Ohio State University.........................................................
**10.19 Employment Agreement, dated January 3, 1993, by and between the Company and Douglass B.
Given.........................................................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT PAGE
- ---------- ---------------------------------------------------------------------------------------------- ---------
10.20 Form of Intercompany Services Agreement, dated as of June , 1996, by and between the Company
and Interneuron Pharmaceuticals, Inc..........................................................
<C> <S> <C>
10.21 Form of Tax Allocation Agreement, dated as of June , 1996, by and between the Company and
Interneuron Pharmaceuticals, Inc..............................................................
10.22 The Company's 1996 Employee Stock Purchase Plan...............................................
23.1 Consent of Coopers & Lybrand L.L.P............................................................
**23.2 Consent of Pennie & Edmonds...................................................................
**23.3 Consent of Morrison & Foerster LLP (included in Exhibit 5.1)..................................
**24.1 Power of Attorney.............................................................................
**27 Financial Data Schedule.......................................................................
</TABLE>
- --------------
* Documents for which confidential treatment has been requested.
** Exhibit previously filed.
<PAGE>
2,500,000 Shares
PROGENITOR, INC.
Common Stock
FORM OF UNDERWRITING AGREEMENT
August __, 1996
VECTOR SECURITIES INTERNATIONAL, INC.
TUCKER ANTHONY INCORPORATED
GENESIS MERCHANT GROUP SECURITIES
As Representatives of the Several Underwriters
c/o VECTOR SECURITIES INTERNATIONAL, INC.
1751 Lake Cook Road, Suite 350
Deerfield, Illinois 60015
Ladies and Gentlemen:
Progenitor, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell an aggregate of 2,500,000 shares of its common stock, par value
$.001 per share, (the "Initial Securities") to the several Underwriters named in
Schedule I hereto (the "Underwriters") for whom Vector Securities International,
Inc. ("Vector"), Tucker Anthony Incorporated and Genesis Merchant Group
Securities are acting as representatives (collectively, the "Representatives").
In addition, solely for the purpose of covering over-allotments, the Company
proposes to grant to the several Underwriters, upon the terms and conditions set
forth in Section 2 hereof, an option to purchase up to an additional 375,000
shares of Common Stock of the Company (the "Option Securities"). The Initial
Securities and the Option Securities are hereinafter collectively referred to as
the "Securities." The Company's common stock, par value $.001 per share,
including the Securities, is hereinafter referred to as the "Common Stock."
The Company and the Underwriters agree that up to 50,000 shares of
the Securities to be purchased by the Underwriters (the "Reserved
Securities") shall be reserved for sale by the Underwriters to certain
eligible employees, directors and other persons and entities having business
relationships with the Company, as part of the distribution of the Securities
by the Underwriters, subject to the terms of this Agreement, the applicable
rules, regulations and interpretations of the National Association of
Securities Dealers, Inc. and all other applicable laws, rules and
regulations. To the extent that such Reserved Securities are not so
purchased by such eligible employees, directors and other persons and
entities having business relationships with the Company, such Reserved
Securities may be offered to the public as part of the public offering
contemplated hereby.
The Company wishes to confirm as follows its agreements with you and
the other Underwriters on whose behalf you are acting in connection with the
several purchases by the Underwriters of the Securities:
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-1 (No. 333-5369) covering the registration of
the Securities under the Securities Act of 1933, as amended (the "1933 Act"),
including the related preliminary prospectus, or prospectuses, and either (A)
has
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prepared and filed, prior to the effective date of such registration statement,
an amendment to such registration statement, including a final prospectus or (B)
if the Company has elected to rely upon Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations"),
will prepare and file a prospectus, in accordance with the provisions of Rule
430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act Regulations, promptly after
execution and delivery of this Agreement. Additionally, if the Company has
elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, the
Company will prepare and file a term sheet (a "Term Sheet") in accordance with
the provisions of Rule 434 and Rule 424(b), promptly after execution and
delivery of this Agreement. The information, if any, included in such
prospectus or in such Term Sheet, that was omitted from such registration
statement at the time it became effective but that is deemed to be part of such
registration statement at the time it becomes effective (a) pursuant to
paragraph (b) of Rule 430A, is referred to herein as the "Rule 430A
Information," or (b) pursuant to paragraph (d) of Rule 434, is referred to
herein as the "Rule 434 Information." Each prospectus used before the time such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information that was used
after effectiveness and prior to the execution and delivery of this Agreement is
herein called a "preliminary prospectus." Such registration statement,
including the exhibits thereto, at the time it became effective and including,
if applicable, the Rule 430A Information or the Rule 434 Information, is herein
called the "Registration Statement." Any registration statement filed pursuant
to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement," and after such filing the term Registration
Statement shall include the Rule 462(b) Registration Statement. The final
prospectus in the form first furnished to the Underwriters for use in connection
with the offering of the Securities is herein referred to as the "Prospectus."
If Rule 434 is relied upon, the term "Prospectus" shall refer to the preliminary
prospectus last furnished to the Underwriters in connection with the offering of
the Securities, together with the Term Sheet, and all references to the date of
the Prospectus shall mean the date of the Term Sheet. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any Term Sheet or any amendment or supplement to
any of the foregoing shall be deemed to include the copy, if any, filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
2. AGREEMENTS TO SELL AND PURCHASE. Upon the basis of the
representations, warranties and agreements contained herein and subject to all
the terms and conditions set forth herein, the Company hereby agrees to issue
and sell to each Underwriter and each Underwriter agrees, severally and not
jointly, to purchase from the Company, at a purchase price of $[ ] per
share (the
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"Purchase Price Per Share"), the number of Initial Securities set forth in
Schedule I opposite the name of such Underwriter under the column "Number of
Initial Securities to be Purchased from the Company" (or such number of Initial
Securities increased as set forth in Section 10 hereof).
Upon the basis of the representations, warranties and agreements
contained herein and subject to all the terms and conditions set forth herein,
the Company hereby grants an option (the "Over-Allotment Option") to the
Underwriters to purchase from the Company, at the Purchase Price Per Share, up
to an aggregate of 375,000 Option Securities. Option Securities may be
purchased solely for the purpose of covering over-allotments made in connection
with the offering of the Securities. Such option shall expire at 5:00 P.M.,
Chicago time, on the 30th day after the date of this Agreement (or, if such 30th
day shall be a Saturday or Sunday or a holiday, on the next business day
thereafter when the New York Stock Exchange is open for trading). Such over-
allotment option may be exercised at any time or from time to time until its
expiration. Upon any exercise of the Over-Allotment Option, each Underwriter,
severally and not jointly, agrees to purchase from the Company that proportion
of the total number of Option Securities as is equal to the percentage of
Initial Securities that such Underwriter is purchasing from the Company (or such
number of Initial Securities increased as set forth in Section 10 hereof),
subject to such adjustments as you may determine to avoid fractional shares.
3. TERMS OF PUBLIC OFFERING. The Company has been advised by you
that the Underwriters propose to make a public offering of the Securities as
soon after the Registration Statement and this Agreement have become effective
as in your judgment is advisable and initially to offer the Securities upon the
terms set forth in the Prospectus.
4. DELIVERY OF THE SECURITIES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Initial Securities shall be made at the
office of Skadden, Arps, Slate, Meagher & Flom, 333 West Wacker Drive, Suite
2100, Chicago, Illinois 60606, at 9:00 A.M., Chicago time, on the third
(fourth, if the pricing occurs after 4:30 p.m. (Eastern Time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10 hereof) (the "Closing Date"). The place of closing for
the Initial Securities and the Closing Date may be varied by agreement among you
and the Company.
Delivery to the Underwriters of and payment for any Option Securities
to be purchased by the Underwriters shall be made at the aforementioned office
of Skadden, Arps, Slate, Meagher & Flom at such time on such date (an "Option
Closing Date"), which may be the same as the Closing Date but shall in no event
be earlier than the Closing Date nor earlier than two nor later than
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ten business days after the giving of the notice hereinafter referred to, as
shall be specified in a written notice from you on behalf of the Underwriters to
the Company of the Underwriters' determination to purchase a number, specified
in such notice, of Option Securities. The place of closing for any Option
Securities and the Option Closing Date for such Option Securities may be varied
by agreement between you and the Company.
Certificates for the Initial Securities and for any Option Securities
to be purchased hereunder shall be registered in such names and in such
denominations as you shall request by written notice (it being understood that a
facsimile transmission shall be deemed written notice) prior to 9:30 A.M.,
Chicago time, on the second business day preceding the Closing Date or any
Option Closing Date, as the case may be. Such certificates shall be made
available to you in Chicago, Illinois or New York, New York, as requested by you
in the aforesaid notice, for inspection and packaging not later than 9:30 A.M.,
Chicago time, on the business day next preceding the Closing Date or an Option
Closing Date, as the case may be. The certificates evidencing the Initial
Securities and any Option Securities to be purchased hereunder shall be
delivered to you on the Closing Date or the Option Closing Date, as the case may
be, against payment of the purchase price therefor by certified or official bank
check or checks payable in New York Clearing House (next day) funds to the order
of the Company. It is understood that each Underwriter has authorized you, for
its account, to accept delivery of, acknowledge receipt of, and make payment of
the purchase price for, the Initial Securities and the Option Securities, if
any, which it has agreed to purchase. Vector, individually and not as
representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Initial Securities or the Option
Securities, if any, to be purchased by any Underwriter whose check has not been
received by the Closing Date or the Option Closing Date, as the case may be, but
such payment shall not relieve such Underwriter from its obligations hereunder.
5. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with
the several Underwriters as follows:
a. The Company will notify the Representatives immediately, and
confirm the notice in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto, (ii) of the receipt of any comments from
the Commission, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the suspension of
qualification of the Securities for offering or sale in any jurisdiction or the
initiation of any proceedings for such purpose and (v) during the period when
the Prospectus is required to be delivered under the
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1933 Act or Securities Exchange Act of 1934, as amended (the "1934 Act"), of any
change, or any event or occurrence which could result in such a change, in the
Company's condition, financial or otherwise, or the earnings, business affairs
or business prospects of the Company or the happening of any event, including
the filing of any information, documents or reports pursuant to the 1934 Act,
that makes any statement of a material fact made in the Registration Statement
or the Prospectus (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus in order to state a material fact required by the 1933 Act or the
1933 Act Regulations to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Prospectus to comply with the 1933 Act, the 1933 Act Regulations or any
other law. The Company shall use its best efforts to prevent the issuance of
any stop order or order suspending the qualification or exemption of the
Securities under any state securities or Blue Sky laws, and, if at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption of the
Securities under any state securities or Blue Sky laws, the Company shall use
every reasonable effort to obtain the withdrawal or lifting of such order at the
earliest possible time.
b. The Company will give the Underwriters notice of its
intention to prepare or file any amendment to the Registration Statement
(including any post-effective amendment), any Rule 462(b) Registration
Statement, any Term Sheet or any amendment or supplement to the Prospectus
(including any revised prospectus or Term Sheet and preliminary prospectus which
the Company proposes for use by the Underwriters in connection with the offering
of the Securities which differs from the prospectus on file at the Commission at
the time the Registration Statement becomes effective, whether or not such
revised prospectus or Term Sheet and preliminary prospectus is required to be
filed pursuant to Rule 424(b)), whether pursuant to the 1933 Act, the 1934 Act
or otherwise, will furnish the Underwriters with copies of any Rule 462(b)
Registration Statement, Term Sheet, amendment or supplement a reasonable amount
of time prior to such proposed filing or use, as the case may be, and will not
file any such Rule 462(b) Registration Statement, Term Sheet, amendment or
supplement or use any such prospectus to which the Underwriters or counsel for
the Underwriters shall object.
c. The Company has furnished or will deliver to the Underwriters
and their counsel, without charge, as many signed and conformed copies of the
Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith or incorporated by reference therein) as the
Underwriters may reasonably request. If applicable, the copies of the
Registration
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Statement and each amendment thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
d. The Company will furnish to each Underwriter, without charge,
from time to time during the period when the Prospectus is required to be
delivered under the 1933 Act or the 1934 Act, such number of copies of the
Prospectus (as amended or supplemented) as such Underwriter may reasonably
request for the purposes contemplated by the 1933 Act, the 1934 Act, the 1933
Act Regulations or the rules and regulations of the Commission under the 1934
Act (the "1934 Act Regulations"). If applicable, the Prospectus and any
amendments or supplements thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
e. The Company will comply with the 1933 Act and the 1933 Act
Regulations so as to permit the completion of the distribution of the Securities
as contemplated in this Agreement and in the Prospectus. If at any time when a
prospectus is required by the 1933 Act, the 1934 Act, the 1933 Act Regulations
or the 1934 Act Regulations to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result of which
it is necessary, in the opinion of counsel for the Underwriters or for the
Company, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus will not include any untrue statements
of a material fact or omit to state a material fact necessary in order to make
the statements therein not misleading in the light of the circumstances existing
at the time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration Statement or
amend or supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 5(b) of the 1933 Act, such
amendment or supplement as may be necessary to correct such statement or
omission or to make the Registration Statement or the Prospectus comply with
such requirements and the Company will furnish to the Underwriters such number
of copies of such amendment or supplement as the Underwriters may reasonably
request.
f. During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission or the Nasdaq National
Market ("NASDAQ"), and (ii) from time to time such other information concerning
the Company as you may request.
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g. The Company will use its best efforts, in cooperation with
counsel to the Underwriters, to qualify the Securities for offering and sale
under the applicable securities or Blue Sky laws of such states and other
jurisdictions of the United States as the Representatives may designate and to
maintain such qualifications in effect for a period of not less than one year
from the later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; PROVIDED, HOWEVER, that the Company shall not be
obligated to qualify as a foreign corporation in any jurisdiction in which it is
not so qualified. In each jurisdiction in which the Securities have been so
qualified, the Company will file such statements and reports as may be required
by the laws of such jurisdiction to continue such qualification in effect for a
period of not less than one year from the later of the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
h. The Company will make generally available to its security
holders as soon as practicable, but not later than 45 days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the "effective date" (as defined in said Rule 158) of the
Registration Statement.
i. The Company will use the net proceeds received by it from the
sale of the Securities in the manner specified in the Prospectus under "Use of
Proceeds."
j. If, at the time that the Registration Statement becomes
effective, any Rule 430A Information or Rule 434 Information shall have been
omitted therefrom, then immediately following the execution of this Agreement,
the Company will prepare, and file or transmit for filing with the Commission in
accordance with Rule 430A or Rule 434 and Rule 424(b), copies of a Prospectus or
Term Sheet containing such Rule 430A Information and Rule 434 Information,
respectively, or, if required by Rule 430A, a post-effective amendment to the
Registration Statement (including an amended Prospectus), containing such Rule
430A Information.
k. If the Company elects to rely upon Rule 462(b), the Company
shall both file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with Rule
111 of the 1933 Act Regulations by the earlier of (i) 10:00 P.M. Eastern Time on
the date hereof and (ii) the time confirmations are sent or given, as specified
by Rule 462(b)(2).
l. The Company, during the period when the Prospectus is
required to be delivered under the 1933 Act or the 1934 Act, will file all
documents required to be filed with the
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Commission pursuant to Section 13, 14 or 15 of the 1934 Act within the time
periods required by the 1934 Act and the 1934 Act Regulations.
m. During a period of 180 days from the date of the Prospectus,
the Company will not, without the prior written consent of Vector, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any share
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or file any registration statement under the 1933
Act with respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Securities to be
sold hereunder, (B) any shares of Common Stock issued by the Company upon the
exercise of an option or warrant or the conversion of any security outstanding
on the date hereof and referred to in the Prospectus, (C) any shares of Common
Stock issued or options to purchase Common Stock granted pursuant to existing
employee benefit plans of the Company referred to in the Prospectus or (D) any
shares of Common Stock issued pursuant to any non-employee director stock plan.
n. The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors and each of its stockholders designated by you.
o. The Company will supply the Underwriters with copies of all
correspondence to and from, and all documents issued to and by, the Commission
in connection with the registration of the Securities under the 1933 Act.
p. Prior to the Closing Date, the Company shall furnish to the
Underwriters, as soon as they have been prepared, copies of any unaudited
interim financial statements of the Company, for any periods subsequent to the
periods covered by the financial statements appearing in the Registration
Statement and the Prospectus.
q. Prior to the Closing Date, the Company will issue no press
release or other communications directly or indirectly and hold no press
conference with respect to the Company, the condition, financial or otherwise,
or the earnings, business affairs or business prospects of the Company, or the
offering of the Securities, without the prior written consent of the
Representatives unless in the judgment of the Company and its
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counsel, and after notification to the Representatives, such press release or
communication is required by law.
r. The Company will comply with all provisions of Florida H.B.
1771, codified as Section 517.075 of the Florida statutes, and all regulations
promulgated thereunder relating to issuers doing business with Cuba.
s. The Company has not taken, nor will it take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Securities.
t. The Company will use its best efforts to maintain the
quotation of the Common Stock (including the Securities) on NASDAQ and will file
with NASDAQ all documents and notices required by NASDAQ of companies that have
securities that are traded in the over-the-counter market and quotations for
which are reported by NASDAQ.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
a. When the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto becomes effective, at the
date of the Prospectus, if different, and at the Closing Date and the Option
Closing Date, as the case may be, the Registration Statement, the Rule 462(b)
Registration Statement and any amendments and supplements thereto complied or
will comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and did not and will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus and any supplements or amendments thereto will not at the date of the
Prospectus, at the date of any such supplements or amendments, or at the Closing
Date or the Option Closing Date, if any, include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434 and the Prospectus shall not be "materially different,"
as such term is used in Rule 434, from the Prospectus included in the
Registration Statement at the time it became effective. The representations and
warranties in this subsection shall not apply to statements in or omissions from
the Registration Statement or Prospectus relating to any Underwriter made in
reliance upon and in conformity with information furnished to the Company in
writing by or on behalf of any Underwriter, through you expressly for use in the
Registration Statement or Prospectus. The Company has not distributed any
offering materials
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in connection with the offering or sale of the Securities other than the
Registration Statement, the preliminary prospectus, the Prospectus, the Term
Sheet, if applicable, or any other materials, if any, permitted by the 1933 Act
or the 1933 Act Regulations.
b. Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and, if applicable,
each preliminary prospectus and the Prospectus delivered to the Underwriters for
use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
c. The accountants who certified the financial statements
included in the Registration Statement are independent public accountants as
required by the 1933 Act and the 1933 Act Regulations.
d. The financial statements included in the Registration
Statement and the Prospectus present fairly the financial position of the
Company as of the dates indicated and the results of its operations for the
periods specified; except as otherwise stated in the Registration Statement,
said financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis; and no supporting
schedules are required to be included in the Registration Statement. The
summary and selected financial information and data set forth in the Prospectus
are prepared on an accounting basis consistent with such financial statements.
e. Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as otherwise stated
therein, (i) there has been no material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company, whether or not arising in the ordinary course of
business, (ii) there have been no transactions entered into by the Company,
other than those in the ordinary course of business, which are material with
respect to the Company, and (iii) there has been no dividend or distribution of
any kind declared, paid or made by the Company on any class of its capital
stock. The Company has no material contingent obligations which are not
specifically disclosed in the Company's financial statements that are included
in the Registration Statement.
f. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with corporate power and authority to own, lease and operate its
properties and to conduct its business as
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described in the Prospectus and to enter into and perform its obligations under
this Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify
would not, singly or in the aggregate, have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs or business
prospects of the Company.
g. The Company does not own, directly or indirectly, any shares
of stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any firm, partnership, joint venture, association or
other entity.
h. The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement or pursuant to
reservations, agreements, employee or director benefit plans or the exercise of
convertible securities referred to in the Prospectus); the shares of issued and
outstanding capital stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable and have not been issued in
violation of or are not otherwise subject to any preemptive or other similar
rights; the Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by the
Company pursuant to this Agreement against payment of the consideration set
forth herein, will be validly issued and fully paid and non-assessable; the
certificates evidencing the Securities are in due and proper form under Delaware
law; the authorized capital stock of the Company, including the Securities,
conforms to all statements relating thereto contained in the Prospectus; and the
issuance of the Securities is not subject to preemptive or other similar rights.
There are no outstanding subscriptions, options, warrants, convertible or
exchangeable securities or other rights granted to or by the Company to purchase
shares of Common Stock or other securities of the Company and there are no
commitments, plans or arrangements to issue any shares of Common Stock or any
security convertible into or exchangeable for Common Stock, in each case other
than as described in the Prospectus.
i. Except as disclosed in the Registration Statement and except
as would not, singly or in the aggregate, reasonably be expected to have a
material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company, (A) the Company
is in compliance with all applicable Environmental Laws, (B) the Company has all
permits, authorizations and approvals required under any applicable
Environmental Laws and is in compliance with the requirements of such permits,
authorizations and approvals, (C) there are no pending or, to the best knowledge
of the Company,
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threatened Environmental Claims against the Company and (D) under applicable
law, there are no circumstances with respect to any property or operations of
the Company that are reasonably likely to form the basis of an Environmental
Claim against the Company.
For purposes of this Agreement, the following terms shall have
the following meanings: "Environmental Law" means any United States (or other
applicable jurisdiction's) Federal, state, local or municipal statute, law,
rule, regulation, ordinance, code, policy or rule of common law and any judicial
or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgement, relating to the environment,
health, safety or any chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority. "Environmental
Claims" means any and all administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental Law.
j. The Company is not in violation of its charter or in default
in the performance or observance of any material obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, loan agreement,
deed, trust, note, lease, sublease, voting agreement, voting trust, or other
instrument or agreement to which the Company is a party or by which it may be
bound, or to which any of the property or assets of the Company is subject; and
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated herein and compliance by the Company with its
obligations hereunder have been duly authorized by all necessary corporate
action and will not conflict with or constitute a breach of, or default under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to, any contract, indenture,
mortgage, loan agreement, deed, trust, note, lease, sublease, voting agreement,
voting trust or other instrument or agreement to which the Company is a party or
by which it may be bound, or to which any of the property or assets of the
Company is subject, nor will such action result in any violation of the
provisions of the charter or bylaws of the Company or any applicable statute,
law, rule, regulation, ordinance, decision, directive or order.
k. No labor dispute with the employees of the Company exists or,
to the best knowledge of the Company, is imminent; and the Company is not aware
of any existing or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors which might, singly or in the
aggregate, be expected to result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company.
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l. There is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company, which is
required to be disclosed in the Registration Statement (other than as disclosed
therein), or which, singly or in the aggregate, might result in any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company, or which, singly or in
the aggregate, might materially and adversely affect the properties or assets
thereof or which might materially and adversely affect the consummation of this
Agreement; all pending legal or governmental proceedings to which the Company is
a party or of which any of its property or assets is the subject which are not
described in the Registration Statement, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not material; and
there are no contracts or documents of the Company which are required to be
filed as exhibits to the Registration Statement by the 1933 Act or by the 1933
Act Regulations which have not been so filed.
m. Except with respect to the Protest filed with the United
States Patent and Trademark Office ("PTO") as described in the Prospectus, the
Company owns or is licensed to use all patents, patent applications, inventions,
trademarks, trade names, applications for registration of trademarks, service
marks, service mark applications, copyrights, know-how, manufacturing processes,
formulae, trade secrets, licenses and rights in any thereof and any other
intangible property and assets (herein called the "Proprietary Rights") which
are material to the business of the Company as now conducted and as proposed to
be conducted, in each case as described in the Prospectus. The description of
the Proprietary Rights in the Prospectus is correct in all material respects and
fairly and correctly describes the Company's rights with respect thereto.
Except with respect to the Protest filed with the PTO as described in the
Prospectus, the Company does not have any knowledge of, and the Company has not
given or received any notice of, any pending conflicts with or infringement of
the rights of others with respect to any Proprietary Rights or with respect to
any license of Proprietary Rights. Except with respect to the Protest filed
with the PTO as described in the Prospectus, no action, suit, arbitration, or
legal, administrative or other proceeding, or investigation is pending, or, to
the best knowledge of the Company, threatened, which involves any Proprietary
Rights and is material to the business of the Company as now conducted and as
proposed to be conducted, in each case as described in the Prospectus. The
Company is not subject to any judgment, order, writ, injunction or decree of any
court or any Federal, state, local, foreign or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
any arbitrator, and has not entered into and is not a party to any contract
which restricts or impairs the use of any such Proprietary Rights in a manner
which would have a material adverse effect on
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the use of any of the Proprietary Rights. To the best knowledge of the Company,
no Proprietary Rights used by the Company, and no services or products sold by
the Company, conflict with or infringe upon any proprietary rights available to
any third party. The Company has not received written notice of any pending
conflict with or infringement upon such third-party proprietary rights. The
Company has not entered into any consent, indemnification, forbearance to sue or
settlement agreement with respect to Proprietary Rights other than in the
ordinary course of business. Except as specifically disclosed in the
Prospectus, no claims have been asserted by any person with respect to the
validity of the Company's ownership or right to use the Proprietary Rights and,
to the best knowledge of the Company, there is no reasonable basis for any such
claim to be successful. The Proprietary Rights are valid and enforceable and no
registration relating thereto has lapsed, expired or been abandoned or cancelled
or is the subject of cancellation or other adversarial proceedings, and all
applications therefore are pending and are in good standing. The Company has
complied, in all material respects, with its contractual obligations relating to
the protection of the Proprietary Rights used pursuant to licenses. To the best
knowledge of the Company, no person is infringing on or violating the
Proprietary Rights owned or used by the Company.
n. No registration, authorization, approval, qualification or
consent of any court or governmental authority or agency is necessary in
connection with the offering, issuance or sale of the Securities hereunder,
except such as may be required under the 1933 Act or the 1933 Act Regulations or
state securities or Blue Sky laws (or such as may be required by the National
Association of Securities Dealers, Inc. ("NASD")).
o. The Company possesses and is operating in compliance with all
licenses, certificates, consents, authorities, approvals and permits
(collectively, "permits") from all state, Federal, foreign and other regulatory
agencies or bodies necessary to conduct the business now operated by it, and the
Company has not received any notice of proceedings relating to the revocation or
modification of any such permit or any circumstance which would lead it to
believe that such proceedings are reasonably likely which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company.
p. This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnity and contribution hereunder may be limited by Federal or state
securities laws or the public policy underlying such laws.
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q. Except as described in the Prospectus, there are no persons
with registration or other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered by the Company
under the 1933 Act.
r. No order preventing or suspending the use of any preliminary
prospectus has been issued and no proceedings for that purpose are pending,
threatened, or, to the knowledge of the Company, contemplated by the Commission;
and to the best knowledge of the Company, no order suspending the offering of
the Securities in any jurisdiction designated by the Underwriters pursuant to
Section 5(g) of this Agreement has been issued and, to the best knowledge of the
Company, no proceedings for that purpose have been instituted or threatened or
are contemplated.
s. The Company has good and marketable title to its properties,
free and clear of all material security interests, mortgages, pledges, liens,
charges, encumbrances, claims and equities of record. The properties of the
Company are, in the aggregate, in good repair (reasonable wear and tear
excepted), and suitable for their respective uses. Any real properties held
under lease by the Company are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the conduct of the business of the Company.
t. The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
u. The Company has conducted and is conducting its business in
compliance with all applicable Federal, state, local and foreign statutes, laws,
rules, regulations, ordinances, codes, decisions, decrees, directives and
orders, except where the failure to do so would not, singly or in the aggregate,
have a material adverse effect on the condition, financial or otherwise, or on
the earnings, business affairs or business prospects of the Company.
v. To the best of the Company's knowledge, neither the Company
nor any employee or agent of the Company has made any payment of funds of the
Company or received or retained any funds in violation of any law, rule or
regulation, which payment, receipt or retention of funds is of a character
required to be disclosed in the Prospectus.
