-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S9j0LgMJE60coK89Tbbwdd6LhYklfopeV2rEdbpSYyy/LZ47J2Vmtql68LYFqzaJ IawrDBjkIRUXoiy4Txrnyw== 0000936392-96-000797.txt : 19960923 0000936392-96-000797.hdr.sgml : 19960923 ACCESSION NUMBER: 0000936392-96-000797 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19960920 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMMUSOL INC CENTRAL INDEX KEY: 0001017919 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 330502473 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-07645 FILM NUMBER: 96632963 BUSINESS ADDRESS: STREET 1: 3050 SCIENCE PARK ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6196770182 MAIL ADDRESS: STREET 1: 3050 SCIENCE PARK ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 S-1/A 1 S-1/A 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996 REGISTRATION NO. 333-07645 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ IMMUSOL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 2834 33-0502473 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
3050 SCIENCE PARK ROAD SAN DIEGO, CALIFORNIA 92121 (619) 677-0182 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ TSVI GOLDENBERG, PH.D. CHIEF EXECUTIVE OFFICER IMMUSOL, INC. 3050 SCIENCE PARK ROAD, 2ND FLOOR SAN DIEGO, CALIFORNIA 92121 (619) 677-0182 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ WITH COPIES TO: CRAIG S. ANDREWS, ESQ. WILLIAM H. HINMAN, JR., ESQ. FAYE H. RUSSELL, ESQ. SHEARMAN & STERLING MARTIN C. NICHOLS, ESQ. 555 CALIFORNIA STREET BROBECK, PHLEGER & HARRISON LLP SAN FRANCISCO, CALIFORNIA 94101-1522 550 WEST "C" STREET, SUITE 1300 (415) 616-1100 SAN DIEGO, CALIFORNIA 92101 (619) 234-1966
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this 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, 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, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: /X/ ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 IMMUSOL, INC. CROSS REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION STATEMENT CAPTION IN PROSPECTUS --------------------------------------------- ------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus..... Facing Page; Cross Reference Sheet; Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus................................. Inside Front and Outside Back Cover Pages of Prospectus; Additional Information 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors 4. Use of Proceeds.............................. Prospectus Summary; Use of Proceeds 5. Determination of Offering Price.............. Underwriting 6. Dilution..................................... Dilution 7. Selling Security Holders..................... Inapplicable 8. Plan of Distribution......................... Outside Front Cover Page of Prospectus; Underwriting 9. Description of Securities to Be Registered... Outside Front Cover Page of Prospectus; Description of Capital Stock 10. Interests of Named Experts and Counsel....... Inapplicable 11. Information with Respect to the Registrant... Outside Front Cover Page of Prospectus; 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 Shareholders; Description of Capital Stock; Shares Eligible for Future Sale; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................ Inapplicable
3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 20, 1996 3,000,000 SHARES LOGO IMMUSOL COMMON STOCK ------------------------ All the shares of Common Stock offered hereby are being sold by Immusol, Inc. Prior to this Offering, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $9.00 and $11.00 per share. See "Underwriting." Application has been made to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol IMSL. THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT 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. - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------- Underwriting Price to Discounts and Proceeds to Public Commissions(1) Company(2) - ------------------------------------------------------------------------------------------------- Per Share..................... $ $ $ - ------------------------------------------------------------------------------------------------- Total......................... $ $ $ - ------------------------------------------------------------------------------------------------- Total Assuming Full Exercise of Over-Allotment Option(3)................... $ $ $ - ------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------
(1) See "Underwriting." (2) Before deducting expenses estimated at $600,000, which are payable by the Company. (3) Assuming exercise in full of the 30-day option granted by the Company to the Underwriters to purchase up to 450,000 additional shares, on the same terms, solely to cover over-allotments. See "Underwriting." ------------------------ The shares of Common Stock are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to their right to reject orders in whole or in part. It is expected that the delivery of the Common Stock will be made in New York City on or about , 1996. ------------------------ PAINEWEBBER INCORPORATED NEEDHAM & COMPANY, INC. SUTRO & CO. INCORPORATED ------------------------ THE DATE OF THIS PROSPECTUS IS , 1996. 4 [DRAWING DESCRIBING IMMUSOL'S APPROACH TO USE VIRAL VECTORS (IN A VIAL) TO DELIVER THERAPEUTIC RIBOZYME GENES BY INJECTION INTO THE PATIENT.] Immusol HIVase has been tested only in preclinical studies for the treatment of HIV-infected individuals. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The Company intends to furnish to its shareholders annual reports containing audited financial statements certified by an independent public accounting firm and quarterly reports containing unaudited interim financial information for the first three quarters of each year. HIVase I(TM) is a trademark of the Company. This Prospectus also includes names and trademarks of companies other than the Company. 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the financial statements (including the notes thereto) appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus has been adjusted to reflect the conversion into one share of Common Stock of each share of the Company's outstanding preferred stock (the "Preferred Stock") and assumes no exercise of the Underwriters' over-allotment option and no purchase of shares by Pfizer Inc. in connection with the Offering. The shares of Common Stock offered hereby involve a high degree of risk. See "Risk Factors" and "Business -- Strategic Alliances and Licenses -- Pfizer Inc." THE COMPANY Immusol, Inc. ("Immusol" or the "Company") is a biopharmaceutical company dedicated to the discovery, development and commercialization of products based on proprietary technologies in the areas of ribozyme gene therapy and ribozyme-mediated gene functional analysis. Ribozymes are naturally occurring ribonucleic acid ("RNA") molecules that can be engineered to cleave and inactivate other RNA molecules in a specific, sequence-dependent fashion. Thus, ribozymes can be designed to selectively inactivate RNA molecules and their corresponding proteins that play a role in human disease. The Company intends to initiate a Phase I clinical trial with its lead compound, HIVase I(TM), in 1996. HIVase I is being developed through a collaboration with Pfizer Inc. ("Pfizer") for the treatment of HIV-infected individuals. In addition, the Company has three other ribozyme gene therapy programs in various stages of research and preclinical development for the prevention of coronary restenosis and the treatment of hepatitis C and hepatitis B viral infections. Ribozyme therapies can be based on (i) ribozyme gene therapy which involves inserting specific sequences that lead to the production of ribozymes within the patient's cells or (ii) synthetic, chemically-modified ribozymes administered as drugs. The gene therapy approach to ribozyme therapy utilizes the patient's own cellular machinery to produce a constant and continuous supply of ribozymes inside the cell where the disease-causing gene is produced. The Company has utilized a number of different viral vectors (gene delivery vehicles), including retroviral, adeno-associated viral ("AAV") and adenoviral vectors, to provide optimal periods of in vivo production of ribozymes. The Company believes that ribozyme gene therapy is a new, versatile modality which will be applicable in the treatment of a wide range of viral diseases, coronary disease, genetic diseases, cancers and other medical conditions. The Company believes its ribozyme gene therapy technology will have certain advantages over conventional drug development, including: (i) the high specificity of ribozymes can be used to inactivate certain undesirable target genes whose sequences are known; (ii) ribozymes can have application to a broad spectrum of human diseases; (iii) ribozymes can be highly potent due to their natural catalytic activity by which one ribozyme can inactivate many target molecules; and (iv) ribozymes can result in fewer side effects due to their high degree of target specificity. The Company believes its ribozyme gene therapy technology has several advantages over synthetic ribozymes, including: (i) efficient intracellular delivery and potential lack of immune response; (ii) providing a constant and continuous supply of ribozymes inside the cell; and (iii) the ability to deliver multiple ribozymes on one vector. In May 1995, the Company and Pfizer entered into a research collaboration for the discovery and development of products for ribozyme-based gene therapy useful in treating or preventing HIV infection. In preclinical studies to date, the Company has demonstrated potent activity of its multi-ribozyme gene therapy against all strains of HIV known to the Company isolated from HIV-infected individuals. In addition, the Company has found no evidence of ribozyme-resistant mutants of HIV to date. The Company intends to initiate a Phase I clinical trial with its first generation compound, HIVase I, in 1996 in HIV-infected individuals. Immusol believes that its ribozyme technology can be useful in drug discovery in conjunction with gene sequence knowledge to characterize the function of recently discovered genes that may be suitable therapeutic targets. Since ribozymes can be designed to act on specific target genetic sequences, ribozymes may be useful to identify the function of these sequences. As a result, the Company believes its ribozyme technology can provide an important link between gene dysfunction and disease. The Company was incorporated in the State of California in March 1992. The Company's principal executive offices are located at 3050 Science Park Road, San Diego, California 92121, and its telephone number is (619) 677-0182. 3 6 THE OFFERING Common Stock Offered by the Company................... 3,000,000 shares Common Stock to be Outstanding after this Offering(1)......................................... 13,024,477 shares Use of Proceeds....................................... To fund research and development and for working capital and general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market Symbol................ IMSL
- --------------- (1) Does not include (i) 2,002,500 shares of Common Stock issuable upon exercise of options outstanding at a weighted average exercise price of $0.10 per share pursuant to the Company's stock option plans at June 30, 1996 and (ii) 1,354 shares of Common Stock issued upon exercise of options subsequent to June 30, 1996 and 11,500 shares of Common Stock issuable upon exercise of options granted subsequent to June 30, 1996. See "Capitalization," "Management -- Benefit Plans," "Certain Transactions" and "Shares Eligible for Future Sale." SUMMARY FINANCIAL INFORMATION
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------- ------------------------ 1993 1994 1995 1995 1996 --------- --------- ---------- --------- ---------- STATEMENT OF OPERATIONS DATA: Total revenue................. $ -- $ 204,475 $3,174,515 $ 621,937 $2,941,489 Costs and expenses: Research and development.... 157,101 492,513 2,831,860 1,246,189 1,982,939 General and administrative........... 47,948 127,360 487,234 238,491 396,571 --------- --------- ---------- --------- ---------- Total costs and expenses............... 205,049 619,873 3,319,094 1,484,680 2,379,510 Income (loss) from operations.................. (205,049) (415,398) (144,579) (862,743) 561,979 Interest income............... 50,743 57,798 275,564 99,230 200,795 Interest expense.............. -- -- (5,343) (2,326) (3,386) --------- --------- ---------- --------- ---------- Net income (loss)............. $(154,306) $(357,600) $ 125,642 $(765,839) 759,388 ========= ========= ========== ========= ========== Pro forma net income (loss) per share(1)................ $ (0.02) $ (0.05) $ 0.01 $ (0.10) $ 0.06 ========= ========= ========== ========= ========== Shares used in computing pro forma net income (loss) per share(1).................... 7,342,653 7,471,420 11,830,427 7,479,860 12,404,535
JUNE 30, 1996 ----------------------------- ACTUAL AS ADJUSTED(2) ---------- -------------- BALANCE SHEET DATA: Cash, cash equivalents and short-term investments................. $7,684,784 $ 34,984,784 Working capital................................................... 6,724,715 34,024,715 Total assets...................................................... 8,439,891 35,739,891 Long-term liabilities, less current portion....................... 185,047 185,047 Accumulated deficit............................................... (12,105) (12,105) Total shareholders' equity........................................ 7,154,642 34,454,642
