<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 1996
REGISTRATION NO. 333-05369
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
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 JULY 11, 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 51.2% of the Company's Common Stock (48.7% 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... 7,293,819 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."
Proposed Nasdaq National Market symbol.............. PGEN
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................................... $ -- $ -- $ 2,821 $ 5 $ 912
Expenses:
Research and development.................................... 3,116 4,113 4,228 1,661 1,706
General and administrative.................................. 1,339 1,275 1,116 534 691
Interest.................................................... 246 648 352 304 56
--------- --------- --------- --------- ---------
Total expenses............................................ 4,701 6,036 5,696 2,499 2,453
--------- --------- --------- --------- ---------
Net loss...................................................... $ (4,701) $ (6,036) $ (2,875) $ (2,494) $ (1,541)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net loss per share (2).............................. $ (0.63) $ (0.33)
--------- ---------
--------- ---------
Pro forma weighted average shares outstanding (2)............. 4,536,481 4,676,327
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA (3) AS ADJUSTED (4)
--------- ------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 27 $ 177 $ 27,227
Working capital..................................................... (800) (650) 26,400
Total assets........................................................ 1,087 1,237 28,287
Long-term obligations............................................... 1,214 232 232
Deficit accumulated during development stage........................ (16,215) (16,215) (16,215)
Total stockholders' equity (deficit)................................ (1,291) (159) 26,891
</TABLE>
- ------------------
(1) Based on shares outstanding as of May 31, 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 May 31,
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
May 31, 1996, with an exercise price of $9.18 per share; and (iii) 661,700
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 142,026
SHARES OF COMMON STOCK (BASED ON THE OUTSTANDING BALANCE AS OF MAY 31, 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 March 31,
1996, the Company had an accumulated deficit of approximately $16.2 million and
a working capital deficit of $800,000. 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 six 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 51.2% of the
outstanding Common Stock of the Company (48.7% 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 following 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 7,293,819 shares to be outstanding after the Offering, the
2,500,000 shares of Common Stock offered hereby will be freely tradeable without
restriction in the public market unless such shares are held by "affiliates" of
the
15
<PAGE>
Company, as that term is defined in Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act"). The remaining 4,793,819 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 771,529 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 3,736,017 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 321,071 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 261,273 shares of Common
Stock 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 a Registration Statement 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 and an aggregate of 661,700
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. 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 $8.28 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 March
31, 1996 (i) on an actual basis as if the 1-for-2 reverse stock split had
occurred prior to March 31, 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 81,819 shares of Common Stock (based on the outstanding
balance as of March 31, 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>
MARCH 31, 1996
------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
--------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations....................................................... $ 1,214 $ 232 $ 232
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; 4,733,612 shares issued and
outstanding, pro forma; 7,233,612 shares issued and outstanding, pro
forma as adjusted (1).................................................... 3 5 7
Additional paid-in capital................................................ 14,898 16,051 43,099
Deficit accumulated during development stage.............................. (16,215) (16,215) (16,215)
--------- ----------- ------------
Total stockholders' equity (deficit).................................... (1,291) (159) 26,891
--------- ----------- ------------
Total capitalization.................................................. $ (77) $ 73 $ 27,123
--------- ----------- ------------
--------- ----------- ------------
</TABLE>
- ------------------------
(1) Excludes: (i) 606,625 shares of Common Stock issuable upon exercise of stock
options outstanding as of May 31, 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 May 31, 1996, with an exercise price
of $9.18 per share; and (iii) 661,700 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 4,733,612 shares of Common Stock outstanding as of March 31, 1996 (as if the
1-for-2 reverse split of the Company's Common Stock had occurred prior to March
31, 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 81,819 shares of Common
Stock upon the closing of the Offering (based on the outstanding balance as of
March 31, 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 March
31, 1996 was approximately negative $159,000 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 March 31, 1996 would have been approximately
$26.9 million or $3.72 per share. This represents an immediate increase in pro
forma net tangible book value of $3.75 per share to existing stockholders and an
immediate dilution of $8.28 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 March 31,
1996............................................................. $ (.03)
Increase per share attributable to new investors.................. 3.75
---------
Pro forma net tangible book value per share after the Offering...... 3.72
---------
Dilution per share to new investors................................. $ 8.28
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 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....................... 4,733,612 65.0% $ 16,056,077 34.9% $ 3.39
New investors............................... 2,500,000 35.0 30,000,000 65.1 12.00
---------- ----- ------------- -----
Total................................... 7,233,612 100.0% $ 46,056,077 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The foregoing tables reflect no exercise of outstanding options or warrants
subsequent to March 31, 1996. As of May 31, 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 661,700 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
March 31, 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 six months ended March 31, 1995 and 1996 and for the
period from May 8, 1992 (date of inception) to March 31, 1996 and the balance
sheet data as of March 31, 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 six months ended
March 31, 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 SIX MONTHS ENDED INCEPTION)
INCEPTION) TO YEARS ENDED SEPTEMBER 30, MARCH 31, TO
SEPTEMBER 30, -------------------------------- --------------------- MARCH 31,
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 $ 5 $ 912 $ 3,733
Expenses:
Research and development...... 775 3,116 4,113 4,228 1,661 1,706 13,938
General and administrative.... 264 1,339 1,275 1,116 534 691 4,685
Interest...................... 23 246 648 352 304 56 1,325
------- --------- --------- ---------- --------- ---------- ------------
Total expenses.............. 1,062 4,701 6,036 5,696 2,499 2,453 19,948
------- --------- --------- ---------- --------- ---------- ------------
Net loss...................... $ (1,062) $ (4,701) $ (6,036) $ (2,875) $ (2,494) $ (1,541) $ (16,215)
------- --------- --------- ---------- --------- ---------- ------------
------- --------- --------- ---------- --------- ---------- ------------
Pro forma net loss per
share (1)...................... $ (.63) $ (.33)
---------- ----------
---------- ----------
Pro forma weighted average
shares outstanding (1)......... 4,536,481 4,676,327
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------
1992 1993 1994 1995 MARCH 31, 1996
--------- --------- --------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 35 $ 11 $ 10 $ 1,174 $ 27
Working capital....................................... (379) (497) (988) (269) (800)
Total assets.......................................... 568 94 977 2,395 1,087
Long-term obligations................................. 1,210 6,158 11,767 705 1,214
Deficit accumulated during development stage.......... (1,062) (5,763) (11,799) (14,674) (16,215)
Total stockholders' equity (deficit).................. (1,057) (5,755) (11,791) (101) (1,291)
</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 March 31, 1996, the Company had a total
stockholders' deficit of $1.3 million, including an accumulated deficit of $16.2
million. See "Risk Factors -- History of Operating Losses; Anticipation of
Future Losses."
Interneuron provided the initial funding of the Company and had invested
$12.5 million in Progenitor in equity and debt financings through March 31,
1996. Interneuron owns a majority of the outstanding capital stock of the
Company and will own 51.2% (48.7% 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
SIX MONTHS ENDED MARCH 31, 1995 AND 1996
Revenues increased from $5,000 for the six months ended March 31, 1995 to
$912,000 for the six months ended March 31, 1996. The increase in revenues was
attributable to a $500,000 payment received
21
<PAGE>
in January 1996 from Chiron pursuant to the collaboration agreement entered into
in March 1995, and a payment of $400,000 under the Company's ATP grant which
provides for aggregate payments of $2.0 million over three years.