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w. The Company is not now, and after sale of the Securities to
be sold by it hereunder and application of the net proceeds from such sale as
described in the Prospectus under the caption "Use of Proceeds" will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
x. All offers and sales of capital stock of the Company prior to
the date hereof were at all relevant times duly registered or exempt from the
registration requirements of the 1933 Act and were duly registered or subject to
an available exemption from the registration requirements of the applicable
state securities or Blue Sky laws.
y. The Company has complied with all provisions of Florida H.B.
1771, codified as Section 517.075 of the Florida statutes, and all regulations
promulgated thereunder relating to issuers doing business with Cuba.
z. The Common Stock is registered pursuant to Section 12(g) of
the 1934 Act. The Securities have been duly authorized for quotation on NASDAQ.
The Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the 1934 Act or delisting
the Common Stock from NASDAQ, nor has the Company received any notification that
the Commission or NASDAQ is contemplating terminating such registration or
listing.
aa. Neither the Company nor, to its knowledge, any of its
officers, directors or affiliates has taken, and at the Closing Date and at any
later Option Closing Date, neither the Company nor, to its knowledge, any of its
officers, directors or affiliates will have taken, directly or indirectly, any
action which has constituted, or might reasonably be expected to constitute, the
stabilization or manipulation of the price of sale or resale of the Securities.
bb. The Company maintains insurance of the types and in amounts
adequate for its business and consistent with insurance coverage maintained by
similar companies in similar business, including but not limited to, insurance
covering product liability and real and personal property owned or leased
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.
cc. The Company has filed all material tax returns required to
be filed, which returns are true and correct in all material respects, and the
Company is not in default in the payment of any taxes, including penalties and
interest, assessments, fees and other charges, shown thereon due or otherwise
assessed, other than those being contested in good faith and for which adequate
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<PAGE>
reserves have been provided or those currently payable without interest which
were payable pursuant to said returns or any assessments with respect thereto.
dd. Except as described in the Prospectus, to the best of the
Company's knowledge, there are no rulemaking or similar proceedings before The
United States Food and Drug Administration or comparable Federal, state, local
or foreign government bodies which involve or affect the Company, which, if the
subject of an action unfavorable to the Company, could involve a prospective
material adverse change in or effect on the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Company.
ee. The Company has not received any communication (whether
written or oral) relating to the termination or threatened termination or
modification or threatened modification of any material consulting, licensing,
marketing, research and development, cooperative or any similar agreement,
including, without limitation, the collaborative research and license agreements
listed under the sections of the Prospectus entitled, "Business--Strategic
Collaboration Agreements" and "Business--License Agreements." Each such
collaborative and licensing agreement is in effect substantially as described in
such sections of the Prospectus.
ff. To the knowledge of the Company, if any full-time employee
identified in the Prospectus has entered into any non-competition, non-
disclosure, confidentiality or other similar agreement with any party other than
the Company or any subsidiary, such employee is neither in violation thereof nor
is expected to be in violation thereof as a result of the business conducted or
expected to be conducted by the Company as described in the Prospectus or such
person's performance of his obligations to the Company; and the Company has not
received written notice that any consultant or scientific advisor of the Company
is in violation of any non-competition, non-disclosure, confidentiality or
similar agreement.
7. INDEMNIFICATION AND CONTRIBUTION.
a. The Company agrees to indemnify and hold harmless (i) each
Underwriter and (ii) each person, if any, who controls any Underwriter within
the meaning of Section 15 of the 1933 Act (any of the persons referred to in
this clause (ii) being hereinafter referred to as a "controlling person") and
(iii) the respective directors, officers, partners and employees of any of the
Underwriters or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Person") to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities and expenses whatsoever (including, without limitation, all
reasonable
17
<PAGE>
costs of pursuing, investigating and defending any claim, suit or action or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Person), directly or indirectly, caused by, related to, based upon
or arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereto, including the Rule 430A Information and Rule 434 Information,
if applicable, or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading or caused by, related to, based upon, arising out of or in
connection with any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto) or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating to
such Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; PROVIDED,
HOWEVER, that the indemnification contained in this paragraph a. with respect to
any preliminary prospectus shall not inure to the benefit of any Underwriter (or
related Indemnified Person) on account of any such loss, claim, damage,
liability or expense arising from the sale of the Securities by such Underwriter
to any person if a copy of the Prospectus shall not have been delivered or sent
to such person within the time required by the 1933 Act or the 1933 Act
Regulations, and the untrue statement or alleged untrue statement or omission or
alleged omission of a material fact contained in such preliminary prospectus was
corrected in the Prospectus (or any amendment or supplement thereto), provided
that the Company has delivered the Prospectus to the several Underwriters in
requisite quantity on a timely basis to permit such delivery or sending.
b. If any action, suit or proceeding shall be brought against
any Indemnified Person in respect of which indemnity may be sought against the
Company, such Indemnified Person shall promptly notify the parties against whom
indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such Indemnified Person shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Person unless (i) the
indemnifying parties have agreed in writing to pay
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<PAGE>
such fees and expenses, (ii) the indemnifying parties have failed to assume the
defense and employ counsel or (iii) the named parties to any such action, suit,
investigation or proceeding (including any impleaded parties) include both such
Indemnified Person and the indemnifying parties and representation of such
Indemnified Person and any indemnifying party by the same counsel would, in the
reasonable judgment of the Indemnified Person, be inappropriate due to actual or
potential differing interests between them (in which case the indemnifying party
shall not have the right to assume the defense of such action, suit or
proceeding on behalf of such Indemnified Person). It is understood, however,
that the indemnifying parties shall, in connection with any one such action,
suit or proceeding or separate but substantially similar or related actions,
suits or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
only one separate firm of attorneys (in addition to any local counsel) at any
time for all such Indemnified Persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Vector, and that all such fees and expenses shall be reimbursed as
they are incurred. The indemnifying parties shall not be liable for any
settlement of any such action, suit or proceeding effected without their written
consent, which consent shall not be unreasonably withheld, but if settled with
such written consent, or if there be a final judgment for the plaintiff in any
such action, suit or proceeding, the indemnifying parties agree to indemnify and
hold harmless any Indemnified Person, to the extent provided in the preceding
paragraph, from and against any loss, claim, damage, liability or expense by
reason of such settlement or judgment.
c. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and any person who controls the Company within the
meaning of Section 15 of the 1933 Act, to the same extent as the foregoing
indemnity from the Company to each Indemnified Person, but only with respect to
information relating to such Underwriter furnished in writing by or on behalf of
such Underwriter through you expressly for use in the Registration Statement,
the Prospectus or any preliminary prospectus, or any amendment or supplement
thereto. If any action, suit, investigation or proceeding shall be brought
against the Company, any of its directors, any such officer or any such
controlling person based on the Registration Statement, the Prospectus or any
preliminary prospectus, or any amendment or supplement thereto, and in respect
of which indemnity may be sought against any Underwriter pursuant to this
paragraph (c), such Underwriter shall have the rights and duties given to the
Company by paragraph (b) above, and the Company, its directors, any such officer
and any such controlling person shall have the rights and duties given to the
Indemnified Persons by paragraph (a) above. The indemnity and contribution
obligations of the Underwriters set
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<PAGE>
forth in this Section 7 shall be in addition to any liability or obligation the
Underwriters may otherwise have to the Company.
d. If the indemnification provided for in this Section 7 is
unavailable to, or insufficient to hold harmless, an indemnified party under
paragraphs (a) or (c) hereof in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Securities or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law
or judicial determination, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other hand, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other hand
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus or, if Rule
434 is used, the corresponding location on the Term Sheet. The relative fault
of the Company on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or by the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission or any failure of the nature referred to in Section 7 f
hereof. The indemnity and contribution obligations of the Company set forth
herein shall be in addition to any liability or obligation the Company may
otherwise have to any Indemnified Person.
e. The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
a pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this
20
<PAGE>
Section 7, no Underwriter (or any of its related Indemnified Persons) shall be
required to contribute (whether pursuant to subsection (a) or (c) or otherwise)
any amount in excess of the underwriting discount applicable to the Securities
underwritten by such Underwriter. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7 are several in proportion to the respective numbers of Securities set
forth opposite their names in Schedule I hereto (or such numbers of Securities
increased as set forth in Section 10 hereof) and not joint.
f. The Company agrees to indemnify and hold harmless each
Indemnified Person to the fullest extent lawful, from and against any and all
losses, claims, damages, liabilities and expenses whatsoever (including,
without limitation, all reasonable costs of pursuing, investigating and
defending any claim, suit or action or any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the
reasonable fees and expenses of counsel to any Indemnified Person), directly
or indirectly, caused by, related to, based upon or arising out of or in
connection with the failure of eligible employees, directors and other
persons and entities having business relationships with the Company to pay
for and accept delivery of Reserved Securities which were subject to a
properly confirmed agreement to purchase.
g. No indemnifying party shall, without the prior written
consent of the Indemnified Person, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any Indemnified Person
is or could have been a party and indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement includes an unconditional
release of such Indemnified Person from all liability on claims that are the
subject matter of such action, suit or proceeding.
h. Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 7 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Indemnified Person, the Company, its
directors or officers or any person controlling the Company, (ii) acceptance of
any Securities and payment therefor hereunder and (iii) any termination of this
Agreement.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters to purchase the Initial Securities hereunder are subject to
the following conditions:
a. The Registration Statement, including any Rule 462(b)
Registration Statement, shall have become effective on the date hereof; no stop
order suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened by the
Commission. If the Company has elected to rely upon Rule 430A, Rule 430A
Information previously omitted from the effective Registration Statement
pursuant to Rule 430A shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) within the prescribed time period and the Company shall
have provided evidence satisfactory to the Underwriters of such timely filing,
or a post-effective amendment providing such information shall have been
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promptly filed and declared effective in accordance with the requirements of
Rule 430A. If the Company has elected to rely upon Rule 434, a Term Sheet shall
have been transmitted to the Commission for filing pursuant to Rule 424(b)
within the prescribed time period.
b. The Underwriters shall have received:
(i) The favorable opinion, dated as of the Closing Date, of Morrison & Foerster
LLP, counsel for the Company, in form and substance satisfactory to
counsel for the Underwriters, to the effect that:
A. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware.
B. The Company has corporate power and authority to conduct its
business as described in the Registration Statement and the Prospectus
and to enter into and perform its obligations under this Agreement.
C. To the best of their knowledge and information, the Company
is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which such qualification is
required, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the
Company.
D. The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under "Capitalization"
(except for subsequent issuances, if any, pursuant to reservations,
agreements, employee or director benefit plans or the exercise of
convertible securities referred to in the Prospectus), excluding Pro
Forma and Pro Forma As Adjusted information, and the shares of issued
and outstanding capital stock of the Company, including the Common
Stock, have been duly authorized and validly issued and are fully
paid and non-assessable and, to their knowledge and information, have
not been issued in violation of or are not otherwise subject to any
preemptive rights or other similar rights.
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E. The Securities have been duly authorized and, upon delivery
to the Underwriters against payment therefor in accordance with the
terms of this Agreement, will be validly issued, fully paid and non-
assessable; and the issuance of the Securities is not subject to
preemptive rights.
F. To the best of their knowledge and information, except as
described in the Prospectus, there are no outstanding options,
warrants or other rights granted to or by the Company to purchase
shares of Common Stock or other securities of the Company and there
are no commitments, plans or arrangements to issue any shares of
Common Stock or other securities.
G. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company.
H. At the time the Registration Statement became effective and
at the Closing Date, the Registration Statement (other than the
financial statements, and related notes thereto, and other financial
information included therein, as to which no opinion need be rendered)
complied as to form in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations.
I. The form of certificate used to evidence each of the
Securities is in due and proper form and complies with all applicable
statutory requirements of Delaware law.
J. To the best of their knowledge and information, there are no
legal or governmental proceedings pending or threatened which are
required to be disclosed in the Registration Statement other than
those disclosed therein, and all pending legal or governmental
proceedings to which the Company is a party or to which any of its
property is subject which are not described in the Registration
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Statement, including ordinary routine litigation incidental to the
business, are, considered in the aggregate, not material.
K. The information in the Prospectus under "Risk Factors--
Shares Eligible for Future Sale; Registration Rights; Possible Adverse
Effect on Stock Price," "Management--Stock Plans," "Management--
Directors' Compensation," "Management--Employment Agreement,"
"Description of Capital Stock" and "Shares Eligible for Future Sale"
to the extent that it constitutes matters of law, summaries of legal
matters, documents or proceedings, or legal conclusions, has been
reviewed by them and is correct in all material respects and fairly
and correctly presents the information called for with respect thereto.
L. To the best of their knowledge and information, there is no
agreement, contract or other document of a character required to be
described or referred to in the Registration Statement or to be filed
as an exhibit thereto other than those described or referred to
therein or filed as exhibits thereto, the descriptions thereof or
references thereto are correct; and to the best of their knowledge and
information, no default exists in the due performance or observance of
any material obligation, agreement, covenant or condition contained in
any material contract, indenture, mortgage, loan agreement, deed,
trust, note, lease, sublease, voting trust, voting agreement or other
instrument or agreement of the Company.
M. No authorization, approval, consent or order of any court or
governmental authority or agency is required in connection with the
offering, issuance or sale of the Securities to the Underwriters,
except such as may be required under the 1933 Act or the 1933 Act
Regulations or state securities or Blue Sky laws or such as may be
required by the
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NASD; and the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein and the
compliance by the Company with its obligations hereunder will not
conflict with or constitute a breach of, or default under, or result
in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to, any contract,
indenture, mortgage, loan agreement, note, deed, trust, lease,
sublease, voting trust, voting agreement or other instrument or
agreement to which the Company is a party or by which it may be bound,
or to which any of the property or assets of the Company is subject,
nor will such action result in any violation of the provisions of the
charter or bylaws of the Company, or any applicable statute, law,
rule, regulation, ordinance, code, decision, directive or order.
N. Except as described in the Prospectus, to the best of their
knowledge and information, there are no persons with registration or
other similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under
the 1933 Act.
O. The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
P. To the best of their knowledge and information, the Company
is in compliance with, and conducts its business in conformity with,
all applicable laws and regulations relating to the operation of its
business as described in the Registration Statement, except to the
extent that any failure so to comply or conform would not have a
material adverse effect upon the business or condition, financial or
otherwise, of the Company.
Q. The Registration Statement has become effective under the
1933 Act; any
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<PAGE>
required filing of the Prospectus, and any supplements thereto or the
Term Sheet, pursuant to Rule 424(b) and if applicable, Rule 434, has
been made in the manner and within the time period required; and to
their best knowledge and information, no stop order suspending the
effectiveness of the Registration Statement or any part thereof has
been issued and no proceedings therefor have been instituted or are
pending or contemplated under the 1933 Act.
In rendering such opinion, such counsel may rely (i) on the opinion of
Pennie & Edmonds, patent counsel to the Company, given pursuant to Section
8(b)(ii) hereof, (ii) as to matters of local law, on opinions of local
counsel, and (iii) as to matters of fact, on certificates of officers of
the Company and of governmental officials, in which case their opinion is
to state that they are so doing and that the Underwriters are justified in
relying on such opinions of certificates, and copies of said opinions of
certificates are to be attached to the opinion.
(ii) The favorable opinion, dated as of the Closing Date, of Pennie & Edmonds,
patent counsel for the Company, in form and substance satisfactory to
counsel for the Underwriters, to the effect that:
A. The statements in the Prospectus relating to United States
patent matters, under the captions "Risk Factors - Uncertainty of Patents and
Proprietary Rights"; "Business - Progenitor's Functional Genomics Approach";
"Business - Progenitor's Proprietary Discovery Technologies''; Business -
Progenitor's Discovery Programs"; and "Business -Patents and Proprietary
Rights", insofar as such statements constitute matters of law, legal
conclusions, or summaries of legal matters or proceedings, are correct in all
material respects and present fairly the information purported to be shown.
B. With respect to the United States patent applications referred to
in the Registration Statement which are listed in Schedules E and G, the
sections of the Registration Statement entitled "Risk Factors - Uncertainty of
Patents and Proprietary Rights"; "Business - Progenitor's Functional Genomics
Approach"; "Business - Progenitor's Proprietary Discovery Technologies";
Business - Progenitor's Discovery Programs"; and
"Business - Patents and Proprietary Rights", at the time the Registration
Statement became effective, did not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, not misleading.
C. With respect to the United States patent applications referred to
in the Prospectus which are listed in Schedules E and G, the sections of the
Prospectus entitled "Risk Factors - Uncertainty of Patents and Proprietary
Rights"; "Business - Progenitor's Functional Genomics Approach"; "Business -
Progenitor's Proprietary Discovery Technologies"; "Business - Progenitor's
Discovery Programs"; and "Business - Patents and Proprietary Rights", as of this
Closing Date, do not contain any untrue statement of material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
D. To the best of such counsel's knowledge, except as described in
the Prospectus, and with the exception of proceedings before the U.S. Patent and
Trademark Office, there are no pending, or threatened, legal or governmental
proceedings relating to U.S. Patent No. 5,032,407, or to any U.S. patent
application referred
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<PAGE>
to in the Prospectus which is listed in Schedules E and G.
E. To the best of such counsel's knowledge, the License Agreements
listed in Schedule I grant the Company rights in the U.S. patents and patent
applications referred to in the Prospectus which are listed in Schedules D and
G, and such License Agreements are validly binding and enforceable under federal
case law relating to the licensing of patent rights.
F. To the best of such counsel's knowledge, the Company owns the
U.S. patent applications referred to in the Prospectus which are listed in
Schedule E.
G. To the best of such counsel's knowledge, except as described in
the Prospectus, no third party has any rights to U.S. Patent No. 5,032,407, or
to any U.S. patent application referred to in the Prospectus which is listed in
Schedules E and G.
H. To the best of such counsel's knowledge, no interference has been
declared or provoked with respect to U.S. Patent No. 5,032,407, or with respect
to any U.S. patent application referred to in the Prospectus which is listed in
Schedules E and G.
I. To the best of such counsel's knowledge, there have been no
inventorship challenges with respect to U.S. Patent No. 5,032,407, or with
respect to any U.S. patent application referred to in the Prospectus which is
listed in Schedules E and G.
J. To the best of such counsel's knowledge, no third party is
infringing U.S. Patent No. 5,032,407.
K. To the best of such counsel's knowledge, the Company has not
received any notice challenging the Company's rights to U.S. Patent No.
5,032,407, or to any U.S. patent application referred to in the Prospectus
which is listed in Schedules E and G.
L. To the best of such counsel's knowledge, the Company has not
received any notice challenging the validity or enforceability of U.S. Patent
No. 5,032,407.
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<PAGE>
M. While there can be no guarantee that any particular patent
application will issue as a patent, each of the U.S. patent aplications referred
to in the Prospectus which is listed in Schedules E and G was properly filed,
and is being properly and diligently prosecuted, in the U.S. Patent and
Trademark Office.
N. To the best of such counsel's knowledge, without any searches
specifically having been conducted, or having been required to have been
conducted, for the purpose of rendering such counsel's opinion, while there can
be no guarantee that any particular patent application will issue as a patent,
each of the U.S. patent applications referred to in the Prospectus which is
listed in Schedules E and G discloses patentable subject matter.
O. To the best of such counsel's knowledge, no liens have been
recorded against the Company with respect to any U.S. patent application
referred to in the Prospectus which is listed in Schedule E.
P. to the best of such counsel's knowldege, no claim has been
asserted against the Company relating to the potential infringement of, or
conflict with, any patents, trademarks copyrights, trade secrets, or proprietary
rights, of others.
Q. While there can be no assurance that any of the Company's U.S.
patent applications relating to certain leptin receptors will issue as patents,
or that any such patent, if issued, would be broad enough to cover leptin
receptors of Millennium or others, there is a reasonable basis for the Company's
continued efforts in seeking the broadest allowable claims from the U.S. Patent
and Trademark Office, including claims broad enough to cover leptin receptors of
Millennium or others.
R. To the best of such counsel's knowledge, for each U.S. patent
application listed in Schedules E and G, all information known, to date, to be
"material to patentability", as defined in 37 C.F.R. Section 1.56(b), has been
disclosed, or will be disclosed pursuant to 37 C.F.R. Section 1.97, to the U.S.
Patent and Trademark Office.
28
<PAGE>
(iii) The favorable opinion, dated as of the Closing Date, of Skadden, Arps,
Slate, Meagher & Flom, counsel for the Underwriters with respect to
the issuance and sale of the Securities, the Registration Statement
and the Prospectus and such other related matters as the Underwriters
shall reasonably request.
(iv) In giving their opinions required by subsections (b)(i) and (b)(iii),
respectively, of this Section 8, Morrison & Foerster LLP and Skadden,
Arps, Slate, Meagher & Flom shall each additionally state that nothing
has come to their attention that leads them to believe that the
Registration Statement (except for financial statements, and related
notes thereto, and other financial information included therein, as to
which counsel need make no statement), at the time it became
effective, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus
(except for financial statements, and related notes thereto, and other
financial information included therein, as to which counsel need make
no statement), as of its date (unless the term "Prospectus" refers to
a prospectus which has been provided to the Underwriters by the
Company for use in connection with the offering of the Securities
which differs from the Prospectus on file at the Commission at the
time the Registration Statement becomes effective, in which case at
the time it is first provided to the Underwriters for such use) or at
the Closing Date or the Option Closing Date, as the case may be,
included or includes an untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
c. (i) There shall not have been, since the date hereof or since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company, whether or not arising in the ordinary course of
business, (ii) the representations and warranties of the Company in Section 6
hereof shall be true and correct with the same force and effect as though
expressly made at and as of the Closing
29
<PAGE>
Date, except to the extent that any such representation or warranty relates to a
specific date, (iii) the Company shall have complied in all material respects
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Date, (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been initiated or threatened by the Commission and (v) the
Representatives shall have received a certificate, dated the Closing Date and
signed by the President or any Vice President and the chief financial or
accounting officer of the Company to the effect set forth in clauses (i), (ii),
(iii) and (iv) above.
d. At the time of the execution of this Agreement, the
Underwriters shall have received from Coopers & Lybrand L.L.P. a letter dated
such date, in form and substance satisfactory to the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus.
e. The Underwriters shall have received from Coopers & Lybrand
L.L.P. a letter, dated as of the Closing Date, to the effect that they reaffirm
the statements made in the letter furnished pursuant to subsection (d) of this
Section, except that the specified date referred to shall be a date not more
than three business days prior to the Closing Date.
f. The Securities shall have been approved for quotation on
NASDAQ.
g. In the event that the Underwriters exercise their option
provided in Section 2 hereof to purchase all or any portion of the Option
Securities, the representations and warranties of the Company contained herein
and the statements in any certificates furnished by the Company hereunder shall
be true and correct as of the Option Closing Date and, at the relevant Option
Closing Date, the Underwriters shall have received:
(1) A certificate, dated such Option
Closing Date, of the President or any Vice President
of the Company and of the chief financial or accounting
officer of the Company confirming that the certificate
delivered at the Closing Date pursuant to Section 8 (c)
hereof remains true and correct as of such Option
Closing Date.
(2) The favorable opinion of Morrison &
Foerster LLP, in form and substance
30
<PAGE>
satisfactory to counsel for the Underwriters, dated
such Option Closing Date, relating to the Option
Securities to be purchased on such Option Closing Date
and otherwise to the same effect as the opinion required
by Sections 8 (b)(i) and 8 (b)(iv) hereof.
(3) The favorable opinion of Pennie & Edmonds,
in form and substance satisfactory to counsel for the
Underwriters, dated such Option Closing Date to the same
effect as the opinion required by Section 8(b)(ii) hereof.
(4) The favorable opinion of Skadden, Arps,
Slate, Meagher & Flom, counsel for the Underwriters,
dated such Option Closing Date, relating to the Option
Securities to be purchased on such Option Closing Date and
otherwise to the same effect as the opinion required by
Sections 8 (b)(iii) and 8 (b)(iv) hereof.
(5) A letter from Coopers & Lybrand L.L.P.
in form and substance satisfactory to the Underwriters
and dated such Option Closing Date, substantially the
same in form and substance as the letter furnished to the
Underwriters pursuant to Section 8(e) hereof, except
that the "specified date" in the letter furnished
pursuant to this Section 8(g)(5) shall be a date not
more than three business days prior to such Option
Closing Date.
h. At the date of this Agreement, the Underwriters shall have
received lock-up agreements in form and substance satisfactory to the
Underwriters by the persons listed on Schedule II hereto.
i. Counsel for the Underwriters shall have been furnished with
such documents and opinions as they may reasonably request for the purpose of
enabling them to pass upon the issuance and sale of the Securities as herein
contemplated and related proceedings, or in order to evidence the accuracy of
any of the representations or warranties or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Securities as herein contemplated
shall be satisfactory in form and substance to the Underwriters and counsel for
the Underwriters.
j. The NASD shall not have raised any objection with respect to
the fairness and reasonableness of the underwriting terms and arrangements.
31
<PAGE>
k. Any certificate or document signed by any officer of the
Company and delivered to you, as Representatives of the Underwriters, or to
counsel for the Underwriters, shall be deemed a representation and warranty by
the Company to each Underwriter as to the statements made therein.
l. If any condition specified in this Section 8 shall not have
been fulfilled when and as required to be fulfilled, this Agreement, or, in the
case of any condition to the purchase of Option Securities, on an Option Closing
Date which is after the Closing Date, the obligations of the several
Underwriters to purchase the relevant Option Securities, may be terminated by
the Representatives by notice to the Company at any time at or prior to Closing
Date or such an Option Closing Date as the case may be, and such termination
shall be without liability of any party to any other party except as provided in
Section 9 and except that Sections 6 and 7 shall survive any such termination
and remain in full force and effect.
9. EXPENSES. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each preliminary prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight and charges for
counting and packaging) of such copies of the Registration Statement, each
preliminary prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Securities; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Securities, including any stamp
taxes in connection with the original issuance and sale of the Securities; (iv)
the printing (or reproduction) and delivery of this Agreement, the preliminary
and supplemental Blue Sky Memoranda and all other agreements or documents
printed (or reproduced) and delivered in connection with the original issuance
and sale of the Securities; (v) the registration of the Common Stock under the
1934 Act and the quotation of the Securities on NASDAQ; (vi) the registration or
qualification of the Securities for offer and sale under the securities or Blue
Sky laws of the several states as provided in Section 5(g) hereof (including the
reasonable fees, expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing or reproduction, and delivery of the
preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vii) the filing fees and the reasonable fees and expenses of
counsel for the Underwriters incident to securing any required review by the
NASD; (viii) the fees and expenses of the Company's accountants and the fees
and
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<PAGE>
expenses of counsel (including local and special counsel) for the Company;
and (ix) all costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, in connection with matters
related to the Reserved Securities which are designated by the Company for
sale to employees, directors and other persons and entities having a business
relationship with the Company.