- --------------- (1) See Note 1 of Notes to Financial Statements for information concerning the computation of pro forma net income (loss) per share and shares used in computing pro forma net income (loss) per share. (2) As adjusted to reflect the sale of the Common Stock offered hereby and the application of the net proceeds of this Offering, based on an assumed public offering price of $10.00 per share (the midpoint of the range set forth on the cover page of this Prospectus). See "Use of Proceeds." 4 7 RISK FACTORS An investment in the shares being offered hereby involves a high degree of risk. Prospective investors should carefully consider the following risk factors, in addition to the other information contained in this Prospectus, before purchasing the shares of Common Stock offered hereby. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the following risk factors and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as those discussed elsewhere in this Prospectus. EARLY STAGE OF DEVELOPMENT; NO COMMERCIAL PRODUCTS; NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT Immusol's programs are at an early stage of development and, to date, none of the Company's potential products has been the subject of any human clinical testing. Since the Company's inception in 1992, substantially all of the Company's resources have been dedicated to the research and development of potential products based on ribozyme technology, and no revenues have been generated from product sales. Products, if any, resulting from the Company's research and development efforts are not expected to be commercially available for a number of years. There can be no assurance that any of the Company's potential products will prove safe and effective in clinical trials, meet applicable regulatory standards, be capable of being produced in commercial quantities at acceptable cost or be successfully commercialized. In addition, there can be no assurance that preclinical or clinical testing will accurately predict safety or efficacy in broader human use, or that delays in the regulatory approval process will not delay commercialization of any potential product. Even if any of the Company's products proves to be safe and effective and is approved for marketing by the United States Food and Drug Administration ("FDA") and other regulatory authorities, there can be no assurance that health care providers, payors and patients will accept such product. Any failure by the Company to achieve technical feasibility, demonstrate safety and efficacy, obtain regulatory approval or, either alone or together with any collaborator, successfully market products would have a material adverse effect on the Company. See "Government Regulation; Uncertainty of Obtaining Regulatory Approval" and "Business -- Government Regulation." TECHNOLOGICAL UNCERTAINTY; RISKS ASSOCIATED WITH RIBOZYME GENE THERAPY; RISKS ASSOCIATED WITH THE USE OF VIRAL VECTORS; NO RIBOZYME PRODUCTS IN CLINICAL TRIALS Drug discovery and development based upon ribozymes is relatively new, and there can be no assurance that this approach will lead to the discovery or development of commercial pharmaceutical products, that the Company will be able to employ these methods of drug development successfully or that ribozyme products will be deliverable, safe or efficacious in humans. While the Company has demonstrated the utility of ribozyme technology in in vitro model systems and in preclinical models, no ribozyme-based compound has been tested in humans. As a result, it is unclear as to whether the FDA will apply the same standards for the review of ribozyme gene therapy products that it applies to traditional therapeutics. There can be no assurance that any of the Company's potential products will enter clinical trials. A significant amount of additional research and development, requiring many years and substantial resources, will be required to determine the potential of the Company's ribozyme technology for therapeutic products. The Company's technology may, during the course of further research, prove to be ineffective in the treatment of human disease or in other areas. The Company must conduct significant additional research and development on determining safe and effective methods of delivering ribozymes into the human body for each indication for the Company's potential therapeutic products and must overcome a number of other technological challenges, such as enhancing the activity and stability of ribozymes and manufacturing ribozyme-based therapeutic products on a commercial scale. A significant amount of additional research and development is required to determine whether ribozymes can be delivered systemically, including research and development directed toward improving the delivery of ribozymes to specific tissues and improving cellular uptake. There can be no assurance that effective systemic delivery of ribozyme-based products can be achieved. 5 8 Safety concerns have been raised by the use of retroviral and adenoviral vectors since both are derived from pathogenic viruses. During the manufacture of these vectors, there is a possibility of generating a small amount of natural virus. Although considered a low risk, such a possibility necessitates additional costly product testing. In addition, the Company's use of vector delivery of ribozymes will require that the Company overcome concerns relating to mutagenicity (permanent DNA alteration) or inflammatory responses. Retroviral vectors randomly integrate genetic material into the target cell and AAV vectors may do the same. Any gene therapy approach that involves the random integration of genetic material into the target cell's DNA could, theoretically, cause the activation of an undesirable gene or the inactivation of a beneficial gene, although it is generally believed that such events would be rare. Many of the technological and developmental challenges associated with ribozyme gene therapy may be significantly greater than those typically associated with traditional drug development, and may never be overcome. There can be no assurance that even if the Company's potential products are found to be safe and effective, or otherwise have utility, the Company will be able to manufacture them on a commercial scale or market them in an economical way. Further, it is possible that the proprietary rights of third parties will preclude the Company or its collaborative partners from marketing 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 will result in any commercially viable products. HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY The Company incurred an accumulated deficit of $12,000 through June 30, 1996. The Company anticipates that it will incur substantial and increasing losses over at least the next several years as the Company's research and development efforts, preclinical and clinical testing activities and manufacturing scale-up efforts expand. All of the Company's revenues to date have consisted of contract revenues, grant revenues and interest income. No revenues have been generated from product sales. There can be no assurance that the Company can generate sufficient product or contract revenue to achieve sustained profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING The development and commercialization of the Company's products will require substantial funds to conduct research and development and preclinical and clinical testing of products and to manufacture and commercialize any products that are approved for commercial sale. The Company's future capital requirements will depend on many factors, including the scope and results of preclinical testing and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims, competing technological and market developments, changes in existing collaborative research relationships, the ability of the Company to establish additional collaborative arrangements, the cost of manufacturing scale-up and effective commercialization activities and arrangements, continued scientific progress in its research and development programs and the magnitude of such programs. The Company anticipates that its existing available cash, cash equivalents and short-term investments, combined with the anticipated proceeds of this Offering, its committed future contract revenue and interest income, will be adequate to satisfy its capital requirements and fund anticipated operating losses through 1999. There can be no assurance that the underlying assumed levels of revenue and expense will prove to be accurate. The Company will need to raise substantial additional capital to fund its operations. The Company intends to seek additional funding through collaborative arrangements, contract research or through public or private financings. There can be no assurance that additional financing will be available on acceptable terms, or at all. If additional funds are raised by issuing equity securities, further dilution to then existing shareholders could result. If adequate funds are not available, the Company could be required to delay, scale back or eliminate one or more of its research and development programs or obtain funds through arrangements with collaborative partners or others that could require the Company to relinquish certain rights to certain of its technologies or products that the Company would not otherwise relinquish. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 6 9 UNCERTAINTY OF PRODUCT DEVELOPMENT Before obtaining regulatory approval for the commercial sale of any of its potential products, the Company must demonstrate, through preclinical studies and clinical trials, that a potential product is safe and efficacious for use in each target indication. The Company has not commenced clinical testing of any products for safety or efficacy in humans. There can be no assurance that results generated by preclinical animal testing will be indicative of results of clinical testing in humans when, and if, those tests are conducted. There can be no assurance that the Company will be permitted to undertake human clinical testing of any of the Company's potential products, or, if permitted, that such potential products will be demonstrated to be safe and efficacious or will receive necessary regulatory approvals. The Company may also experience delays in the clinical trial process due to a variety of factors, including preclinical study results, delays or difficulties in patient enrollment, delays in regulatory approvals and other factors. The Company's potential products may prove to have undesirable and unintended side effects or other characteristics that may prevent or limit their commercial use. In addition, there can be no assurance that any of the Company's potential products will ultimately obtain FDA, other regulatory or foreign marketing approval for any indication, that an approved product will be capable of being produced in commercial quantities at reasonable cost or that any approved product will achieve market acceptance. The Company will also be dependent on the efforts of others to advance the development of certain of its products. See "Dependence Upon Collaborators." GOVERNMENT REGULATION; UNCERTAINTY OF OBTAINING REGULATORY APPROVAL The FDA and comparable agencies in foreign countries impose substantial requirements on biotechnology and pharmaceutical companies prior to the introduction of therapeutic products. These requirements include lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Satisfaction of these requirements typically takes a number of years and varies substantially based on the type, complexity and novelty of the pharmaceutical. The Company cannot accurately predict when it might submit product applications or submissions for FDA or other regulatory review. Governmental regulation also affects the manufacture and marketing of pharmaceutical products. Any future FDA or other governmental approval of products developed by the Company may entail limitations on the indicated uses for which such products may be marketed. Approved products may be subject to additional testing and surveillance programs as required by regulatory agencies. In addition, product approvals may be withdrawn or limited for noncompliance with regulatory standards or the occurrence of unforeseen problems following initial marketing. In the event that the Company were to manufacture therapeutic products for commercial sale, it would be required to adhere to applicable standards for manufacturing practices and to engage in extensive record keeping and reporting, and its manufacturing facilities would be subject to periodic inspections by state and federal agencies, including the FDA and comparable agencies in foreign countries. See "Business -- Governmental Regulation." The effect of governmental regulation may be to delay marketing new products for a considerable period of time, to impose costly requirements on the Company's activities or to provide a competitive advantage to other companies that compete with the Company. There can be no assurance that FDA or other regulatory approval for any products developed by the Company will be granted on a timely basis, if at all. Adverse clinical results by others could have a negative impact on the regulatory process and timing. A delay in obtaining or failure to obtain regulatory approvals could adversely affect the marketing of the Company's products and the Company's liquidity and capital resources. The extent of potentially adverse governmental regulation that might arise from future legislation or administrative action cannot be predicted. The Company is also subject to various federal, state and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with its research work. The extent and character of governmental regulation that might result from future legislation or administrative action cannot be accurately predicted. 7 10 DEPENDENCE ON COLLABORATORS The Company does not currently possess the resources necessary to develop, complete the FDA approval process for and commercialize any of its potential therapeutic products. The Company intends to enter into collaborative arrangements with other companies to fund research, development and clinical trials, to assist in obtaining regulatory approvals in the United States and internationally and to commercialize certain of its products. While the Company has entered into a collaboration with Pfizer, there can be no assurance that the Company will be able to enter into additional collaborations to develop commercial applications of its ribozyme technology. In addition, there can be no assurance that the Company will be able to enter into or maintain existing or future collaborations or that such collaborations will be successful. The failure to enter into or maintain existing or future collaborations would have a material adverse effect on the Company. The Company's collaborators may pursue parallel development of other products or technologies that may compete with the Company's ribozyme technology. Continued collaborator participation will depend not only on the achievement of research objectives by the Company and its collaborators, which cannot be assured, but also on each collaborator's own financial, competitive, marketing and strategic considerations, which are outside the Company's control. Such strategic considerations may include the relative advantages of alternative products being marketed or developed by others, including relevant patent and proprietary positions. There can be no assurance that the interests and motivations of the Company's collaborators are, or will remain, aligned with those of the Company or that such collaborators will successfully perform their development, regulatory compliance, manufacturing or marketing functions or that current or future collaborations will continue. Any parallel development by a collaborator of alternate technologies, preclusion from entering into competitive arrangements, failure to obtain timely regulatory approvals, premature termination of a collaborative agreement or failure by a collaborator to devote sufficient resources to the development and commercialization of the Company's products could have a material adverse effect on the Company. In addition, definitive agreements negotiated with such collaborators may provide that these collaborators may terminate the collaboration at any time without significant penalty. Further, the failure of the Company to attract and retain qualified personnel, consultants and advisers could negatively impact the Company's relationships with such collaborators. Pfizer has the ability to terminate the collaboration at certain intervals and with advance notice. Termination of the collaboration with Pfizer would have a material adverse effect on the Company. See "Business -- Strategic Alliances and Licenses." RAPID TECHNOLOGICAL CHANGE Immusol is engaged in a field characterized by extensive research efforts and rapid technological change. Other products and therapies that may compete directly with the products that the Company is seeking to develop currently exist or are being developed. Many other companies are actively seeking to develop products, including ribozymes and other products designed to modulate gene expression, such as antisense oligonucleotides, that have disease targets similar to those being pursued by the Company. Some of these competitive products are in clinical trials. There can be no assurance that the Company's competitors will not succeed in developing products based on ribozyme or other technologies, existing or new, that are more effective than any that are being developed by the Company or that would render the Company's ribozyme technologies obsolete and noncompetitive. HIGHLY COMPETITIVE FIELD The Company is engaged in a highly competitive field. There currently are commercially available products for the treatment of certain disease targets being pursued by the Company, including reverse transcriptase inhibitors and protease inhibitors for