Research and development expense was $1.7 million for the six months ended
March 31, 1995 and 1996. This expense 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 $534,000 for the six
months ended March 31, 1995 to $691,000 for the six months ended March 31, 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 $304,000 for the six months ended March 31,
1995 to $57,000 for the six months ended March 31, 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 six month period ended
March 31, 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 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
22
<PAGE>
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 $12.5 million through March 31,
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 six months of fiscal 1996, respectively, the Company used $1.6 million and
$2.0 million of cash in operating activities. As of March 31, 1996, the Company
had cash and cash equivalents totaling $27,000.
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 filed a U.S. patent application and corresponding foreign
applications relating to the T7T7 gene delivery system. In March 1996, the USPTO
issued a notice of allowance on the 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 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
May 31, 1996, the Company had received $646,000 under the ATP grant, and had
accrued $129,000 in additional funds payable to the Company through May 31,
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: six 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); one U.S.
application 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 the patent application with respect to the
Company's T7T7 gene delivery system. The Company has exclusive licenses under
the patent application 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 six 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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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 May 1, 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 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......................... 43 Chairman of the Board
Robert P. Axline............................. 60 Director
Alexander. M. Haig, Jr....................... 71 Director
Morris Laster, M.D........................... 32 Director
Jerry P. Peppers............................. 50 Director
David B. Sharrock............................ 60 Director
</TABLE>
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 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.
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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. See "Certain Transactions -- The Ohio University Foundation."
The Board of Directors intends to establish an Audit Committee and a
Compensation Committee prior to the closing of the Offering. The Audit Committee
will oversee the actions by the Company's independent auditors and review the
Company's internal financial and accounting controls and policies. The
Compensation Committee will be 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.
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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."
DIRECTORS' COMPENSATION
Except as described below, the Company's directors do not currently receive
any cash compensation for service on the Board of Directors or any committee
thereof, but directors may be reimbursed for certain expenses in connection with
attendance at Board of Directors and committee meetings. Prior to the closing of
the Offering, the Company intends to establish a formal policy relating to the
compensation of directors.
Pursuant to a letter agreement dated January 26, 1994, the Company pays 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.
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.
42
<PAGE>
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) .................................... 135,000 35,700 40,000(3) --
Executive Vice President, Research and
Development
H. Ralph Snodgrass, Ph.D. ................................ 109,000 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
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.
43
<PAGE>
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 May
31, 1996, options to purchase 6,675 shares of Common Stock granted under the
1992 Stock Option Plan had been exercised, options to purchase 376,000 shares of
Common Stock were outstanding and options to purchase 117,325 shares of Common
Stock remained available for grant. The outstanding options were held by 38
individuals and were exercisable at a weighted average exercise price of $4.70
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.
Prior to the closing of the Offering, the Board intends to designate a
Compensation Committee and delegate to it the administration of the 1992 Stock
Option Plan. The Compensation Committee will be constituted to comply with the
rules governing a plan intended to qualify as a discretionary plan under Rule
16b-3 of the Securities Exchange Act of 1934. 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 May 31,
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.
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
44
<PAGE>
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
775,000 shares of Common Stock have been reserved for issuance under the 1996
Plan. As of May 31, 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 500,000 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. 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 May 31,
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 become fully vested, nonforfeitable and exercisable, and any Restricted
Stock will be released from all restrictions on transfer and all repurchase and
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.
45
<PAGE>
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 March 31, 1996, the Company had forgiven, effective in fiscal 1996, $10,000
of the loan pursuant to this provision. See "Certain Transactions --
Transactions with Directors and Executive Officers."
The agreement also provides that, during the term of the agreement and,
unless Dr. Given terminates his employment for cause as defined in the
agreement, for a period of two years after termination of Dr. Given's
employment, he will not compete with the Company, directly or indirectly. In the
event the Board of Directors terminates Dr. Given's employment without cause, as
defined in the agreement, he would be entitled to his base salary plus pro-rated
average bonuses, subject to reduction for compensation received from other
employment, for a period of six months from the date of termination.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options to the Named Executive Officers during the fiscal year ended September
30, 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM($)(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.
46
<PAGE>
(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.
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................................. 6,250 38,750 20,000 20,000
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."
47
<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 $463,000 as of May 31, 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
48
<PAGE>
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 $1.2 million
of principal and accrued interest as of May 31, 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 May 31, 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 3,736,017 shares, or
51.2% 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 expect 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 may 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; 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 is also expected to 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 Company also expects that the intercompany services agreement
will 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 expected to be
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 or any of their
respective affiliates.
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
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
49
<PAGE>
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 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. 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 $66,000 in fiscal 1993, 1994,
1995, and for the six months ended March 31, 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 $30,000 during fiscal 1993, 1994,
1995, and for the six months ended March 31, 1996, respectively. See "Business
- -- License Agreements."
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
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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 March 31, 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 $30,119,
including accrued interest as of March 31, 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 $207,378, including accrued interest as of May
24, 1996, which amount reflects the forgiveness effective in fiscal 1996 of
$26,652 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 Dr. Platika's loan is
payable on or prior to July 23, 1996 in cash, or to the extent not paid in cash,
then by means of surrendering to the Company shares of Common Stock or stock
options with value equivalent to the loan balance (valuing the options on a "net
exercise basis") based upon a $9.00 price per share of Common Stock. The Company
will incur a charge to operations equal to the amount of loan forgiveness in
connection with the Release, and equal to the amount of any portion of the
remaining loan balance that is not repaid in cash, but is instead satisfied
through the surrender of Common Stock or options. 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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<PAGE>
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. On June
15, 1996, Dr. Platika will hold 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. 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 will be
exercisable by Dr. Platika on or prior to August 24, 1996.
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 and Dr.
Platika received options to purchase 7,500 shares of Common Stock at an exercise
price of $6.00 per share, all of which vested immediately upon the date of
grant.
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 May 31, 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) ............................................ 3,741,767 78.0% 51.3%
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02173
Interneuron Pharmaceuticals, Inc. ................................... 3,736,017 77.9 51.2
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02173
The Ohio University Foundation (4) .................................. 262,083 5.5 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)................................... 91,157 1.9 1.2
H. Ralph Snodgrass, Ph.D. (6)........................................ 12,500 * *
Stephen J. Williams, Ph.D. (7)....................................... 10,000 * *
David B. Sharrock (8)................................................ 1,666 * *
Robert P. Axline..................................................... -- * *
Alexander M. Haig, Jr................................................ -- * *
Jerry P. Peppers..................................................... -- * *
3,969,590 82.8 54.1
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 4,793,819 shares of Common
Stock outstanding as of May 31, 1996, and 7,293,819 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 May 31, 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 3,736,017 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 8,250 shares of Common Stock.
(6) Includes options exercisable for 12,500 shares of Common Stock.
(7) Includes options exercisable for 10,000 shares of Common Stock.
(8) Includes options exercisable for 1,666 shares of Common Stock.
(9) Includes options exercisable for 38,166 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 May 31, 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
4,793,819 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 May 31, 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 March 31, 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
55
<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 $1.2 million as of May 31, 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
56
<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 intends to enter 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, will 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.
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<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 7,293,819 shares of
Common Stock (7,668,819 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 4,793,819 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 771,529 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 3,736,017 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 321,071 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 72,938 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
58
<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 May 31, 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 May 31, 1996, 661,700 shares were
available for future option grants under such plans.
The Company intends to file after the effective date of the Offering a
Registration Statement on Form S-8 to register an aggregate of 1,268,325 shares
of Common Stock reserved for issuance under its 1992 Stock Option Plan and 1996
Stock Incentive Plan. Such Registration Statement will become effective
automatically upon filing. Shares issued under the foregoing plans, after the
filing of the Registration Statement 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."
59
<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.
60
<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.
61
<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.