If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 10 or pursuant to clauses (ii), (iii), (iv) and (v)
of Section 11 hereof) or if this Agreement shall be terminated by the
Underwriters because of any failure or refusal on the part of the Company to
comply, in any material respect, with the terms or fulfill, in any material
respect, any of the conditions of this Agreement, the Company agrees to
reimburse the Representatives for all reasonable out-of-pocket expenses
(including reasonable fees and expenses of counsel for the Underwriters)
incurred by you in connection herewith.
10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by or on behalf of the
parties hereto; or (ii) if, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the Securities
may commence, when notification of the effectiveness of the Registration
Statement or such post-effective amendment has been released by the Commission.
Until such time as this Agreement shall have become effective, it may be
terminated by the Company, by notifying you, or by you, as Representatives of
the several Underwriters, by notifying the Company.
If one or more of the Underwriters shall fail on the Closing Date to
purchase the Initial Securities which it or they are obligated to purchase under
this Agreement (the "Defaulted Securities"), the Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Representatives shall not
have completed such arrangements within such 24-hour period, then:
a. if the number of Defaulted Securities does not exceed 10% of
the number of Initial Securities, the non-defaulting Underwriters shall be
obligated to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
b. if the number of Defaulted Securities exceeds 10% of the
number of Initial Securities, this Agreement shall terminate without liability
on the part of any non-defaulting Underwriter or the Company.
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<PAGE>
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Representatives or the Company shall
have the right to postpone the Closing Date for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. TERMINATION OF AGREEMENT. The Underwriters may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Date
or Option Closing Date, as the case may be, (i) if there has been, since the
date of this Agreement or since the respective dates as of which information is
given in the Registration Statement, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company, whether or not arising in the ordinary course
of business, (ii) if there has occurred any change in the financial markets in
the United States or elsewhere or any outbreak of hostilities or escalation
thereof or other calamity or crisis the effect of which is such as to make it,
in your judgement, impracticable or inadvisable to market the Securities or to
enforce contracts for the sale of the Securities, (iii) if trading in the Common
Stock has been suspended by the Commission, or if trading generally on the
American Stock Exchange, the New York Stock Exchange or in the over-the-counter
markets has been suspended, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices for securities have been required, by such
exchange or markets or by order of the Commission or any other governmental
authority, or if a banking moratorium has been declared by either Federal, New
York or Illinois authorities, (iv) the enactment, publication, decree or other
promulgation of any Federal or state statute, regulation, rule or order of any
court or other governmental authority which in your judgement materially and
adversely affects or may materially or adversely affect the business or
operations of the Company or (v) the taking of any action by any Federal, state
or local government or agency in respect of its monetary or fiscal affairs which
in your judgement has a material adverse effect on the securities markets in the
United States, and would in your judgement make it impracticable or inadvisable
to market the Securities or to enforce any contract for the sale thereof.
Notice
34
<PAGE>
of such termination may be given by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
a. If this Agreement is terminated pursuant to this Section 11,
such termination shall be without liability of any party to any other party
except as provided in Section 9 and provided further that Sections 6 and 7 shall
survive such termination and remain in full force and effect.
12. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside front cover page, and the statements under the caption "Underwriting" in
any preliminary prospectus and in the Prospectus constitute the only information
furnished by or on behalf of the Underwriters through you as such information is
referred to in Sections 5(a) and 7 hereof.
13. MISCELLANEOUS. Except as otherwise provided in Sections 5, 10
and 11 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to the Company at the office of the
Company at 1507 Chambers Road, Columbus, Ohio 43212, Attention: Douglass B.
Given, President and Chief Executive Officer; or (ii) if to you, as
Representatives of the several Underwriters, care of Vector Securities
International, Inc., 1751 Lake Cook Road, Suite 350, Deerfield, Illinois 60015,
Attention: Syndicate Department.
14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed
by and construed in accordance with the laws of the State of Illinois applicable
to contracts made and to be performed within the State of Illinois. This
Agreement may be signed in various counterparts which together constitute one
and the same instrument. If signed in counterparts, this Agreement shall not
become effective unless at least one counterpart hereof shall have been executed
and delivered on behalf of each party hereto.
15. SUCCESSORS. This Agreement has been and is made solely for the
benefit of the several Underwriters, the Company, its directors and officers,
the other persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the
term "successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Securities in his
status as such purchaser.
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
Very truly yours,
PROGENITOR, INC.
By: ____________________________________
President and Chief
Executive Officer
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
VECTOR SECURITIES INTERNATIONAL, INC.
TUCKER ANTHONY INCORPORATED
GENESIS MERCHANT GROUP SECURITIES
As Representatives of the Several Underwriters
By VECTOR SECURITIES INTERNATIONAL, INC.
By: __________________________________
Vice President
36
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SCHEDULE I
PROGENITOR, INC.
NUMBER OF
INITIAL
SECURITIES
PURCHASED
UNDERWRITER FROM THE
COMPANY
Vector Securities
International, Inc. . . .
Tucker Anthony
Incorporated . . . . . .
Genesis Merchant Group
Securities. . . . . .
Total
37
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION OF
PROGENITOR, INC.
Douglass B. Given hereby certifies that:
1. The name of this corporation is Progenitor, Inc. and the date of
filing of the original Certificate of Incorporation of this corporation with the
Secretary of State of the State of Delaware is February 25, 1992.
2. He is the duly elected and acting President of Progenitor, Inc.,
a Delaware corporation.
3. This Restated Certificate of Incorporation has been duly
approved and adopted by the Stockholders of this Corporation in accordance with
the provisions of Sections 228, 242, and 245 of the General Corporation Law of
the State of Delaware.
4. The Certificate of Incorporation of this corporation is hereby
restated to read as follows:
"I
The name of the Corporation is Progenitor, Inc. (the "Corporation").
II
The address of the registered office of the Corporation in the State of
Delaware is the Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, and the name of its registered agent at that
address is The Corporation Trust Company.
III
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV
The total number of shares of all classes of stock that the Corporation
is authorized to issue is Forty-Seven Million (47,000,000) shares, consisting of
Thirty-Nine Million (39,000,000) shares of Common Stock with a par value of
$.001 per share, Three Million (3,000,000) shares of Preferred Stock, with a par
value of $.01 per share, and Five Million (5,000,000) shares of Preference Stock
("Additional Preferred Stock") with a par value of $.001 per share.
1
<PAGE>
The rights, preferences, privileges and restrictions granted to and imposed upon
such classes of shares are set forth below in this Article.
A. COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders
of all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the Corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution
or winding up of the Corporation, the assets of the corporation shall be
distributed ratably among holders of Common Stock in proportion to the amount of
such stock owned by each such holder, subject to any liquidation rights of any
then outstanding Preference Shares (as defined in Article IV(C)below).
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock
shall have the right to one vote, shall be entitled to notice of any
shareholders' meeting in accordance with the Bylaws of this Corporation, except
as otherwise provided herein, and shall be entitled to vote upon such matters
and in such manner as may be provided by law.
B. PREFERRED STOCK. The Preferred Stock shall be divided into two
series, designated Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and Series B Convertible Preferred Stock (the "Series B Preferred
Stock"). The number of shares of Series A Preferred Stock and the rights,
preferences, privileges and restrictions granted to and imposed thereon shall be
as set forth in Exhibit A attached hereto, and the number of shares of Series B
Preferred Stock and the rights, preferences, privileges and restrictions granted
to and imposed thereon shall be as set forth in Exhibit B attached hereto;
PROVIDED, HOWEVER, that upon the conversion of the shares of such series of
Preferred Stock into shares of Common Stock in accordance with the terms of
such Exhibits, no share or shares of Series A or Series B Preferred Stock shall
be reissued, and all such shares shall be canceled, retired and eliminated from
the shares that the Corporation shall be authorized to issue.
C. ADDITIONAL PREFERRED STOCK. The Additional Preferred Stock
authorized by this Certificate of Incorporation may be issued from time to time
in series. The Board of Directors is hereby authorized to fix or alter the
rights, preferences, privileges, and restrictions granted to or imposed upon any
series of Additional Preferred Stock (including the dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences and sinking
fund terms thereof), and the number of shares constituting any such series and
the designation thereof.
2
<PAGE>
Subject to compliance with applicable protective voting rights which have been
or may be granted to the Series A and Series B Preferred Stock, or Additional
Preferred Stock or series thereof (collectively, "Preference Shares") in
Certificates of Designation or the Corporations's Certificate of Incorporation
("Protective Provisions"), but notwithstanding any other rights of the
Preference Shares or any series thereof, the rights, privileges, preferences,
and restrictions of any such additional series may be subordinated to, PARI
PASSU with (including, without limitation, inclusion in provisions with respect
to liquidation and acquisition preferences, redemption, and/or approval of
matters by vote or written consent) or senior to any of those of any present or
future class or series of Preference Shares or Common Stock. Subject to the
compliance with applicable Protective Provisions, the Board of Directors is also
authorized to increase or decrease the number of shares of any series prior or
subsequent to the issue of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
Upon restatement of the Certificate of Incorporation as set forth
herein, each authorized share of Common Stock of the Corporation issued and
outstanding prior to such restatement shall be automatically reclassified,
without any action by the holder thereof, into one-half (1/2) of one share of
fully-paid and nonassessable Common Stock. No fractional shares of Common Stock
shall be issued upon such reclassification. Instead of any fractional share of
Common Stock that would otherwise be issuable upon such reclassification, the
Corporation shall pay cash to the holder thereof equal to the product of such
fraction multiplied by the fair market value of one share of Common Stock after
such reclassification, as determined by the Board of Directors of the
Corporation in good faith exercising reasonable business judgment.
V
A. To the fullest extent permitted by Delaware statutory or
decisional law, as amended or interpreted, no director of the Corporation shall
be personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director. This Article V does not affect the
availability of equitable remedies for breach of fiduciary duties.
B. Any repeal or modification of this Article V shall be
prospective and shall not affect the rights under this Article V in effect at
the time of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
VI
The Corporation shall, to the fullest extent permitted by Section 145 of
the General Corporation Law of the State of Delaware, as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto.
3
<PAGE>
VII
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed by
the Board of Directors in the manner provided in the Bylaws.
B. The Board of Directors may from time to time make, amend,
supplement or repeal the Bylaws.
C. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
VIII
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
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 this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this 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 this 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 this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
IX
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right."
****
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IN WITNESS WHEREOF, Progenitor, Inc. has caused this Restated Certificate of
Incorporation to be signed by the President on this _____ day of August, 1996.
PROGENITOR, INC.
By:
----------------------------------
Douglass B. Given, President
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EXHIBIT A
DESCRIPTION OF SERIES A PREFERRED STOCK
SECTION 1. DESIGNATION OF SERIES; RANK.
(a) 2,120,000 shares of Preferred Stock shall be designated
"Series A Convertible Preferred Stock" (the "SERIES A PREFERRED STOCK").
(b) With respect to the payments of dividends, the Series A
Preferred Stock shall rank on a parity with the Series B Preferred Stock and
senior to the Common Stock. With respect to the distribution of assets upon
liquidation, dissolution, or winding up, the Series A Stock shall rank on a
parity with the Series B Preferred Stock and senior to the Common Stock.
SECTION 2. DIVIDENDS. The holders of the shares of Series A Preferred
Stock shall be entitled to receive dividends out of funds legally available
therefor, when, as and if declared by the Board of Directors of the Corporation
in its discretion; provided, however, that no dividends shall be declared or
paid on the Common Stock during any final year unless the Board of Directors
during such fiscal year shall have declared and set aside for payment a dividend
on the Series A Preferred Stock.
SECTION 3. CONVERSION. The holders of the shares of the Series A
Preferred Stock shall have conversion rights as follows:
(a) CONVERSION PRIVILEGE. Subject to Section 3(f), each share of
Series A Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such shares, into such number
of duly authorized, fully paid and non-assessable shares of Common Stock at the
Series A Conversion Price at the time in effect for such shares (the "SERIES A
CONVERSION PRICE"). The initial Series A Conversion Price shall be $6.25,
subject to adjustment as set forth in Sections 3(d) and 3(e).
(b) AUTOMATIC CONVERSION. In the event of (A) a Qualified Public
Offering (hereinafter defined) of the Corporation; or (B) the receipt by the
Corporation of notice from a majority of the holders of Series A Preferred Stock
electing to convert their shares, each share of Series A Preferred Stock shall
be automatically converted at the closing of the Qualified Public Offering or
the Transaction or upon receipt of such notice, without any action by the holder
thereof, into duly authorized, fully paid and non-assessable shares of Common
Stock at the then applicable Series A Conversion Price, subject to adjustment as
provided in Sections 3(d) and 3(e), plus cash in lieu of fractional shares. The
Corporation shall make no payment or adjustment on the account of any accrued
and unpaid dividends on the Series A Preferred Stock upon surrender for
conversion. A "QUALIFIED PUBLIC OFFERING" means an underwritten public offering
of Common Stock registered under the Securities Act of 1933, as amended, in
which the aggregate proceeds to the Corporation, net of underwriting discounts
and commissions, equal or exceed $7,500,000.
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(c) MECHANICS OF CONVERSION. Before any holder of shares of
Preferred Stock shall be entitled to convert such shares into Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the principal executive offices of the Corporation or of the transfer agent
therefor, if any, and shall give written notice to the Corporation that such
holder elects to convert all or part of the shares represented by the
certificate or certificates and shall state in writing therein the name or names
in which such holder wishes the certificate or certificates for Common Stock to
be issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver to such holder or to such holder's nominee or nominees, a certificate or
certificates for the number of full shares of Common Stock to which such holder
shall be entitled as aforesaid, together with cash in lieu of any fraction of a
share as provided in Section 3(h). If surrendered certificates for Preferred
Stock are converted only in part, the Corporation will issue and deliver to the
holder, or to such holder's nominee or nominees, a new certificate or
certificates representing the remaining unconverted shares of Preferred Stock.
Shares of Preferred Stock shall be deemed to have been converted as of the date
of the surrender of such shares for conversion as provided above, and the person
or persons entitled to receive the Common Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
as of the date of conversion.
(d) CONVERSION PRICE ADJUSTMENTS FOR SERIES A PREFERRED STOCK. The
Series A Conversion Price shall be subject to adjustment from time to time as
follows (the adjustments referred to in Subsections 3(d)(i) and (ii) shall be
referred to as a "MINIMUM RETURN ADJUSTMENT"):
(i) If at any time after the last closing of the offering and sale
of shares of Series A Preferred Stock pursuant to the Corporation's Confidential
Term Sheet dated November 7, 1994, as supplemented (the "Final Closing Date"),
the Corporation:
(A) completes an underwritten initial public offering of its
securities (a "Terminating IPO") in which it issues any shares of Common
Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of
Common Stock ("Common Stock Equivalents"), or
(B) consummates a merger or consolidation in which more than
fifty percent (50%) of the voting power of the Corporation is
transferred, or a sale or other disposition of all or substantially all
of the assets of the Corporation (a "Corporate Transaction"),
and, in the event of a Terminating IPO, the effective price per Common
Stock Equivalent issued, or in the event of a Corporate Transaction, the
fair market value of the stock, securities or other property to be
received by the holders of Common Stock of the Corporation on a per
share as-converted basis (including the Common Stock issuable to the
holders of Series A Preferred Stock electing to convert and taking into
account any Minimum Return Adjustment effected as a
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result of such transaction) (the "Per Share Price"), is less than (X)
during the first year following the Final Closing Date, 135% of the then
applicable Series A Conversion Price, (Y) during the second year
following the Final Closing Date, subject to Quarterly Allocation (as
defined in Subsection 3(d)(iii)), 170% of the then applicable Series A
Conversion Price or (Z) after the second year following the Final
Closing Date, subject to Quarterly Allocation, 205% of the then
applicable Series A Conversion Price, then the Series A Conversion Price
will be reduced (but not increased) to equal (A) 74.07% of the Per Share
Price for issuances made during the first year following the Final
Closing Date, (B) 58.82% of the Per Share Price for issuances made
during the second year following the Final Closing Date and (C) 48.78%
of the Per Share Price for issuances made after the second year
following the Final Closing Date.
(ii) In the event that in connection with a Terminating IPO, the Per
Share Price is not readily ascertainable, the determination of the Per Share
Price of any Common Stock Equivalent shall be determined in good faith by the
Corporation's Board of Directors based upon an allocation of the proceeds of the
Subsequent Offering among the Common Stock Equivalents, considering the special
terms, rights or privileges or other securities incorporated or included in such
Subsequent Offering. In the event that any holder of Series A Preferred Stock
disagrees with the determination of the Board of Directors, then for a period
commencing no earlier than 60 days and ending no later than 30 days prior to
commencement of the Terminating IPO, such holder shall have the right to convert
their shares of Series A Preferred Stock into the same type and class of
securities or other consideration comprising the Terminating IPO at a discount
to the per security offering of the Subsequent Offering equal to (i) 74.07% for
a Terminating IPO consummated during the first year following the Final Closing
Date, (ii) 58.82% for a Terminating IPO consummated during the second year
following the Final Closing Date, and (iii) 48.78% for a Terminating IPO
consummated after the second year following the Final Closing Date. Such right
of conversion shall represent the sole and exclusive remedy of such holder with
respect to such Subsequent Offering.
(iii) Minimum Return Adjustments will not be made after the conversion
of the Series A Preferred Stock (a "Termination Event"). Minimum Return
Adjustments may be made more than once, but will never serve to increase the
Series A Preferred Conversion Price. Commencing during the second year
following the Final Closing Date, Minimum Return Adjustments will be allocated
8.75% per quarter to reflect the quarter of the year in which the transaction
causing such Minimum Return Adjustment occurs ("Quarterly Allocation").
(iv) In no event shall the Series A Conversion Price be reduced to
less than $1.00, as adjusted for any stock splits, recapitalizations or similar
events.
(e) ADDITIONAL ADJUSTMENTS TO THE SERIES A CONVERSION PRICE. The
Series A Conversion Rate shall be adjusted from time to time as follows:
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(i) If the Corporation shall (A) pay a dividend or make a
distribution on its outstanding shares of Common Stock in share of its capital
stock (whether shares of its Common Stock or capital stock of any other class),
(B) subdivide its outstanding shares of Common Stock, (C) combine its
outstanding shares of Common Stock into a smaller number of shares or (D) issue
by reclassification of its shares of Common Stock any shares of capital stock of
the Corporation, the Series A Conversion Price in effect immediately prior to
such action shall be adjusted so that the holder of any shares of Series A
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of capital stock of the Corporation which such
holder would have owned immediately following such action had such shares of
Preferred Stock been converted immediately prior thereto. Upon the effective
date of any such dividend, distribution, subdivision, combination or
reclassification, an adjustment made pursuant to this Section 3(e)(i) shall
become effective retroactively as of the record date for any such dividend,
distribution, subdivision, combination or reclassification.
(ii) If the Corporation shall issue to holders of shares of its
outstanding Common Stock generally any rights, options or warrants entitling
them to subscribe for or purchase (A) shares of its Common Stock, (B) any assets
of the Corporation, (C) any securities of the Corporation (except its Common
Stock) or of any corporation other than the Corporation or (D) any rights,
options or warrants entitling them to subscribe for or to purchase any of the
foregoing securities, whether or not such rights, options or warrants are
immediately exercisable (collectively, a "DISTRIBUTION ON COMMON STOCK"), the
Corporation shall issue to the holders of its outstanding shares of Series A
Preferred Stock the Distribution on Common Stock to which they would have been
entitled if they had converted such shares of Series A Preferred Stock
immediately prior to the record date for the purpose of determining stockholders
entitled to receive such Distribution on Common Stock.
(f) DE MINIMIS CHANGES. No adjustment in the Series A Conversion
Price shall be required unless such adjustment would require an increase or
decrease of at least $.05 in such Series A Conversion Price; provided, however,
that any adjustments which by reason of this Section 3(f) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 3(f) shall be made to the
nearest cent or the nearest one hundredth of a share, as the case may be.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of each adjustment or
readjustment of the Series A Conversion Price pursuant to this Section 3, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of shares of Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and the computations upon which it is based. The
Corporation shall, upon the written request at any time of any holder of Series
A Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the Series A
Conversion Price in effect at such time and (C) the number of shares of
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Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of the Preferred Stock held by such
holder.
(h) NO FRACTIONAL SHARES TO BE ISSUED. No fractional shares or
script representing fractional shares of Common Stock shall be issued upon
conversion of shares of Preferred Stock. Instead of any fractional share of
Common Stock that would otherwise be issuable upon conversion of shares of
Series A Preferred Stock (or specified portions thereof), the Corporation shall
pay in cash to the holders of such Preferred Stock in respect of such fraction
of a share an amount equal to the same fraction of the fair market value per
share of the amount of Common Stock into which such shares of Preferred Stock
would otherwise be convertible, as determined by the Board of Directors of the
Corporation in good faith exercising reasonable business judgment.
(i) EFFECT OF SALE, MERGER OR CONSOLIDATION. In the event of any
capital reorganization of the Corporation (other than a subdivision or
combination of shares of Common Stock set forth in Section 3(e)(i)),
reclassification (other than a change in par value) of the Common Stock,
conversion of the Common Stock into securities of another corporation, or a
Transaction (each such event being referred to as a "CAPITAL CHANGE"), a share
of Series A Preferred Stock shall be convertible after such Capital Change, upon
the terms and conditions specified herein, for the number of shares of stock or
other securities or property of the Corporation or of the corporation into which
shares of Common Stock are converted or resulting from such consolidation or
surviving such merger or to which such sale shall be made, as the case may be,
to which, at the time of such Capital Change, the shares of Common Stock
issuable upon conversion of such shares of Series A Preferred Stock would have
been entitled upon such Capital Change. In any case, if necessary, the
provisions set forth in Section 3 with respect to the rights and interests of
the holders of Series A Preferred Stock shall be appropriately adjusted so as to
be reasonably applicable to any shares of stock or other securities or property
thereafter deliverable on the conversion of each such series. The Corporation
shall not effect any consolidation, merger or sale resulting in a Capital Change
unless, prior to or simultaneously with the consummation thereof, any successor
corporation or corporation purchasing such assets shall assume, by written
instrument, the obligation to deliver to the holders of Series A Preferred Stock
such shares of stock, securities or assets as the holders of each Preferred
Stock may be entitled to receive upon conversion of the such stock in accordance
with the foregoing provisions and all the other obligations of the Corporation
hereunder.
(j) RESERVATION OF SHARES FOR ISSUANCE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of issuance upon
conversion of Series A Preferred Stock as provided herein, such number of shares
of Common Stock as shall then be issuable upon the conversion of all outstanding
shares of Preferred Stock. All shares of Common Stock which shall be so issued
upon conversion of the Series A Preferred Stock as herein provided shall, when
issued, be duly authorized, validly issued, fully paid and non-assessable, free
of all liens, claims and changes and not subject to preemptive rights.
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(k) PAYMENT OF TAXES ON SHARES ISSUED UPON CONVERSION. The issuance
of certificates of Common Stock upon conversion of shares of the Series A
Preferred Stock shall be made without charge to the converting holders for any
tax in respect of the issuance of such certificates and such certificates shall
be issued in the respective names of, or in such names as may be directed by,
the holders of the shares of the Preferred Stock so converted; provided,
however, that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name other than the name in which the shares of the Series
A Preferred Stock so converted were registered, and the Corporation shall not be
required to issue or deliver such certificates unless or 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.
(l) OTHER EVENTS. If any event occurs as to which in the opinion of
the Board of Directors the provisions of this Section 3 would not fairly protect
the conversion rights of the holders of Series A Preferred Stock and/or the
rights of other stockholders of the Corporation in accordance with the intent
and principles of such provisions, then the Corporation's Board of Directors
may, in its discretion, adjust the application of such provisions, in accordance
with such intent and principles, so as to protect such conversion rights and/or
the rights of other stockholders of the Corporation, if applicable.
(m) NO IMPAIRMENT. The Corporation will not, by amendment of this
Exhibit A or the Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation with regard to the Series A Preferred Stock, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
SECTION 4. PREFERENCE ON LIQUIDATION.
(a) LIQUIDATION TRANSACTION; LIQUIDATION PREFERENCES. In the event
of any voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation or upon a Corporate Transaction (any such event being referred to as
a "LIQUIDATION TRANSACTION"), the holders of the Series A Preferred Stock shall
have the option to either (i) convert their shares into Common Stock of the
Corporation immediately prior to the Transaction, or (ii) be entitled to be paid
out of the assets of the Corporation available for distribution to its
stockholders (whether capital or surplus), or out of the proceeds thereof, an
amount in cash equal to $6.25 per share plus any accrued and unpaid dividends on
the Series A Preferred Stock (the "SERIES A LIQUIDATION PREFERENCE"), as
provided in this Section 4.
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(b) ORDER OF PREFERENCE AND AMOUNT. In the event of a Liquidation
Transaction, any payment or distribution of the assets of the Corporation
(whether capital or surplus) or the proceeds thereof, shall be made to set apart
in the following order of preference and amounts after payment or provision for
payment of the debts and other liabilities of the Corporation:
(i) the holders of the issued and outstanding shares of the Series A
Preferred Stock and the Series B Preferred Stock shall be entitled to receive
payment of the Series A Liquidation Preference and the Series B Liquidation
Preference on a PARI PASSU basis, as described below; and
(ii) if the amounts available to the holders of the issued and
outstanding shares of Series A Preferred Stock and Series B Preferred Stock are
not sufficient to pay the holders thereof in full the applicable preferential
amounts set forth in Section 4(a), then the amounts available for payment to
such holders shall be paid proportionately to the holders of each such series of
Preferred Stock as a group.
(c) ADDITIONAL DISTRIBUTIONS. In the event the Liquidating
Transaction is not a Corporate Transaction, then after payment in full of the
preferential amounts set forth in Section 4(a), the remaining assets of the
Corporation legally available for distribution shall be distributed ratably on a
per share basis among the holders of shares of Common Stock, the Series A
Preferred Stock and the Series B Preferred Stock.
(d) CONSOLIDATION, MERGER OR SALE OF ASSETS. Notwithstanding
anything to the contrary stated herein, a consolidation or merger of the
Corporation with or into any other corporation or corporations, or a sale,
conveyance or disposition of all or substantially all of the assets of the
Corporation or the effectuation by transactions in which the Corporation is not
the surviving corporation or in which more than 50% of the voting power of the
Corporation is disposed of, shall not be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section 4, but shall instead be treated
pursuant to Subsection 3(d) hereof.
SECTION 5. VOTING.
(a) GENERAL. The holders of Series A Preferred Stock shall be
entitled to vote on all matters submitted to a vote of the holders of Common
Stock generally and to receive notice of all meetings of the stockholders.
Unless otherwise required by applicable law, the holders of shares of Series A
Preferred Stock shall vote together with the holders of the Common Stock as
though part of that class and shall have the right to that number of votes equal
to the number of shares of Common Stock into which the shares of Series A
Preferred Stock are convertible on the applicable record date.