the treatment of HIV and Intron(R)A for both hepatitis B and hepatitis C. ReoPro(R) and coronary stents are being evaluated for the prevention of coronary restenosis. Competition from pharmaceutical and biotechnology companies is intense and is expected to increase. Most of these companies have significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies and clinical trials, obtaining regulatory approvals and marketing than the Company. Smaller companies may also prove to be significant competitors, particularly 8 11 through collaborative arrangements with large pharmaceutical and biotechnology companies. Many of these competitors have products that have been approved or are in development and operate large, well funded research and development programs. Academic institutions, governmental agencies and other public and private research organizations also conduct research, seek patent protection and establish collaborative arrangements for products and clinical development and marketing. These companies and institutions compete with the Company in recruiting and retaining highly qualified scientific and management personnel. In addition to the above factors, Immusol faces competition based on product efficacy, safety, timing and scope of regulatory approvals, availability of supply, marketing and sales capability, reimbursement coverage, price and patent position. There can be no assurance that the Company's competitors will not develop more effective or more affordable products, achieve earlier product commercialization or have, or will achieve, a patent position superior to that of the Company. See "Business -- Competition." LIMITED CLINICAL TESTING, REGULATORY, MANUFACTURING AND SALES CAPABILITIES Because of the relatively early stage of the Company's research and development programs, the Company has not yet invested significantly in clinical, regulatory, manufacturing, marketing, distribution or product sales resources. The Company currently has only limited in-house clinical and regulatory capabilities. Although the Company intends to develop clinical, regulatory, manufacturing and other resources in the future, there can be no assurance that the Company will be able to develop such resources successfully. See "Business -- Manufacturing" and "Business -- Human Resources." PATENTS AND PROPRIETARY TECHNOLOGY; RELIANCE UPON LICENSES Immusol relies on a combination of technical leadership, patents, trade secrets and nondisclosure agreements to protect its proprietary rights. There can be no assurance that the Company will be issued any patents or that, if any patents are issued, they will provide the Company with significant protection or will not be challenged. Even if such patents are enforceable, the Company anticipates that any attempt to enforce its patents would be time consuming and costly. Moreover, the laws of some foreign countries do not protect the Company's proprietary rights in the products to the same extent as do the laws of the United States. The United States Patent and Trademark Office ("PTO") has instituted changes to the United States patent law including changing the term to 20 years from the date of filing for applications filed after June 8, 1995. Certain of the patent applications under which the Company is developing its products were filed after June 8, 1995. The Company cannot predict the effect that such changes on the patent laws may have on its business, or on the Company's ability to protect its proprietary information and sustain the commercial viability of its products. The patent positions of pharmaceutical, biotechnology and gene therapy companies, including Immusol, can be uncertain and involve complex legal and factual issues. Additionally, the coverage claimed in a patent application can be significantly reduced before the patent is issued. As a consequence, there can be no assurance that any of the Company's patent applications will result in the issuance of patents or, if any patents issue, that they will provide significant proprietary protection or will not be circumvented or invalidated. Because patent applications in the United States are maintained in secrecy until patents issue and publication of discoveries in the scientific or patent literature often lag behind actual discoveries, the Company cannot be certain that it was the first inventor of inventions covered by its pending patent applications or that it was the first to file patent applications for such inventions. Moreover, the Company may have to participate in interference proceedings declared by the PTO to determine priority of invention that could result in substantial cost to the Company, even if the eventual outcome is favorable to the Company. There can be no assurance that the Company's patents, if issued, would be held valid by a court of competent jurisdiction. An adverse outcome could subject the Company to significant liabilities to third parties, require disputed rights to be licensed from or to third parties or require the Company to cease using the technology in dispute. Specifically, the Company is aware of issued patents and patent applications in the area of ribozymes which may affect the Company's ability to make, use and sell its products. In particular, the Company is aware of a series of patents that purport to cover the production and use of enzymatic RNA. Immusol has investigated the breadth and validity of these patents to determine their impact upon the Company's product 9 12 development programs. Based on its review of these patents and advice of outside patent counsel, the Company believes its technology does not infringe any valid claims of such patents and that these patents will not impede the advancement of the Company's programs. There can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to these patents or otherwise, or that any such assertions will not result in costly litigation or require the Company to obtain a license to intellectual property rights of such parties. There can be no assurance that any such licenses would be available on terms acceptable to the Company, if at all. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief that could effectively block the Company's ability to further develop or commercialize its products in the United States and abroad and could result in the award of substantial damages. Defense of any lawsuit or failure to obtain any such license could have a material adverse affect on the Company. Finally, litigation, regardless of outcome, could result in substantial cost to and a diversion of efforts by the Company. In December 1993, the Company entered into an Exclusive License Agreement with the Regents of the University of California ("The Regents"), pursuant to which The Regents exclusively licensed rights to certain intellectual property relating to the use of ribozyme technology in HIV and AIDS, including the corresponding patents and patent applications for such property (the "UC Technology"). As consideration for the exclusive license of the UC Technology, Immusol will pay The Regents an earned royalty on net sales by Immusol of products incorporating the UC Technology and prior to sales of such products will pay a license maintenance fee. In addition, beginning the year of the first commercial sale of a FDA approved product, Immusol will pay The Regents a minimum annual royalty. The Regents retain the right to terminate the agreement or to reduce the exclusive license to a nonexclusive license in the event that the Company does not satisfy certain milestone obligations and minimum research and development funding levels. Additional termination events include an uncured breach of the agreement by Immusol. The termination of the Exclusive License Agreement or the conversion of its exclusivity to a nonexclusive agreement would have a material adverse effect on the Company. As part of its confidentiality procedures, the Company generally enters into nondisclosure agreements with its employees and suppliers, and limits access to and distribution of its proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Company's technology without authorization. Accordingly, there can be no assurance that the Company will be successful in protecting its proprietary technology or that Immusol's proprietary rights will preclude competitors from developing products or technology equivalent or superior to that of the Company. The Company may require additional technology to which the Company currently does not have rights. If the Company determines that this additional technology is relevant to the development of future products and further determines that a license to this additional technology is needed, there can be no assurance that the Company can obtain a license from the relevant party or parties on commercially reasonable terms, if at all. There can be no assurance that the Company can obtain any license to any technology that the Company determines it needs, on reasonable terms, if at all, or that the Immusol could develop or otherwise obtain alternate technology. The failure of the Company to obtain licenses, if needed, would have a material adverse affect on the Company. See "Business -- Patents and Proprietary Rights." DEPENDENCE ON KEY PERSONNEL The Company is highly dependent on its corporate officers and principal members of its scientific and management staff, the loss of any of whose services might have an adverse impact on the Company. In addition, the Company relies on consultants and advisors, including the members of its Scientific Advisory Board, to assist the Company in its research and development efforts. Since May 1995, the Company has employed a consultant as acting chief financial officer. The Company is actively seeking to hire a permanent chief financial officer and intends to make such hire as soon as practicable after the Offering. Retaining and attracting qualified personnel, consultants and advisors is critical to the Company's success. In order to pursue its product development and marketing plans, the Company may be required to hire additional qualified scientific personnel to perform research and development, as well as personnel with expertise in clinical testing, regulatory affairs, manufacturing and marketing. These requirements are also expected to demand the 10 13 addition of management personnel and the development of additional expertise by existing management personnel. Competition for qualified individuals is intense and the Company faces competition for qualified people from numerous pharmaceutical and biotechnology companies, universities and other research institutions. There can be no assurance that the Company will be able to attract and retain such individuals on acceptable terms, if at all, and the failure to do so could have a material adverse effect on the Company, including its ability to conclude collaborations with additional corporate partners. See "Management." PRODUCT LIABILITY; LIMITED INSURANCE The design, development and manufacture of therapeutic products involve an inherent risk of product liability claims and associated adverse publicity. The Company has arranged for clinical trial product liability insurance for its anticipated Phase I human clinical trial and intends to obtain insurance for future clinical trials of other products under development and for potential product liability associated with the manufacture and commercial sale of the Company's products. There can be no assurance, however, that the Company will be able to obtain or maintain insurance for any of its clinical trials or commercial products. Although the Company currently maintains general liability insurance, there can be no assurance that the coverage limits of the Company's insurance policies will be adequate. Such insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms or at all. A successful claim brought against the Company in excess of the Company's insurance coverage would have a material adverse effect on the Company. HAZARDOUS MATERIALS The Company's research and development involves the controlled use of hazardous materials, chemicals and various radioactive compounds. Although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result and any such liability could exceed the resources of the Company. The Company may incur substantial cost to comply with environmental regulations. UNCERTAIN AVAILABILITY OF THIRD-PARTY REIMBURSEMENT AND PRODUCT PRICING The Company's ability to commercialize products successfully will depend substantially on reimbursement of the costs of such products and related treatments at acceptable levels from government authorities, private health insurers and other organizations, such as health maintenance organizations ("HMOs"). There can be no assurance that reimbursement in the United States or foreign countries will be available for any products the Company may develop or, if available, will not be decreased in the future, or that reimbursement amounts will not reduce the demand for, or the price of, the Company's products, thereby adversely affecting its business. Third-party payors are increasingly challenging the prices charged for medical products and services. Also, the trend toward managed healthcare in the United States and the concurrent growth of organizations, such as HMOs, which can control or significantly influence the purchase of health care products and services, as well as legislative proposals to reform healthcare or reduce government insurance programs, may result in lower prices for therapeutic products. The cost-containment measures that healthcare providers are instituting, including practice protocols and guidelines and clinical pathways, and the effect of any healthcare reform could materially adversely affect the Company's ability to sell products if successfully developed and approved. Moreover, the Company is unable to predict what additional legislation or regulation, if any, relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation or regulation would have on the Company's business. SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial number of shares of the Common Stock in the public market following this Offering could adversely affect the market price of the Common Stock. Upon completion of this Offering, the 11 14 Company will have outstanding 13,024,477 shares of Common Stock (without taking into account shares of Common Stock issuable upon exercise of outstanding options). As of June 30, 1996, 2,002,500 shares of Common Stock are subject to outstanding options and 473,500 additional shares are reserved for issuance under the Company's stock option plans. See "Management -- Benefit Plans." The 3,000,000 shares of Common Stock sold in this Offering will be freely tradeable without restrictions under the Securities Act of 1933, as amended (the "Securities Act"), except for any such shares held by an "affiliate" of the Company, which will be subject to the resale limitations of Rule 144 under the Securities Act. The remaining 10,024,477 shares held by existing shareholders were issued by the Company in private transactions in reliance upon one or more exemptions under the Securities Act, are "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act and may be sold in compliance with such Rule, pursuant to registration under the Securities Act or pursuant to an exemption therefrom. Of the outstanding shares, 7,045,000 shares are currently freely tradeable without limitation under Rule 144, subject to the lock-up period described below. Future sales of shares by existing shareholders pursuant to Rule 144 of the Securities Act or through the exercise of outstanding registration rights could have an adverse effect on the market price of the Common Stock and could impair the Company's efforts to obtain additional capital in the future. Any employee, officer