62
<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
------------------------ MARCH 31, MARCH 31,
1994 1995 1996 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Current assets:
Cash and cash equivalents..................................... $ 9,544 $ 1,173,743 $ 26,695 $ 176,695
Accounts receivable........................................... -- 193,898 193,897 193,897
Accounts receivable -- parent................................. -- 131,600 -- --
Prepaid expenses and other current assets..................... 3,000 22,618 142,776 142,776
----------- ----------- ----------- -----------
Total current assets........................................ 12,544 1,521,859 363,368 513,368
----------- ----------- ----------- -----------
Property and equipment, at cost:
Equipment..................................................... 908,788 1,063,602 1,101,622 1,101,622
Leasehold improvements........................................ 121,173 -- -- --
----------- ----------- ----------- -----------
1,029,961 1,063,602 1,101,622 1,101,622
Less accumulated depreciation............................... (268,030) (409,120) (536,281) (536,281)
----------- ----------- ----------- -----------
761,931 654,482 565,341 565,341
Notes receivable officers, net.................................. 202,096 218,734 157,888 157,888
----------- ----------- ----------- -----------
Total assets................................................ $ 976,571 $ 2,395,075 $1,086,597 $1,236,597
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.............................................. $ 173,166 $ 232,656 $ 133,387 $ 133,387
Accrued expenses.............................................. 679,394 1,343,718 784,748 784,748
Capital lease obligation -- current........................... 147,907 214,485 245,718 245,718
----------- ----------- ----------- -----------
Total current liabilities................................... 1,000,467 1,790,859 1,163,853 1,163,853
----------- ----------- ----------- -----------
Note payable -- parent.......................................... 10,453,193 -- 525,473 --
Convertible debenture -- parent................................. -- 436,740 456,355 --
Accrued interest -- parent...................................... 871,585 -- -- --
Capital lease obligation........................................ 441,976 268,382 231,736 231,736
----------- ----------- ----------- -----------
Total liabilities......................................... 12,767,221 2,495,981 2,377,417 1,395,589
----------- ----------- ----------- -----------
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 March 31, 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 March 31, 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 4,733,612
(pro forma) shares issued and outstanding as of September 30,
1993, 1994 and 1995, and March 31, 1996, respectively........ 2,569 2,789 2,853 4,734
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 16,051,343
Deficit accumulated during development stage.................. (11,798,563) (14,674,030) (16,215,069) (16,215,069)
----------- ----------- ----------- -----------
Total stockholders' deficit................................. (11,790,650) (100,906) (1,290,820) (158,992)
----------- ----------- ----------- -----------
Total liabilities and stockholders' deficit................. $ 976,571 $ 2,395,075 $1,086,597 $1,236,597
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</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 SIX MONTHS ENDED MARCH (DATE OF
YEARS ENDED SEPTEMBER 30, INCEPTION) TO 31, INCEPTION)
------------------------------------- SEPTEMBER 30, ------------------------ TO MARCH 31,
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 $ 4,537 $ 911,962 $ 3,733,348
Operating expenses:
Research and
development.............. 3,116,062 4,112,991 4,227,959 12,231,899 1,660,751 1,705,732 13,937,631
General and
administrative........... 1,339,086 1,274,896 1,116,652 3,995,433 533,751 690,536 4,685,969
----------- ----------- ----------- ------------- ----------- ----------- ------------
Total operating
expenses............... 4,455,148 5,387,887 5,344,611 16,227,332 2,194,502 2,396,268 18,623,600
----------- ----------- ----------- ------------- ----------- ----------- ------------
Interest expense capital
lease...................... -- 44,257 62,945 107,202 34,891 35,292 142,494
Interest expense parent..... 245,391 603,581 289,297 1,160,882 269,175 21,441 1,182,323
----------- ----------- ----------- ------------- ----------- ----------- ------------
Net loss................ $(4,700,539) $(6,035,725) $(2,875,467) $(14,674,030) ($2,494,031) ($1,541,039) $(16,215,069)
----------- ----------- ----------- ------------- ----------- ----------- ------------
----------- ----------- ----------- ------------- ----------- ----------- ------------
Pro forma net loss per
share...................... $ (0.63) $ (0.33)
----------- -----------
----------- -----------
Pro forma weighted-average
shares outstanding......... 4,536,481 4,676,327
----------- -----------
----------- -----------
</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 SIX MONTHS ENDED MARCH 31, 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, March 31, 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.................................... -- -- (1,541,039) (1,541,039)
--- ---------- ------------- -----------
Balance, March 31, 1996 (Unaudited)........... $ -- $14,897,701 $(16,215,069) $(1,290,820)
--- ---------- ------------- -----------
--- ---------- ------------- -----------
</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 SIX MONTHS ENDED MARCH (DATE OF
YEARS ENDED SEPTEMBER 30, INCEPTION) TO 31, INCEPTION)
---------------------------------- SEPTEMBER 30, ------------------------ TO MARCH 31,
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) ($2,494,031) ($1,541,039) ($16,215,069)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization............ 193,539 289,340 262,263 749,668 126,708 141,726 891,394
Gain on sale of
equipment............... -- -- -- -- -- (16,437) (16,437)
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) (34,588) 60,846 (157,888)
Accounts receivable.... -- -- (193,898) (193,898) -- -- (193,898)
Accounts receivable --
parent................ -- -- (131,600) (131,600) -- 131,600 --
Prepaid expenses and
other current
assets................ (8,526) 7,000 (19,618) (22,618) (28,747) (120,158) (142,776)
Accounts payable....... (177,065) 59,847 59,490 232,656 (105,835) (99,269) 133,387
Accrued expenses....... 279,992 274,529 664,324 1,343,718 108,280 (558,970) 784,748
Accrued interest --
parent................ 245,391 603,581 261,350 1,132,935 269,175 19,615 1,152,550
---------- ---------- ---------- ------------- ----------- ----------- ------------
Cash used in operating
activities.............. (4,150,800) (4,867,574) (1,613,114) (11,405,223) (2,159,038) (1,982,086) (13,387,309)
---------- ---------- ---------- ------------- ----------- ----------- ------------
Cash flows from investing
activities:
Purchase of property and
equipment................. (571,419) (294,623) (154,814) (1,404,150) (119,943) (36,146) (1,440,296)
---------- ---------- ---------- ------------- ----------- ----------- ------------
Cash used in investing
activities.............. (571,419) (294,623) (154,814) (1,404,150) (119,943) (36,146) (1,440,296)
---------- ---------- ---------- ------------- ----------- ----------- ------------
Cash flows from financing
activities:
Proceeds from note payable
-- parent................. 4,695,371 4,570,771 1,041,972 11,495,165 1,034,147 525,473 12,020,638
Proceeds from convertible
debenture -- parent....... -- -- 436,740 436,740 387,968 -- 436,740
Proceeds from issuance of
stock, net................ 2,837 -- 1,560,431 1,568,344 1,450,781 351,125 1,919,469
Proceeds from sale
leaseback................. -- 662,602 87,771 750,373 87,770 117,325 867,698
Principal payments on
capital lease
obligation................ -- (72,719) (194,787) (267,506) (84,716) (122,739) (390,245)
---------- ---------- ---------- ------------- ----------- ----------- ------------
Cash provided by
financing activities.... 4,698,208 5,160,654 2,932,127 13,983,116 2,875,950 871,184 14,854,300
---------- ---------- ---------- ------------- ----------- ----------- ------------
Net (decrease) increase
in cash and cash
equivalents............. (24,011) (1,543) 1,164,199 1,173,743 596,969 (1,147,048) 26,695
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 $ 606,513 $ 26,695 $ 26,695
---------- ---------- ---------- ------------- ----------- ----------- ------------
---------- ---------- ---------- ------------- ----------- ----------- ------------
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 March 31, 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 81,819 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 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 775,000.