(b) PROTECTIVE PROVISIONS.
(i) So long as any shares of Series A Preferred Stock are
outstanding, this Corporation shall not without first obtaining the approval (by
vote or written consent, as
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provided by law) of the holders of at least a majority of the then outstanding
shares of Series A Preferred Stock, voting separately as a class, (A) alter or
change the rights, preferences or privileges of the shares of such Series A
Preferred Stock so as to affect adversely the shares or (B) increase the
authorized number of shares of Series A Preferred Stock.
SECTION 6. NOTICE. Any notice required by these provisions to
be given to the holders of shares of Series A Preferred Stock shall be deemed
given if sent U.S. certified mail, return receipt requested and postage prepaid,
or by overnight courier and addressed to each holder of record at its address
appearing on the books of the Corporation. The date of any such notice shall be
deemed to be the date of which it is received.
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EXHIBIT B
DESCRIPTION OF SERIES B PREFERRED STOCK
SECTION 1. DESIGNATION OF SERIES; RANK.
(a) 880,000 shares of Preferred Stock shall be designated "Series B
Convertible Preferred Stock" (the "SERIES B PREFERRED STOCK").
(b) With respect to the payments of dividends, the Series B
Preferred Stock shall rank on a parity with the Series A Preferred Stock and
senior to the Common Stock. With respect to the distribution of assets upon
liquidation, dissolution, or winding up, the Series B Stock shall rank on a
parity with the Series A Preferred Stock and senior to the Common Stock.
SECTION 2. DIVIDENDS. The holders of the shares of Series B Preferred
Stock shall be entitled to receive dividends out of funds legally available
therefor, when, as and if declared by the Board of Directors of the Corporation
in its discretion; provided, however, that no dividends shall be declared or
paid on the Common Stock during any final year unless the Board of Directors
during such fiscal year shall have declared and set aside for payment a dividend
on the Series B Preferred Stock.
SECTION 3. CONVERSION. The holders of the shares of the Series B
Preferred Stock shall have conversion rights as follows:
(a) CONVERSION PRIVILEGE. Subject to Section 3(f), each share of
Series B Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such shares, into such number
of duly authorized, fully paid and non-assessable shares of Common Stock at the
Series B Conversion Price at the time in effect for such shares (the "SERIES B
CONVERSION PRICE"). The initial Series B Conversion Price shall be $6.25,
subject to adjustment as set forth in Sections 3(d) and 3(e).
(b) AUTOMATIC CONVERSION. In the event of (A) a Qualified Public
Offering (hereinafter defined) of the Corporation; or (B) the receipt by the
Corporation of notice from a majority of the holders of Series B Preferred Stock
electing to convert their shares, each share of Series B Preferred Stock shall
be automatically converted at the closing of the Qualified Public Offering or
the Transaction or upon receipt of such notice, without any action by the holder
thereof, into duly authorized, fully paid and non-assessable shares of Common
Stock at the then applicable Series B Conversion Price, subject to adjustment as
provided in Sections 3(d) and 3(e), plus cash in lieu of fractional shares. The
Corporation shall make no payment or adjustment on the account of any accrued
and unpaid dividends on the Series B Preferred Stock upon surrender for
conversion. A "QUALIFIED PUBLIC OFFERING" means an underwritten public offering
of Common Stock registered under the Securities Act of 1933, as amended, in
which the aggregate proceeds to the Corporation, net of underwriting discounts
and commissions, equal or exceed $7,500,000.
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(c) MECHANICS OF CONVERSION. Before any holder of shares of
Preferred Stock shall be entitled to convert such shares into Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the principal executive offices of the Corporation or of the transfer agent
therefor, if any, and shall give written notice to the Corporation that such
holder elects to convert all or part of the shares represented by the
certificate or certificates and shall state in writing therein the name or names
in which such holder wishes the certificate or certificates for Common Stock to
be issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver to such holder or to such holder's nominee or nominees, a certificate or
certificates for the number of full shares of Common Stock to which such holder
shall be entitled as aforesaid, together with cash in lieu of any fraction of a
share as provided in Section 3(h). If surrendered certificates for Preferred
Stock are converted only in part, the Corporation will issue and deliver to the
holder, or to such holder's nominee or nominees, a new certificate or
certificates representing the remaining unconverted shares of Preferred Stock.
Shares of Preferred Stock shall be deemed to have been converted as of the date
of the surrender of such shares for conversion as provided above, and the person
or persons entitled to receive the Common Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
as of the date of conversion.
(d) CONVERSION PRICE ADJUSTMENTS FOR SERIES B PREFERRED STOCK. The
Series B Conversion Price shall be subject to adjustment from time to time as
follows (the adjustments referred to in Subsections 3(d)(i) and (ii) shall be
referred to as a "MINIMUM RETURN ADJUSTMENT"):
(i) If at any time after the last closing of the offering and sale
of shares of Series B Preferred Stock pursuant to the Corporation's Confidential
Term Sheet dated November 7, 1994, as supplemented (the "Final Closing Date"),
the Corporation:
(A) completes an underwritten initial public offering of its
securities (a "Terminating IPO") in which it issues any shares of Common
Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of
Common Stock ("Common Stock Equivalents"), or
(B) consummates a merger or consolidation in which more than
fifty percent (50%) of the voting power of the Corporation is
transferred, or a sale or other disposition of all or substantially all
of the assets of the Corporation (a "Corporate Transaction"),
and, in the event of a Terminating IPO, the effective price per Common
Stock Equivalent issued, or in the event of a Corporate Transaction,
the fair market value of the stock, securities or other property to be
received by the holders of Common Stock of the Corporation on a per
share as-converted basis (including the Common Stock issuable to the
holders of Series B Preferred Stock electing to convert and taking into
account any Minimum Return Adjustment effected as a
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result of such transaction) (the "Per Share Price"), is less than (X)
during the first year following the Final Closing Date, 135% of the then
applicable Series B Conversion Price, (Y) during the second year
following the Final Closing Date, subject to Quarterly Allocation (as
defined in Subsection 3(d)(iii)), 170% of the then applicable Series B
Conversion Price or (Z) after the second year following the Final
Closing Date, subject to Quarterly Allocation, 205% of the then
applicable Series B Conversion Price, then the Series B Conversion Price
will be reduced (but not increased) to equal (A) 74.07% of the Per Share
Price for issuances made during the first year following the Final
Closing Date, (B) 58.82% of the Per Share Price for issuances made
during the second year following the Final Closing Date and (C) 48.78%
of the Per Share Price for issuances made after the second year
following the Final Closing Date.
(ii) In the event that in connection with a Terminating IPO, the Per
Share Price is not readily ascertainable, the determination of the Per Share
Price of any Common Stock Equivalent shall be determined in good faith by the
Corporation's Board of Directors based upon an allocation of the proceeds of the
Subsequent Offering among the Common Stock Equivalents, considering the special
terms, rights or privileges or other securities incorporated or included in such
Subsequent Offering. In the event that any holder of Series B Preferred Stock
disagrees with the determination of the Board of Directors, then for a period
commencing no earlier than 60 days and ending no later than 30 days prior to
commencement of the Terminating IPO, such holder shall have the right to convert
their shares of Series B Preferred Stock into the same type and class of
securities or other consideration comprising the Terminating IPO at a discount
to the per security offering of the Subsequent Offering equal to (i) 74.07% for
a Terminating IPO consummated during the first year following the Final Closing
Date, (ii) 58.82% for a Terminating IPO consummated during the second year
following the Final Closing Date, and (iii) 48.78% for a Terminating IPO
consummated after the second year following the Final Closing Date. Such right
of conversion shall represent the sole and exclusive remedy of such holder with
respect to such Subsequent Offering.
(iii) Minimum Return Adjustments will not be made after the conversion
of the Series B Preferred Stock (a "Termination Event"). Minimum Return
Adjustments may be made more than once, but will never serve to increase the
Series B Preferred Conversion Price. Commencing during the second year
following the Final Closing Date, Minimum Return Adjustments will be allocated
8.75% per quarter to reflect the quarter of the year in which the transaction
causing such Minimum Return Adjustment occurs ("Quarterly Allocation").
(iv) In no event shall the Series B Conversion Price be reduced to
less than $1.00, as adjusted for any stock splits, recapitalizations or similar
events.
(e) ADDITIONAL ADJUSTMENTS TO THE SERIES B CONVERSION PRICE. The
Series B Conversion Rate shall be adjusted from time to time as follows:
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<PAGE>
(i) If the Corporation shall (A) pay a dividend or make a
distribution on its outstanding shares of Common Stock in share of its capital
stock (whether shares of its Common Stock or capital stock of any other class),
(B) subdivide its outstanding shares of Common Stock, (C) combine its
outstanding shares of Common Stock into a smaller number of shares or (D) issue
by reclassification of its shares of Common Stock any shares of capital stock of
the Corporation, the Series B Conversion Price in effect immediately prior to
such action shall be adjusted so that the holder of any shares of Series B
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of capital stock of the Corporation which such
holder would have owned immediately following such action had such shares of
Preferred Stock been converted immediately prior thereto. Upon the effective
date of any such dividend, distribution, subdivision, combination or
reclassification, an adjustment made pursuant to this Section 3(e)(i) shall
become effective retroactively as of the record date for any such dividend,
distribution, subdivision, combination or reclassification.
(ii) If the Corporation shall issue to holders of shares of its
outstanding Common Stock generally any rights, options or warrants entitling
them to subscribe for or purchase (A) shares of its Common Stock, (B) any assets
of the Corporation, (C) any securities of the Corporation (except its Common
Stock) or of any corporation other than the Corporation or (D) any rights,
options or warrants entitling them to subscribe for or to purchase any of the
foregoing securities, whether or not such rights, options or warrants are
immediately exercisable (collectively, a "DISTRIBUTION ON COMMON STOCK"), the
Corporation shall issue to the holders of its outstanding shares of Series B
Preferred Stock the Distribution on Common Stock to which they would have been
entitled if they had converted such shares of Series B Preferred Stock
immediately prior to the record date for the purpose of determining stockholders
entitled to receive such Distribution on Common Stock.
(f) DE MINIMIS CHANGES. No adjustment in the Series B Conversion
Price shall be required unless such adjustment would require an increase or
decrease of at least $.05 in such Series B Conversion Price; provided, however,
that any adjustments which by reason of this Section 3(f) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 3(f) shall be made to the
nearest cent or the nearest one hundredth of a share, as the case may be.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of each adjustment or
readjustment of the Series B Conversion Price pursuant to this Section 3, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of shares of Series B Preferred Stock a certificate setting forth such
adjustment or readjustment and the computations upon which it is based. The
Corporation shall, upon the written request at any time of any holder of Series
B Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the Series B
Conversion Price in effect at such time and (C) the number of shares of
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<PAGE>
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of the Preferred Stock held by such
holder.
(h) NO FRACTIONAL SHARES TO BE ISSUED. No fractional shares or
script representing fractional shares of Common Stock shall be issued upon
conversion of shares of Preferred Stock. Instead of any fractional share of
Common Stock that would otherwise be issuable upon conversion of shares of
Series B Preferred Stock (or specified portions thereof), the Corporation shall
pay in cash to the holders of such Preferred Stock in respect of such fraction
of a share an amount equal to the same fraction of the fair market value per
share of the amount of Common Stock into which such shares of Preferred Stock
would otherwise be convertible, as determined by the Board of Directors of the
Corporation in good faith exercising reasonable business judgment.
(i) EFFECT OF SALE, MERGER OR CONSOLIDATION. In the event of any
capital reorganization of the Corporation (other than a subdivision or
combination of shares of Common Stock set forth in Section 3(e)(i)),
reclassification (other than a change in par value) of the Common Stock,
conversion of the Common Stock into securities of another corporation, or a
Transaction (each such event being referred to as a "CAPITAL CHANGE"), a share
of Series B Preferred Stock shall be convertible after such Capital Change, upon
the terms and conditions specified herein, for the number of shares of stock or
other securities or property of the Corporation or of the corporation into which
shares of Common Stock are converted or resulting from such consolidation or
surviving such merger or to which such sale shall be made, as the case may be,
to which, at the time of such Capital Change, the shares of Common Stock
issuable upon conversion of such shares of Series B Preferred Stock would have
been entitled upon such Capital Change. In any case, if necessary, the
provisions set forth in Section 3 with respect to the rights and interests of
the holders of Series B Preferred Stock shall be appropriately adjusted so as to
be reasonably applicable to any shares of stock or other securities or property
thereafter deliverable on the conversion of each such series. The Corporation
shall not effect any consolidation, merger or sale resulting in a Capital Change
unless, prior to or simultaneously with the consummation thereof, any successor
corporation or corporation purchasing such assets shall assume, by written
instrument, the obligation to deliver to the holders of Series B Preferred Stock
such shares of stock, securities or assets as the holders of each Preferred
Stock may be entitled to receive upon conversion of the such stock in accordance
with the foregoing provisions and all the other obligations of the Corporation
hereunder.
(j) RESERVATION OF SHARES FOR ISSUANCE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of issuance upon
conversion of Series B Preferred Stock as provided herein, such number of shares
of Common Stock as shall then be issuable upon the conversion of all outstanding
shares of Preferred Stock. All shares of Common Stock which shall be so issued
upon conversion of the Series B Preferred Stock as herein provided shall, when
issued, be duly authorized, validly issued, fully paid and non-assessable, free
of all liens, claims and changes and not subject to preemptive rights.
5
<PAGE>
(k) PAYMENT OF TAXES ON SHARES ISSUED UPON CONVERSION. The issuance
of certificates of Common Stock upon conversion of shares of the Series B
Preferred Stock shall be made without charge to the converting holders for any
tax in respect of the issuance of such certificates and such certificates shall
be issued in the respective names of, or in such names as may be directed by,
the holders of the shares of the Preferred Stock so converted; provided,
however, that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name other than the name in which the shares of the Series
B Preferred Stock so converted were registered, and the Corporation shall not be
required to issue or deliver such certificates unless or 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.
(l) OTHER EVENTS. If any event occurs as to which in the opinion of
the Board of Directors the provisions of this Section 3 would not fairly protect
the conversion rights of the holders of Series B Preferred Stock and/or the
rights of other stockholders of the Corporation in accordance with the intent
and principles of such provisions, then the Corporation's Board of Directors
may, in its discretion, adjust the application of such provisions, in accordance
with such intent and principles, so as to protect such conversion rights and/or
the rights of other stockholders of the Corporation, if applicable.
(m) NO IMPAIRMENT. The Corporation will not, by amendment of this
Exhibit B or the Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation with regard to the Series B Preferred Stock, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred Stock against impairment.
SECTION 4. PREFERENCE ON LIQUIDATION.
(a) LIQUIDATION TRANSACTION; LIQUIDATION PREFERENCES. In the event
of any voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation or upon a Corporate Transaction (any such event being referred to as
a "LIQUIDATION TRANSACTION"), the holders of the Series B Preferred Stock shall
have the option to either (i) convert their shares into Common Stock of the
Corporation immediately prior to the Transaction, or (ii) be entitled to be paid
out of the assets of the Corporation available for distribution to its
stockholders (whether capital or surplus), or out of the proceeds thereof, an
amount in cash equal to $6.25 per share plus any accrued and unpaid dividends on
the Series B Preferred Stock (the "SERIES B LIQUIDATION PREFERENCE"), as
provided in this Section 4.
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<PAGE>
(b) ORDER OF PREFERENCE AND AMOUNT. In the event of a Liquidation
Transaction, any payment or distribution of the assets of the Corporation
(whether capital or surplus) or the proceeds thereof, shall be made to set apart
in the following order of preference and amounts after payment or provision for
payment of the debts and other liabilities of the Corporation:
(i) the holders of the issued and outstanding shares of the Series A
Preferred Stock and the Series B Preferred Stock shall be entitled to receive
payment of the Series A Liquidation Preference and the Series B Liquidation
Preference on a PARI PASSU basis, as described below; and
(ii) if the amounts available to the holders of the issued and
outstanding shares of Series A Preferred Stock and Series B Preferred Stock are
not sufficient to pay the holders thereof in full the applicable preferential
amounts set forth in Section 4(a), then the amounts available for payment to
such holders shall be paid proportionately to the holders of each such series of
Preferred Stock as a group.
(c) ADDITIONAL DISTRIBUTIONS. In the event the Liquidating
Transaction is not a Corporate Transaction, then after payment in full of the
preferential amounts set forth in Section 4(a), the remaining assets of the
Corporation legally available for distribution shall be distributed ratably on a
per share basis among the holders of shares of Common Stock, the Series A
Preferred Stock and the Series B Preferred Stock.
(d) CONSOLIDATION, MERGER OR SALE OF ASSETS. Notwithstanding
anything to the contrary stated herein, a consolidation or merger of the
Corporation with or into any other corporation or corporations, or a sale,
conveyance or disposition of all or substantially all of the assets of the
Corporation or the effectuation by transactions in which the Corporation is not
the surviving corporation or in which more than 50% of the voting power of the
Corporation is disposed of, shall not be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section 4, but shall instead be treated
pursuant to Subsection 3(d) hereof.
SECTION 5. VOTING.
(a) GENERAL. The holders of Series B Preferred Stock shall be
entitled to vote on all matters submitted to a vote of the holders of Common
Stock generally and to receive notice of all meetings of the stockholders.
Unless otherwise required by applicable law, the holders of shares of Series B
Preferred Stock shall vote together with the holders of the Common Stock as
though part of that class and shall have the right to that number of votes equal
to the number of shares of Common Stock into which the shares of Series B
Preferred Stock are convertible on the applicable record date.
(b) PROTECTIVE PROVISIONS.
(i) So long as any shares of Series B Preferred Stock are
outstanding, this Corporation shall not without first obtaining the approval (by
vote or written consent, as
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<PAGE>
provided by law) of the holders of at least a majority of the then outstanding
shares of Series B Preferred Stock, voting separately as a class, (A) alter or
change the rights, preferences or privileges of the shares of such Series B
Preferred Stock so as to affect adversely the shares or (B) increase the
authorized number of shares of Series B Preferred Stock.
SECTION 6. NOTICE. Any notice required by these provisions to be given
to the holders of shares of Series B Preferred Stock shall be deemed given if
sent U.S. certified mail, return receipt requested and postage prepaid, or by
overnight courier and addressed to each holder of record at its address
appearing on the books of the Corporation. The date of any such notice shall be
deemed to be the date of which it is received.
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<PAGE>
PROGENITOR, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
Number Shares
- ------ ------
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 743188 10 4
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.001 PER
SHARE, OF
PROGENITOR, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Gavin B. Grover
SECRETARY
/s/ Douglass B. Given
PRESIDENT
[SEAL]
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(JERSEY CITY, NJ)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
<PAGE>
The Company will furnish to any shareholder upon request and without charge
a full statement of the designation, relative rights, preferences and
limitations of the shares of each class authorized to be issued and the
designation, relative rights, preferences and limitations of each series of
preferred shares which the Company is authorized to issue so far as the same
have been fixed, and the authority of the Board of Directors of the Company to
designate and fix the relative rights, preferences and limitations of other
series.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- Custodian
(Cust) (Minor)
under Uniform Gifts to Minors
Act
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO
HEREBY IRREVOCABLY CONSTITUTE AND APPOINT ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED
------------------------
-------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- --------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of August 9, 1996 by
and between Progenitor, Inc., a Delaware corporation (the "Company"), and
______________("Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the Company;
WHEREAS, both the company and Indemnitee recognize the increased risk
of litigation and other claims currently being asserted against directors and
officers of corporations; and
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's continued
and effective service to the Company, and in order to induce Indemnitee to
provide services to the Company as a director and /or officer, the Company
wishes to provide in this Agreement for the indemnification of and the advancing
of expenses to Indemnitee to the fullest extent (whether partial or complete)
permitted by Delaware law and as set forth in this Agreement, and, to the extent
insurance is maintained, for the coverage of Indemnitee under the Company's
directors' and officers' liability insurance policies.
NOW, THEREFORE, in consideration of the above premises and of
Indemnitee's continuing to serve the Company directly or, at its request, with
another enterprise, and intending to be legally bound hereby, the parties agree
as follows:
1. CERTAIN DEFINITIONS:
(a) BOARD: the Board of Directors of the Company.
(b) CHANGE IN CONTROL: shall be deemed to have occurred if (i)
any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Act")), other than Interneuron
Pharmaceuticals, Inc. ("Interneuron"), a stockholder of Interneuron who receives
stock in the Company in substantially the same proportion as Interneuron, a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the stockholders of
the Company or Interneuron in substantially the same proportions as their
ownership of stock of the Company or Interneuron, respectively (collectively
"excluded persons"), is or becomes the "Beneficial Owner" (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of the Company
representing 30% or more of the total voting power represented by the Company's
then outstanding Voting Securities, or (ii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board and
any new director whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were
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<PAGE>
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the Board, or (iii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than
Interneuron, other than a merger or consolidation that would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 50% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets.
(c) EXPENSES: any expense, liability, or loss, including
attorneys' fees, judgments, fines, ERISA excise taxes and penalties, amounts
paid or to be paid in settlement, any interest, assessments, or other charges
imposed thereon, and any federal, state, local, or foreign taxes imposed as a
result of the actual or deemed receipt of any payments under this Agreement,
paid or incurred in connection with investigating, defending, being a witness
in, or participating in (including on appeal), or preparing for any of the
foregoing in, any Proceeding relating to any Indemnifiable Event.
(d) INDEMNIFIABLE EVENT: any event or occurrence that takes
place either prior to or after the effective date of this Agreement, related to
the fact that Indemnitee is or was a director or an officer of the Company, or
while a director or officer is or was serving at the request of the Company as a
director, officer, employee, trustee, agent, or fiduciary of another foreign or
domestic corporation, partnership, joint venture, employee benefit plan, trust,
or other enterprise, or was a director, officer, employee, or agent of a foreign
or domestic corporation that was a predecessor corporation of the Company or of
another enterprise at the request of such predecessor corporation, or related to
anything done or not done by Indemnitee in any such capacity.
(e) INDEPENDENT COUNSEL: the person or body appointed in
connection with Section 3.
(f) POTENTIAL CHANGE IN CONTROL: shall be deemed to have
occurred if (i) the Company enters into an agreement or arrangement, the
consummation of which would result in the occurrence of a Change in Control;
(ii) any person (including the Company) publicly announces an intention to take
or to consider taking actions that, if consummated, would constitute a Change in
Control; (iii) any person (other than an Excluded Person) who is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding Voting
<PAGE>
Securities, increases his beneficial ownership of such securities by 5% or more
over the percentage so owned by such person on the date hereof, or (iv) the
Board adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
(g) PROCEEDING: (i) any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative,
investigative, or other; or (ii) any inquiry, hearing, or investigation, whether
conducted by the Company or any other party, that Indemnitee in good faith
believes might lead to the institution of any such action, suit, or proceeding.
(h) REVIEWING PARTY: the person or body appointed in accordance
with Section 3.
(i) VOTING SECURITIES: any securities of the Company that vote
generally in the election of directors.
2. AGREEMENT TO INDEMNIFY.
(a) GENERAL AGREEMENT. In the event Indemnitee was, is, or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, a Proceeding by reason of
(or arising in part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee from and against any and all Expenses to the fullest extent permitted
by law, as the same exists or may hereafter be amended or interpreted (but in
the case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the Company to provide broader
indemnification rights than were permitted prior thereto). The parties hereto
intend that this Agreement shall provide for indemnification in excess of that
expressly permitted by statute, including, without limitation, any
indemnification provided by the Company's Certificate of Incorporation, its
bylaws, vote of its stockholders or disinterested directors, or applicable law.
(b) INITIATION OF PROCEEDING. Notwithstanding anything in this
Agreement to the contrary, Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Proceeding initiated by
Indemnitee against the Company or any director or officer of the Company unless
(i) the Company has joined in or the Board has consented to the initiation of
such Proceeding; (ii) the Proceeding is one to enforce indemnification rights
under Section 5; or (iii) the Proceeding is instituted after a Change in Control
and Independent Counsel has approved its initiation.
(c) EXPENSE ADVANCES. If so requested by Indemnitee, the
Company shall advance (within ten business days of such request) any and all
Expenses to Indemnitee (an "Expense Advance"); provided that such request shall
be accompanied by reasonable evidence of the expenses incurred by indemnitee and
that, if and to the extent that the Reviewing Party determines that Indemnitee
would not be permitted to be so indemnified under applicable law, the Company
shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid.
3
<PAGE>
If Indemnitee has commenced legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, as provided in Section 4, any determination made by the
Reviewing Party that Indemnitee would not be permitted to be indemnified under
applicable law shall not be binding and Indemnitee shall not be required to
reimburse the Company for any Expense Advance until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or have lapsed).
(d) MANDATORY INDEMNIFICATION. Notwithstanding any other provision
of this Agreement (other than Section 2(f) below), to the extent that Indemnitee
has been successful on the merits in defense of any Proceeding relating in whole
or in part to an Indemnifiable Event or in defense of any issue or matter
therein, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith.
(e) PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
(f) PROHIBITED INDEMNIFICATION. No indemnification pursuant to this
Agreement shall be paid by the Company on account of any Proceeding in which
judgment is rendered against Indemnitee for an accounting of profits made from
the purchase or sale by Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Act or similar provisions of any federal,
state or local laws.
3. REVIEWING PARTY. Prior to any Change in Control, the Reviewing Party
shall be any appropriate person or body consisting of a member or members of the
Board or any other person or body appointed by the Board who is not a party to
the particular Proceeding with respect to which Indemnitee is seeking
indemnification; after a Change in Control, the Reviewing Party shall be the
Independent Counsel referred to below. With respect to all matters arising
after a Change in Control (other than a Change in Control approved by a majority
of the directors on the Board who were directors immediately prior to such
Change in Control) concerning the rights of Indemnitee to indemnity payments and
Expense Advances under this Agreement or any other agreement or under applicable
law or the Company's Certificate of Incorporation or Bylaws now or hereafter in
effect relating to indemnification for Indemnifiable Events, the Company shall
seek legal advice only from Independent Counsel selected by Indemnitee and
approved by the Company and who has not otherwise performed services for the
Company or the Indemnitee (other than in connection with indemnification
matters) within the last five years. The Independent Counsel shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. Such counsel, among other things, shall render its written opinion
to the Company and Indemnitee as to whether and to what
4
<PAGE>
extent the Indemnitee should be permitted to be indemnified under applicable
law. The Company agrees to pay the reasonable fees of the Independent Counsel
and to indemnify fully such counsel against any and all expenses (including
attorney's fees), claims, liabilities, loss, and damages arising out of or
relating to this Agreement or the engagement of Independent Counsel pursuant
hereto.
4. INDEMNIFICATION PROCESS AND APPEAL.
(a) SUIT TO ENFORCE RIGHTS. Regardless of any action by the
Reviewing Party, if Indemnitee has not received full indemnification within 60
days after making a request in accordance with Section 2(c), Indemnitee shall
have the right to enforce its indemnification rights under this Agreement by
commencing litigation, in any appropriate court having subject matter
jurisdiction thereof and in which venue is proper, seeking an intial
determination by the court or challenging any determination by the Reviewing
Party or any aspect thereof, provided, however, that such 60-day period shall be
extended for a reasonable time, not to exceed another 60 days, if the reviewing
party in good faith requires additional time for the obtaining or evaluating of
documentation and information relating thereto. The Company hereby consents to
service of process and to appear in any such proceeding. Any determination by
the Reviewing Party not challenged by the Indemnitee shall be binding on the
Company and Indemnitee. The remedy provided for in this Section 4 shall be in
addition to any other remedies available to Indemnitee in law or equity.