or director of or consultant to the Company who purchased his or her shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701 under the Securities Act. An aggregate of 124,000 shares of Common Stock issued on exercise of stock options will be tradeable pursuant to Rule 701, subject to the lock-up period described below. Such options were exercised at prices below the initial public offering price. Shareholders owning an aggregate of 9,574,477 shares of Common Stock, representing approximately 96% of the total shares outstanding (and 1,887,500 shares issuable upon exercise of outstanding options), including shares held by all employees, officers and directors and certain other shareholders of the Company, have agreed not to directly or indirectly offer or sell, contract to sell, grant any option to purchase, transfer or otherwise dispose of or make a distribution of any of their shares or securities convertible or exchangeable for Common Stock for a period of 180 days from the date of this Prospectus without the prior written consent of PaineWebber Incorporated ("PaineWebber"). See "Shares Eligible for Future Sale." REGISTRATION RIGHTS Holders of 2,915,477 shares of Common Stock are entitled to certain demand and other registration rights with respect to such shares of Common Stock. Any sales under such registration rights may have an adverse effect on the Company's ability to raise needed capital and may adversely affect the market price of the Common Stock. Such registration rights are not exercisable prior to 180 days after this Offering. See "Description of Capital Stock -- Amended Shareholder Rights Agreement." IMMEDIATE AND SUBSTANTIAL DILUTION The initial public offering price of the Common Stock is substantially higher than the net tangible book value per share of the Common Stock. Assuming an initial offering price of $10.00 per share (the midpoint of the range set forth on the cover page of this Prospectus), investors participating in this Offering will incur an immediate, substantial dilution in net tangible book value of $7.35 per share and may incur additional dilution upon exercise of outstanding stock options. See "Dilution." ABSENCE OF DIVIDENDS The Company currently intends to retain any and all earnings for use in its business and does not anticipate paying any dividends within the foreseeable future. The Company has never declared or paid dividends on its capital stock. See "Dividend Policy." 12 15 CONCENTRATION OF OWNERSHIP Following this Offering, the present officers and directors of the Company and their affiliates will beneficially own approximately 74% of the outstanding shares of Common Stock (assuming exercise of all stock options beneficially owned by officers and directors). Accordingly, they will have the ability to exercise significant influence over the management and policies of the Company. BROAD DISCRETION IN USE OF PROCEEDS The net proceeds of the Offering will be used to fund the Company's research and development and will be added to the Company's working capital. Other than those outlined in this Prospectus, the Company cannot set forth with certainty additional research and development programs or other uses for the net proceeds. Accordingly, management will have broad discretion in the application of such net proceeds. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Conditions and Results of Operations." POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS AND AUTHORIZED PREFERRED STOCK Amendments to the Company's Articles of Incorporation have been approved, effective upon the closing of this Offering, which may discourage certain types of transactions involving an actual or potential change in control of the Company, including transactions in which the shareholders might otherwise receive a premium for their shares over then current market prices, and may limit the ability of the shareholders to approve transactions that they may deem to be in their best interests. The Board of Directors also has the authority to issue up to 5,000,000 shares of Preferred Stock in one or more series and to fix the rights, priorities, preferences, qualifications, limitations and restrictions, including the dividend rates, conversion rights, voting rights, terms of redemption, terms of sinking funds, liquidation preferences and the number of shares constituting any series, without any further vote or action by the shareholders, which could decrease the amount of earnings and assets available for distribution to holders of Common Stock or adversely affect the rights and powers, including voting rights, of the holders of the Common Stock. The issuance of Preferred Stock may have the effect of delaying or preventing a change in control of the Company and may adversely affect the rights of the holders of Common Stock. In October 1996, Pfizer is obligated to purchase 264,600 shares of B-2 Preferred Stock at a price per share of $7.56. In April 1998, Pfizer is obligated to purchase 304,300 shares of B-3 Preferred Stock at a price per share of $9.86, subject to Pfizer's ability to terminate the Collaboration Agreement (as defined herein) and its obligations thereunder. See "Business -- Strategic Alliances and Licenses," "Management," "Principal Shareholders," "Description of Capital Stock -- Preferred Stock" and "Description of Capital Stock -- Possible Anti-Takeover Effect of Certain Charter Provisions." NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to this Offering, there has been no public market for the Common Stock and there can be no assurance that an active trading market will develop or be sustained after this Offering. The initial public offering price for the Common Stock was determined by negotiations between the Company and PaineWebber, Needham & Company, Inc. and Sutro & Co. Incorporated. See "Underwriting." There can be no assurance that an active public market will develop or be sustained after the Offering or that the market price of the Common Stock will not decline below the public offering price. Factors such as the announcements of technological innovations or new products by the Company, its competitors and other third parties, as well as variations in the Company's results of operations, market conditions, analysts' estimates and the stock market may cause the market price of the Common Stock to fluctuate significantly. Also, future sales of shares by existing shareholders pursuant to Rule 144 of the Securities Act or through the exercise of outstanding registration rights, could have an adverse effect on the price of the Common Stock. See "Description of Capital Stock -- Amended Shareholder Rights Agreement" and "Shares Eligible for Future Sale." 13 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the 3,000,000 shares of Common Stock offered hereby are estimated to be approximately $27,300,000 ($31,400,000 if the Underwriters' over-allotment option is exercised in full), based on an assumed public offering price of $10.00 per share (the midpoint of the range set forth on the cover page of this Prospectus), and after deducting underwriting discounts and commissions and other estimated offering expenses. The Company expects to use the net proceeds, including the interest thereon, (i) to fund research and development programs (approximately 80%) and (ii) for general corporate purposes, including capital expenditures and working capital (approximately 20%). The amounts actually used for each purpose may vary significantly depending upon numerous factors, including the progress of the Company's research and development programs, the results of preclinical and clinical trials, the timing of regulatory approvals, technological advances, the commercial potential of proposed compounds and the status of competitive products. In addition, expenditures will also depend upon the establishment of collaborative research agreements with other companies, the availability of additional financing and other factors. The Company believes that its existing cash, cash equivalents and short-term investments, combined with the anticipated proceeds of this Offering and its committed future contract revenue and interest income, will be adequate to satisfy its capital requirements and to fund anticipated operating losses through 1999. Pending application of the proceeds as described above, the Company intends to invest the net proceeds of this Offering in investment-grade securities. Other than those outlined in this Prospectus, the Company cannot set forth with certainty additional research and development programs or other uses for the net proceeds. Accordingly, management will have broad discretion in the application of such net proceeds. The Company believes that it will need to raise substantial additional capital to fund its future operations. The Company intends to seek additional funding through collaborative arrangements, contract research or through public or private financings. See "Risk Factors -- Future Capital Needs; Uncertainty of Additional Funding." DIVIDEND POLICY The Company has never declared or paid dividends on its capital stock. The Company currently intends to retain any and all earnings for use in the operation and expansion of its business. The Company does not anticipate paying any dividends within the foreseeable future. 14 17 CAPITALIZATION The following table sets forth the capitalization of the Company (i) as of June 30, 1996 and (ii) as adjusted to give effect to the sale by the Company of 3,000,000 shares of Common Stock offered hereby at an assumed public offering price of $10.00 per share (the midpoint of the range set forth on the cover page of this Prospectus), less underwriting discounts and commissions and other estimated expenses of this Offering:
JUNE 30, 1996 -------------------------- ACTUAL AS ADJUSTED ---------- ----------- Long-term liabilities, less current portion........................ $ 185,047 $ 185,047 Shareholders' equity: Convertible Preferred Stock, $.001 par value: 3,491,700 shares authorized, 2,915,477 issued and outstanding actual; 5,000,000 shares authorized, none issued and outstanding as adjusted(1)................................................... 2,915 -- Common Stock, $.001 par value: 20,000,000 shares authorized, 7,109,000 shares issued and outstanding actual; 30,000,000 shares authorized, 13,024,477 shares issued and outstanding as adjusted(2)................................................... 7,109 13,024 Deferred compensation related to stock options................... (1,445,377) (1,445,377) Additional paid-in capital....................................... 8,602,100 35,899,100 Accumulated deficit.............................................. (12,105) (12,105) ---------- ----------- Total shareholders' equity(2)................................. 7,154,642 34,454,642 ---------- ----------- Total capitalization........................................ $7,339,689 $34,639,689 ========== ===========
- --------------- (1) Shares of Preferred Stock may be issued to Pfizer under its collaboration with the Company. See "Business -- Strategic Alliances and Licenses" and "Description of Capital Stock." (2) Does not include (i) 2,002,500 shares of Common Stock issuable upon exercise of options outstanding at a weighted average exercise price of $0.10 per share pursuant to the Company's stock option plans at June 30, 1996 and (ii) 1,354 shares of Common Stock issued upon exercise of options subsequent to June 30, 1996 and 11,500 shares of Common Stock issuable upon exercise of options granted subsequent to June 30, 1996. See "Management -- Benefit Plans," "Certain Transactions" and "Shares Eligible for Future Sale." 15 18 DILUTION The net tangible book value of the Company at June 30, 1996 was $7,154,642, or $0.71 per share. Net tangible book value per share represents the amount of total tangible assets of the Company less total liabilities divided by the number of shares of Common Stock outstanding, after giving effect to the conversion of the outstanding shares of Preferred Stock into shares of Common Stock. After giving effect to the sale of the 3,000,000 shares of Common Stock offered hereby at an assumed initial public offering price of $10.00 per share (the midpoint of the range set forth on the cover page of this Prospectus) and after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, the Company's net tangible book value as of June 30, 1996 would have been $34,454,642, or $2.65 per share. This represents an immediate increase in net tangible book value per share of $1.94 to existing holders and immediate dilution in net tangible book value of $7.35 per share to new investors purchasing Common Stock in this Offering. The following table illustrates the per share dilution: Assumed public offering price....................................... $ 10.00 Net tangible book value before the Offering....................... $ 0.71 Increase attributable to new investors............................ 1.94 ----- Net tangible book value after this Offering......................... 2.65 ------ Dilution of net tangible book value to new investors................ $ 7.35 ======
The following table summarizes, as of June 30, 1996, the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by the existing shareholders and by new investors (before deduction of underwriting discounts and commissions and estimated offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ---------------------- ----------------------- PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE ----------- ------- ----------- ------- --------- Existing shareholders................. 10,024,477 77.0% $ 7,116,824 19.2% $ 0.71 New investors......................... 3,000,000 23.0% 30,000,000 80.8% $ 10.00 ---------- ----- ----------- ----- Total....................... 13,024,477 100.0% $37,116,824 100.0% ========== ===== =========== =====
All of the above computations assume no exercise of outstanding options. As of June 30, 1996, options to purchase 2,002,500 shares of Common Stock were outstanding at a weighted average exercise price of approximately $0.10 per share under the Company's stock option plans. 1,354 shares of Common Stock were issued upon exercise of options subsequent to June 30, 1996 and 11,500 shares of Common Stock are issuable upon the exercise of options granted subsequent to June 30, 1996. To the extent these options become vested and are exercised, there will be further dilution to new investors. As of June 30, 1996, the Company also has an additional 473,500 shares of Common Stock reserved for issuance pursuant to the Company's stock option plans. See "Capitalization," "Management -- Benefit Plans," "Certain Transactions" and "Shares Eligible for Future Sale." 16 19 SELECTED FINANCIAL DATA The selected financial data set forth below with respect to the Company's statements of operations for each of the three years in the period ended December 31, 1995, and with respect to the Company's balance sheets at December 31, 1994 and 1995, are derived from the financial statements of the Company that have been audited by Ernst & Young LLP, independent auditors, which are included elsewhere herein and are qualified by reference to such Financial Statements and Notes related thereto. The statement of operations data for the period from inception to December 31, 1992, and the balance sheet data at December 31, 1992 and 1993, have been derived from financial statements that have been audited by Ernst & Young LLP which are not included herein. The statement of operations data for the six months ended June 30, 1995 and 1996 and the balance sheet data at June 30, 1996 have been derived from unaudited financial statements; however, management believes such financial statements include all adjustments, consisting only of normal recurring adjustments, that the Company considers necessary for a fair presentation of the financial position and results of operations for these periods. Operating results for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1996. The selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