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 $353,527,
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 December 1994, 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>
- --------------------------------------------
--------------------------------------------
- --------------------------------------------
--------------------------------------------
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
- --------------------------------------------
--------------------------------------------
- --------------------------------------------
--------------------------------------------
<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 of the Form of Underwriting Agreement, to be 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 intends to enter 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, will 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.
*/**10.10 Sponsored Research Agreement, dated April 1, 1993, by and between the Company and
Ohio University, as amended August 7, 1995 and November 22, 1995.
**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 Intercompany Services Agreement, dated as of June , 1996, by and between the
Company and Interneuron Pharmaceuticals, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
+10.21 Tax Allocation Agreement, dated as of June , 1996, by and between the Company
and Interneuron Pharmaceuticals, Inc.
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 to be filed by amendment.
* 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 July 11, 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 and July 11, 1996
Douglass B. Given, M.D., Ph.D. Director
/s/ DAVID B. BITTNER*
------------------------------------------- Acting Chief Financial Officer July 11, 1996
David B. Bittner
/s/ ROBERT P. AXLINE*
------------------------------------------- Director July 11, 1996
Robert P. Axline
/s/ GLENN L. COOPER*
------------------------------------------- Director July 11, 1996
Glenn L. Cooper M.D.
/s/ ALEXANDER M. HAIG, JR.*
------------------------------------------- Director July 11, 1996
Alexander M. Haig, Jr.
/s/ MORRIS LASTER*
------------------------------------------- Director July 11, 1996
Morris Laster, M.D.
/s/ JERRY P. PEPPERS*
------------------------------------------- Director July 11, 1996
Jerry P. Peppers
/s/ DAVID B. SHARROCK*
------------------------------------------- Director July 11, 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....................................................................................
*/**10.10 Sponsored Research Agreement, dated April 1, 1993, by and between the Company and Ohio
University, as amended August 7, 1995 and November 22, 1995...................................
**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.........................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT PAGE
- ---------- ---------------------------------------------------------------------------------------------- ---------
**10.19 Employment Agreement, dated January 3, 1993, by and between the Company and Douglass B.
Given.........................................................................................
<C> <S> <C>
+10.20 Intercompany Services Agreement, dated as of June , 1996, by and between the Company and
Interneuron Pharmaceuticals, Inc..............................................................
+10.21 Tax Allocation Agreement, dated as of June , 1996, by and between the Company and Interneuron
Pharmaceuticals, Inc..........................................................................
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 to be filed by amendment.
* Documents for which confidential treatment has been requested.
** Exhibit previously filed.
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
PROGENITOR, INC.
Douglass B. Given and Gavin B. Grover hereby certify that:
1. The name of this corporation is Progenitor, Inc. and the date of
filing the original Certificate of Incorporation of this corporation with the
Secretary of State of the State of Delaware is February 25, 1992.
2. They are the duly elected and acting President and Secretary,
respectively, of Progenitor, Inc., a Delaware corporation.
3. The Certificate of Incorporation of this corporation is hereby amended
and 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, Two Million One Hundred Twenty Thousand (2,120,000) shares of
Preferred Stock, Series A, with a par value of $.01 per share, Eight Hundred
Eighty Thousand (880,000) shares of Preferred Stock, Series B, with a par value
of $.01 per share, and Five Million (5,000,000) shares of additional Preferred
Stock ("Additional Preferred Stock") with a par value of $.001 per share. 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
1
<PAGE>
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 Preferred Stock.
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.
1. SERIES A AND SERIES B PREFERRED STOCK. The rights, preferences,
privileges and restrictions granted to and imposed upon the Series A and Series
B Preferred Stock shall be as set forth in the Certificates of Designation for
such series of Preferred Stock filed with the Secretary of State on January 4,
1995 and December 29, 1994, respectively; 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 their respective Certificates of
Designation, 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.
2. 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. 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,
"Preferred Stock") in Certificates of Designation or the Corporation's
Certificate of Incorporation ("Protective Provisions"), but notwithstanding any
other rights of the Preferred Stock or any series thereof, the rights,
privileges, preferences, and restrictions of any such 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 Preferred Stock 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 amendment and 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 amendment
2
<PAGE>
and 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.
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.
A. 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
3
<PAGE>
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."
****
1. This Amended and 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.
IN WITNESS WHEREOF, Progenitor, Inc. has caused this Amended and Restated
Certificate of Incorporation to be signed by the President and the Secretary on
this ______ day of July 1996.
PROGENITOR, INC.
By:
-----------------------------------------
Douglass B. Given, President
ATTEST:
By:
-------------------------------
Gavin B. Grover, Secretary
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AMENDED AND RESTATED
BYLAWS
OF
PROGENITOR, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of Progenitor, Inc.
(the "Corporation") in the State of Delaware shall be in the City of Wilmington,
County of New Castle.
SECTION 2. PRINCIPAL OFFICE. The principal office for the transaction of
business of the Corporation shall be at such location, within or without the
State of Delaware, as shall be designated by the Board of Directors.
SECTION 3. OTHER OFFICES. The Corporation shall also have offices at such
other places, both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders of the
Corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the Corporation required to be
maintained pursuant to Section 2 of Article I hereof.
SECTION 2. ANNUAL MEETINGS. The annual meetings of the stockholders of the
Corporation, commencing with the year 1996, for the purpose of election of
directors and for such other business as may lawfully come before it, shall be
held on such date and at such time as may be designated from time to time by the
Board of Directors.
SECTION 3. SPECIAL MEETINGS. Special Meetings of the stockholders of the
Corporation may be called, for any purpose or purposes, by the Chairman of the
Board or the President or the Board of Directors at any time. Upon written
request of any stockholder or stockholders holding in the aggregate ten percent
(10%) of the voting power of all stockholders delivered in person or sent by
registered mail to the Chairman of the Board, President or Secretary of the
Corporation, the Secretary shall call a special meeting of stockholders to be
held at the office of the Corporation
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required to be maintained pursuant to Section 2 of Article I hereof at such time
as the Secretary may fix, such meeting to be held not less than ten nor more
than sixty days after the receipt of such request, and if the Secretary shall
neglect or refuse to call such meeting, within seven days after the receipt of
such request, the stockholder making such request may do so.
SECTION 4. NOTICE OF MEETINGS.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, written notice of each meeting of stockholders, specifying the
place, date and hour and purpose or purposes of the meeting, shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote thereat, directed to his address as it appears upon
the books of the Corporation; except that where the matter to be acted on is a
merger or consolidation of the Corporation or a sale, lease or exchange of all
or substantially all of its assets, such notice shall be given not less than
twenty (20) nor more than sixty (60) days prior to such meeting.
(b) If at any meeting action is proposed to be taken which, if taken,
would entitle shareholders fulfilling the requirements of section 262(d) of the
Delaware General Corporation Law to an appraisal of the fair value of their
shares, the notice of such meeting shall contain a statement of that purpose and
to that effect and shall be accompanied by a copy of that statutory section.
(c) When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken unless the adjournment is for more
than thirty days, or unless after the adjournment a new record date is fixed for
the adjourned meeting, in which event a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
(d) Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, either before or after such meeting, and to the extent
permitted by law, will be waived by any stockholder by his attendance thereat,
in person or by proxy. Any stockholder so waiving notice of such meeting shall
be bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at the pleasure
of the person who executed it or of his legal representatives or assigns, except
in those cases where an irrevocable proxy permitted by statute has been given.