(b) DEFENSE TO INDEMNIFICATION, BURDEN OF PROOF, AND PRESUMPTIONS.
It shall be a defense to any action brought by Indemnitee against the Company to
enforce this Agreement (other than an action brought to enforce a claim for
Expenses incurred in defending a Proceeding in advance of its final disposition
where the required undertaking has been tendered to the Company) that it is not
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed. In connection with any such action or any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proving such a defense or determination
shall be on the Company. Neither the failure of the Reviewing Party or the
Company (including its Board, independent legal counsel, or its stockholders) to
have made a determination prior to the commencement of such action by Indemnitee
that indemnification of the claimant is proper under the circumstances because
Indemnitee has met the standard of conduct set forth in applicable law, nor an
actual determination by the Reviewing Party or Company (including its Board,
independent legal counsel, or its stockholders) that the Indemnitee had not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the Indemnitee has not met the applicable standard of
conduct. For purposes of this Agreement, the termination of any claim, action,
suit, or proceeding, by judgment, order, settlement (whether with or without
court approval), conviction, or upon a plea of nolo contendere, or its
equivalent,
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shall not create a presumption that Indemnitee did not meet any particular
standard of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law.
5. INDEMNIFICATION FOR EXPENSES INCURRED IN ENFORCING RIGHTS. The
Company shall indemnify Indemnitee against any and all Expenses and, if
requested by Indemnitee, shall (within ten business days of such request),
advance such Expenses to Indemnitee, that are incurred by Indemnitee in
connection with any claim asserted against or covered action brought by
Indemnitee for
(i) indemnification of Expenses or Expense Advances by the Company
under this Agreement or any other agreement or under applicable law or the
Company's Certificate of Incorporation or Bylaws now or hereafter in effect
relating to indemnification for Indemnifiable Events, and/or
(ii) recovery under directors' and officers' liability insurance
policies maintained by the Company, regardless of whether Indemnitee ultimately
is determined to be entitled to such indemnificaiton, Expense Advances, or
insurance recovery, as the case may be.
6. NOTIFICATION AND DEFENSE OF PROCEEDING.
(a) NOTICE. Promptly after receipt by Indemnitee of notice of the
commencement of any Proceeding, Indemnitee shall, if a claim in respect thereof
is to be made against the Company under this Agreement, notify the Company of
the commencement thereof; but the omission so to notify the Company will not
relieve the Company from any liability that it may have to Indemnitee, except as
provided in Section 6(c).
(b) DEFENSE. With respect to any Proceeding as to which Indemnitee
notifies the Company of the commencement thereof, the Company shall be entitled
to participate in the Proceeding at its own expense and except as otherwise
provided below, to the extent the Company so wishes, it may assume the defense
thereof with counsel reasonably satisfactory to Indemnitee. After notice from
the Company to Indemnitee of its election to assume the defense of any
Proceeding, the Company shall not be liable to Indemnitee under this Agreement
or otherwise for any Expenses subsequently incurred by Indemnitee in connection
with the defense of such Proceeding other than reasonable costs of investigation
or as otherwise provided below. Indemnitee shall have the right to employ his
or her own legal counsel in such Proceeding, but all Expenses related thereto
incurred after notice from the Comapny of its assumption of the defense shall be
at Indemnitee's expense unless: (i) the employment of legal counsel by
Indemnitee has been authorized by the Company, (ii) Indemnitee has reasonable
determined that there may be a conflict of interest between Indemnitee and the
Company in the defense of the Proceeding, (iii) after a Change in Control, the
employment of counsel by Indemnitee has been approved by the Independent
Counsel, or (iv) the Company shall not in fact have employed counsel to assume
the defense of such Proceeding,in each of which case all Expenses of the
Proceeding shall be borne by the Company. The Company shall not be entitled
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to assume the defense of any Proceeding brought by or on behalf of the Company
or as to which Indemnitee shall have made the determination provided for in (ii)
above.
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(c) SETTLEMENT OF CLAIMS. The Company shall not be liable
to indemnify Indemnitee under this Agreement or otherwise for any amounts
paid in settlement of any Proceeding effected without the Company's written
consent, provided, however, that if a Change in Control has occurred, the
Company shall be liable for indemnification of Indemnitee for amounts paid in
settlement if the Independent Counsel has approved the settlement. The
Company shall not settle any Proceeding in any manner that would impose any
penalty or limitation on Indemnitee without Indemnitee's written consent. The
Company shall not be liable to indemnify the Indemnitee under this Agreement
with regard to any judicial award if the Company was not given a reasonable and
timely opportunity, at its expense, to participate in the defense of such
action; the Company's liability hereunder shall not be excused if participation
in the Proceeding by the Company was barred by this Agreement.
7. NON-EXCLUSIVITY. The rights of Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Company's
Certificate of Incorporation, Bylaws, applicable law, or otherwise. To the
extent that a change in applicable law (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded
currently under
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the Company's Certificate of Incorporation, Bylaws, applicable law, or this
Agreement, it is the intent of the parties that Indemnitee enjoy by this
Agreement the greater benefits so afforded by such change.
8. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer.
9. AMENDMENT OF THIS AGREEMENT. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall operate as a waiver of any other provisions hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver. Except as
specifically provided herein, no failure to exercise or any delay in
exercising any right or remedy hereunder shall constitute a waiver thereof.
10. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including
the execution of such documents necessary to enable the Company effectively
to bring suit to enforce such rights.
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11. NO DUPLICATION OF PAYMENTS. The Company shall not be liable
under this Agreement to make any payment in connection with any claim made
against Indemnitee to the extent Indemnitee has otherwise received payment
(under any insurance policy, Bylaw, or otherwise) of the amounts otherwise
INDEMNIFIABLE hereunder.
12. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their
respective successors (including any direct or indirect successor by
purchase, merger, consolidation, or otherwise to all or substantially all of
the business and/or assets of the Company), assigns, spouses, heirs, and
personal and legal representatives. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity pertaining to an Indemnifiable Event
even though he or she may have ceased to serve in such capacity at the time
of any Proceeding.
13. SEVERABILITY. If any provision (or portion thereof) of this
Agreement shall be held by a court of competent jurisdiction to be invalid,
void, or otherwise unenforceable, the remaining provisions shall remain
enforceable to the fullest extent permitted by law. Furthermore, to the
fullest extent possible, the provisions of this Agreement (including, without
limitation, each portion of this Agreement containing any provision held to
be invalid, void, or otherwise unenforceable, that is not itself invalid,
void, or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, void, or unenforceable.
14. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in such State without giving
effect to the principles of conflicts of laws.
15. NOTICES. All notices, demands, and other communications
required or permitted hereunder shall be made in writing and shall be deemed
to have been duly given if delivered by hand, against receipt, or mailed,
postage prepaid, certified or registered mail, return receipt requested, and
addressed to the Company at:
Progenitor, Inc.
1507 Chamber Road
Columbus, Ohio 43212
Attention: President
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Notice of change of address shall be effective only when given
in accordance with this Section. All notices complying with this Section
shall be deemed to have been received on the date of delivery or on the third
business day after mailing.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the day specified above.
PROGENITOR, INC.
By:
--------------------------------
Title:
-----------------------------
INDEMNITEE:
-----------------------------------
[Indemnitee]
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Exhibit 10.5
PROGENITOR, INC.
1996 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of the Committees
appointed to administer the Plan.
(b) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(c) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, and the
rules of any applicable stock exchange or national market system.
(d) "AWARD" means the grant of an Option, SAR, Dividend Equivalent
Right, Restricted Stock, Performance Unit, Performance Share, or other right or
benefit under the Plan.
(e) "AWARD AGREEMENT" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(f) "BOARD" means the Board of Directors of the Company.
(g) "CHANGE IN CONTROL" shall mean a change in ownership or control
of the Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or related
group of persons (other than an acquisition from or by the Company or by a
Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which a
majority of the Continuing Directors who are not Affiliates or Associates of the
offeror do not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole
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number) ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who are Continuing Directors.
(h) "CODE" means the Internal Revenue Code of 1986, as amended.
(i) "COMMITTEE" means any committee appointed by the Board to
administer the Plan.
(j) "COMMON STOCK" means the common stock of the Company, as adjusted
in accordance with the provisions of Section 10, below.
(k) "COMPANY" means Progenitor, Inc., a Delaware corporation.
(l) "CONSULTANT" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services.
(m) "CONTINUING DIRECTORS" shall mean members of the Board who either
(i) have been Board members continuously for a period of at least thirty-six
(36) months or (ii) have been Board members for less than thirty-six (36) months
and were elected or nominated for election as Board members by at least a
majority of the Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the Board.
(n) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
that the employment, director or consulting relationship with the Company, any
Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as
an Employee, Director or Consultant shall not be considered interrupted in the
case of (i) any leave of absence approved by the Company or (ii) transfers
between locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. A leave of absence approved by the Company shall
include sick leave, military leave, or any other personal leave approved by an
authorized representative of the Company. For purposes of Incentive Stock
Options, no such leave may exceed 90 days, unless reemployment upon expiration
of such leave is guaranteed by statute or contract.
(o) "CORPORATE TRANSACTION" means any of the following stockholder-
approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with complete liquidation
or dissolution of the Company, or
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(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger.
(p) "DIRECTOR" means a member of the Board.
(q) "DIVIDEND EQUIVALENT RIGHT" means a right entitling the Grantee
to compensation measured by dividends paid with respect to Common Stock.
(r) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(s) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(t) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing sales price for a Share for the last
market trading day prior to the time of the determination (or, if no sales were
reported on that date, on the last trading date on which sales were reported) on
the New York Stock Exchange, the Nasdaq National Market or the principal
securities exchange on which the Common Stock is listed for trading, whichever
is applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market, in each case, as reported in THE WALL
STREET JOURNAL or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market of the type
described in (i), above, for the Common Stock, the Fair Market Value thereof
shall be determined by the Administrator in good faith, and such determination
shall be conclusive and binding on all persons.
(u) "GRANTEE" means an Employee, Director or Consultant who receives
an Award under the Plan.
(v) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(w) "NON-QUALIFIED STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
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(x) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(y) "OPTION" means a stock option granted pursuant to the Plan.
(z) "OPTIONED STOCK" means the Common Stock subject to an Option or
other Award.
(aa) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(bb) "PERFORMANCE SHARES" means Shares or an Award denominated in
Shares which may be earned in whole or in part upon attainment of performance
criteria established by the Administrator.
(cc) "PERFORMANCE UNITS" means monetary awards which may be earned in
whole or in part upon attainment of performance criteria established by the
Administrator.
(dd) "PLAN" means this 1996 Stock Incentive Plan.
(ee) "RESTRICTED STOCK" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(ff) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor thereto.
(gg) "SAR" means a stock appreciation right entitling the Grantee to
Shares or cash compensation measured by appreciation in the value of Common
Stock.
(hh) "SHARE" means a share of the Common Stock.
(ii) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
(jj) "SUBSIDIARY DISPOSITION" means the disposition by the Company of
its equity holdings in any subsidiary corporation effected by a merger or
consolidation involving that subsidiary corporation, the sale of all or
substantially all of the assets of that subsidiary corporation or the Company's
sale or distribution of substantially all of the outstanding capital stock of
such subsidiary corporation.
3. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards (including
Incentive Stock
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Options) is 1,700,000 Shares (determined as of May 13, 1996, the date of
approval of the Plan by the Board), of which 150,000 Shares are allocated
exclusively for Awards to Directors. The Shares may be authorized, but
unissued, or reacquired Common Stock.
(b) If an Award expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Award exchange program, or
if any unissued Shares are retained by the Company upon exercise of an Award in
order to satisfy the exercise price for such Award or any withholding taxes due
with respect to such Award, such unissued or retained Shares shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that actually have been issued under the Plan pursuant to
an Award shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
forfeited, or repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PLAN ADMINISTRATOR.
(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS.
With respect to grants of Awards to Directors or Employees who are also Officers
or Directors of the Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws and to permit such grants and
related transactions under the Plan to be exempt from Section 16(b) of the
Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee
shall continue to serve in its designated capacity until otherwise directed by
the Board.
(ii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER
EMPLOYEES. With respect to grants of Awards to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorize one or more
Officers to grant such Awards and may limit such authority by requiring that
such Awards must be reported to and ratified by the Board or a Committee within
six (6) months of the grant date, and if so ratified, shall be effective as of
the grant date.
(b) POWERS OF THE ADMINISTRATOR. Subject to Applicable Laws, the
provisions of the Plan (including any other powers given to the Administrator
hereunder) and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
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(iii) to determine the number of Shares to be covered by each
Award granted hereunder;
(iv) to approve forms of Award Agreement for use under the Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to amend the terms of any outstanding Award granted under
the Plan including a reduction in the exercise price (or base amount on which
appreciation is measured) of any Award to reflect a reduction in the Fair Market
Value of the Common Stock since the grant date of the Award, provided that any
amendment that would adversely affect the Grantee's rights under an outstanding
Award shall not be made without the Grantee's written consent;
(vii) to construe and interpret the terms of the Plan and
Awards granted pursuant to the Plan; and
(viii) to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on the Grantees and any other holders of Awards intended by the
Administrator to be affected thereby.
5. ELIGIBILITY. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee, Director or Consultant who has been granted an
Award may, if otherwise eligible, be granted additional Awards. Awards may be
granted to such Employees of the Company and its subsidiaries who are residing
in foreign jurisdictions as the Administrator in its sole discretion may
determine from time to time. The Administrator may establish additional terms,
conditions, rules or procedures to accommodate the rules or laws of applicable
foreign jurisdictions and to afford Grantees favorable treatment under such
laws; provided, however, that no Award shall be granted under any such
additional terms, conditions, rules or procedures with terms or conditions which
are inconsistent with the provisions of the Plan.
6. TERMS AND CONDITIONS OF AWARDS.
(a) TYPE OF AWARDS. The Administrator is authorized under the Plan
to award any type of arrangement to an Employee, Director or Consultant that is
not inconsistent with the provisions of the Plan and that by its terms involves
or might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar
right with an exercise or conversion privilege at a fixed or variable price
related to the Common Stock and/or the passage of time, the occurrence of one or
more events, or the satisfaction of performance criteria or other conditions, or
(iii) any other security with the value derived from the value of the Common
Stock. Such awards include, without limitation, Options, SARs, sales or bonuses
of Restricted Stock, Dividend Equivalent
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Rights, Performance Units or Performance Shares, and an Award may consist of one
such security or benefit, or two or more of them in any combination or
alternative.
(b) DESIGNATION OF AWARD. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
(c) CONDITIONS OF AWARD. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total shareholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.
(d) TERM OF AWARD. The term of each Award shall be the term stated
in the Award Agreement, provided, however, that the term of an Incentive Stock
Option shall be no more than ten (10) years from the date of grant thereof.
However, in the case of an Incentive Stock Option granted to a Grantee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Incentive Stock Option shall be five (5) years
from the date of grant thereof or such shorter term as may be provided in the
Award Agreement.
(e) TRANSFERABILITY OF AWARDS. Incentive Stock Options may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee. Other
Awards shall be transferable to the extent provided in the Award Agreement.
(f) TIME OF GRANTING AWARDS. The date of grant of an Award shall for
all purposes be the date on which the Administrator makes the determination to
grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall
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be given to each Employee, Director or Consultant to whom an Award is so granted
within a reasonable time after the date of such grant.
7. AWARD EXERCISE OR PURCHASE PRICE, CONSIDERATION, TAXES AND RELOAD
OPTIONS.
(a) EXERCISE OR PURCHASE PRICE. The exercise or purchase price, if
any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option owns stock representing more than 10% of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be not less than 110% of the Fair Market Value
per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than 85% of the Fair Market Value per Share on
the date of grant unless otherwise determined by the Administrator.
(iii) In the case of other Awards, such price as is determined
by the Administrator.
(b) CONSIDERATION. Subject to Applicable Laws, the consideration to
be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator in its
discretion determines as appropriate;
(iv) surrender of Shares (including withholding of Shares
otherwise deliverable upon exercise of the Award) which have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Award shall be exercised (but only to the extent that such
exercise of the Award would not result in an accounting compensation charge with
respect to the Shares used to pay the exercise price unless otherwise determined
by the Administrator);
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(v) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Award and delivery to the
Company of the sale or loan proceeds required to pay the exercise price; or
(vi) any combination of the foregoing methods of payment.
In making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
(c) TAXES. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of federal, state, and
local income and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares or the disqualifying
disposition of Shares received on exercise of an Incentive Stock Option. Upon
exercise of an Award, the Company shall withhold from Grantee an amount
sufficient to satisfy such tax obligations.
(d) RELOAD OPTIONS. In the event the exercise price or tax
withholding of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the Administrator may
issue the Grantee an additional Option, with terms identical to the Award
Agreement under which the Option was exercised, but at an exercise price as
determined by the Administrator in accordance with the Plan.
8. EXERCISE OF AWARD.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER.
(i) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Award by the person entitled to exercise the Award and full payment
for the Shares with respect to which the Award is exercised has been received by
the Company. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to
Optioned Stock, notwithstanding the exercise of an Option or other Award. The
Company shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Award. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in the Award Agreement or Section 10, below.
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(b) EXERCISE OF AWARD FOLLOWING TERMINATION OF EMPLOYMENT, DIRECTOR
OR CONSULTING RELATIONSHIP.
(i) An Award may not be exercised after the termination date
of such Award set forth in the Award Agreement and may be exercised following
the termination of a Grantee's Continuous Status as an Employee, Director or
Consultant only to the extent provided in the Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an
Award following the termination of the Grantee's Continuous Status as an
Employee, Director or Consultant for a specified period, the Award shall
terminate to the extent not exercised on the last day of the specified period or
the last day of the original term of the Award whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to the
extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Status as an Employee, Director or Consultant shall convert automatically to a
Non-Qualified Stock Option and thereafter shall be exercisable as such to the
extent exercisable by its terms for the period specified in the Award Agreement.
(c) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Award previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Grantee at the time that such offer is made.
9. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued pursuant to the exercise of an Award unless
the exercise of such Award and the issuance and delivery of such Shares pursuant
thereto shall comply with all Applicable Laws, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of an Award, the Company may require
the person exercising such Award to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the shareholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, as well as the price per share of Common Stock
covered by each such outstanding Award, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the
10
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Common Stock, or any other similar event resulting in an increase or decrease in
the number of issued shares of Common Stock. Such adjustment shall be made by
the Administrator, and its determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason hereof shall be made
with respect to, the number or price of Shares subject to an Award.
11. CORPORATE TRANSACTIONS/CHANGES IN CONTROL/SUBSIDIARY DISPOSITIONS.
(a) Should any Corporate Transaction occur while an Grantee's
Continuous Status as an Employee, Director or Consultant has not terminated,
then each outstanding Award held by such Grantee, shall become fully vested
and exercisable and be released from any restrictions on transfer and
repurchase or forfeiture rights, immediately prior to the specified effective
date of such Corporate Transaction, for all of the Shares at the time
represented by such Award and may be exercised with respect to any or all of
such Shares represented by such Award. Effective upon the consummation of the
Corporate Transaction, all outstanding Awards under the Plan shall terminate
unless assumed by the successor company or its Parent.
(b) Should a Change in Control (other than a Change in Control which
is also a Corporate Transaction) occur while an Grantee's Continuous Status as
an Employee, Director or Consultant has not terminated, then each outstanding
Award held by such Grantee, unless otherwise determined by the Administrator,
shall become fully vested and exercisable and be released from any restrictions
on transfer and repurchase or forfeiture rights, immediately prior to the
specified effective date of such Change in Control, for all of the Shares at the
time subject to such Award and may be exercised with respect to any or all of
such Shares represented by such Award. Each such Award shall remain so
exercisable until the expiration or sooner termination of the applicable Award
term.
(c) Should a Subsidiary Disposition occur while an Grantee's
Continuous Status as an Employee, Director or Consultant with the subsidiary
corporation involved in such Subsidiary Disposition has not terminated, then
each outstanding Award held by such Grantee, unless otherwise determined by the
Administrator, shall become fully vested and exercisable and be released from
any restrictions on transfer and repurchase or forfeiture rights, immediately
prior to the specified effective date of such Subsidiary Disposition, for all of
the Shares at the time subject to such Award and may be exercised with respect
to any or all of such Shares represented by such Award. Each such Award shall
remain so exercisable until the expiration or sooner termination of the Award
term.
(d) The portion of any Incentive Stock Option accelerated under this
Section 11 in connection with a Corporate Transaction, Change in Control or
Subsidiary Disposition shall remain exercisable as an Incentive Stock Option
under the Code only to the extent the $100,000 dollar limitation of
Section 422(d) of the Code is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated excess portion of such Option shall be
exercisable as a Non-Qualified Stock Option.
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<PAGE>
12. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated.
13. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend or terminate the Plan.
To the extent necessary and desirable to comply with Applicable Laws, the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) No Award may be granted during any suspension or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan shall not
affect Awards already granted, and such Awards shall remain in full force and
effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Grantee and the Administrator, which
agreement must be in writing and signed by the Grantee and the Company.
14. RESERVATION OF SHARES.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. NO EFFECT ON TERMS OF EMPLOYMENT. The Plan shall not confer upon any
Grantee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
16. SHAREHOLDER APPROVAL. Continuance of the Plan with respect to the
grant of Incentive Stock Options shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. Such shareholder approval shall be obtained in the degree
and manner required under Applicable Laws.
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<PAGE>
PROGENITOR, INC. 1996 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
I. NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address:
-----------------------------------
-----------------------------------
-----------------------------------
You have been granted an option to purchase shares of Common Stock of
the Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number
-----------------------------------
Date of Grant
-----------------------------------
Vesting Commencement Date
-----------------------------------
Exercise Price per Share $
----------------------------------
Total Number of Shares Granted
-----------------------------------
Total Exercise Price $
-----------------------------------
Type of Option: Incentive Stock Option
------
Non-Qualified Stock Option
------
Term/Expiration Date:
-----------------------------------
VESTING SCHEDULE:
Subject to other limitations set forth in this Agreement, this Option
may be exercised, in whole or in part, in accordance with the following
schedule:
TERMINATION PERIOD:
This Option may be exercised for THREE (3) months after termination of
the Optionee's employment or consulting relationship, or such longer period as
may be applicable upon death or disability of Optionee as provided in the
Agreement. In the event of the Optionee's change in status from Employee to
Consultant or Consultant to Employee, this Option Agreement shall remain in
effect; provided, however, that in the event of a change in status from Employee
to Consultant, Optionee's Incentive Stock Option shall cease to be treated as an
Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on
the ninety-first (91st) day
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following such change in status. In no event shall this Option be exercised
later than the Term/Expiration Date as provided above.
2
<PAGE>
II. AGREEMENT
1. GRANT OF OPTION. Progenitor, Inc., a Delaware corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Stock Option
Grant (the "Optionee"), an option (the "Option") to purchase the total number of
shares of Common Stock (the "Shares") set forth in the Notice of Stock Option
Grant, at the exercise price per share set forth in the Notice of Stock Option
Grant (the "Exercise Price") subject to the terms, definitions and provisions of
the Company's 1996 Stock Incentive Plan (the "Plan") adopted by the Company,
which is incorporated herein by reference. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Option
Agreement.
If designated in the Notice of Stock Option Grant as an Incentive Stock
Option, this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Section 422(d) of the Code, this Option shall be treated as
a Non-Qualified Stock Option.
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable
during its term in accordance with the Vesting Schedule set out in the Notice of
Stock Option Grant and with the applicable provisions of the Plan and this
Option Agreement. In the event of termination of Optionee's Continuous Status
as an Employee, Director or Consultant, this Option shall be exercisable in
accordance with the applicable provisions of the Plan and this Option Agreement.
This Option shall be subject to the provisions of Section 11 of the Plan
relating to the exercisability or termination of the Option in the event of a
Corporate Transaction, Change in Control or Subsidiary Disposition.
(b) METHOD OF EXERCISE. This Option shall be exercisable
only by delivery of an Exercise Notice (attached as Exhibit A) which shall state
the election to exercise the Option, the whole number of Shares in respect of
which the Option is being exercised, such other representations and agreements
as to the holder's investment intent with respect to such Shares and such other
provisions as may be required by the Administrator. Such Exercise Notice shall
be signed by the Optionee and shall be delivered in person or by certified mail
to the Secretary of the Company accompanied by payment of the Exercise Price.
The Option shall be deemed to be exercised upon receipt by the Company of such
written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of the Option
unless such issuance and such exercise shall comply with all Applicable Laws.
Assuming such compliance, for income tax purposes, the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
(c) TAXES. No Shares will be issued to the Optionee or
other person pursuant to the exercise of the Option until the Optionee or other
person has made arrangements
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<PAGE>
acceptable to the Administrator for the satisfaction of foreign, federal, state
and local income and employment tax withholding obligations.
3. METHOD OF PAYMENT. Payment of the Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee;
provided, however, that such exercise method does not then violate an Applicable
Law:
(a) cash;
(b) check;
(c) [SURRENDER OF SHARES OF COMMON STOCK OF THE COMPANY
(INCLUDING WITHHOLDING OF SHARES OTHERWISE DELIVERABLE UPON EXERCISE OF THIS
OPTION) WHICH HAVE A FAIR MARKET VALUE ON THE DATE OF SURRENDER EQUAL TO THE
EXERCISE PRICE OF THE SHARES AS TO WHICH THE OPTION IS BEING EXERCISED (BUT ONLY
TO THE EXTENT THAT SUCH EXERCISE OF THE OPTION WOULD NOT RESULT IN AN ACCOUNTING
COMPENSATION CHARGE WITH RESPECT TO THE SHARES USED TO PAY THE EXERCISE PRICE
UNLESS OTHERWISE DETERMINED BY THE ADMINISTRATOR); OR
(d) DELIVERY OF A PROPERLY EXECUTED EXERCISE NOTICE TOGETHER
WITH SUCH OTHER DOCUMENTATION AS THE ADMINISTRATOR AND THE BROKER, IF
APPLICABLE, SHALL REQUIRE TO EFFECT AN EXERCISE OF THE OPTION AND DELIVERY TO
THE COMPANY OF THE SALE OR LOAN PROCEEDS REQUIRED TO PAY THE EXERCISE PRICE].
[ADD ANY ADDITIONAL EXERCISE METHODS, SUCH AS RECOURSE LOAN]
4. RESTRICTIONS ON EXERCISE. This Option, if an Incentive Stock
Option, may not be exercised until such time as the Plan has been approved by
the stockholders of the Company. In addition, this Option may not be exercised
if the issuance of the Shares subject to the Option upon such exercise would
constitute a violation of any Applicable Laws.