PERIOD FROM SIX MONTHS ENDED MARCH 6, 1992 YEARS ENDED DECEMBER 31, JUNE 30, (INCEPTION) THROUGH ----------------------------------- ----------------------- DECEMBER 31, 1992 1993 1994 1995 1995 1996 ------------------- --------- --------- ----------- ---------- ---------- STATEMENT OF OPERATIONS DATA: Total revenue............... $ -- $ -- $ 204,475 $ 3,174,515 $ 621,937 $2,941,489 Costs and expenses: Research and development............. 376,753 157,101 492,513 2,831,860 1,246,189 1,982,939 General and administrative.......... 32,761 47,948 127,360 487,234 238,491 396,571 --------- --------- --------- ---------- --------- ---------- Total costs and expenses............. 409,514 205,049 619,873 3,319,094 1,484,680 2,379,510 Income (loss) from operations................ (409,514) (205,049) (415,398) (144,579) (862,743) 561,979 Interest income............. 24,285 50,743 57,798 275,564 99,230 200,795 Interest expense............ -- -- -- (5,343) (2,326) (3,386) --------- --------- --------- ---------- --------- ---------- Net income (loss)........... $(385,229) $(154,306) $(357,600) $ 125,642 $ (765,839) $ 759,388 ========= ========= ========= ========== ========= ========== Pro forma net income (loss) per share(1).............. $ (0.06) $ (0.02) $ (0.05) $ 0.01 $ (0.10) $ 0.06 ========= ========= ========= ========== ========= ========== Shares used in computing pro forma net income (loss) per share(1).............. 6,413,620 7,342,653 7,471,420 11,830,427 7,479,860 12,404,535 ========= ========= ========= ========== ========= ==========
DECEMBER 31, ---------------------------------------------------- JUNE 30, 1992 1993 1994 1995 1996 ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Cash, cash equivalents and short-term investments............................ $1,814,472 $1,739,197 $1,113,904 $6,867,245 $7,684,784 Working capital.......................... 1,674,364 1,548,896 1,049,333 6,048,413 6,724,715 Total assets............................. 1,817,879 1,741,874 1,484,911 7,343,737 8,439,891 Long-term liabilities, less current portion................................ -- -- -- 37,874 185,047 Accumulated deficit...................... (385,229) (539,535) (897,135) (771,493) (12,105) Total shareholders' equity............... 1,677,771 1,551,573 1,215,865 6,341,331 7,154,642
- --------------- (1) See Note 1 of Notes to Financial Statements for information concerning the computation of net income (loss) per share and shares used in computing net income (loss) per share. 17 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with "Selected Financial Data" and the Company's Financial Statements and Notes thereto appearing elsewhere in this Prospectus. This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Prospectus contain forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors." OVERVIEW Since inception in March 1992, Immusol has devoted substantially all of its resources to the development of its ribozyme gene therapy technology. Although Immusol was profitable in 1995, to date the Company has not received any revenues from the sale of products and does not expect to receive revenues from the sale of products for several years. The Company has incurred an accumulated deficit of approximately $12,000 through June 30, 1996. While the Company could report a profit in 1996, it anticipates that it will incur substantial and increasing losses over at least the next several years as the Company's research and development efforts, preclinical and clinical testing activities and manufacturing scale-up efforts expand. All of the Company's revenues to date have consisted of contract revenues, grant revenues and interest income. No revenues have been generated from product sales. There can be no assurance that the Company can generate sufficient product or contract revenue to achieve sustained profitability. In May 1995, the Company and Pfizer entered into a Collaboration Agreement, a License and Royalty Agreement and a Preferred Stock Purchase Agreement (together, the "Pfizer Agreements") for the discovery and development of ribozyme-based gene therapy useful in treating or preventing HIV infection. Under the Pfizer Agreements, Pfizer has agreed to provide research support, make milestone payments and equity investments which could total up to $49 million through May 2000. In addition, Pfizer has agreed to fund certain clinical trial, patent filing and patent maintenance costs. The milestone payments are based upon the achievement of specific development and regulatory milestones, which depend in part on the Company's ability, alone and/or with Pfizer, to advance the development of its HIV ribozyme gene therapy product candidates. There can be no assurance that the Company will achieve such development or regulatory milestones. Amounts received by Immusol under the Pfizer Agreements totalled approximately $11.2 million through June 30, 1996. See "Business -- Strategic Alliances and Licenses-Pfizer Inc." In September 1994, the National Institutes of Health ("NIH") awarded the University of California at San Diego ("UCSD"), Immusol and its collaborators a Strategic Program for Innovative Research on AIDS Treatment ("SPIRAT") grant totaling $4.6 million over the next four years for the development and clinical evaluation of gene therapy for HIV, of which Immusol is entitled to receive up to $508,000. Through June 30, 1996, the Company had received $439,000 under the SPIRAT grant. The Company expects to receive an additional $69,000 during fiscal year 1996 which would complete its participation in the SPIRAT grant. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 AND 1995 The Company had total revenues of $2.9 million for the six months ended June 30, 1996 compared to revenues of $622,000 for the same period in 1995. The 1996 revenues were primarily derived from the Company's collaborative arrangement with Pfizer. Revenues may fluctuate from period to period depending on the achievement of milestones under the Collaboration Agreement. Research and development expenses increased to $1,983,000 for the six months ended June 30, 1996 from $1,246,000 for the same period in 1995 primarily due to a significant increase in research and development activities, including additions to research and development personnel and the expansion of laboratory facilities. Research and development expenses are expected to continue to increase through 1996 due to the increased activities associated with the anticipated commencement of a Phase I clinical trial for 18 21 HIVase I in the United States and the expansion of preclinical and clinical testing of existing and new product development programs. General and administrative expenses increased to $397,000 during this period from $238,000 a year earlier primarily due to increases in staffing, facilities and business development expenses. General and administrative expenses are expected to continue to increase through 1996. Interest income was $201,000 for the six months ended June 30, 1996 compared to $99,000 for the same period in 1995 due to higher average cash investment balances. Interest expense was $3,400 for the six months ended June 30, 1996 compared to $2,300 for the same period in 1995 due to obligations under capital leases and long-term debt in 1996. YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 The Company had revenues of $3.2 million for the year ended December 31, 1995 compared to $204,000 in the same period in 1994. The Company had no revenues in 1993. The increase in revenues resulted primarily from the Company's collaborative arrangement with Pfizer. Research and development expenses increased to $2.8 million in 1995 from $493,000 in 1994 and $157,000 in 1993. Factors contributing to these increases include substantial increases in research and development expenditures, including additions to research and development personnel, the purchase of additional laboratory supplies, technology acquisition and maintenance costs, the expansion of laboratory facilities and increases in equipment depreciation. General and administrative expenses increased to $487,000 in 1995 from $127,000 in 1994 and $48,000 in 1993. These increases were due primarily to expansion in staffing, facilities and higher business development expenses. Interest income increased to $276,000 in 1995 from $58,000 in 1994 and $51,000 in 1993 due to interest earned on the higher average cash investment balances. Interest expense increased to $5,000 in 1995 from none in 1994 and 1993 due to obligations under capital leases. At December 31, 1995, the Company had federal tax net operating loss carryforwards of approximately $592,000, which expire beginning in 2008 unless previously utilized. Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company's net operating loss carryforwards may be limited because of cumulative changes of ownership of more than 50% which occurred within a three-year period. The Company does not believe, however, that such limitation will have a material impact on the utilization of the carryforwards. LIQUIDITY AND CAPITAL RESOURCES Since inception, Immusol has financed its operations primarily through private placements of equity securities, which provided aggregate proceeds of approximately $7.0 million through June 30, 1996, and to a lesser extent, grant funding of $531,000 under the SPIRAT and other NIH grants. Under its agreements with Pfizer, the Company has received $11.2 million in funding and could receive up to $49 million in total through May 2000. Working capital increased to $6.7 million as of June 30, 1996 compared to $6.0 million as of December 31, 1995. The increase in working capital primarily reflects net cash generated from operations of $991,000. The increase in working capital during this period may not be indicative of changes in working capital for future periods as the Company expects to use cash and working capital to fund anticipated operating losses. As of June 30, 1996, Immusol had cash, cash equivalents and short-term investments totaling $7.7 million. Through June 30, 1996, the Company has invested an aggregate of $714,000 in leasehold improvements, laboratory and office equipment and other assets, of which $58,000 has been funded through capital leases. The Company has funded the majority of its office and research and development facilities and related leasehold improvements through operating lease arrangements. In addition, the Company has in place a term loan with Silicon Valley Bank in an aggregate amount of up to $500,000 to be used by the Company to fund the purchase of laboratory, research and development and office equipment of which the Company has received proceeds of $153,000. As of June 30, 1996, the Company had no significant commitments for capital 19 22 expenditures. The Company expects its cash needs will increase significantly in future periods due to expansion of research and development programs, increased clinical testing activities, growth of research and development and administrative activities and their related equipment and space needs. The Company's operations to date have consumed substantial amounts of cash, which is expected to continue over the foreseeable future. It is the Company's intention to fund certain product research and development costs through additional collaborative relationships with suitable corporate collaborators for different disease indications other than that excluded under the Pfizer Agreements. The Pfizer Agreements restrict the Company from entering into collaborations with others with respect to research or development of ribozyme gene therapy products for treatment of AIDS/HIV infection. There can be no assurance that any such agreements will successfully reduce the Company's funding requirements. Additional equity or debt financing will be required, and there can be no assurance that such financing will be available on favorable terms, if at all. If adequate funds are not available, the Company may be required to delay, scale back or eliminate one or more of its product development programs or obtain funds through arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its technologies, product candidates or products that the Company would not otherwise relinquish. Immusol anticipates that its existing available cash, cash equivalents and short-term investments, combined with the anticipated net proceeds of this Offering and its committed future contract revenue and interest income, will be adequate to satisfy its capital requirements and fund anticipated operating losses through 1999. The Company's future capital requirements will depend on many factors, including continued scientific progress in its products and process development programs, progress with preclinical testing and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in filing patents, competing technological and market developments, changes in existing collaborative relationships, the ability of the Company to establish development arrangements, the cost of manufacturing scale-up and the establishment of effective sales and marketing arrangements. 20 23 BUSINESS SUMMARY Immusol is a biopharmaceutical company dedicated to the discovery, development and commercialization of products based on proprietary technologies in the areas of ribozyme gene therapy and ribozyme-mediated gene functional analysis. Ribozymes are naturally occurring ribonucleic acid (RNA) molecules that can be engineered to cleave and inactivate other RNA molecules in a specific, sequence-dependent fashion. Thus, ribozymes can be designed to selectively inactivate RNA molecules and their corresponding proteins that play a role in human disease. The Company intends to initiate a Phase I clinical trial with its lead compound, HIVase I, in 1996. HIVase I is being developed through a collaboration with Pfizer for the treatment of HIV-infected individuals. In addition, the Company has three other ribozyme gene therapy programs in various stages of research and preclinical development for the prevention of coronary restenosis and the treatment of hepatitis C and hepatitis B viral infections. Ribozyme therapies can be based on (i) ribozyme gene therapy which involves inserting specific sequences that lead to the production of ribozymes within the patient's cells or (ii) synthetic, chemically-modified ribozymes administered as drugs. The gene therapy approach to ribozyme therapy utilizes the patient's own cellular machinery to produce a constant and continuous supply of ribozymes inside the cell where the disease-causing gene is produced. The Company has utilized a number of different viral vectors (gene delivery vehicles), including retroviral, adeno-associated viral (AAV) and adenoviral vectors, to provide optimal periods of in vivo production of ribozymes. The Company believes that ribozyme gene therapy is a new, versatile modality which will be applicable in the treatment of a wide range of viral diseases, coronary disease, genetic diseases, cancers and other medical conditions. The Company believes its ribozyme gene therapy technology will have certain advantages over conventional drug development, including: (i) the high specificity of ribozymes can be used to inactivate certain undesirable target genes whose sequences are known; (ii) ribozymes can have application to a broad spectrum of human diseases; (iii) ribozymes can be highly potent due to their natural catalytic activity by which one ribozyme can inactivate many target molecules; and (iv) ribozymes can result in fewer side effects due to their high degree of target specificity. The Company