SECTION 5. QUORUM AND VOTING.
(a) At all meetings of stockholders, except where otherwise provided by
law, the Certificate of Incorporation, or these Amended and Restated Bylaws
(hereinafter, "Bylaws"), the presence, in person or by proxy duly authorized, of
the holders of a majority of the outstanding shares of stock entitled to vote
shall constitute a quorum for the transaction of business. Shares, the voting of
which at said meeting have been enjoined, or which for any reason cannot be
lawfully voted at such meeting, shall not be counted to determine a quorum at
said meeting. In the absence of a quorum, any meeting of stockholders may be
adjourned, from time to time, by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at
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such meeting. At such adjourned meeting at which a quorum is present or
represented any business may be transacted which might have been transacted at
the original meeting. The stockholders present at a duly called or convened
meeting, at which a quorum is present, may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
(b) Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the voting
power represented at any meeting at which a quorum is present shall be valid and
binding upon the Corporation.
(c) Where a separate vote by a class or classes is required, a majority of
the outstanding shares of such class or classes, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class.
SECTION 6. FIXING RECORD DATES.
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than sixty
nor less than ten days before the date of such meeting. If no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
date on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by the Delaware General Corporation Law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall
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be at the close of business on the day on which the Board of Directors adopts
the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 7. VOTING RIGHTS.
(a) Except as otherwise provided by law, only persons in whose names
shares entitled to vote stand on the stock records of the Corporation on the
record date for determining the stockholders entitled to vote at said meeting
shall be entitled to vote at such meeting. Shares standing in the names of two
or more persons shall be voted or represented in accordance with the
determination of the majority of such persons, or, if only one of such persons
is present in person or represented by proxy, such person shall have the right
to vote such shares and such shares shall be deemed to be represented for the
purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall have the right
to do so either in person or by an agent or agents authorized by a written proxy
executed by such person or his duly authorized agent, which proxy shall be filed
with the Secretary of the Corporation at or before the meeting at which it is to
be used. Said proxy so appointed need not be a stockholder. No proxy shall be
voted on after three years from its date unless the proxy provides for a longer
period.
(c) Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy pursuant to subsection (b) of
this Section 7, the following shall constitute a valid means by which a
stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing such
writing or causing his or her signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act for
him as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will be
the holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the holder
of the proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the stockholder.
Such authorization can be established by the signature of the
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stockholder on the proxy, either in writing or by a signature stamp or facsimile
signature, or by a number or symbol from which the identity of the stockholder
can be determined, or by any other procedure deemed appropriate by the
inspectors or other persons making the determination as to due authorization.
If it is determined that such telegrams, cablegrams or other electronic
transmissions are valid, the inspectors or, if there are no inspectors, such
other persons making that determination shall specify the information upon which
they relied.
(d) Any copy, facsimile telecommunication or other reliable reproduction
of the writing or transmission created pursuant to subsection (c) of this
Section 7 may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
SECTION 8. LIST OF STOCKHOLDERS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
said meeting, arranged in alphabetical order, showing the address of and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held and which place shall be specified in the notice of the meeting, or, if not
specified, at the place where said meeting is to be held, and the list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 9. ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation, any action required by statute to be taken at any
annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, are signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. To be effective, a
written consent must be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Every written consent shall bear the date of signature of
each stockholder who signs the consent and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty days of
the earliest dated consent delivered in the manner required by this Section to
the Corporation, written consents signed by a sufficient number of holders to
take action are delivered to the Corporation in accordance with this Section.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
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SECTION 10. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The Corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding
and the voting power of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
(c) The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor any revocations thereof or
changes thereto, shall be accepted by the inspectors after the closing of the
polls unless the Court of Chancery upon application by a stockholder shall
determine otherwise.
(d) In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the Delaware General Corporation Law, ballots and the
regular books and records of the Corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for the
limited purpose permitted herein, the inspectors at the time they make their
certification pursuant to subsection (b)(v) of this Section 10 shall specify the
precise information considered by them including the person or persons from whom
they obtained the information, when the information was obtained, the means by
which the information was obtained and the basis for the inspectors' belief that
such information is accurate and reliable.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Subject to the provisions of the Delaware Corporation
Law and any limitations in the Certificate of Incorporation relating to action
required to be approved by the shareholders or by the outstanding shares, the
business and affairs of the Corporation shall be
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managed and all corporate powers shall be exercised by or under the direction of
the Board of Directors. The Board of Directors may delegate the management of
the day-to-day operation of the business of the Corporation to a management
company or other person provided that the business and affairs of the
Corporation shall be managed and all corporate powers shall be exercised under
the ultimate direction of the Board of Directors.
SECTION 2. APPROVAL OF LOANS TO OFFICERS. The Corporation may, upon
approval of the Board of Directors alone, make loans of money or property to, or
guarantee the obligations of, any officer (whether or not a director) of the
Corporation or of its parent, or adopt an employee benefit plan authorizing such
loans or guaranties provided that:
(a) the Board of Directors determines that such a loan, guaranty, or
plan may reasonably be expected to benefit the Corporation;
(b) the approval by the Board of Directors is by a vote sufficient
without counting the vote of any interested director(s); and
(c) the loan is otherwise made in compliance with Section 143 of the
Delaware General Corporation Law.
SECTION 3. NUMBER AND TERM OF OFFICE. The Board of Directors shall consist
of one or more members, the number of which shall be seven (7) until changed
thereafter from time to time by resolution of the Board. Directors need not be
stockholders of the Corporation. Each director shall hold office until a
successor is elected and qualified or until the director resigns or is removed.
SECTION 4. VACANCIES. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director, and each director so elected shall hold office for the
unexpired portion of the term of the director whose place shall be vacant, and
until his successor shall have been duly elected and qualified. A vacancy in
the Board of Directors shall be deemed to exist under this Section 4 in the case
of the death, removal or resignation of any director, or if the stockholders
fail at any meeting of stockholders at which directors are to be elected
(including any meeting referred to in Section 6 below) to elect the number of
directors then constituting the whole Board.
SECTION 5. RESIGNATIONS AND REMOVALS.
(a) Any director may resign at any time by delivering his written
resignation to the Secretary, such resignation to specify whether it will be
effective at a particular time, upon receipt by the Secretary or at the pleasure
of the Board of Directors. If no such specification is made it shall be deemed
effective at the pleasure of the Board of Directors. When one or more directors
shall resign from the Board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office for the unexpired portion of the term of the director whose
place shall be vacated and until his successor shall have been duly elected and
qualified.
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(b) At a special meeting of stockholders called for the purpose in
the manner hereinabove provided, the Board of Directors, or any individual
director, may be removed from office, with or without cause, and a new director
or directors elected by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of directors.
SECTION 6. MEETINGS.
(a) The annual meeting of the Board of Directors shall be held
immediately after the annual stockholders' meeting and at the place where such
meeting is held or at the place announced by the Chairman at such meeting. No
notice of an annual meeting of the Board of Directors shall be necessary and
such meeting shall be held for the purpose of electing officers and transacting
such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of the
Board of Directors shall be held in the office of the Corporation required to be
maintained pursuant to Section 2 of Article I hereof. Regular meetings of the
Board of Directors may also be held at any place within or without the State of
Delaware which has been designated by resolutions of the Board of Directors or
the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board or, if there is no Chairman of the Board, by the
President, any Vice-President, the Secretary, or any two directors.