5. TERMINATION OF RELATIONSHIP. In the event the Optionee's
Continuous Status as an Employee, Director or Consultant terminates, the
Optionee may, to the extent otherwise so entitled at the date of such
termination (the "Termination Date"), exercise this Option during the
Termination Period set out in the Notice of Stock Option Grant. Except as
provided in Sections 6 and 7, below, to the extent that the Optionee was not
entitled to exercise this Option on the Termination Date, or if the Optionee
does not exercise this Option within the Termination Period, the Option shall
terminate.
6. DISABILITY OF OPTIONEE. In the Optionee's Continuous Status as
an Employee, Director or Consultant terminates as a result of his or her
disability, the Optionee may, but only within twelve (12) months from the
Termination Date (and in no event later than the Term/Expiration Date), exercise
the Option to the extent otherwise entitled to exercise it on the Termination
Date; provided, however, that if such disability is not a "disability" as such
term is defined in Section 22(e)(3) of the Code and the Option is an Incentive
Stock Option, such Incentive Stock Option shall cease to be treated as an
Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on
the ninety-first (91st) day following the Termination Date. To the extent that
the Optionee was not entitled to exercise the Option on the Termination Date,
4
<PAGE>
or if the Optionee does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate.
7. DEATH OF OPTIONEE. In the event of the Optionee's death, the
Option may be exercised at any time within twelve (12) months following the date
of death (and in no event later than the Term/Expiration Date), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent the Optionee could exercise
the Option at the date of death.
8. TRANSFERABILITY OF OPTION. This Option, if an Incentive Stock
Option, may not be transferred in any manner otherwise than by will or by the
laws of descent or distribution and may be exercised during the lifetime of the
Optionee only by the Optionee. This Option, if a Non-Qualified Stock Option,
may be transferred by the Optionee in a manner and to the extent acceptable to
the Administrator as evidenced by a writing signed by the Company and the
Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs and successors of the Optionee.
9. TERM OF OPTION. This Option may be exercised only within the
term set out in the Notice of Stock Option Grant, and may be exercised during
such term only in accordance with the Plan and the terms of this Option
Agreement.
10. TAX CONSEQUENCES. Set forth below is a brief summary as of the
date of this Option Agreement of some of the federal tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option
qualifies as an Incentive Stock Option, there will be no regular federal income
tax liability upon the exercise of the Option, although the excess, if any,
of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price will be treated as an adjustment to the alternative minimum
tax for federal tax purposes and may subject the Optionee to the alternative
minimum tax in the year of exercise.
(b) EXERCISE OF INCENTIVE STOCK OPTION FOLLOWING DISABILITY.
If the Optionee's Continuous Status as an Employee, Director or Consultant
terminates as a result of disability that is not total and permanent disability
as defined in Section 22(e)(3) of the Code, to the extent permitted on the date
of termination, the Optionee must exercise an Incentive Stock Option within 90
days of such termination for the Incentive Stock Option to be qualified as an
Incentive Stock Option.
(c) EXERCISE OF NON-QUALIFIED STOCK OPTION. There may be a
regular federal income tax liability upon the exercise of a Non-Qualified
Stock Option. The Optionee will be treated as having received compensation
income (taxable at ordinary income tax rates) equal to the excess, if any, of
the Fair Market Value of the Shares on
5
<PAGE>
the date of exercise over the Exercise Price. If Optionee is an Employee or a
former Employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) DISPOSITION OF SHARES. In the case of a Non-Qualified
Stock Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. In the case of an Incentive Stock Option, if Shares
transferred pursuant to the Option are held for at least one year after
receipt of the Shares and are disposed of at least two years after the Date
of Grant, any gain realized on disposition of the Shares also will be treated
as long-term capital gain for federal income tax purposes. If Shares
purchased under an Incentive Stock Option are disposed of within such
one-year or two-year periods, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the
extent of the difference between the Exercise Price and the lesser of (i) the
Fair Market Value of the Shares on the date of exercise, or (ii) the sale
price of the Shares.
11. ENTIRE AGREEMENT: GOVERNING LAW. The Plan is incorporated
herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and the
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee. This agreement is governed by Delaware law except for
that body of law pertaining to conflict of laws.
12. HEADINGS. The captions used in this Option are inserted for
convenience and shall not be deemed a part of this Option for construction or
interpretation.
6
<PAGE>
13. INTERPRETATION. Any dispute regarding the interpretation of
this Option Agreement shall be submitted by the Optionee or by the Company
forthwith to the Board or the Administrator that administers the Plan, which
shall review such dispute at its next regular meeting. The resolution of such
dispute by the Board or the Administrator shall be final and binding on all
persons.
Progenitor, Inc.,
a Delaware corporation
By:
-----------------------------------
Its:
----------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1996 STOCK INCENTIVE PLAN WHICH
IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he is familiar with the terms and provisions thereof, and hereby accepts this
Option Agreement subject to all of the terms and provisions thereof. Optionee
has reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions arising under the
Plan or this Option Agreement. Optionee further agrees to notify the Company
upon any change in the residence address indicated below.
Dated: Signed:
----------------------------- -------------------------------
Optionee
Residence Address:
--------------------------------------
--------------------------------------
--------------------------------------
7
<PAGE>
EXHIBIT A
PROGENITOR, INC. 1996 STOCK INCENTIVE PLAN
EXERCISE NOTICE
Progenitor, Inc.
1507 Chambers Road
Columbus, OH 43212
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ______________,
________________________________, the undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ___________ shares of the Common Stock
(the "Shares") of Progenitor, Inc. (the "Company") under and pursuant to the
Company's 1996 Stock Incentive Plan (the "Plan") and the [ ] Incentive
[ ] Non-Qualified Stock Option Agreement dated ______________, ________ (the
"Option Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. RIGHTS AS STOCKHOLDER. Until the stock certificate evidencing
such Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 10 of the Plan.
4. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company
the full Exercise Price for the Shares.
5. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice
6. TAXES. Optionee agrees to satisfy all applicable federal, state
and local income and employment tax withholding obligations and [HEREWITH
DELIVERS TO THE COMPANY THE FULL AMOUNT OF SUCH OBLIGATIONS] OR [HAS MADE
ARRANGEMENTS ACCEPTABLE TO THE COMPANY TO SATISFY SUCH OBLIGATIONS.] [OPTIONEE
ALSO AGREES, AS PARTIAL CONSIDERATION FOR THE DESIGNATION
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OF THE OPTION AS AN INCENTIVE STOCK OPTION, TO NOTIFY THE COMPANY IN WRITING
WITHIN THIRTY (30) DAYS OF ANY DISPOSITION OF ANY SHARES ACQUIRED BY EXERCISE OF
THE OPTION IF SUCH DISPOSITION OCCURS WITHIN TWO (2) YEARS FROM THE GRANT DATE
OR WITHIN ONE (1) YEAR FROM THE DATE THE SHARES WERE TRANSFERRED TO OPTIONEE.
IF THE COMPANY IS REQUIRED TO SATISFY ANY FEDERAL, STATE OR LOCAL INCOME OR
EMPLOYMENT TAX WITHHOLDING OBLIGATIONS AS A RESULT OF SUCH AN EARLY DISPOSITION,
OPTIONEE AGREES TO SATISFY THE AMOUNT OF SUCH WITHHOLDING IN A MANNER THAT THE
ADMINISTRATOR PRESCRIBES.]
7. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Exercise Notice to single or multiple assignees, and this Agreement
shall inure to the benefit of the successors and assigns of the Company. This
Exercise Notice shall be binding upon Optionee and his or her heirs, executors,
administrators, successors and assigns.
8. HEADINGS. The captions used in this Agreement are inserted for
convenience and shall not be deemed a part of this Agreement for construction or
interpretation.
9. INTERPRETATION. Any dispute regarding the interpretation of this
Exercise Notice shall be submitted by Optionee or by the Company forthwith to
the Company's Board of Directors or the Administrator that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or Administrator shall be final and binding on all
persons.
10. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware excluding
that body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
11. NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
12. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
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13. ENTIRE AGREEMENT. The Plan and the Option Agreement are
incorporated herein by reference. This Exercise Notice, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: PROGENITOR, INC.
By:
-----------------------------------
- ----------------------------------- Its:
(Signature) ----------------------------------
ADDRESS: ADDRESS:
___________________________________ 1507 Chambers Road
___________________________________ Columbus, OH 43212
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INTERCOMPANY AGREEMENT
THIS INTERCOMPANY AGREEMENT ("Agreement"), is entered into on ________,
1996, to be effective as of the Effective Date (as defined herein), by and
between Interneuron Pharmaceuticals, Inc., a Delaware corporation
("Interneuron"), and Progenitor, Inc., a Delaware corporation ("Progenitor").
R E C I T A L S:
A. WHEREAS, Interneuron owns beneficially a substantial portion of the
shares of the capital stock of Progenitor.
B. WHEREAS, Progenitor is a development stage biotechnology company
engaged in the business of identifying genes, proteins and receptors and
developing related products for the treatment of various diseases, including
cancer, and such other activities as Progenitor may in the future engage.
C. WHEREAS, in connection with Progenitor's initial public offering, and
effective on the date a registration statement relating to such offering is
declared effective by the Securities and Exchange Commission (the "Effective
Date"), the parties desire (i) to set forth the terms and conditions under which
Progenitor may retain Interneuron to perform certain services (the "Services"),
(ii) to establish and maintain certain policies and procedures in connection
with Progenitor and (iii) to coordinate certain financial, corporate and other
activities, as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, provisions and covenants contained in this Agreement, the parties
hereby agree as follows:
ARTICLE I.
PROVISION OF SERVICES
SECTION 1.1. TYPES OF SERVICES
Progenitor hereby engages and retains Interneuron to provide the Services
set forth below from time to time as and to the extent reasonably requested by
Progenitor, and Interneuron hereby accepts and agrees to provide such Services,
upon the terms and conditions hereinafter set forth:
(i) executive and administrative;
(ii) regulatory, including such Services as are necessary or useful
to assist Progenitor in meeting reporting requirements of regulatory
agencies;
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(iii) tax advice and services, including, without limitation,
assistance in the preparation of federal, state, local and foreign tax
returns;
(iv) auditing, accounting, payroll and bookkeeping advice and
services, including services related to financial reporting and assistance
in the preparation of financial statements relating to reporting
requirements under the federal securities laws;
(v) financial advice and services, including, without limitation,
assistance with respect to cash management, treasury and risk management;
(vi) human resources and personnel policies, including, without
limitation, wage and salary, administrative, employee relations and
administration of employee insurance plans, pension plans and other
employee benefits plans;
(vii) assistance with marketing projects, consumer studies and other
information gathering or promotional activities;
(viii) purchasing services, and assistance in the purchase or leasing
of equipment and supplies, including where possible and acceptable to
Interneuron making available to Progenitor volume purchase discount
arrangements and group rates for purchasing insurance and other supplies
and services;
(ix) facilities services, including mail, telephone, supply, food
service and employee services;
(x) management information, supplemental data processing,
telecommunications, computer programming and other computer systems
services; and
(xi) such other services, advice and assistance as may be reasonably
requested by Progenitor and agreed to by Interneuron from time to time.
SECTION 1.2. PERFORMANCE
(a) All Services to be provided by Interneuron hereunder shall be
performed at the request and under the general direction of Progenitor and
Interneuron shall not have any power to act independently on behalf of
Progenitor other than as specifically authorized hereunder or as requested from
time to time by Progenitor. Neither Interneuron nor its employees, vendors or
suppliers shall be deemed to be agents, representatives, employees or servants
of Progenitor, except to the extent expressly provided pursuant to the authority
granted under this Agreement.
(b) The specified Services may be rendered by Interneuron or Interneuron's
other subsidiaries ("Other Subsidiaries"), affiliates or third parties, as
Interneuron shall reasonably determine.
(c) Interneuron shall determine its corporate facilities to be used in
rendering the Services and the individuals who will render such Services.
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(d) Services provided to Progenitor hereunder shall be performed by those
employees of Interneuron who perform equivalent services for Interneuron and the
Other Subsidiaries in the normal course of their employment. Accordingly,
Interneuron shall not be obligated to make available any Services to the extent
that doing so would unreasonably interfere with the performance by any employee
of Services for Interneuron or any of the Other Subsidiaries, or otherwise cause
an unreasonable burden to Interneuron.
(e) Nothing herein shall be deemed to restrict Interneuron or its
directors, officers or employees from engaging in any business other than that
contemplated herein, or from contracting with other parties, including, without
limitation, Other Subsidiaries of Interneuron for similar or different Services.
SECTION 1.3. COMPENSATION
(a) Progenitor shall pay to Interneuron, with respect to the Services
performed by Interneuron hereunder, a pro-rata allocation of salaries (without
reference to any stock options or other compensation other than salary) of
Interneuron personnel, based upon actual time worked in connection with the
performance of the Services on behalf of Progenitor, plus a reasonable mark-up
(the "burden rate") to be calculated and agreed to by Interneuron and Progenitor
based on, among other factors, the cost of benefits, taxes, allocated equipment,
support costs and facility costs. In the event the burden rate cannot be
mutually calculated or agreed to, a 35% burden rate will apply, PROVIDED that
the burden rate charged to Progenitor will not exceed any similar rate charged
for similar services to any other division of Interneuron or any other entity
(each, an "Interneuron Affiliate") that, directly or indirectly, controls, is
controlled by or is subject to common control with Interneuron, but not
including Progenitor. Interneuron will not charge Progenitor for any allocation
of employee time incurred by Interneuron or Interneuron Affiliate employees in
performing obligations of Progenitor required by Interneuron pursuant to this
Agreement.
(b) Any reasonable out-of-pocket charges, including but not limited to
travel, and other direct costs incurred in providing Services to Progenitor (but
not including salaries of employees or any costs contemplated within the burden
rate) will be paid by Progenitor separately as out-of-pocket costs. Interneuron
will not incur any out-of-pocket fees for professional services for the account
of Progenitor without the consent of Progenitor.
(c) Within thirty (30) days of each subsequent calendar month end,
Progenitor shall pay to Interneuron the amounts specified by Interneuron in
invoices submitted in such preceding month by Interneuron to Progenitor
specifying the amounts described above with respect to the Services provided
during the month in question, together with such documentation and detail
regarding such charges as Progenitor may reasonably request.
SECTION 1.4. BOOKS AND RECORDS
Interneuron shall keep accurate books and records with respect to the costs
and expenses incurred in connection with the Services, and Progenitor or its
auditors shall be permitted from
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time to time upon reasonable notice to inspect the books and records with
respect to such costs and expenses.
ARTICLE II.
OTHER COORDINATION
SECTION 2.1. ADOPTION OF FINANCIAL POLICIES
To the extent not already in place, Progenitor shall establish a set of
financial, accounting and corporate policies similar to those generally
established by companies comparable to Progenitor, tailored to Progenitor and
reasonably satisfactory to Interneuron. Areas to be addressed by these policies
shall include (without limitation) the following:
(i) investment guidelines for cash and marketable securities;
(ii) levels of authorization and approval by management and the
Board of Directors for purchases, contracts, check signing, wire transfers
and capital commitments;
(iii) accrual and recognition of expenses;
(iv) depreciation;
(v) revenue recognition;
(vi) human resources, including termination of employment,
discrimination and sexual harassment;
(vii) insider trading;
(viii) stock option accounting (and FASB compliance); and
(ix) other accounting issues, including consolidation, maintaining
adequate controls and preparation of statements in accordance with
generally accepted accounting principles ("GAAP").
SECTION 2.2. COORDINATION OF FINANCIAL REPORTING
For so long as Interneuron reports Progenitor's financial results on a
consolidated basis, on an equity basis or otherwise on a basis pursuant to which
a portion of the results of operations of Progenitor appear in the financial
results of operations of Interneuron (the "Combined Reporting Period"), then:
(a) Progenitor shall use its best efforts to have its independent auditors
complete their review of Progenitor's quarterly financial statements within 15
business days of the end of the applicable quarter and their audit of
Progenitor's annual financial statements within 20 business
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days of the end of the applicable fiscal year. Progenitor will keep Interneuron
informed as to the timing and issues relating to such financial statements on an
ongoing basis and will provide Interneuron with its annual statements in draft
form no later than 40 days and in final form no later than 50 days after the end
of the applicable fiscal year.
(b) Without the prior consent of Interneuron, Progenitor will not change
its fiscal year end, except to coincide with any such change by Interneuron.
(c) Progenitor shall provide Interneuron with all financial and other
related information reasonably requested by Interneuron, Interneuron's auditors
or government agencies on a timetable to be agreed upon and made a part of this
Agreement as EXHIBIT A, as such Exhibit A may be amended from time to time by
agreement of the parties hereto, it being understood that such Exhibit A shall
be evidence of mutual agreement, and provided, however, that Progenitor shall
deliver to Interneuron drafts of annual operating plans, cash flow forecasts
and/or budgets, including monthly numbers by line item and categorized by
department, with supporting schedules or other information as may be reasonably
requested ("Plans"), for the following fiscal year no later than 30 days prior
to the beginning of such fiscal year and shall deliver the final forms of such
Plans to Interneuron no later than the beginning of such fiscal year, and that
Progenitor shall notify Interneuron in writing of any material changes to such
Plans as soon as they occur.
(d) Progenitor shall employ the same independent auditors as Interneuron
(subject to any required stockholder ratification), provided that such firm is
one of the ten largest independent auditing firms (based on audit employees) in
the United States. If Progenitor requires the use of an independent auditing
firm outside of the United States, Progenitor shall employ the same or a related
firm, provided that if such a firm is not available, then Progenitor shall use a
firm which is reasonable satisfactory to Interneuron and its auditors.
(e) At Interneuron's request and expense, Interneuron's representatives
may perform financial reviews of Progenitor, on an approximately quarterly
basis, at a mutually convenient time at Progenitor's executive offices, for the
purpose of reviewing the following:
(i) bank reconciliations and cash investments;
(ii) payroll and employee benefits;
(iii) travel and entertainment expenses;
(iv) contracts; and
(v) other financial information reasonably requested by
Interneuron.
At such time as Interneuron no longer reports Progenitor's results on a
consolidated basis, the parties will agree upon procedures to be applicable to
Progenitor in lieu of those set forth in Sections 2.2(a) through 2.2(e) on such
terms as may be reasonably necessary to enable Interneuron to comply with any
obligation to report Progenitor's results on an equity basis.
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SECTION 2.3. EMPLOYEE BENEFIT PLANS. Interneuron and Progenitor may agree
from time to time to allow Progenitor's employees to participate in employee
benefit plans of Interneuron on the same terms and conditions as employees of
Interneuron or Interneuron Affiliates. Progenitor shall pay to Interneuron the
costs of contribution and administration attributable to participating
Progenitor employees at rates to be agreed upon, but in all events no greater
than as charged to, and on substantially the same terms as made available to,
Interneuron divisions or Interneuron Affiliates.
SECTION 2.4. INSURANCE, HEALTH AND WELFARE PLANS.
(a) Progenitor and Interneuron shall jointly determine minimum levels of
insurance coverage for Progenitor (including liability, property and casualty,
directors and officers, product liability, clinical liability, and key man
insurance) and, in any event, Progenitor shall maintain insurance coverage in
amounts comparable to that maintained by companies similar in size and business
to Progenitor and, to the extent practicable, with carriers having the highest
tier rating. To the extent requested by Interneuron, Progenitor shall utilize
the same insurance broker as Interneuron with respect to its directors and
officers liability insurance coverage, unless such utilization will result in
increased cost or burden to Progenitor.
(b) Interneuron shall use reasonable efforts to assist Progenitor to
obtain the benefits of any available group pricing or group discounts for
property and casualty insurance, including workers' compensation, comprehensive
general liability, comprehensive automobile liability, all risk property
insurance and employee dishonesty coverage, through group rate coverage under
policies obtained by Interneuron.
(c) If agreed upon by Interneuron and Progenitor, Interneuron shall
provide the following health and welfare benefits coverage to Progenitor
employees on the same terms and conditions as provided to employees of
Interneuron or Interneuron Affiliates (except to the extent of state, regulatory
or other factors which cause variance in premium costs), but in any event at not
less than the cost to Interneuron:
(i) comprehensive health insurance, including medical and dental
insurance, and covering active and retired employees;
(ii) life insurance;
(iii) accidental death or dismemberment;
(iv) long-term disability insurance; and
(v) travel accident insurance.
(d) Progenitor shall be billed for all such insurance and health and
welfare benefits coverage at rates to be agreed upon, but in all events no
greater than as charged to, and on substantially the same terms as made
available to, internal units of Interneuron and Interneuron Affiliates.
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SECTION 2.5. CASH MANAGEMENT SERVICES
To the extent mutually agreed to, Interneuron shall make available to
Progenitor Interneuron's cash management program.
SECTION 2.6. BOARD OF DIRECTORS
For so long as Interneuron reports Progenitor's financial results on a
consolidated basis, on an equity basis or otherwise on a basis pursuant to which
a portion of the results of operations of Progenitor appear in the financial
results of operations of Interneuron, Progenitor shall nominate for election to
its Board of Directors a nominee designated by Interneuron. Interneuron
recognizes that Progenitor intends to seek to have at least two Independent
Directors; however, nothing herein shall require Interneuron to vote for or take
any other action to ensure the election or retention of any particular
Independent Director. "Independent Directors" shall be directors who are not
employees, officers, directors or affiliates of, or persons with a material
financial relationship with, Interneuron or Progenitor or any of their
respective affiliates (including any such relationship that would be required to
be disclosed pursuant to the disclosure requirements of Item 404 of
Regulation S-K as in effect from time to time (including any successor
provisions thereto)) and who shall qualify as "independent directors" for
purposes of the listing requirements of the Nasdaq National Market or of any
other national stock exchange or trading system on which Progenitor's securities
are listed or admitted for trading from time to time.
SECTION 2.7. PUBLICITY
(a) Subject to subsection 2.7(c) below, Progenitor shall submit all press
releases and reports to be filed with the Securities and Exchange Commission
("SEC") to Interneuron in draft form at least four business days prior to
release or filing, as applicable. Any comments by Interneuron to such release
or filing shall be transmitted to Progenitor within two business days prior to
any such release or filing, and Progenitor shall consider and utilize such
comments to the extent reasonably deemed appropriate.
(b) Subject to the same terms and conditions as subsection 2.7(a) above,
Interneuron shall submit to Progenitor any press releases or reports to be filed
with the SEC which refer to Progenitor (or portions thereof).
(c) In the event of the happening of any occurrence which requires a press
release within a time period which is not sufficient to follow the procedures
set forth in subsection 2.7(a) or 2.7(b) above, each party shall use its best
efforts to send the other party a draft release, and the other party shall use
its best efforts to review such release, as expeditiously as possible.
SECTION 2.8. RIGHT TO PURCHASE SHARES
Subject to the terms and conditions specified in this Agreement, Progenitor
hereby grants to Interneuron a right to purchase Shares (as hereinafter defined)
of Progenitor in connection with future issuances by Progenitor of its Shares
after Progenitor's initial public offering. Each time Progenitor proposes to
offer (an "Offer") any shares of, or securities convertible into or
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exchangeable for any shares of, any class of its capital stock ("Shares"),
Progenitor shall offer Shares to Interneuron in accordance with the following
provisions:
(a) Progenitor shall deliver a notice by certified mail or facsimile
confirmation requested ("Notice") to Interneuron stating (i) its bona fide
intention to offer such Shares, (ii) the number of such Shares to be offered,
and (iii) the price and terms, if any, upon which it proposes to offer such
Shares.
(b) By written notification received by Progenitor, within ten (10)
business days after receipt of the Notice, Interneuron may elect to purchase or
obtain, at the price and on the terms specified in the Notice, up to that
portion of such Shares as is necessary to preserve Interneuron's Fully Diluted
Equity Interest in Progenitor (calculated as hereinafter set forth) immediately
prior to the Offer, provided however that in the event of a firm commitment
underwritten offering (a "Qualified Public Offering") of Progenitor Shares,
Interneuron shall respond to the Notice within two business days prior to the
date on which a usual and customary number of preliminary prospectuses relating
to such offering are projected to be available and may provide that its election
to purchase Shares pursuant to this Section 2.8 is limited to a maximum purchase
price. The Fully Diluted Equity Interest shall be calculated based on the
number of outstanding shares of Progenitor's common stock ("Common Stock") plus
the number of shares of Common Stock issuable upon conversion or exercise of
outstanding securities of Progenitor without the payment of additional
consideration (including options or warrants, other than options issued in
connection with employee benefit plans or services rendered by employees or
consultants), and giving effect to the Shares issued by Progenitor in connection
with the transaction giving rise to Interneuron's rights hereunder and the
Shares purchased by Interneuron hereunder.
(c) If all Shares referred to in the Notice which Interneuron is entitled
to purchase pursuant to Section 2.8(b) are not elected to be purchased as
provided in Section 2.8(b) hereof, Progenitor may, during the sixty (60) day
period following expiration of the period provided in Section 2.8(b) hereof,
offer the same number of Shares offered to Interneuron to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. In the event of any change in the number of
Shares offered in connection with a Qualified Public Offering, or in the price
or other terms of any other Offer, Progenitor shall provide a new notice to
Interneuron and the same procedures with respect to such revised Offer shall be
followed. If Progenitor does not enter into an agreement for the sale of the
Shares within the specified period, or if such agreement is not consummated
within sixty (60) days of the execution thereof, the right provided hereunder
shall be deemed to be revived and such Shares shall not be offered unless first
reoffered to Interneuron in accordance herewith.
(d) In the event of a proposed offer or issuance by Progenitor of any
Shares in connection with employee benefit plans, services rendered by employees
or consultants, or the acquisition of another business or corporation so long as
such acquisition is not primarily a financing transaction (each, a "Transaction
Issuance"), the provisions of this Section 2.8 shall not be applicable to such
Transaction Issuance.
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(e) If in connection with any future issuance of Shares by Progenitor for
consideration, the purchase price is not readily ascertainable, the purchase
price applicable to Interneuron's right to purchase Shares hereunder shall be
equal to the fair market value of Progenitor's Common Stock (the "Fair Market
Value") on the date of the issuance, as determined by the Board of Directors of
Progenitor (considering factors which would typically be considered in an
independent valuation of fair market value of a similar company); provided that,
in the event that Progenitor is a public company, Fair Market Value shall mean
the average of the closing sales prices on the Nasdaq National Market (or if not
so traded, the average of the closing bid and asked prices) of Progenitor's
Common Stock for the ten (10) business days immediately preceding the date of
the issuance.
SECTION 2.9. MATERIAL TRANSACTIONS WITH INTERNEURON
Except as contemplated by this Agreement or with respect to transactions
which are immaterial, Progenitor shall not enter into any contract, agreement or
transaction with Interneuron or any Interneuron Affiliate, unless such contract,
agreement or transaction is both on terms no less favorable to Progenitor than
could be obtained from unaffiliated third parties and approved by: (i) majority
vote of the Independent Directors, or (ii) a majority of the shares of the
voting capital stock of Progenitor that are not held by Interneuron and
Interneuron Affiliates, voting separately as a class with a quorum of such
shares voting.
SECTION 2.10. INTERPRETATION OF AGREEMENT, ETC.