believes its ribozyme gene therapy technology has several advantages over synthetic ribozymes, including: (i) efficient intracellular delivery and potential lack of immune response; (ii) providing a constant and continuous supply of ribozymes inside the cell; and (iii) the ability to deliver multiple ribozymes on one vector. In May 1995, the Company and Pfizer entered into a research collaboration for the discovery and development of products for ribozyme-based gene therapy useful in treating or preventing HIV infection. In preclinical studies to date, the Company has demonstrated potent activity of its multi-ribozyme gene therapy against all strains of HIV known to the Company isolated from HIV-infected individuals. In addition, the Company has found no evidence of ribozyme-resistant mutants of HIV to date. The Company intends to initiate a Phase I clinical trial with its first generation compound, HIVase I, in 1996 in HIV-infected individuals. Immusol believes that its ribozyme technology can be useful in drug discovery in conjunction with gene sequence knowledge to characterize the function of recently discovered genes that may be suitable therapeutic targets. Since ribozymes can be designed to act on specific target genetic sequences, ribozymes may be useful to identify the function of these sequences. As a result, the Company believes its ribozyme technology can provide an important link between gene dysfunction and disease. The Company was incorporated in the State of California in March 1992. BACKGROUND GENE EXPRESSION AND PROTEIN SYNTHESIS Genes are regions of DNA that contain instructions that direct cells to produce proteins, one of the basic building blocks of all cells. Genes produce, or express, proteins in a two-step process. First, information from the DNA of the gene is transcribed to ribonucleic acid ("RNA"). Second, RNA and the information 21 24 contained therein is translated into a protein. The production of a particular protein requires specific DNA and RNA molecules. Many disease states are caused by abnormal production or function of gene products such as proteins. The abnormality may be due to an inborn defective gene, due to excessive or inappropriate production of a protein by a normal gene or due to the expression of exogenous genes from infectious agents, such as viruses. Such abnormal or excessive production of a protein may have direct effects on the cells within the body or it may initiate a cascade of events involving other proteins within the body, in each case leading to disease. GENE THERAPY Gene therapy is an approach to the treatment of certain inherited and acquired diseases in which genes are delivered into a patient's cells in order to direct the cells to produce therapeutic proteins or to disrupt the production of harmful proteins. The development of vectors that can practically, efficiently and safely deliver genes into cells is one of the most critical factors for the success of gene therapy. The process of gene transfer may be accomplished either in vivo by administering the vector directly to patients or ex vivo by removing patients' cells and combining them with the vector. There are primarily two types of vectors used in gene therapy: viral vectors derived from naturally occurring viruses and non-viral vectors produced by standard recombinant DNA techniques. Viral vectors take advantage of the natural efficiency with which viruses transport their own genetic material into cells. Viral vectors are constructed by removing some or all of the harmful viral genes from the viral genome and replacing them with the desired therapeutic gene which directs RNA production by the cell. As a result of the removal of the harmful viral genes, viral vectors are capable of efficient delivery and expression of a gene, but are not capable of replication. Viral vectors have been extensively studied and most gene therapy applications involve the use of viral vectors. Drawing depicting delivery and expression of a ribozyme gene into a cell 22 25 Viral vectors have limitations that may affect their safety or efficacy. For example, viral vectors based on retroviruses (retroviral vectors) require that target cells be dividing or multiplying in order to achieve gene delivery. Because most cells in the body are not dividing or divide very slowly, and because retroviral vectors become rapidly inactivated in the blood, most clinical applications currently under evaluation employing retroviral vectors involve a complex and expensive procedure whereby patient cells are removed, are stimulated to divide and the gene is delivered to these cells ex vivo. The cells are subsequently returned to the patient. Another type of viral vector is derived from the adenovirus. Adenoviral vectors are exceptionally efficient at delivering and expressing genes to dividing and non-dividing cells for a short period of time. Adenoviral vectors, however, retain and express some genes from the naturally-occurring virus and, as a result, the body's immune system is triggered following their administration. Based on numerous preclinical animal studies and several human clinical trials in the gene therapy area performed by others, it is generally accepted that the immune response limits the length of time that gene expression can be maintained in the target cell and may lead to inflammatory responses. Safety concerns have been raised by the use of retroviral and adenoviral vectors since both vectors are derived from pathogenic viruses. During the manufacture of these viruses, there is a possibility of generating a small amount of natural virus. Although considered a low risk, such a possibility necessitates additional costly product testing. Adeno-associated virus (AAV) vectors are derived from a non-pathogenic human virus. In spite of its name, AAV is genetically unrelated to adenovirus. AAV, as it exists in nature, can only reproduce in the presence of another virus. AAV vectors are derived from the wild type virus by removing all of the viral genes and replacing them with the appropriate genetic material. Retroviral vectors randomly integrate genetic material into the target cell and AAV vectors may do the same. Any gene therapy approach that involves the random integration of genetic material into the target cell's DNA could, theoretically, cause the activation of an undesirable gene or the inactivation of a beneficial gene, although it is generally believed that such events would be rare. To the Company's knowledge, such events have not demonstrably occurred in human clinical trials using retroviral vectors. Non-viral vectors are produced by standard recombinant DNA techniques and are delivered to target cells either unmodified (naked DNA) or combined with lipids (for example, liposomes) or proteins designed to facilitate the entry of DNA into cells. Because they lack components derived from viruses, they are perceived to be safer. In addition, non-viral vectors are capable of delivering large segments of DNA to target cells. Non-viral vectors, however, are relatively inefficient at delivering genes to cells and, in general, have resulted in temporary or low levels of gene expression in target cells. Immusol believes that AAV vectors offer several potential advantages over other viral and non-viral vectors. These advantages include: (i) efficient delivery of genes to both dividing and non-dividing target cells; (ii) absence of viral genes that may be responsible for causing an undesirable immune response; (iii) capacity for long-term gene expression; (iv) capacity for in vivo administration to patients; (v) higher levels of gene expression; and (vi) improved stability allowing AAV vectors to be manufactured, stored and handled like more traditional pharmaceutical products. AAV vectors are also less complex than other viral vector systems which makes them more amenable to genetic engineering of such enabling advancements as targeting to a specific cell type. IMMUSOL RIBOZYME GENE THERAPY TECHNOLOGY Ribozymes are RNA molecules that were originally discovered in certain viruses and other organisms. Naturally-occurring ribozymes normally function to catalyze their own cleavage but can be engineered to cleave and inactivate other RNA molecules in a specific, sequence-dependent fashion. By cleaving a target RNA, ribozymes inhibit the translation of RNA into protein, thus stopping the expression of a specific gene. Ribozymes can be chemically synthesized in the laboratory and structurally modified to increase their stability and catalytic activity. Synthetic ribozymes may also be able to be formulated so that injectable administration is feasible. The Company's approach to ribozyme therapy employs a ribozyme referred to as a "hairpin" ribozyme, so named because of its shape. The Company believes hairpin ribozymes have advantages over other types of ribozymes. Unlike smaller ribozymes that may only assume a stable shape upon binding to their substrates, the larger-sized hairpin ribozymes are believed by the Company to assume such stable shape immediately after synthesis and therefore may be more resistant to ribonucleases (enzymes that degrade RNA) in the 23 26 cellular environment. In addition, unlike other ribozymes whose optimal cleavage conditions may require high temperature and high concentrations of certain cellular co-factors, the hairpin ribozyme works best under near-physiological conditions. The Company believes hairpin ribozymes to be a better choice as a human therapeutic than other ribozymes. Ribozyme gene therapy involves engineering a gene into a vector which, when delivered to the patient's cells, will direct the synthesis of a specific ribozyme. The ribozyme gene vector is then delivered in vivo by injection. The ribozyme genes are then transcribed in the patient's target cells to generate the ribozymes which in turn cleave the target RNA, inhibiting synthesis of a specific protein. The gene therapy approach to ribozyme therapy utilizes the patient's own cellular machinery to produce a constant and continuous supply of ribozymes inside the cell where the disease-causing gene is produced. The Company has utilized a number of different viral vectors to provide optimal periods of in vivo production of ribozymes. For instance, the Company's adenovirus vector does not integrate into the host genome and promotes protein expression for only a short period of time, measured in weeks. The Company's retrovirus and AAV vectors, on the other hand, integrate into the host cell genome and promote gene expression for months to years in animal models, and such expression is expected to be longer in humans due to the construction of the vector containing the human gene-controlling element. ADVANTAGES OF IMMUSOL RIBOZYME GENE THERAPY The Company believes its ribozyme technology will have certain advantages over conventional drug development: - RIBOZYMES CAN BE ENGINEERED TO INACTIVATE CERTAIN UNDESIRABLE TARGET GENES WHOSE SEQUENCES ARE KNOWN. Numerous genes and their expressed proteins have been identified as having causative roles in human diseases. Once a gene has been identified, ribozymes can generally be engineered to inhibit the expression of the associated RNA of a target gene, thereby preventing protein production. In addition, identification of new genes is rapidly increasing and it is expected that all of the genes which comprise the human genome will be identified within the current decade. - RIBOZYMES CAN HAVE APPLICATION TO A BROAD SPECTRUM OF HUMAN DISEASES. All diseases for which a causative inappropriately-expressed protein or gene target can be identified present a potential application for the Company's ribozyme technology. The Company believes that its ribozyme technology is an important bridge between the growing body of knowledge regarding the sequence of the human genome and the development of human therapeutics. - RIBOZYMES CAN BE HIGHLY POTENT DUE TO THEIR NATURAL CATALYTIC ACTIVITY. Ribozymes are not consumed in the act of cleaving the target RNA, but are catalytically-active enzymes. Therefore, one ribozyme molecule can inactivate many target RNA molecules. The Company believes that the dosage requirements for ribozymes may be reduced by engineering ribozymes to increase their rate of catalytic activity. - RIBOZYMES CAN RESULT IN FEWER SIDE EFFECTS DUE TO THEIR HIGH DEGREE OF TARGET SPECIFICITY. The mechanism by which traditional drugs act on a target gene or protein often is not well understood. Consequently, side effect profiles of such drugs are often difficult to predict and characterize. The Company believes that side effects may be reduced or avoided with ribozymes due to their high selectivity in cleaving a specific RNA target sequence. The Company believes ribozymes may be constructed with a nucleotide binding sequence that will match only one corresponding target RNA, thereby offering a high degree of specificity. In addition, the Company believes that its ribozyme gene therapy has several advantages over the direct application of synthetic ribozymes as a therapeutic: - EFFICIENT INTRACELLULAR DELIVERY AND POTENTIAL LACK OF IMMUNE RESPONSE. In order to effectively inactivate a gene for therapeutic purposes, the ribozyme must be able to penetrate into the cells of the 24 27 body. The chemical properties of ribozymes, however, do not allow the ribozymes to freely pass into the cell. Immusol has shown in preclinical studies that ribozymes can be efficiently delivered into a cell by introducing ribozyme genes with the Company's viral vectors. The cell itself then utilizes the ribozyme gene to direct the production of ribozymes. In this way, the ribozyme is present only inside cells where it can carry out its desired effect, which should prevent undesirable side effects, such as immunogenicity, that could occur if a synthetic ribozyme were directly injected into the body. - BENEFICIAL PHARMACOLOGICAL PROPERTIES. Ribozymes directly injected as a drug would be highly unstable due to the ubiquitous presence of enzymes (ribonucleases) that rapidly degrade RNA. The Company's proprietary ribozyme gene delivery and expression technology, however, should provide a constant and continuous supply of ribozymes inside the patients' cells. Therefore, ribozymes that become degraded will be replaced by newly synthesized ribozymes. As a result of this persistent synthesis and subsequent degradation, the level of ribozymes should remain constant. Direct injection of synthetic ribozymes, on the other hand, would result in variable systemic levels of the drug, with high levels present immediately after dosing followed by decreasing levels as the drug is degraded. Constant levels of ribozymes are particularly important in anti-viral therapies, where transient decreases in the ribozyme, like any drug, would favor the production of drug-resistant viruses. Additionally, the relatively stable production of ribozymes by ribozyme gene therapy should require less frequent dosing than with directly injected synthetic ribozymes. - UTILIZATION OF MULTI-RIBOZYME VECTORS. The efficacy of many therapeutic applications of ribozymes would be improved by administering multiple ribozymes, each directed against a different region of the target gene. For instance, ribozymes directed against two different sites in a virus, such as HIV, would decrease the chance of generating a ribozyme-resistant mutant virus, since such a virus would have to simultaneously contain a mutation at both sites in order to replicate. The Company has demonstrated in tissue culture that a viral vector expressing ribozyme genes directed against two different regions of the HIV RNA more effectively inhibits HIV replication than a viral vector that expresses either single ribozyme gene alone. The Company plans to test the multiple ribozyme approach with a two ribozyme gene vector in its Phase I clinical trial for HIVase I, to be initiated in 1996. The Company plans to incorporate four ribozyme genes into its second generation HIV therapeutic product. The Company's proprietary technology allows multiple ribozymes to be expressed from a single vector. HIVase I, the Company's two ribozyme gene product, which was submitted to the FDA by Dr. Flossie Wong-Staal as a physician-sponsored IND, was allowed to proceed by the FDA to Phase I clinical trials as a single product. The Company believes multi-ribozyme gene products can be evaluated and licensed for sale more easily than a combination of synthetic ribozymes which the Company believes should be evaluated individually as drugs. PRODUCT DEVELOPMENT PROGRAMS Immusol is focusing its efforts on the development of proprietary ribozyme gene therapy products. The Company is currently pursuing the following development programs:
PROGRAM REGULATORY STATUS(1) COLLABORATOR ------- ------------------------- ------------ HIV Phase I to begin in 1996 Pfizer Prevention of coronary restenosis Preclinical none Hepatitis C virus Research none Hepatitis B virus Research none
- --------------- (1) Phase I means initial human studies designed to establish the safety, dose tolerance and pharmacokinetics of a compound. Preclinical means pharmacology and toxicology testing in in vitro and in vivo models, product formulation, dosage studies and manufacturing scale-up for submission of the necessary data to comply with applicable regulations prior to commencement of human clinical trials. Research means drug optimization and testing in in vitro models. See "Government Regulation." 25 28 HIV The Center for Disease Control estimates that as of December 1995, there were one million HIV-infected individuals and over 500,000 cases of AIDS in the United States. HIV, the cause of AIDS, is spread by a transfer of bodily fluids, primarily through sexual contact, blood transfusions, sharing intravenous needles, accidental needle sticks or transmission from infected mothers to newborns. HIV is a retrovirus containing an RNA genome which is "reverse transcribed" into DNA and integrated into the host cell chromosome ("early" events in the viral life cycle). The viral DNA then generates RNA which directs the synthesis of viral proteins and ultimately more viral particles ("late" events in the viral life cycle). There are several therapies approved for the treatment of HIV infection. Reverse transcriptase inhibitors, such as AZT, inhibit early events in HIV replication. Protease inhibitors, such as Saquinavir, inhibit late events in HIV replication. Combining both types of anti-HIV drugs may be the most effective mode of treatment. The issue of drug-resistant mutations, however, remains. Immusol is developing drugs to treat HIV-infected individuals through the inhibition of both early- and late-stage HIV replication. The Company believes that both genomic RNA (present during early events) and protein-coding RNA (present during late events) of HIV should be degraded by ribozyme gene therapy and, as a result, HIV infection may be inhibited over the long-term. Drawing illustrating the HIV infectious cycle divided into early events (pre-integration) and late events (post integration) and indicates how ribozymes can inactivate both events. The Company has developed ribozymes directed against highly conserved regions seen in different strains of HIV. Furthermore, the Company's multi-ribozyme gene therapy approach will target several of these conserved sequences simultaneously in the HIV genome, minimizing the possibility of drug resistant HIV mutations. 26 29 Drawing demonstrating how multiple ribozyme genes, delivered with a single vector product, can effectively cleave and inactivate HIV RNA in an infected cell. In preclinical studies conducted to date, the Company has demonstrated potent activity of its first generation multi-ribozyme gene therapy product, HIVase I, against all tested strains of HIV isolated from HIV-infected individuals. In addition, the Company has found no evidence of ribozyme-resistant mutants of HIV to date. In May 1995, the Company and Pfizer entered into a research collaboration for the discovery and development of products for ribozyme-based gene therapy useful in treating or preventing HIV infection. The Company intends to initiate a Phase I clinical trial with HIVase I in 1996 in HIV-infected individuals. HIVase I utilizes retroviral vectors to deliver two of the Company's proprietary HIV inhibitory ribozyme genes to cells ex vivo which are then returned to the patient. The Company contemplates that its second generation multi-ribozyme gene therapy products will utilize the Company's proprietary AAV vectors for in vivo delivery of ribozyme genes for relatively long-term expression in non-dividing cells. Under the terms of the collaboration, Pfizer is responsible for conducting and funding all future clinical trial activities, if any. In addition, Pfizer will commercialize the resulting products, if any. The Company will receive royalties on the net sales of products resulting from the collaborative efforts with Pfizer and payments upon the completion of certain milestones. The Company has retained certain manufacturing rights, allowing it to co-manufacture any products resulting from the collaborative efforts with Pfizer. See "Strategic Alliances and Licenses -- Pfizer Inc." In conjunction with the Phase I clinical trial, the Company is producing clinical grade retroviral vector and gene-modified T cells under current good manufacturing practices ("cGMP"). The Company will also evaluate patients enrolled in the Phase I clinical trial for resistance to HIV replication using internally-developed technology. The Phase 1 clinical trial is a safety study that does not exclude individuals based upon sex, age or weight. 27 30 The Company is aware of other companies pursuing ribozyme approaches to treating HIV infections. See "Competition" and "Risk Factors -- Competition; Rapid Technological Change." PREVENTION OF CORONARY RESTENOSIS Angioplasty is a procedure performed on coronary artery disease patients as a less invasive and more economical alternative to open-heart bypass surgery. In the United States, over 300,000 angioplasty procedures are performed annually. Restenosis, or narrowing of the coronary arteries, affects between 30% and 50% of angioplasty patients within six months of their procedure. Restenosis is caused in part by smooth muscle cell proliferation following angioplasty. As a result, repeat angioplasty and coronary artery bypass graft surgery procedures are estimated to cost over $1 billion annually in the United States. Currently, there are no approved drugs in the United States for the treatment of vascular smooth muscle cell proliferation in coronary restenosis. Stents, artificial bridges installed in the patient's clogged coronary artery, may reduce restenosis by approximately one-third. In addition, ReoPro, a monoclonal antibody, was recently approved by the FDA for inhibition of platelet aggregation. The Company believes ReoPro is currently under investigation as a potential therapy for coronary restenosis. Intravascular radiation therapy is also being evaluated for the prevention of coronary restenosis. Other new therapeutic regimes are in preclinical and clinical development by other companies. The Company is currently pursuing the application of its ribozyme gene therapy technology to the prevention of coronary restenosis. The goal of the Company's program is to develop ribozyme gene therapy products aimed at inactivating certain critical genes involved in the proliferation of smooth muscle cells following angioplasty. The Company is pursuing this goal through two approaches: (i) ribozyme genes delivered by viral vectors and (ii) chemically modified synthetic ribozymes delivered by lipids. The Company believes that synthetic ribozymes may represent a viable alternative to ribozyme gene therapy for the specific instance of coronary restenosis since: (1) delivery will be localized to the arterial wall during angioplasty; (2) long-term persistence of the ribozyme may not be necessary; and (3) multi-ribozymes may not be necessary since normal cellular genes, which are not highly mutagenic, are targeted. To date, the Company has successfully engineered ribozyme genes into viral vectors and synthesized chemically-modified ribozymes to treat restenosis. In preclinical studies, these synthetic ribozymes reduced restenosis in a rat carotid artery restenosis model. The Company is currently optimizing ribozymes and the appropriate delivery vehicle and intends to evaluate the pharmacokinetics and toxicology of these optimized ribozymes and ribozyme vectors in a porcine model as part of its preclinical evaluation. The Company is collaborating with Frank Litvack, M.D., Co-Director of Cardiovascular Intervention Center, at Cedars-Sinai Medical Center, Los Angeles ("Cedars-Sinai") and a member of the Company's Board of Directors, on this program and retains all commercial rights to any ribozyme therapy for the prevention of restenosis. HEPATITIS C VIRUS Between 1% and 2% of the worldwide population is infected with hepatitis C. In the United States, 3 to 4 million people are infected with hepatitis C. Approximately 150,000 new cases are diagnosed annually in the United States. Currently, interferon-alpha-2b (Intron A) is the only approved therapy in the United States for treatment of hepatitis C. Intron A, however, is effective in less than 25% of those treated and often does not prevent recurrences. Additional formulations of interferon-alpha are currently in clinical trials and other new therapeutic regimes are in preclinical and clinical development by other companies. Immusol's hepatitis C program intends to inhibit viral infection using the Company's proprietary ribozyme gene therapy technology by targeting the genes necessary for the hepatitis viral life cycle. The Company intends to develop several ribozymes targeted against conserved regions of the viral genome, and intends to deliver its ribozymes genes in vivo to hepatocytes. The Company believes that the hepatitis C virus will be particularly amenable to ribozyme gene therapy since the virus replicates entirely through RNA intermediates that therefore should be susceptible to ribozyme cleavage. 28 31 To date, the Company has successfully engineered ribozyme genes directed against conserved sequences in the hepatitis C virus genome. Ribozymes produced from these genes cleave the appropriate RNA targets in vitro and the ribozyme genes inhibit gene expression in tissue culture model systems. The Company is currently formulating ribozyme genes for intracellular delivery in collaboration with Cedars-Sinai and UCSD, and retains all commercial rights to any ribozyme therapy for the prevention of hepatitis C virus. HEPATITIS B VIRUS Approximately 40% of the worldwide population has been exposed to hepatitis B, with over 300 million chronically-infected carriers worldwide. Prevalence of hepatitis B is less than 2% in developed countries. Despite the existence of an FDA approved hepatitis B vaccine, approximately 150,000 new cases are diagnosed annually in the United States. Currently, interferon-alpha-2b (Intron A) is the only approved therapy in the United States for treatment of hepatitis B. Intron A, however, is effective in less than 50% of those treated and often does not prevent recurrences. Additional formulations of interferon-alpha are currently in clinical trials and other new therapeutic regimes are in preclinical and clinical development by pharmaceutical companies. Immusol's hepatitis B program intends to inhibit virus replication using the Company's proprietary ribozyme gene therapy technology by targeting the genes necessary for the hepatitis viral life cycle. The Company is developing several ribozymes targeted against conserved regions of the viral genome, and intends to deliver its ribozyme genes in vivo to liver cells. To date, the Company has successfully engineered ribozyme genes directed against conserved sequences in the hepatitis B virus genome. Ribozymes produced from these genes cleave the appropriate RNA targets in vitro and the ribozyme genes inhibit viral particle production in tissue culture model systems. The Company is currently formulating ribozyme genes for intracellular delivery in collaboration with Cedars-Sinai and UCSD, and retains all commercial rights to any ribozyme therapy for the prevention of hepatitis B virus. OTHER IMMUSOL TECHNOLOGIES HEMATOPOIETIC STEM CELL BIOLOGY Hematopoietic stem cells are unspecialized (pluripotent) cells in the blood that give rise to differentiated blood cells. The capacity of hematopoietic stem cells for self-renewal, proliferation and differentiation into all the lineages of blood cells offers an ideal and easily accessible target for ribozyme gene therapy. Advances in the characterization, isolation, culture, gene delivery and gene expression in pluripotent stem cells can allow long-term expression of therapeutic genes in multiple cell types. The Company is developing technology for delivery and expression of genes in hematopoietic stem cells without the loss of the cells' ability to differentiate into multiple cell types. The Company believes that its proprietary ribozyme gene therapy technology can be combined with its stem cell biology capabilities to develop a new application of ribozyme gene therapy. To date, the Company has generated human stem cells transduced with anti-HIV ribozyme genes in tissue culture. Macrophages differentiated from the stem cell progenitors have proven resistant to HIV infection, indicating that ribozyme genes can be active throughout the maturation process of blood cells from stem cells. RIBOZYME-MEDIATED GENE FUNCTIONAL ANALYSIS Over the last decade, there has been an increasing awareness and growing recognition that many major diseases and health problems have a genetic basis, at least in part. The existence of genes that play an important role in cancer, cardiovascular disease, psychiatric disorders, obesity and metabolic disorders is now well-established. The goal of the human genome project is to sequence, map and identify all of the genes in the human genome. These developments have increased the number of genes discovered. Commercial application, however, necessitates the determination of the functionality of these genes. Immusol is utilizing the technologies developed for its ribozyme gene therapy to form the basis of a gene functional analysis program, Ribozyme Mediated Gene Functional Analysis ("RiMGFA"). Immusol's 29 32 expertise in ribozyme target site identification, ribozyme enzymatic optimization, polyribozyme design and ribozyme gene delivery and expression can be used to inhibit expression of target genes whose sequences have been identified but whose functions are not known. This type of analysis can help to determine gene function by identifying cellular changes that occur as a result of sequence-specific inhibition of gene expression with ribozymes in tissue culture model assay systems. The Company believes that its unique combination of efficient and stable gene delivery and the catalytic efficiency of ribozymes to inhibit gene expression can be useful in determining gene function. Immusol plans to partner its RiMGFA technology with gene discovery companies and pharmaceutical and biotechnology companies that have gene sequence information, but that need information regarding the function of the gene sequences for potential therapeutic purposes. Information gained may potentially be used by the Company for future ribozyme gene therapies. Diagram showing schematically how RIMGFA can be used to determine gene function from a gene whose sequence is known STRATEGIC ALLIANCES AND LICENSES The Company has entered into, and expects to enter into in the future, strategic alliances to facilitate the development and marketing of certain of its products. The Company seeks partners whose interests, development and marketing capabilities are complementary to those of the Company or partners that wish to pursue areas the Company would otherwise not develop. The Company expects to market and sell certain of its products, if successfully developed, directly and through co-promotion or other licensing arrangements with third parties, including its collaborative partners. PFIZER INC. In May 1995, the Company and Pfizer entered into the Collaboration Agreement, a License and Royalty Agreement ("License Agreement") and a Preferred Stock Purchase Agreement ("Stock Purchase Agreement") (together, the "Pfizer Agreements") for the discovery and development of ribozyme-based gene therapy useful in treating or preventing HIV infection. Under the Pfizer Agreements, Pfizer has agreed to provide research support, and make milestone payments and equity investments which could total up to $49 million through May 2000. In addition, Pfizer has agreed to fund certain clinical trial, patent filing and patent maintenance costs. Amounts received by Immusol under the Pfizer Agreements totalled approximately $11.2 million through June 30, 1996. 