(d) Written notice of the time and place of all regular and special
meetings of the Board of Directors shall be delivered personally to each
director or sent by telegram or facsimile transmission at least 48 hours before
the start of the meeting, or sent by first class mail at least 120 hours before
the start of the meeting. Notice of any meeting may be waived in writing at any
time before or after the meeting and will be waived by any director by
attendance thereat.
SECTION 7. QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time in accordance with
Section 2 of this Article of these Bylaws, but not less than one; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present all
questions and business shall be determined by a vote of a majority of the
directors present, unless a different vote be required by law, the Certificate
of Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee
thereof, may participate in a meeting by means of conference telephone or
similar communication equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
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(d) The transactions of any meeting of the Board of Directors, or any
committee thereof, however called or noticed, or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present and if, either before or after the meeting, each of the
directors not present shall sign a written waiver of notice, or a consent to
holding such meeting, or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SECTION 8. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or of such
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 9. FEES AND COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by resolution of the Board of
Directors.
SECTION 10. COMMITTEES.
(a) EXECUTIVE COMMITTEE: The Board of Directors may, by resolution
passed by a majority of the whole Board, appoint an Executive Committee of not
less than one member, each of whom shall be a director. The Executive
Committee, to the extent permitted by law, shall have and may exercise when the
Board of Directors is not in session all powers of the Board in the management
of the business and affairs of the Corporation, including, without limitation,
the power and authority to declare a dividend or to authorize the issuance of
stock, except such committee shall not have the power or authority to amend the
Certificate of Incorporation, to adopt an agreement of merger or consolidation,
to recommend to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, to recommend to the
stockholders of the Corporation a dissolution of the Corporation or a revocation
of a dissolution, or to amend these Bylaws.
(b) OTHER COMMITTEES: The Board of Directors may, by resolution
passed by a majority of the whole Board, from time to time appoint such other
committees as may be permitted by law. Such other committees appointed by the
Board of Directors shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committee, but in no
event shall any such committee have the powers denied to the Executive Committee
in these Bylaws.
(c) TERM: The members of all committees of the Board of Directors
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board, subject to the provisions of
subsections (a) or (b) of this Section 10, may at any time increase or decrease
the number of members of a committee or terminate the existence of a committee;
provided, that no committee shall consist of less than one member. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation, but the Board may at any time for any reason remove any
individual committee member and the Board may fill any committee vacancy created
by death, resignation, removal or increase in the number of
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members of the committee. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) MEETINGS: Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 10 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter; special meetings of any such
committee may be held at the principal office of the Corporation required to be
maintained pursuant to Section 2 of Article I hereof; or at any place which has
been designated from time to time by resolution of such committee or by written
consent of all members thereof, and may be called by any director who is a
member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time after the meeting
and will be waived by any director by attendance thereat. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS DESIGNATED. The officers of the Corporation shall
consist of the President, the Secretary and the Treasurer, and each of them
shall be appointed by the Board of Directors. The Corporation may also have a
Chairman of the Board, one or more Vice-Presidents, a Controller, one or more
Assistant Secretaries and Assistant Treasurers, and such other officers with
such titles as may be deemed appropriate by the Board of Directors, or with
authorization from the Board of Directors by the Chairman of the Board of
Directors or the President, each of whom shall have such authority and perform
such duties are provided in these Bylaws or as the Board of Directors may from
time to time determine. Any one person may hold any number of offices of the
Corporation at any one time unless specifically prohibited therefrom by law.
The order of the seniority of the Vice-Presidents shall be in the order of their
nomination, unless otherwise determined by the Board of Directors. The Board
of Directors shall designate one officer as the chief financial officer of the
Corporation. In the absence of such designation, the Treasurer shall be the
chief financial officer. The salaries and other compensation of the officers of
the Corporation shall be fixed by or in the manner designated by the Board of
Directors.
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SECTION 2. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL: All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. Nothing in these Bylaws shall be construed as
creating any kind of contractual right to employment with the Corporation.
(b) DUTIES OF THE CHAIRMAN OF THE BOARD OF DIRECTORS: The Chairman
of the Board (if there be such an officer appointed) shall, when present,
preside at all meetings of the Board of Directors and shall perform all the
duties commonly incident to that office. The Chairman of the Board of Directors
shall have authority to execute in the name of the Corporation bonds, contracts,
deeds, leases and other written instruments to be executed by the Corporation
(except where by law the signature of the President is required), and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time determine.
(c) DUTIES OF PRESIDENT: Subject to such supervisory powers, if any,
as may be given by the Board of Directors to the Chairman of the Board, the
President shall be the chief executive officer of the Corporation and shall
perform all the duties commonly incident to that office. The President shall
have authority to execute in the name of the Corporation bonds, contracts,
deeds, leases and other written instruments to be executed by the Corporation.
The President shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board or if there is none, at all meetings of the
Board of Directors, and shall perform such other duties as the Board of
Directors may from time to time determine.
(d) DUTIES OF VICE-PRESIDENTS: The Vice-Presidents (if there be such
officers appointed), in the order of their seniority (unless otherwise
established by the Board of Directors), may assume and perform the duties of the
President in the absence or disability of the President or whenever the offices
of the Chairman of the Board and President are vacant. The Vice-Presidents
shall have such titles, perform such other duties, and have such other powers as
the Board of Directors, the President or these Bylaws may designate from time to
time.
(e) DUTIES OF SECRETARY: The Secretary shall attend all meetings of
the shareholders and of the Board of Directors and any committee thereof, and
shall record all acts and proceedings thereof in the minute book of the
Corporation. The Secretary shall give notice, in conformity with these Bylaws,
of all meetings of the shareholders, and of all meetings of the Board of
Directors and any Committee thereof requiring notice. The Secretary shall
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
(f) DUTIES OF TREASURER: The Treasurer shall keep or cause to be
kept the books of account of the Corporation in a thorough and proper manner,
and shall render statements of the financial affairs of the Corporation in such
form and as often as required by the Board of Directors
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or the President. The Treasurer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the
Corporation.
The Treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of the
Corporation. The books of account shall at all reasonable times be open to
inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name and
to the credit of the Corporation with such depositaries as may be designated by
the Board of Directors. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of the
Treasurer's transactions as Treasurer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or these Bylaws.
The Treasurer shall perform all other duties commonly incident to his
office and shall perform such other duties and have such other powers as the
Board of Directors or the President shall designate from time to time. The
President may direct any Assistant Treasurer to assume and perform the duties of
the Treasurer in the absence or disability of the Treasurer, and each Assistant
Treasurer shall perform such other duties and have such other powers as the
Board of Directors or the President shall designate from time to time.
(g) DUTIES OF CONTROLLER: The Controller (if there be such an
officer appointed) shall be responsible for the establishment and maintenance of
accounting and other systems required to control and account for the assets of
the Corporation and provide safeguards therefor, and to collect information
required for management purposes, and shall perform such other duties and have
such other powers as the Board of Directors or the President may designate from
time to time. The President may direct any Assistant Controller to assume and
perform the duties of the Controller, in the absence or disability of the
Controller, and each Assistant Controller shall perform such other duties and
have such other powers as the Board of Directors, the Chairman of the Board (if
there be such an officer appointed) or the President may designate from time to
time.
ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS, AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 1. EXECUTION OF CORPORATE INSTRUMENTS.
(a) The Board of Directors may, in its discretion, determine the
method and designate the signatory officer or officers, or other person or
persons, to execute any corporate instrument or document, or to sign the
corporate name without limitation, except where otherwise provided by law, and
such execution or signature shall be binding upon the Corporation.