A majority of the Independent Directors shall have full and complete
authority on behalf of Progenitor to interpret the terms of and take other
actions with respect to this Agreement, including to negotiate with Interneuron
or to take such actions to enforce this Agreement as may be available under
applicable law.
SECTION 2.11. OTHER COOPERATION
Progenitor shall use its commercially reasonable efforts to fulfill all its
obligations and otherwise comply with any office or equipment leases which are
guaranteed by Interneuron and to obtain a release of such guaranty as soon as
practicable. In the event Progenitor defaults under any of these leases and
Interneuron satisfies any obligation pursuant to the related guaranty, at
Interneuron's request, Progenitor shall, to the extent permitted under
Progenitor's contractual and legal commitments, assign and transfer to
Interneuron all of its right, title and interest to the lease and related
equipment or office space.
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ARTICLE III.
STANDARD OF CARE; INDEMNIFICATION
SECTION 3.1. STANDARD OF CARE
(a) Interneuron makes no express or implied representations, warranties,
or guarantees relating to the Services or the quality or results of Services to
be performed under this Agreement.
(b) Nothing in this Agreement shall require Interneuron to provide or
develop additional support or to render any Service not provided for in this
Agreement, or in a manner or pursuant to methods different from the standard set
forth in Section 3.1(d), or, in performing Services hereunder, to make any
change or addition which will require capital expenditures.
(c) The duties of Interneuron under this Agreement are subject to
interpretation or discontinuance by Progenitor at any time and from time to
time, without incurring liability to Interneuron or any other person for any
loss, damage or expense which may result therefrom, for FORCE MAJEURE or other
causes beyond Interneuron's or Progenitor's control.
(d) Interneuron will use reasonable efforts to make the Services available
with substantially the same degree of care as it makes the same services
available for its own operations, but shall not be liable to Progenitor or any
other person for any loss, damage or expense which may result therefrom or from
Interneuron's changing its manner of rendering the Services if Interneuron deems
that such change is necessary to desirable in the conduct of its own operations.
(e) Interneuron and officers and employees of Interneuron who provide
Services to Progenitor shall not be liable to Progenitor or any third party,
including governmental agencies, for any claims, damages or expenses relating to
the Services provided pursuant to this Agreement except for willful malfeasance,
bad faith or gross negligence in the performance of Services hereunder and
Progenitor shall have the ultimate responsibility for all Services provided
herein.
(f) Interneuron shall not be liable to Progenitor for the consequences of
any failure or delay to perform any of its obligations under this Agreement
other than for damages arising from Interneuron's gross negligence or willful or
reckless misconduct; provided that it shall provide reasonably prompt notice to
Progenitor of such liability and the reasons therefor.
(g) Progenitor shall indemnify and hold harmless any Interneuron employee
who performs Services for Progenitor pursuant to this Agreement to the same
extent that Interneuron would indemnify such employee if the employee were to
perform such Services for Interneuron.
(h) Progenitor shall indemnify, defend and hold harmless Interneuron and
its officers and employees who perform Services hereunder from and against all
liabilities, claims, damages, losses and expenses (including, but not limited
to, reasonable attorneys fees and court costs) arising from any threatened,
pending or completed action, suit, claim, judgment or other
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proceeding arising out of Interneuron's or any of its officer's or director's
performance of Services pursuant to this Agreement.
SECTION 3.2. INDEMNIFICATION FOR SERVICES
(a) Interneuron will defend and hold harmless Progenitor and its employees
and agents from and against any and all claims, actions, proceedings, judgments,
expenses, damages and liabilities, including court costs and reasonable
attorneys fees (collectively, "Claims"), arising out of Interneuron's
performance of the Services provided hereunder (including Services provided by
Interneuron's other subsidiaries or affiliates or by third parties) due to
Interneuron's malfeasance, bad faith, gross negligence or breach of this
Agreement.
(b) Progenitor will indemnify and hold harmless Interneuron and its
employees and agents who perform Services for Progenitor pursuant to this
Agreement from and against any and all Claims arising out of Interneuron's
performance of the Services provided hereunder (including Services provided by
Interneuron's other subsidiaries or affiliates or by third parties), due to
Progenitor's malfeasance, bad faith, gross negligence or breach of this
Agreement.
SECTION 3.3. INDEMNIFICATION FOR INTERNEURON LIABILITIES
(a) "Interneuron Liabilities" shall mean any liability or obligation
related to the past, present or future businesses, operations or assets of
Interneuron or any Interneuron Affiliates, including but not limited to all
liabilities and obligations, whether known or unknown, by reason of any
violation of or noncompliance with any federal, state, local or foreign law,
rule or regulation or any requirement of any governmental authority, including
without limitation any laws establishing an obligation to notify employees in
advance of facility closings or changes in control, occurring in connection
with, and to the extent relating to, the past, present or future assets,
businesses or operations of Interneuron or any Interneuron Affiliate.
(b) "Progenitor Liabilities" shall mean any liability or obligation
related to the past, present or future businesses, operations or assets of
Progenitor or any entity more than 50% of the capital stock of which is owned by
Progenitor, including but not limited to all liabilities and obligations,
whether known or unknown, by reason of any violation of or noncompliance with
any federal, state, local or foreign law, rule or regulation or any requirement
of any governmental authority, including without limitation any laws
establishing an obligation to notify employees in advance of facility closings
or changes in control, occurring in connection with, and to the extent relating
to, the past, present or future assets, businesses or operations of Progenitor
or any entity described above, PROVIDED, that Progenitor Liabilities shall not
include any such liabilities related to the business of Interneuron or the
property or assets owned by Interneuron.
(c) Each of Progenitor and Interneuron will defend and hold harmless the
other and its employees and agents from and against any and all Claims arising
in connection with or that otherwise result from, relate to or are attributable
to any of the Interneuron Liabilities in the case of indemnification by
Interneuron and the Progenitor Liabilities in the case of indemnification by
Progenitor, PROVIDED, that indemnification under this Agreement will not be
available for Claims which are already indemnified under the Tax Allocation
Agreement between the parties.
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ARTICLE IV.
RECORDS AND CONFIDENTIALITY
SECTION 4.1. ACCESS TO RECORDS
(a) Subsequent to the effective date of this Agreement, each of Progenitor
and Interneuron may have in its possession or under its control (or the control
of persons or firms which have rendered services to or otherwise done business
with it) books, records, contracts, instruments, data and other information
(collectively, "Records") which may prove necessary or desirable to the other in
connection with the other's business or in connection with the other's rights
under this Agreement or under the Tax Allocation Agreement. Accordingly,
subsequent to such date:
(i) Progenitor shall provide to Interneuron, and Interneuron shall
provide to Progenitor, upon the other's written request, upon reasonable
notice and at all reasonable times, full and complete access to (including
access to persons or firms possessing information, and including electronic
access in the case of computerized records) and duplication rights with
respect to, any and all such Records relating to the other party as such
other party may reasonably request and require in the conduct of its
business, subject to confidentiality restrictions; and
(ii) Progenitor shall use its best efforts to make available to
Interneuron, and Interneuron shall use its best efforts to make available
to Progenitor, upon the other's written request, their respective officers,
directors, employees and agents as witnesses to the extent that such
persons may reasonably be required in connection with any legal,
administrative or other proceedings in which Progenitor or Interneuron, as
the case may be, may from time to time be involved.
(b) For purposes of this Agreement, "Records" shall include, without
limitation, information sought for audit, accounting, claims, litigation and tax
purposes, as well as for purposes for fulfilling disclosure and reporting
obligations under the federal securities laws.
(c) Neither party shall destroy or permit the destruction of (without
having first offered to deliver to the other) any such Records relating to the
other for the time period during which it would be required to retain such
Records pursuant to its standard document retention policy (and in any event not
less than any period required by applicable law).
(d) Each party shall cooperate with the other in a timely manner in any
administrative or judicial proceeding involving any matter affecting the
potential liability of either party hereunder. Such cooperation will include,
without limitation, making available to the other party, during normal business
hours and upon reasonable notice, all books, records and information of such
other party, and all officers and employees, necessary or useful in connection
with any claim for indemnification hereunder or under the Tax Allocation
Agreement.
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(e) The party providing Records or making available witnesses pursuant to
the preceding paragraph (a) shall be entitled to receive from the other party,
upon the presentation of invoices therefor, payment for its reasonable out-of-
pocket expenses incurred in connection therewith (but not the labor cost
thereof), but shall not be entitled to receive any other payment with respect
thereto other than a per diem reimbursement for appearing as a witness in
circumstances where the parties agree and in amounts that are agreed upon.
SECTION 4.2. CONFIDENTIALITY
(a) Following termination of the Consolidated Reporting Period, each of
Interneuron and Progenitor (i) will treat confidentially all Confidential
Information (as defined below) of the other party, and (ii) will not disclose
any Confidential Information of the other party to any third party, other than
to its employees, officers, directors, agents and subcontractors with a need to
know such Confidential Information for the purposes for which it was provided.
(b) For purposes of this Agreement, "Confidential Information" of a party
shall mean confidential or proprietary information of that party disclosed by
that party to the other party and marked "confidential" or "proprietary",
PROVIDED, that Confidential Information shall not include any information which
(i) was known to the receiving party prior to its receipt from the other party
and not subject to another confidentiality agreement with or other obligation of
secrecy to such other party, (ii) is now or later becomes generally available
to the public other than as a result of a disclosure by the receiving party,
(iii) is received separately by the receiving party from a third party which is
not prohibited from disclosing such information by a legal, contractual or
fiduciary obligation to the other party, or (iv) is developed independently by
the receiving party.
ARTICLE V.
MISCELLANEOUS
SECTION 5.1. COMPLETE AGREEMENT; CONSTRUCTION
This Agreement shall constitute the entire agreement between the parties
with respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
SECTION 5.2. RELATIONSHIP OF THE PARTIES
For all purposes of this Agreement, Interneuron and Progenitor shall be
deemed to be independent entities and, anything in this Agreement to the
contrary notwithstanding, nothing herein shall be deemed to constitute
Interneuron and Progenitor as partners, joint venturers, co-owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or
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representations behalf of the other party or in any way obligate the other
party, except as expressly authorized in writing by the other party.
SECTION 5.3. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to the principles of conflicts of
laws thereof.
SECTION 5.4. NOTICES
Except as otherwise set forth herein, all notices and other communications
hereunder shall be in writing and shall be delivered by hand or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other addresses for a party as shall be
specified by like notice) and shall be deemed given on the date on which such
notice is received:
To Interneuron: One Ledgemont Center
99 Hayden Avenue, Suite 340
Lexington, MA 02173
Attention: Mark S. Butler, Esq.
To Progenitor: 1507 Chambers Road
Columbus, OH 43212-1566
Attention: Douglass B. Given
President and Chief
Executive Officer
SECTION 5.5. AMENDMENTS; WAIVERS
This Agreement may not be modified or amended except by an agreement in
writing signed by the parties.
SECTION 5.6. ASSIGNMENT
This Agreement shall not be assignable, in whole or in part, directly or
indirectly, by either party hereto without the prior written consent of the
other, and any attempt to assign any rights or obligations arising under this
Agreement without such consent shall be void.
SECTION 5.7. TERM AND TERMINATION
The term of this Agreement shall commence with the Effective Date and
terminate, unless extended by agreement of the parties, upon the termination of
the Combined Reporting Period, unless earlier terminated:
(i) by mutual agreement of the parties, who may agree to terminate
the Agreement in whole or in part;
14
<PAGE>
(ii) in the event of material breach of this Agreement by one party,
by the nonbreaching party, upon 60 days written notice to the other party;
or
SECTION 5.8. NO THIRD-PARTY BENEFICIARIES
This Agreement is solely for the benefit of the parties hereto and should
not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 5.9. ARBITRATION
(a) Any dispute, controversy, claim or question arising out of or relating
to this Agreement, or the breach thereof, shall be settled by arbitration in New
York, New York, in accordance with the rules then in effect of the American
Arbitration Association, and judgment upon the award rendered may be entered by
any court having jurisdiction thereof.
(b) Neither Interneuron nor Progenitor will cease its obligations under
this Agreement during any arbitration proceedings, except by mutual agreement.
SECTION 5.10. TITLES AND HEADINGS
Titles and headings to sections herein are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning of
or interpretation of this Agreement.
SECTION 5.11. LEGAL ENFORCEABILITY
Any provision of this Agreement which is prohibited or unenforceable shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.
SECTION 5.12. FURTHER ASSURANCES
Subject to the terms and conditions hereof, each party agrees to use its
best efforts to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement and carry out its obligations hereunder as
expeditiously as practicable, including, without limitation, the performance of
such further acts or the execution and delivery of any additional instruments or
documents as any party may reasonably request in order to carry out the purposes
of this Agreement and the transactions contemplated hereby.
SECTION 5.13. COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
INTERNEURON PHARMACEUTICALS, INC.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
PROGENITOR, INC.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
16
<PAGE>
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT ("Agreement") is dated as of ________,
1996 by and between Interneuron Pharmaceuticals, Inc. ("IPI") and Progenitor,
Inc. ("Progenitor").
W I T N E S S E T H
WHEREAS, IPI has been the common parent of an affiliated group of
corporations which has filed consolidated income tax returns in accordance with
the Internal Revenue Code of 1986, as amended (the "Code"), and the applicable
regulations thereunder (the "Regulations"), as well as the parent of a group of
corporations filing combined tax returns for state and local tax purposes; and
WHEREAS, IPI's ownership interest in Progenitor has become less than
80% of the total voting power of and less than 80% of the total value of the
issued and outstanding stock of Progenitor; and
WHEREAS, Progenitor, by virtue of the foregoing, is not eligible to
file consolidated income tax returns with IPI and is no longer a member of IPI's
affiliated group of corporations; and
WHEREAS, IPI and Progenitor desire to define the method by which the
consolidated Federal income tax liability of the affiliated group for each
taxable year during which Progenitor was a part of IPI's consolidated income tax
returns should be allocated among the parties and the manner in which said
allocated liability will be paid for, to provide for the allocation and payment
of any refund arising from a carry back of losses or tax credits from subsequent
tax years, the compensation of any party for use of its losses or tax credits
and the participation and cooperation by Members of the Group (as defined
herein) in coordinating tax planning and in other matters relating to the
consolidated tax return of the Group; and
WHEREAS, IPI and Progenitor desire to define the method by which tax
attributes of the affiliated group, including not by way of limitation, the Code
Section 382 limitations relating to net operating losses and capital loss
carryforwards, should be allocated and apportioned between IPI and Progenitor in
connection with Progenitor's departure from IPI's affiliated group and to
provide for payments with respect to ongoing state or local tax matters;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the terms set forth below shall have
the following meanings:
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(a) "Affiliate" shall mean, with respect to any entity, any other
entity who, directly or indirectly, controls, is controlled by or is subject to
common control with such entity.
(b) "Effective Date" shall mean the date of the closing of the
Offering.
(c) "ERISA" shall mean the Employee Retirement and Security Act of
1974, as amended.
(d) "Group," with respect to any taxable year of IPI for which a
consolidated Federal income tax return is or was filed by IPI, or for which a
state or local income or franchise tax return is or was filed which includes the
activity of a related corporation (hereinafter referred to as a "State Unitary
Return"), shall mean all corporations included in such consolidated return or
State Unitary Return. Each corporation included in the Group, other than IPI,
is sometimes referred to herein as a "Subsidiary," IPI and each Subsidiary are
sometimes referred to herein as "Members."
(e) "IPI Plan Liabilities" shall mean any obligation or
liabilities relating to any Plan, or any trust or insurance policy related
thereto, administered, sponsored or maintained by IPI or any IPI Affiliate
(other than Progenitor) for any past, present or future employee of IPI, any IPI
Affiliate (other than Progenitor) or Progenitor, including without limitation
any liability for any minimum funding contributions under ERISA or the Code,
PROVIDED, that IPI Plan Liabilities shall not include obligations or liabilities
relating to any Plan, or any trust or insurance policy related thereto, to the
extent such obligations or liabilities relate to benefits accrued for past,
present or future employees of Progenitor that arise after the Effective Date,
unless attributable to the gross negligence or willful misconduct of IPI or an
Affiliate of IPI (other than Progenitor).
(f) "Offering" shall mean the initial public offering of common
stock of Progenitor.
(g) "Plans" shall mean (i) any "employee benefit plan" within the
meaning of Section 3(3) of ERISA, (ii) any profit sharing, pension, deferred
compensation, bonus, stock option or purchase, severance, retainer, consulting,
"cafeteria," accident and health, welfare or incentive plan, policy or
agreement, life insurance, accident and disability insurance, and any post-
employment benefits of any kind, whether legally binding or not, (iii) any plan
or policy providing for "fringe benefits" to officers, directors, employees or
agents, including, without limitation, vacation, paid holidays, personal leave,
family and medical leave, employee discount, educational benefit and similar
programs, and (iv) any employment, consulting, severance or indemnification
agreements or other agreements of any nature whatsoever between IPI or any of
its Affiliates, on the one hand, and any officer, director, employee or agent of
IPI or of any of IPI's Affiliates, on the other hand.
(h) "Separate Return Tax Liability" as applied to any Member with
respect to a taxable year (or portion thereof) of such Member shall mean such
Member's tax liability computed, with the exceptions provided in
Section 1.1552-1(a)(2)(ii) of the Regulations, as if such Member had filed a
separate Federal income tax return or State Unitary Return for such
2
<PAGE>
year, provided that the carryover for any tax attributed from a prior tax year
that is not available in determining the consolidated tax liability of the Group
for such taxable period (or portion thereof) shall be disregarded.
(i) "Tax Liability of the Group" with respect to a taxable year
for which a consolidated Federal income tax return or State Unitary Return is
filed by IPI shall mean the Federal income tax or State Unitary Return liability
of the Group for such taxable year, including liability for alternative minimum
tax.
2. ALLOCATION OF FEDERAL TAX EXPENSE
U.S. consolidated income tax returns including Progenitor as a Member
have been filed by IPI for the tax year ended September 30, 1992. Progenitor
also was included in the consolidated income tax returns filed by IPI for a
portion of IPI's taxable year ending September 30, 1993. The Tax Liability of
the Group for all taxable years in which Progenitor is or was included as a
Member for all or a portion thereof shall be allocated as follows:
(a) The Tax Liability of the Group for a taxable year (or portion
thereof) shall initially be allocated to each Member in accordance with the
ratio which the Separate Return Tax Liability of such Member for such taxable
year (or portion thereof) bears to the total of the Separate Return Tax
Liabilities of all the Members of the Group for such taxable year (or portion
thereof).
(b) An additional amount shall be allocated to each Member for a
taxable year (or portion thereof) equal to 100% of the excess, if any, of
(i) the Separate Return Tax Liability of such Member for such taxable year (or
portion thereof), over (ii) the portion of the Tax Liability of the Group for
such taxable year (or portion thereof) allocated to such Member in accordance
with paragraph 2(a), above.
(c) The total of the additional amounts allocated to all Members
in accordance with paragraph 2(b), above (referred to herein as the
"Consolidated Return Tax Benefit") shall be allocated among and credited to the
Members in a manner which fairly reflects the income, deductions or credits to
which the Consolidated Return Tax Benefit is attributable.
(d) The sum of (i) the amount allocated to a Member pursuant to
paragraph 2(a), above, plus (ii) the additional amount allocated to such Member
pursuant to paragraph 2(b), above, less (iii) the amount allocated to such
Member pursuant to paragraph 2(c), above, shall be deemed the Federal income tax
expense (or, where the amount allocated pursuant to paragraph 2(c), above,
exceeds the sum of the amounts allocated pursuant to paragraphs 2(a) and 2(b),
above, a refund of Federal income tax expense) of such Member for such taxable
year.
3. PAYMENT OF FEDERAL INCOME TAX EXPENSE
For the part of the taxable year of IPI ending on the date that
Progenitor left the federal IPI Group:
3
<PAGE>
(a) IPI shall have the authority to pay in full the federal Tax
Liability of the Group for such taxable year and shall be entitled to obtain all
federal refunds or credits with respect to an overpayment of the federal Tax
Liability of the Group for such taxable year.
(b) If the sum of the amounts allocated to Progenitor for such
portion of such taxable year pursuant to paragraphs 2(a) and 2(b), above,
exceeds the amount allocated to Progenitor for such period pursuant to
paragraph 2(c) above, Progenitor shall pay such excess to IPI.
(c) If the amount allocated to Progenitor for such portion of such
taxable year pursuant to paragraph 2(c), above, exceeds the sum of the amounts
allocated to Progenitor for such period pursuant to paragraphs 2(a) and 2(b),
above, IPI shall pay such excess to Progenitor.
(d) No payments shall be required to be made pursuant to
paragraph 3(b) or 3(c), above, until such time as the Tax Liability is paid.
4. PRIOR TAX YEARS
For each year in which Progenitor was a Member of the IPI Group, IPI
shall pay to Progenitor, immediately upon execution of this Agreement, an amount
equal to all amounts calculated pursuant to paragraph 3(c), above. For each
year in which Progenitor was a member of the IPI Group, Progenitor shall pay to
IPI, immediately upon Progenitor leaving the IPI Group, an amount equal to all
amounts calculated pursuant to paragraph 3(b), above.
5. CARRYFORWARDS
If part or all of an unused loss or tax credit is or has been
allocated to Progenitor pursuant to Regulation Section 1.1502-79 (including any
unused losses or tax credits that arise from the filing of an amended return or
from a recalculation or recomputation of such items after the date hereof), and
is carried forward to a year in which Progenitor files a separate return or a
consolidated return with another affiliated group, any refund or reduction in
tax liability arising from the carryforward shall be retained by Progenitor. If
the election described in proposed Treasury Regulations Section 1.1502-95(c) (or
any analogous election described in final Treasury Regulations or future law)
becomes available, IPI shall make such election in a timely manner and shall, in
such election, apportion the amount of any consolidated Code Section 382
limitation to Progenitor in an amount equal to the 382 limitation that would
have been applicable to Progenitor as a standalone company. In addition, IPI
shall allocate to Progenitor the maximum amount of any consolidated Code
Section 382 limitation permitted under current law that is necessary for
Progenitor to use any of its carryforwards.
6. CARRYBACKS
If any loss or credit of Progenitor is carried back to a year in which
Progenitor was a part of the IPI Group, any refund or reduction in tax liability
arising from the carryback shall be paid to Progenitor by IPI.
4
<PAGE>
7. SUBSEQUENT ADJUSTMENTS
If (i) the Tax Liability of the Group for a taxable year (or portion
thereof) during which Progenitor was a Member is changed or adjusted, and
(ii) such change or adjustment is part of a "determination," as that term is
defined in section 1313(a) of the Code or is otherwise a final decision,
disposition, or unappealable determination under state or local law, then the
allocations and payments made under this Agreement for such taxable year shall
be adjusted, in accordance with this Agreement, to conform to the Tax Liability
of the Group, as fixed by the final federal or state and local determination,
including interest thereon at the rate imposed by the Code or local law, as
appropriate, provided, however, that Progenitor shall not be obligated to make
any payments and shall not have any increased liability pursuant to this
paragraph 7 if Progenitor has not (i) been provided with copies of any filings
or reports or amended filings or amended reports that would affect or report or
alter the Tax Liability of the Group or any Member thereof at least sixty days
in advance of the date on which any such filings or reports or amended filings
or amended reports are made and Progenitor gives its written consent and
approval to the filing of and the contents of such filings or reports or amended
filings or amended reports, (ii) been notified within 10 days after the
commencement of any audit or examination of any tax matter affecting the Tax
Liability of the Group or any Member thereof by any taxing authority and been
given copies of all correspondence, notices, reports and other materials with
respect to such audit or examination and approved all decisions, agreements,
pleadings, adjustments, settlements and compromises with respect to such audit
or examination or any litigation or controversy arising therefrom, (iii) and
otherwise been kept informed of and given the opportunity to consent to any
event, act, occurrence or change that would result in any change or adjustment
pursuant to this paragraph 7 and provided further that notwithstanding the
foregoing, amounts attributable to increased losses or credits being allocated
to Progenitor in connection with an amended return or a recalculation or
recomputation by Progenitor's accountants shall be paid to Progenitor
immediately upon the filing of such return or recalculation or recomputation
whether or not in connection with a determination or final decision,
disposition, or unappealable determination under applicable law.
8. STATE TAX LIABILITY
For every taxable period in which Progenitor is or was included in a
State Unitary Return that also includes or included IPI or is or was otherwise
included in a combined or group return including IPI for state, local or foreign
tax purposes, IPI shall pay Progenitor (i) the amount of any tax benefit enjoyed
by IPI or other member of such combined return or State Unitary Return as a
result of losses or credits or apportionment factors contributed by Progenitor
and (ii) the amount by which Progenitor's tax liability is greater than if
Progenitor had not been included in such combined return or State Unitary
Return. For every such period, Progenitor shall pay IPI (i) the amount of any
tax benefit enjoyed by Progenitor as a result of losses or credits or
apportionment factors contributed by IPI or other member of such combined return
or State Unitary Return and (ii) the amount by which Progenitor's tax liability
is less than if Progenitor had not been included in such combined return or
State Unitary Return.
5
<PAGE>
9. INDEMNITY
(a) IPI shall protect, defend, indemnify and hold harmless
Progenitor from any and all taxes (including without limitation any obligation
to contribute to the payment of any taxes determined on a consolidated, combined
or unitary basis with respect to a group of corporations that includes or
included Progenitor) which are resulting by reason of the several liability of
Progenitor pursuant to Treasury Regulations section 1.1502-6 or any analogous
state, local or foreign law or regulation or by reason of Progenitor having been
a member of any consolidated, combined or unitary group including IPI or
resulting from Progenitor ceasing to be a member of the IPI Group. Nothing in
this paragraph shall be construed to require IPI to indemnify Progenitor for any
taxes or related interest or penalty liability attributable to any tax liability
of Progenitor that it would have had on a separate return basis if it had not
been a part of IPI's affiliated group.
(b) IPI shall protect, defend, indemnify and hold harmless
Progenitor from any and all claims, proceedings, investigations, inquiries,
losses, damages, demands, costs, expenses, penalties and liabilities (including
reasonable attorneys' fees) that result from, relate to or are attributable to
any of the IPI Plan Liabilities.
10. DETERMINATIONS
All determinations required hereunder for each taxable year shall be
made by mutual agreement of IPI and Progenitor with the advice of the
independent public accountants regularly engaged by IPI and Progenitor at the
time at which such determination is made. If IPI and Progenitor and their
accountants cannot agree, then such matter shall be submitted to mediation
before a mutually agreeable mediator, which cost is to be borne equally by the
parties. In the event mediation is unsuccessful in resolving the claim or
controversy, such claim or controversy shall be resolved by arbitration.
Arbitration under this Agreement shall be the exclusive remedy for all such
arbitrable claims. The parties agree that arbitration shall be held in or near
San Francisco, California, and shall be in accordance with the then-current
rules of the American Arbitration Association, before an arbitrator licensed to
practice law in California. The arbitrator shall have authority to award or
grant both legal, equitable, and declaratory relief. Such arbitration shall be
final and binding on the parties.
11. MISCELLANEOUS PROVISIONS
(a) This Agreement has been made in and shall be construed and
enforced in accordance with the laws of the State of Delaware.
(b) This Agreement shall be binding upon and inure to the benefit
of each party hereto and their respective successors and assigns, whether by
statutory merger, acquisition of assets, or otherwise. This Agreement is solely
for the benefit of the parties hereto and should not be deemed to confer upon
third parties any remedy, claim, liability, reimbursement, claim of action or
other right in excess of those existing without reference to this Agreement.
6
<PAGE>
(c) All notices and other communications hereunder shall be in
writing and shall be delivered by hand or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other addresses for a party as shall be specified by like notice) and shall be
deemed given on the date on which such notice is received:
To Interneuron: One Ledgemont Center
99 Hayden Avenue, Suite 340
Lexington, MA 02173
Attention: Mark S. Butler, Esq.
To Progenitor: 1507 Chambers Road
Columbus, OH 43212-1566
Attention: _______________
(d) Subject to the terms and conditions hereof, each party agrees
to use its best efforts to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement and carry out its obligations
hereunder as expeditiously as practicable, including, without limitation, the
performance of such further acts or the execution and delivery of any additional
instruments or documents as any party may reasonably request in order to carry
out the purposes of this Agreement and the transactions contemplated hereby.
(e) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) Any dispute hereunder shall be resolved by arbitration in the
manner described in Section 10 hereof.
(g) This Agreement contains the entire understanding of the
parties hereto with respect to the subject matter contained herein.
(h) No alteration, amendment or modification of any of the terms
of this Agreement shall be valid unless made by an instrument signed in writing
by an authorized officer of each party hereto. No rights under this Agreement
may be waived, except in writing by the party charged with such waiver. No
waiver of any provision of this Agreement, in one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of such provision
or as a waiver of any other provision of this Agreement.
(i) The headings of sections of this Agreement are inserted for
convenience only and shall not constitute a part hereof.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the date and year first above written.
INTERNEURON PHARMACEUTICALS, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
-------------------------
PROGENITOR, INC.
By:
Name:
-------------------------
Title:
------------------------
------------------------
8
<PAGE>
PROGENITOR, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1996 Employee Stock
Purchase Plan of Progenitor, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Parents or Subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions. It
is the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Code. The provisions of the Plan,
accordingly, shall be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. DEFINITIONS.
(a) "ACCRUAL PERIOD" shall mean a period of approximately six months,
commencing on April 1 and October 1 of each year and terminating on the next
following September 30 or March 31, respectively; provided, however, that the
first Accrual Period shall commence on the Effective Date and shall end on
March 31, 1997.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMON STOCK" shall mean the common stock of the Company.
(e) "COMPANY" shall mean Progenitor, Inc., a Delaware corporation.
(f) "COMPENSATION" shall mean an Employee's base salary, commissions,
overtime, and bonuses from the Company or one or more Designated Parents or
Subsidiaries, including such amounts as are deferred by the Employee (i) under a
qualified cash or deferred arrangement described in Section 401(k) of the Code,
or (ii) to a plan qualified under Section 125 of the Code. Compensation does
not include annual awards, other incentive payments, shift premiums, long-term
disability payments, worker's compensation, reimbursements or other expense
allowances, fringe benefits (cash or noncash), moving expenses, deferred
compensation, contributions (other than contributions described in the first
sentence) made on the Employee's behalf by the Company or one or more Designated
Parents or Subsidiaries under any employee benefit or welfare plan now or
hereafter established, and any other payments not specifically referenced in the
first sentence.
(g) "CORPORATE TRANSACTION" shall mean any of the following
stockholder-approved transactions to which the Company is a party:
<PAGE>
(1) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated;
(2) the direct or indirect acquisition by any person or related
group of persons (other than an acquisition from or by the Company or
by a Company-sponsored employee benefit plan or by a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Company) of beneficial ownership (within the meaning
of Rule 13d-3 of the Exchange Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Company's outstanding securities;
(3) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital
stock of the Company's subsidiary corporations) in connection with
complete liquidation or dissolution of the Company; or
(4) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those
who held such securities immediately prior to such merger.
(h) "DESIGNATED PARENTS OR SUBSIDIARIES" shall mean the Parents or
Subsidiaries which have been designated by the Plan Administrator from time to
time in its sole discretion as eligible to participate in the Plan.
(i) "EFFECTIVE DATE" shall mean the date on which the Pricing
Committee of the Board agrees with the underwriters as to the price at which the
Common Stock will be offered to the public in the initial public offering of the
Common Stock. However, should any Designated Subsidiary become a participating
company in the Plan after such date, then such entity shall designate a separate
Effective Date with respect to its employee-participants.
(j) "EMPLOYEE" shall mean any individual who is engaged in the
rendition of personal services to the Company or a Designated Parent or
Subsidiary for Compensation. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual is on
sick leave or other leave of absence approved by the individual's employer.
Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contact, the employment
relationship will be deemed to have terminated on the 91st day of such leave.
(k) "ENROLLMENT DATE" shall mean the first day of each Purchase
Period.
(l) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(m) "EXERCISE DATE" shall mean the last day of each Accrual Period.
2
<PAGE>
(n) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing sales price for a share of
Common Stock for the last market trading day prior to the time of the
determination (or, if no sales were reported on that date, on the last
trading date on which sales were reported) on the stock exchange
determined by the Administrator to be the primary market for the
Common Stock or the Nasdaq National Market, whichever is applicable or
(B) if the Common Stock is not traded on any such exchange or national
market system, the average of the closing bid and asked prices of a
share of Common Stock on the Nasdaq Small Cap Market for the day prior
to the time of the determination (or, if no such prices were reported
on that date, on the last date on which such prices were reported), in
each case as reported in THE WALL STREET JOURNAL or such other source
as the Plan Administrator deems reliable;
(2) In the absence of an established market of the type
described in (1), above, for the Common Stock, and subject to (3),
below, the Fair Market Value thereof shall be determined by the Plan
Administrator in good faith; or
(3) On the Effective Date, the Fair Market Value shall be the
price at which the Pricing Committee of the Board and the underwriters
agree to offer Common Stock to the public in the initial public
offering of the Common Stock, net of discounts and underwriting
commissions.
(o) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(a) of the Code.
(p) "PARTICIPANT" shall mean an Employee of the Company or Designated
Parent or Subsidiary who is actively participating in the Plan.
(q) "PLAN" shall mean this Employee Stock Purchase Plan.
(r) "PLAN ADMINISTRATOR" shall mean either the Board or a committee
of the Board that is responsible for the administration of the Plan.
(s) "PURCHASE PERIOD" shall mean a purchase period established
pursuant to paragraph 4 hereof.
(t) "PURCHASE PRICE" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(u) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of
3
<PAGE>
Common Stock which have been authorized for issuance under the Plan but not yet
placed under option.
(v) "RULE 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
Act or any successor thereto.
(w) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. ELIGIBILITY.
(a) GENERAL. Any individual who is an Employee on a given Enrollment
Date shall be eligible to participate in the Plan for the Purchase Period
commencing with such Enrollment Date.
(b) LIMITATIONS ON GRANT AND ACCRUAL. Any provisions of the Plan to
the contrary notwithstanding, no Employee shall be granted an option under the
Plan (i) if, immediately after the grant, such Employee (taking into account
stock owned by any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of any
Parent or Subsidiary of the Company, or (ii) which permits his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
Parents or Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand
Dollars ($25,000) worth of stock (determined at the Fair Market Value of the
shares at the time such option is granted) for each calendar year in which such
option is outstanding at any time. The determination of the accrual of the
right to purchase stock shall be made in accordance with Section 423(b)(8) of
the Code and the regulations thereunder.
(c) OTHER LIMITS ON ELIGIBILITY. Notwithstanding subparagraph (a),
above, the following Employees shall not be eligible to participate in the Plan
for any relevant Purchase Period: (i) Employees whose customary employment is 20
or fewer hours or less per week; (ii) Employees whose customary employment is
for not more than 5 or fewer months in any calendar year; and (iii) Employees
who are subject to rules or laws of a foreign jurisdiction that prohibit or make
impractical the participation of such Employees in the Plan.
4. PURCHASE PERIODS.
(a) The Plan shall be implemented through overlapping or consecutive
Purchase Periods until such time as (i) the maximum number of shares of Common
Stock available for issuance under the Plan shall have been purchased or
(ii) the Plan shall have been sooner terminated in accordance with paragraph 19
hereof. The maximum duration of a Purchase Period shall be twenty-seven (27)
months. Initially, the Plan shall be implemented through overlapping Purchase
Periods of twenty-four (24) months' duration commencing each April 1 and
October 1 following the Effective Date (except that the initial Purchase Period
shall commence on the Effective Date and shall end on September 30, 1998). The
Plan Administrator
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shall have the authority to change the length of any Purchase Period and the
length of Accrual Periods within any such Purchase Period subsequent to the
initial Purchase Period by announcement at least thirty (30) days prior to the
commencement of the Purchase Period and to determine whether subsequent Purchase
Periods shall be consecutive or overlapping.
(b) A Participant shall be granted a separate option for each
Purchase Period in which he/she participates. The option right shall be granted
on the Enrollment Date and shall be automatically exercised in successive
installments on the Exercise Dates ending within the Purchase Period.
(c) An Employee may participate in only one Purchase Period at a
time. Accordingly, except as provided in paragraph 4(d), an Employee who wishes
to join a new Purchase Period must withdraw from the current Purchase Period in
which he/she is participating and must also enroll in the new Purchase Period
prior to the Enrollment Date for that Purchase Period.
(d) If on the first day of any Accrual Period in a Purchase Period in
which a Participant is participating, the Fair Market Value of the Common Stock
is less than the Fair Market Value of the Common Stock on the Enrollment Date of
the Purchase Period (after taking into account any adjustment during the
Purchase Period pursuant to paragraph 18(a)), the Purchase Period shall be
terminated automatically and the Participant shall be enrolled automatically in
the new Purchase Period which has its first Accrual Period commencing on that
date, provided the Participant is eligible to participate in the Plan on that
date and has not elected to terminate participation in the Plan.
(e) Except as specifically provided herein, the acquisition of Common
Stock through participation in the Plan for any Purchase Period shall neither
limit nor require the acquisition of Common Stock by a Participant in any
subsequent Purchase Period.
5. PARTICIPATION.
(a) An eligible Employee may become a Participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office at
least fifteen (15) business days prior to the Enrollment Date for the Purchase
Period in which such participation will commence, unless a later time for filing
the subscription agreement is set by the Plan Administrator for all eligible
Employees with respect to a given Purchase Period.
(b) Payroll deductions for a Participant shall commence with the
first payroll period following the Enrollment Date and shall end on the last
complete payroll period during the Purchase Period, unless sooner terminated by
the Participant as provided in paragraph 10.
6. PAYROLL DEDUCTIONS.
(a) At the time a Participant files his/her subscription agreement,
he/she shall elect to have payroll deductions made during the Purchase Period in
an amount not exceeding ten percent (10%) of the Compensation which he/she
receives during the Purchase Period.
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(b) All payroll deductions made for a Participant shall be credited
to his/her account under the Plan and will be withheld in whole percentages
only. A Participant may not make any additional payments into such account.
(c) A Participant may discontinue his or her participation in the
Plan as provided in paragraph 10, or may decrease the rate of his/her payroll
deductions during the Purchase Period by completing or filing with the Company a
new subscription agreement authorizing a decrease in the payroll deduction rate.
The decrease in rate shall be effective with the first full payroll period
following ten (10) business days after the Company's receipt of the new
subscription agreement unless the Company elects to process a given change in
participation more quickly. A Participant may increase the rate of his/her
payroll deductions for a future Purchase Period by filing with the Company a new
subscription agreement authorizing an increase in the payroll deduction rate
within ten (10) business days (unless the Company elects to process a given
change in participation more quickly) before the commencement of the upcoming
Purchase Period. A Participant's subscription agreement shall remain in effect
for successive Purchase Periods unless terminated as provided in paragraph 10.
The Plan Administrator shall be authorized to limit the number of payroll
deduction rate changes during any Purchase Period.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and paragraph 3(b) herein, a Participant's
payroll deductions may be decreased to 0% at such time during any Accrual Period
which is scheduled to end during the current calendar year (the "Current Accrual
Period") that the aggregate of all payroll deductions which were previously used
to purchase stock under the Plan in a prior Accrual Period which ended during
that calendar year plus all payroll deductions accumulated with respect to the
Current Accrual Period equal $21,250. Payroll deductions shall recommence at
the rate provided in such Participant's subscription agreement at the beginning
of the first Accrual Period which is scheduled to end in the following calendar
year, unless terminated by the Participant as provided in paragraph 10.
7. GRANT OF OPTION. On the Enrollment Date, each Participant in
such Purchase Period shall be granted an option to purchase on each Exercise
Date of such Purchase Period (at the applicable Purchase Price) up to a number
of shares of the Common Stock determined by dividing such Participant's payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase Price;
provided (i) that such purchase shall be subject to the limitations set forth in
paragraphs 3(b) and 12 hereof, and (ii) the maximum number of shares of Common
Stock a Participant shall be permitted to purchase in any Accrual Period shall
be 5,000 shares, subject to adjustment as provided in paragraph 18 hereof.
Exercise of the option shall occur as provided in paragraph 8, unless the
Participant has withdrawn pursuant to paragraph 10, and the option, to the
extent not exercised, shall expire on the last day of the Purchase Period.
8. EXERCISE OF OPTION. Unless a Participant withdraws from the Plan
as provided in paragraph 10, below, his/her option for the purchase of shares
will be exercised automatically on each Exercise Date, and the maximum number of
full shares subject to the option shall be purchased for such Participant at the
applicable Purchase Price with the
6
<PAGE>
accumulated payroll deductions in his/her account. No fractional shares will be
purchased; any payroll deductions accumulated in a Participant's account which
are not sufficient to purchase a full share shall be carried over to the next
Purchase Period or returned to the Participant, if the Participant withdraws
from the Plan. Any amount remaining in a Participant's account following the
purchase of shares on the Exercise Date which exceeds the cost of one full share
of Common Stock on the Exercise Date shall be returned to the Participant and
shall not be carried over to the next Purchase Period. During a Participant's
lifetime, a Participant's option to purchase shares hereunder is exercisable
only by him/her.
9. DELIVERY. Upon receipt of a request from a Participant after
each Exercise Date on which a purchase of shares occurs, the Company shall
arrange the delivery to such Participant, as appropriate, of a certificate
representing the shares purchased upon exercise of his/her option.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A Participant may withdraw all but not less than all the payroll
deductions credited to his/her account and not yet used to exercise his/her
option under the Plan at any time by giving written notice to the Company in the
form of Exhibit B to this Plan. All of the Participant's payroll deductions
credited to his/her account will be paid to such Participant promptly after
receipt of notice of withdrawal, such Participant's option for the Purchase
Period will be automatically terminated, and no further payroll deductions for
the purchase of shares will be made during the Purchase Period. If a
Participant withdraws from a Purchase Period, payroll deductions will not resume
at the beginning of the succeeding Purchase Period unless the Participant
delivers to the Company a new subscription agreement.
(b) Upon a Participant's ceasing to be an Employee for any reason or
upon termination of a Participant's employment relationship (as described in
paragraph 2(j)), the payroll deductions credited to such Participant's account
during the Purchase Period but not yet used to exercise the option will be
returned to such Participant or, in the case of his/her death, to the person or
persons entitled thereto under paragraph 14, and such Participant's option will
be automatically terminated.
11. INTEREST. No interest shall accrue on the payroll deductions
credited to a Participant's account under the Plan.
12. STOCK.
(a) The maximum number of shares of Common Stock which shall be made
available for sale under the Plan shall be 200,000 shares (determined as of
August 9, 1996, the date of adoption of the Plan by the Board), subject to
adjustment upon changes in capitalization of the Company as provided in
paragraph 18. If on a given Exercise Date the number of shares with respect to
which options are to be exercised exceeds the number of shares then available
under the Plan, the Plan Administrator shall make a pro rata allocation of the
shares remaining available for purchase in as uniform a manner as shall be
practicable and as it shall determine to be equitable.
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<PAGE>
(b) A Participant will have no interest or voting right in shares
covered by his/her option until such shares are actually purchased on the
Participant's behalf in accordance with the applicable provisions of the Plan.
No adjustment shall be made for dividends, distributions or other rights for
which the record date is prior to the date of such purchase.
(c) Shares to be delivered to a Participant under the Plan will be
registered in the name of the Participant or in the name of the Participant and
his/her spouse.
13. ADMINISTRATION.
(a) ADMINISTRATIVE BODY. The Plan shall be administered by the Board
or a committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all persons. Members of the Board
who are eligible Employees are permitted to participate in the Plan except to
the extent limited by subparagraph (b) of this paragraph 13.
(b) RULE 16b-3 LIMITATIONS. Notwithstanding the provisions of
subparagraph (a), above, in the event that Rule 16b-3 provides specific
requirements for the administrators of plans of this type, the Plan shall be
administered only by such a body and in such a manner as shall comply with the
applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no
discretion concerning decisions regarding the Plan shall be afforded to any
committee or person that is not "disinterested" as that term is used in Rule
16b-3.
14. DESIGNATION OF BENEFICIARY.
(a) Each Participant will file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the Participant's account
under the Plan in the event of such Participant's death. If a Participant is
married and the designated beneficiary is not the spouse, spousal consent shall
be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the Participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a Participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such Participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the Participant, or if no such executor or
administrator has been appointed (to the knowledge of the Plan Administrator),
the Plan Administrator, in its discretion, may deliver such shares and/or cash
to the spouse or to any one or more dependents or relatives of the Participant,
or if no spouse, dependent or relative is known to the Plan Administrator, then
to such other person as the Plan Administrator may designate.
15. TRANSFERABILITY. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will,
8
<PAGE>
the laws of descent and distribution or as provided in paragraph 14 hereof) by
the Participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be without effect, except that the Plan Administrator may
treat such act as an election to withdraw funds from a Purchase Period in
accordance with paragraph 10.
16. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. REPORTS. Individual accounts will be maintained for each
Participant in the Plan. Statements of account will be given to Participants at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE
TRANSACTIONS.
(a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any
required action by the stockholders of the Company, the Reserves, as well as the
Purchase Price, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other similar event resulting in an increase or decrease in
the number of issued shares of Common Stock. Such adjustment shall be made by
the Plan Administrator, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option. The Plan Administrator may, if it so determines in the exercise
of its sole discretion, make provision for adjusting the Reserves, as well as
the price per share of Common Stock covered by each outstanding option, in the
event the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock.
(b) CORPORATE TRANSACTIONS. In the event of a proposed Corporate
Transaction, the Plan Administrator may elect to shorten the Purchase Period
then in progress by setting a new Exercise Date (the "New Exercise Date"). If
the Plan Administrator shortens the Purchase Period then in progress in the
event of a Corporate Transaction, the Plan Administrator shall notify each
Participant in writing, at least ten (10) days prior to the New Exercise Date,
that the Exercise Date for his/her option has been changed to the New Exercise
Date and that his/her option will be exercised automatically on the New Exercise
Date, unless prior to such date he/she has withdrawn from the Purchase Period as
provided in paragraph 10. In the event of a proposed Corporate Transaction
(other than a Corporate Transaction described in Section 2(g)(2), above,) in
which the Plan Administrator elects not to shorten the Purchase Period, each
option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. For purposes of this subparagraph, an option granted
under the Plan shall be deemed to be assumed if, following the Corporate
9
<PAGE>
Transaction, the option confers the right to purchase, for each share of Common
Stock subject to the option immediately prior to the Corporate Transaction, the
consideration (whether stock, cash or other securities or property) received in
the Corporate Transaction by holders of Common Stock for each share of Common
stock held on the effective date of the Corporate Transaction (and if such
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if such consideration received in the Corporate
Transaction was not solely common stock of the successor corporation or its
Parent, the Board may, with the consent of the successor corporation and the
Participant, provide for the consideration to be received upon exercise of the
option to be solely common stock of the successor corporation or its Parent
equal in fair market value to the per share consideration received by holders of
Common Stock in the Corporate Transaction.
19. AMENDMENT OR TERMINATION.
(a) The Plan Administrator may at any time and for any reason
terminate or amend the Plan. Except as provided in paragraph 18, no such
termination can affect options previously granted, provided that a Purchase
Period may be terminated by the Plan Administrator on any Exercise Date if the
Plan Administrator determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in paragraph
18, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any Participant. To the extent necessary to
comply with Rule 16b-3 or Section 423 of the Code (or any successor rule or
provision or any other applicable law or regulation), the Company shall obtain
stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the Plan
Administrator shall be entitled to change the Purchase Periods, limit the
frequency and/or number of changes in the amount withheld during Purchase
Periods, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, establish additional terms, conditions, rules
or procedures to accommodate the rules or laws of applicable foreign
jurisdictions, permit payroll withholding in excess of the amount designated by
a Participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
Participant properly correspond with amounts withheld from the Participant's
Compensation, and establish such other limitations or procedures as the Plan
Administrator determines in its sole discretion advisable and which are
consistent with the Plan.
20. NOTICES. All notices or other communications by a Participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Plan Administrator at the
location, or by the person, designated by the Plan Administrator for the receipt
thereof.
21. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such
10
<PAGE>
shares pursuant thereto shall comply with all applicable provisions of law,
domestic or foreign, including, without limitation, the Securities Act of 1933,
as amended, the Exchange Act, the rules and regulations promulgated thereunder,
and the requirements of any stock exchange upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance. As a condition to the exercise of an option,
the Company may require the Participant to represent and warrant at the time of
any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law. In addition, no options shall
be exercised or shares issued hereunder before the Plan shall have been approved
by stockholders of the Company as provided in paragraph 24.
22. TERM OF PLAN. The Plan shall become effective upon the earlier
to occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated under paragraph 19.
23. ADDITIONAL RESTRICTIONS OF RULE 16b-3. The terms and conditions
of options granted hereunder to, and the purchase of shares by, persons subject
to Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, such options shall contain,
and the shares issued upon exercise thereof shall be subject to, such additional
conditions and restrictions as may be required by Rule 16b-3 to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
24. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject
to approval by the stockholders of the Company within twelve (12) months before
or after the date the Plan is adopted. If such stockholder approval is obtained
at a duly held stockholders' meeting, the Plan must be approved by a majority of
the votes cast at such stockholders' meeting at which a quorum representing a
majority of all outstanding voting stock of the Company is, either in person or
by proxy, present and voting on the Plan. If such stockholder approval is
obtained by written consent, it must be obtained by the written consent of the
holders of a majority of all outstanding voting stock of the Company. However,
approval at a meeting or by written consent may be obtained by a lesser degree
of stockholder approval if the Plan Administrator determines, in its discretion
after consultation with the Company's legal counsel, that such a lesser degree
of stockholder approval will comply with all applicable laws and will not
adversely affect the qualification of the Plan under Section 423 of the Code.
25. NO EMPLOYMENT RIGHTS. The Plan does not, directly or indirectly,
create any right for the benefit of any employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company or
a Designated Subsidiary, and it shall not be deemed to interfere in any way with
such employer's right to terminate, or otherwise modify, an employee's
employment at any time.
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26. EFFECT OF PLAN. The provisions of the Plan shall, in accordance
with its terms, be binding upon, and inure to the benefit of, all successors of
each Participant, including, without limitation, such Participant's estate and
the executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such
Participant.
27. APPLICABLE LAW. The law of the State of Delaware will govern all
matters relating to this Plan except to the extent it is superseded by the laws
of the United States.
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EXHIBIT A
PROGENITOR, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
__ Original Application Enrollment Date:_____________
__ Change in Payroll Deduction Rate
__ Change of Beneficiary(ies)
1. I,________________________, hereby elect to participate in the
Progenitor, Inc. 1996 Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan") and subscribe to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock Purchase
Plan.
2. I hereby authorize payroll deductions from each paycheck in the
amount of ____% of my Compensation on each payday (not to exceed 10%) during the
Purchase Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)
3. I understand that the payroll deductions shall be accumulated for
the purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I understand
that if I do not withdraw from a Purchase Period, any accumulated payroll
deductions will be used to automatically exercise my option.
4. I have received a copy of the complete "Progenitor, Inc. 1996
Employee Stock Purchase Plan." I understand that my participation in the
Employee Stock Purchase Plan is in all respects subject to the terms of the
Plan. I understand that the grant of the option by the Company under this
Subscription Agreement is subject to obtaining stockholder approval of the
Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan
should be issued in the name(s) of:
_________________________________
_________________________________
6. I understand that if I dispose of any shares received by me
pursuant to this Plan within 2 years after the Enrollment Date (the first day of
the Purchase Period during which I purchased such shares) or within 1 year after
the Exercise Date (the date I purchased such shares), I will be treated for
federal income tax purposes as having received ordinary income at the time of
such disposition in an amount equal to the excess of the fair market value of
the shares at the time such shares were delivered to me over the price which I
paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30
DAYS AFTER THE DATE OF ANY SUCH DISPOSITION AND I
<PAGE>
WILL MAKE ADEQUATE PROVISION FOR FOREIGN, FEDERAL, STATE OR OTHER TAX
WITHHOLDING OBLIGATIONS, IF ANY WHICH ARISE UPON THE DISPOSITION OF THE COMMON
STOCK. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding obligation
including any withholding necessary to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common Stock
by me. If I dispose of such shares at any time after the expiration of the 2-
year and 1-year holding periods described above, I understand that I will be
treated for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as ordinary income
only to the extent of an amount equal to the lesser of (1) the excess of the
fair market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market value
of the shares on the first day of the Purchase Period. The remainder of the
gain, if any, recognized on such disposition will be taxed as capital gain. I
also understand that the foregoing income tax consequences are based on current
federal income tax law and that the Company is not responsible for advising me
of any changes in the applicable tax rules.
7. I hereby agree to be bound by the terms of the Employee Stock
Purchase Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Employee
Stock Purchase Plan.
NAME: (Please print) _______________________________________________________
(First) (Middle) (Last)
Relationship: _______________________________________________________
Address: _______________________________________________________
_______________________________________________________
_______________________________________________________
Employee's Social
Security Number: _______________________________________________________
Employee's Address: _______________________________________________________
_______________________________________________________
_______________________________________________________
<PAGE>
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE PURCHASE PERIODS UNLESS TERMINATED BY ME
Employee's Signature: _______________________________________________________
Dated: _______________________________________________________
Signature of spouse
if beneficiary is other
than spouse: _______________________________________________________
Dated: _______________________________________________________
<PAGE>
EXHIBIT B
PROGENITOR, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
NOTICE OF WITHDRAWAL
The undersigned participant in the Purchase Period of the Progenitor,
Inc. 1996 Employee Stock Purchase Plan which began on _________________, 19___,
(the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Purchase Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Purchase Period. The
undersigned understands and agrees that his or her option for such Purchase
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Purchase Period and the undersigned shall be eligible to participate
in succeeding Purchase Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address
of Participant: _______________________________________________________
_______________________________________________________
_______________________________________________________
Signature: _______________________________________________________
Date: _______________________________________________________
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report, which includes an explanatory paragraph regarding the Company's
ability to continue as a going concern, dated June 5, 1996 on our audits of
the financial statements of Progenitor, Inc. (a Development Stage Company).
We also consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
August 15, 1996