(b) Unless otherwise specifically determined by the Board of
Directors or otherwise required by law, formal contracts of the Corporation,
promissory notes, deeds of trust, mortgages
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and other evidences of indebtedness of the Corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock owned by the Corporation, shall be executed, signed or endorsed
by the Chairman of the Board (if there be such an officer appointed) or by the
President; such documents may also be executed by any Vice-President and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
(c) All checks and drafts drawn on banks or other depositaries on
funds to the credit of the Corporation, or in special accounts of the
Corporation, shall be signed by such person or persons as the Board of Directors
shall authorize so to do.
SECTION 2. RATIFICATION BY SHAREHOLDERS. In its discretion, the Board of
Directors may submit any contract or act for approval or ratification of the
shareholders at any annual meeting of shareholders, or at any special meeting of
shareholders called for that purpose; and any contract or act that shall be
approved or ratified by the holders of a majority of the voting power of the
Corporation shall be as valid and binding upon the Corporation and upon the
shareholders thereof as though approved or ratified by each and every
shareholder of the Corporation, unless a greater vote is required by law for
such purpose.
SECTION 3. VOTING OF SECURITIES OWNED BY CORPORATION. All stock and other
securities of other Corporations owned or held by the Corporation for itself, or
for other parties in any capacity, shall be voted, and all proxies with respect
thereto shall be executed, by the person authorized so to do by resolution of
the Board of Directors or, in the absence of such authorization, by the Chairman
of the Board (if there be such an officer appointed), or by the President, or by
any Vice-President.
ARTICLE VI
SHARES OF STOCK
SECTION 1. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares
of stock of the Corporation shall be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation by, the Chairman of the Board (if there be such an officer
appointed), or by the President or any Vice-President and by the Treasurer or
Assistant Treasurer or the Secretary or Assistant Secretary, certifying the
number of shares owned by him in the Corporation. Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued with the same effect as if
he were such officer, transfer agent, or registrar at the date of issue. If the
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or
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summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the Delaware General Corporation Law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 2. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue
of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to indemnify the Corporation in such manner as it shall require
and/or to give the Corporation a surety bond in such form and amount as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost or destroyed.
SECTION 3. TRANSFERS. Transfers of record of shares of stock of the
Corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a certificate or
certificates for a like number of shares, properly endorsed.
SECTION 4. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the Corporation,
other than stock certificates, may be signed by the Chairman of the Board (if
there be such an officer appointed), or the President or any Vice-President or
such other person as may be authorized by the Board of Directors and the
corporate seal impressed thereon or a facsimile of such seal imprinted thereon
and attested by the signature of the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature of a trustee under an indenture pursuant to which such bond, debenture
or other corporate security shall be issued, the signature of the persons
signing and attesting the corporate seal on such bond, debenture or other
corporate security may be the imprinted facsimile of the signatures of such
persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed
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by the Treasurer or an Assistant Treasurer of the Corporation, or such other
person as may be authorized by the Board of Directors, or bear imprinted thereon
the facsimile signature of such person. In case any officer who shall have
signed or attested any bond, debenture or other corporate security, or whose
facsimile signature shall appear thereon or before the bond, debenture or other
corporate security so signed or attested shall have been delivered, such bond,
debenture or other corporate security nevertheless may be adopted by the
Corporation and issued and delivered as though the person who signed the same or
whose facsimile signature shall have been used thereon had not ceased to be such
officer of the Corporation.
ARTICLE VIII
INSPECTION OF CORPORATE RECORDS
SECTION 1. GENERAL RECORDS. Every director shall have the absolute right
at any reasonable time to inspect and copy all books, records and documents of
every kind and to inspect the physical properties of the Corporation and its
subsidiaries. Such inspection by a director may be made in person or by agent
or attorney, and the right of inspection includes the right to copy and make
extracts.
SECTION 2. INSPECTION OF BYLAWS. The Corporation shall keep at the office
of the Corporation required to be maintained pursuant to Section 2 of Article I
hereof, the original or a copy of these Bylaws as amended to date, which shall
be open to inspection by the stockholders at all reasonable times during office
hours.
ARTICLE IX
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is a party or
is threatened to be made a party to or is involved (as a party, witness, or
otherwise), in any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "Proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director, officer, employee, or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee, or agent of another Corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director, officer, employee,
or agent (hereafter an "Agent"), shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended or interpreted (but, in the
case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the Corporation to provide broader
indemnification rights than were permitted prior thereto) against all expenses,
liability, and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties, and amounts paid or to be paid in settlement, and any
interest, assessments, or other charges imposed thereon, and any federal, state,
local, or foreign taxes imposed on any Agent as a result of the actual
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or deemed receipt of any payments under this Article) reasonably incurred or
suffered by such person 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 (hereinafter "Expenses"); PROVIDED, HOWEVER,
that except as to actions to enforce indemnification rights pursuant to
Section 3 of this Article, the Corporation shall indemnify any Agent seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if the Proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation. The right to indemnification conferred in this
Article shall be a contract right.
SECTION 2. AUTHORITY TO ADVANCE EXPENSES. Expenses incurred by an officer
or director (acting in his capacity as such) in defending a Proceeding shall be
paid by the Corporation in advance of the final disposition of such Proceeding,
PROVIDED, HOWEVER, that if required by the Delaware General Corporation Law, as
amended, such Expenses shall be advanced only upon delivery to the Corporation
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article or otherwise.
Expenses incurred by other Agents of the Corporation (or by the directors or
officers not acting in their capacity as such, including service with respect to
employee benefit plans) may be advanced upon such terms and conditions as the
Board of Directors deems appropriate. Any obligation to reimburse the
Corporation for Expense advances shall be unsecured and no interest shall be
charged thereon.
SECTION 3. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 1 or
2 of this Article is not paid in full by the Corporation within 30 days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense (including attorneys' fees) of prosecuting such
claim. It shall be a defense to any such action (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
Corporation) that the claimant has not met the standards of conduct that make it
permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed. The burden of proving such a
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper under the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant had not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
SECTION 4. PROVISIONS NONEXCLUSIVE. The rights conferred on any person by
this Article shall not be exclusive of any other rights that such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. To the extent that any provision of the
Certificate,
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agreement, or vote of the stockholders or disinterested directors is
inconsistent with these Bylaws, the provision, agreement, or vote shall take
precedence.
SECTION 5. AUTHORITY TO INSURE. The Corporation may purchase and maintain
insurance to protect itself and any Agent against any Expense, whether or not
the Corporation would have the power to indemnify the Agent against such Expense
under applicable law or the provisions of this Article.
SECTION 6. SURVIVAL OF RIGHTS. The rights provided by this Article shall
continue as to a person who has ceased to be an Agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
SECTION 7. SETTLEMENT OF CLAIMS. The Corporation shall not be liable to
indemnify any Agent under this Article (a) for any amounts paid in settlement of
any action or claim effected without the Corporation's written consent, which
consent shall not be unreasonably withheld; or (b) for any judicial award if the
Corporation was not given a reasonable and timely opportunity, at its expense,
to participate in the defense of such action.
SECTION 8. EFFECT OF AMENDMENT. Any amendment, repeal, or modification of
this Article shall not adversely affect any right or protection of any Agent
existing at the time of such amendment, repeal, or modification.
SECTION 9. SUBROGATION. In the event of payment under this Article, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Agent, 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 Corporation effectively to
bring suit to enforce such rights.
SECTION 10. NO DUPLICATION OF PAYMENTS. The Corporation shall not be
liable under this Article to make any payment in connection with any claim made
against the Agent to the extent the Agent has otherwise actually received
payment (under any insurance policy, agreement, vote, or otherwise) of the
amounts otherwise indemnifiable hereunder.
ARTICLE X
NOTICES
Whenever, under any provisions of these Bylaws, notice is required to be
given to any stockholder, the same shall be given in writing, timely and duly
deposited in the United States Mail, postage prepaid, and addressed to his last
known post office address as shown by the stock record of the Corporation or its
transfer agent. Any notice required to be given to any director may be given by
the method hereinabove stated, or by telegram or other means of electronic
transmission, except that such notice other than one which is delivered
personally, shall be sent to such address or (in the case of facsimile
telecommunication) facsimile telephone number as such director shall have filed
in writing with the Secretary of the Corporation, or, in the absence of such
filing, to the last known post office address of such director. If no address
of a stockholder or director be known,
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such notice may be sent to the office of the Corporation required to be
maintained pursuant to Section 2 of Article I hereof. An affidavit of mailing,
executed by a duly authorized and competent employee of the Corporation or its
transfer agent appointed with respect to the class of stock affected, specifying
the name and address or the names and addresses of the stockholder or
stockholders, director or directors, to whom any such notice or notices was or
were given, and the time and method of giving the same, shall be conclusive
evidence of the statements therein contained. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing and
all notices given by telegram or other means of electronic transmission shall be
deemed to have been given as at the sending time recorded by the telegraph
company or other electronic transmission equipment operator transmitting the
same. It shall not be necessary that the same method of giving be employed in
respect of all directors, but one permissible method may be employed in respect
of any one or more, and any other permissible method or methods may be employed
in respect of any other or others. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such a stockholder or such director to receive such notice. Whenever
any notice is required to be given under the provisions of the statutes or of
the Certificate of Incorporation, or of these Bylaws, a waiver thereof in
writing signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the Corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action
or meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if such
notice had been duly given. In the event that the action taken by the
Corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
ARTICLE XI
AMENDMENTS
These Bylaws may be repealed, altered or amended or new Bylaws adopted by
written consent of stockholders in the manner authorized by Section 9 of
Article II, or at any meeting of the stockholders, either annual or special, by
the affirmative vote of a majority of the stock entitled to vote at such
meeting. The Board of Directors shall also have the authority to repeal, alter
or amend these Bylaws or adopt new Bylaws (including, without limitation, the
amendment of any Bylaws setting forth the number of directors who shall
constitute the whole Board of Directors) by unanimous written consent or at any
annual, regular, or special meeting by the affirmative vote of a majority of the
whole number of directors, subject to the power of the stockholders to change or
repeal such Bylaws.
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ARTICLE XII
CORPORATE SEAL
The corporate seal shall consist of a die bearing the name of the
Corporation and the state and date of its incorporation. Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
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Exhibit 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of ____________, 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., 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 in substantially the same
proportions as their ownership of stock of the Company, is or becomes the
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"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 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 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 execution 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, whether or not the
basis of the Proceeding is alleged action in an official capacity as a director,
officer, employee, or agent or in any other capacity while serving as a
director, officer, employee, or agent of the Company, as described above.
(e) INDEPENDENT COUNSEL: the person or body appointed
in connection with Section 3.
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(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 a trustee or other fiduciary holding
securities under an employee benefit plan of the Company acting in such capacity
or a corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock of the
Company), 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 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.
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(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, 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. 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).
Indemnitee's obligation to reimburse the Company for Expense Advances shall be
unsecured and no interest shall be charged thereon.
(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.
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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 (which approval shall not be unreasonably withheld), 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 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 attorneys' 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) INDEMNIFICATION PAYMENT. Indemnitee shall be
entitled to indemnification of Expenses, and shall receive payment thereof, from
the Company in accordance with this Agreement as soon as practicable after
Indemnitee has made written demand on the Company for indemnification, unless
the Reviewing Party has given a written opinion to the Company that Indemnitee
is not entitled to indemnification under applicable law.
(b) SUIT TO ENFORCE RIGHTS. Regardless of any action by
the Reviewing Party, if Indemnitee has not received full indemnification within
thirty days after making a demand in accordance with Section 4(a), Indemnitee
shall have the right to enforce its indemnification rights under this Agreement
by commencing litigation in any court in the State of Ohio having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any determination by the Reviewing
Party
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or any aspect thereof. 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.
(c) 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, 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 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,
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regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, 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 Company 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
reasonably 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 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.
(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. Neither the
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Company nor the Indemnitee will unreasonably withhold their consent to any
proposed settlement. 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. ESTABLISHMENT OF TRUST. In the event of a Change in
Control or a Potential Change in Control, the Company shall, upon written
request by Indemnitee, create a Trust for the benefit of the Indemnitee and from
time to time upon written request of Indemnitee shall fund the Trust in an
amount sufficient to satisfy any and all Expenses reasonably anticipated at the
time of each such request to be incurred in connection with investigating,
preparing for, participating in, and/or defending any Proceeding relating to an
Indemnifiable Event. The amount or amounts to be deposited in the Trust
pursuant to the foregoing funding obligation shall be determined by the
Reviewing Party. The terms of the Trust shall provide that upon a Change in
Control, (i) the Trust shall not be revoked or the principal thereof invaded,
without the written consent of the Indemnitee, (ii) the Trustee shall advance,
within ten business days of a request by the Indemnitee, any and all Expenses to
the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under
the same circumstances for which the Indemnitee would be required to reimburse
the Company under Section 2(c) of this Agreement), (iii) the Trust shall
continue to be funded by the Company in accordance with the funding obligation
set forth above, (iv) the Trustee shall promptly pay to the Indemnitee all
amounts for which the Indemnitee shall be entitled to indemnification pursuant
to this Agreement or otherwise, and (v) all unexpended funds in the Trust shall
revert to the Company upon a final determination by the Reviewing Party or a
court of competent jurisdiction, as the case may be, that the Indemnitee has
been fully indemnified under the terms of this Agreement. The Trustee shall be
chosen by the Indemnitee. Nothing in this Section 7 shall relieve the Company
of any of its obligations under this Agreement. All income earned on the assets
held in the Trust shall be reported as income by the Company for federal, state,
local, and foreign tax purposes. The Company shall pay all costs of
establishing and maintaining the Trust and shall indemnify the Trustee against
any and all expenses (including attorneys' fees), claims, liabilities, loss, and
damages arising out of or relating to this Agreement or the establishment and
maintenance of the Trust.
8. 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 the Company's Certificate of Incorporation, Bylaws,
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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.
9. 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.
10. PERIOD OF LIMITATIONS. No legal action shall be brought
and no cause of action shall be asserted by or on behalf of the Company or any
affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, or such longer period as
may be required by state law under the circumstances. Any claim or cause of
action of the Company or its affiliate shall be extinguished and deemed released
unless asserted by the timely filing of a legal action within such period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action the shorter period shall govern.
11. 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.
12. SUBROGATION. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of 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.
13. NO DUPLICATION OF PAYMENTS. The Company shall not be
liable under this Agreement to make any payment in connection with any claim
made against Indemnitee to the extent Indemnitee has otherwise received payment
(under any insurance policy, Bylaw, or otherwise) of the amounts otherwise
indemnifiable hereunder.
14. 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
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personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation, or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. 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.
15. 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.
16. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in such State without giving
effect to the principles of conflicts of laws.
17. 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
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.
18. 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.
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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 1,550,000 Shares. 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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<PAGE>
(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
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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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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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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.
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<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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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,
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<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
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<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.
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<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:
--------------------------------------
--------------------------------------
--------------------------------------
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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
1
<PAGE>
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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<PAGE>
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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Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333-05369) 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
July 10, 1996