30 33 Pursuant to the License Agreement, Immusol granted to Pfizer an exclusive, worldwide license to manufacture, use and sell human therapeutic products aimed at the treatment of HIV in consideration of the payment of certain milestone payments and royalties based on net sales. Pfizer is responsible for funding expenses associated with clinical trials under the collaboration. In addition, the License Agreement provides that if Immusol or its designee has a cGMP facility of ample size to manufacture Pfizer's requirements of the products in certain countries, Immusol may, upon notice to Pfizer, elect to manufacture such products for commercialization in such countries itself or through a designee. The collaboration may be terminated by Pfizer or Immusol in the event of a material uncured breach of the terms of the contract. In addition, the Collaboration Agreement may be terminated by Pfizer if a key consultant's association with Immusol terminates and the parties are unable to agree on a mutually acceptable successor within a certain number of days. Pfizer also has the right to terminate the Collaboration Agreement after the agreement has been in effect for a certain period of months (and again a certain number of months later), upon a payment of a predetermined amount of funding to Immusol. In May 1995, Pfizer purchased 915,477 shares of Series B-1 Preferred Stock pursuant to the terms of the Stock Purchase Agreement. The Series B-1 Preferred Stock will be converted to Common Stock immediately prior to Closing of the Offering. In November 1996, Pfizer is obligated to purchase 264,600 shares of Series B-2 Preferred Stock at a price per share of $7.56. In May 1998, Pfizer is obligated to purchase 304,300 shares of Series B-3 Preferred Stock at a price per share of $9.86, subject to Pfizer's ability to terminate the Collaboration Agreement and its obligations to purchase Series B-3 Preferred Stock. In addition to the Pfizer Agreements, Pfizer is a party to an Amended Shareholders' Agreement (as defined) with the Company pursuant to which it is obligated, under certain circumstances, to purchase Common Stock from the Company concurrent with the closing of this Offering. The Amended Shareholders' Agreement provides that if the valuation of the Company upon the close of this Offering is greater than $150 million and this Offering raises at least $15 million in the aggregate, then concurrently with the closing of this Offering, Pfizer is obligated to purchase from the Company a pro rata number of shares of Common Stock based upon Pfizer's original holdings. See "Description of Capital Stock -- Amended Shareholder Rights Agreement." UNIVERSITY OF CALIFORNIA In December 1993, the Company entered into an Exclusive License Agreement with The Regents (the "Exclusive License Agreement"), pursuant to which The Regents exclusively licensed rights to the UC Technology. As consideration for the exclusive license of the UC Technology, Immusol will pay The Regents an earned royalty on net sales by Immusol of products incorporating the UC Technology and prior to sales of such products will pay to the Regents a license maintenance fee. In addition, beginning the year of the first commercial sale of a FDA approved product incorporating the UC Technology, Immusol will pay The Regents a minimum annual royalty. The Regents retain the right to terminate the agreement or to reduce the exclusive license to a nonexclusive license in the event that the Company does not satisfy certain development and regulatory milestone obligations and minimum research and development funding levels. Additional termination events include an uncured breach of the agreement by Immusol. The termination of the Exclusive License Agreement or the conversion of its exclusivity to a nonexclusive agreement would have a material adverse effect on the Company's ability to continue utilizing this technology and could permit competitors to utilize the technology. SPIRAT In September 1994, the NIH awarded UCSD, Immusol and its collaborators a SPIRAT grant totaling $4.6 million over the next four years for the development and clinical evaluation of gene therapy for HIV, of which Immusol is entitled to receive up to $508,000. Through June 30, 1996, the Company had received $439,000 under the SPIRAT grant. The Company expects to receive an additional $69,000 during fiscal year 1996 which would complete its participation in the SPIRAT grant. 31 34 MANUFACTURING As part of its strategy, the Company intends to retain certain manufacturing rights for products developed through collaborative arrangements. Consequently, the Company will be required to build and scale-up a commercial manufacturing facility. The Company currently has a clean room in its facilities that it uses to manufacture clinical grade material for clinical trials. A larger cGMP manufacturing facility will need to be developed if any Company product progresses to its first Phase II clinical trial. To date, the Company has manufactured its products only on the small scale needed for clinical trials of certain potential therapeutic products and has no experience manufacturing products for commercial purposes. The Company will need to scale-up significantly its current manufacturing processes and comply with cGMPs and other regulations prescribed by various regulatory agencies in the United States and other countries to achieve the required levels of production of such products. GOVERNMENT REGULATION Regulation by governmental authorities in the United States and foreign countries is a significant factor in the manufacture and marketing of the Company's potential products and in its ongoing research and product development activities. Virtually all the Company's products will require regulatory approval by governmental agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous preclinical and clinical testing and other approval requirements by the FDA and comparable agencies in foreign countries. The time required for completing such testing and obtaining such approvals is uncertain. Any delay in testing may delay product development. In addition, delays or rejections may be encountered based on changes in FDA or foreign regulatory policy during the period of product development and testing. Various federal statutes and regulations also regulate the manufacturing, safety, labeling, storage, record keeping and marketing of such products. The lengthy process of obtaining regulatory approvals and ensuring compliance with appropriate federal statutes and regulations requires the expenditure of substantial resources. Any delay or failure by the Company or its collaborators or licensees to obtain regulatory approval could adversely affect the commercialization of products being developed by the Company, its ability to receive product or royalty revenue and its liquidity and capital resources. Immusol will also be subject to regulations under the food and drug statutes and regulations of the State of California. Preclinical studies are generally conducted in the laboratory to evaluate the potential efficacy and the safety of a therapeutic product. The results of these studies are submitted to the FDA as part of an IND application, which must be reviewed by FDA personnel before clinical testing can begin. Once the FDA is satisfied with the submission, the clinical trial process can commence. Typically, clinical evaluation involves three sequential phases, which may overlap. During Phase I, clinical trials are conducted with a relatively small number of subjects to determine the early safety profile of a drug, as well as the pattern of drug distribution and drug metabolism by the subject. The Phase II, trials are conducted with groups of patients afflicted by a specific target disease to determine preliminary efficacy, dosage tolerance and optimal dosages, and to gather additional safety data. In Phase III, large-scale, multicenter comparative trials are conducted with patients afflicted with a specific target disease to provide data for the statistical proof of efficacy and safety as required by the FDA and others. The FDA, the clinical trial sponsor or the investigator may suspend clinical trials at any time if it believes that clinical subjects are being exposed to an unacceptable health risk. The results of preclinical and clinical testing are presently required to be submitted to the FDA in the form of a New Drug Application ("NDA") for small molecule products or a Product License Application ("PLA") accompanied by an Establishment License Application ("ELA") for biological products. In responding to an NDA, PLA or ELA, the FDA may grant marketing approval, request additional information, or deny the application if the FDA determines that the application does not satisfy its regulatory approval criteria. There can be no assurance that approvals will be granted on a timely basis, if at all. The failure to obtain timely permission for clinical testing or timely approval for product marketing would materially affect the Company. Product approvals may subsequently be withdrawn if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. The FDA may require testing and surveillance programs to monitor the effect of a new product and may prevent or limit future marketing of the product based on the results of these postmarketing programs. 32 35 In addition to regulations enforced by the FDA and the State of California, 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 similar federal, state and local regulations governing permissible laboratory activities, waste disposal handling of toxic, dangerous or radioactive materials and other matters. The Company believes that it is in compliance with such regulations. These regulations are subject to change, however, and may, in the future, require substantial effort and cost to the Company to comply with each of the regulations, and may possibly restrict the Company's business activities. For marketing outside the United States before FDA approval to market, the Company must submit an export permit application to the FDA. The Company also will be subject to foreign regulatory requirements governing human clinical trials and marketing approval for drugs. The requirements relating to the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. PATENTS AND PROPRIETARY RIGHTS Immusol relies on a combination of technical leadership, patent, trade secret and nondisclosure agreements to protect its proprietary rights. The Company has exclusive rights under its license agreement with UCSD to pending patent applications in the areas of ribozyme gene therapy for AIDS and ribozyme gene therapy for HIV infection and AIDS. In its own name, the Company has pending patent applications in the areas of viral vectors, ribozyme therapy for hepatitis B, ribozyme therapy for restenosis and hepatitis C virus ribozymes. The Company intends to file additional patent applications in the future. There can be no assurance that the Company will be issued any patents or that, if any patents are issued, they will provide the Company with significant protection or will not be challenged. Even if such patents are enforceable, the Company anticipates that any attempt to enforce its patents would be time consuming and costly. Moreover, the laws of some foreign countries do not protect the Company's proprietary rights in the products to the same extent as do the laws of the United States. The PTO has instituted changes to the United States patent law including changing the term to 20 years from the date of filing for applications filed after June 8, 1995. Certain of the above applications were filed after June 8, 1995. The Company cannot predict the effect that such changes on the patent laws may have on its business, or on the Company's ability to protect its proprietary information and sustain the commercial viability of its products. The patent positions of pharmaceutical, biotechnology and gene therapy companies, including Immusol, can be uncertain and involve complex legal and factual issues. Additionally, the coverage claimed in a patent application can be significantly reduced before the patent is issued. As a consequence, there can be no assurance that any of the Company's patent applications will result in the issuance of patents or, if any patents issue, that they will provide significant proprietary protection or will not be circumvented or invalidated. Because patent applications in the United States are maintained in secrecy until patents issue and publication of discoveries in the scientific or patent literature often lag behind actual discoveries, the Company cannot be certain that it was the first inventor of inventions covered by its pending patent applications or that it was the first to file patent applications for such inventions. Moreover, the Company may have to participate in interference proceedings declared by the PTO to determine priority of invention that could result in substantial cost to the Company, even if the eventual outcome is favorable to the Company. There can be no assurance that the Company's patents, if issued, would be held valid by a court of competent jurisdiction. An adverse outcome could subject the Company to significant liabilities to third parties, require disputed rights to be licensed from or to third parties or require the Company to cease using the technology in dispute. Specifically, the Company is aware of issued patents and patent applications in the area of ribozymes which may affect the Company's ability to make, use and sell its products. In particular, the Company is aware of a series of issued patents that purport to cover the production and use of enzymatic RNA. Immusol has investigated the breadth and validity of this series of patents to determine their impact upon the Company's product development programs. Based on its review of these patents and advice of outside patent counsel, the Company believes it does not infringe any valid claims of such patents and that these patents will not impede the advancement of the Company's programs. There can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to these patents or otherwise or that 33 36 any such assertions will not result in costly litigation or require the Company to obtain a license to intellectual property rights of such parties. There can be no assurance that any such licenses would be available on terms acceptable to the Company, if at all. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief that could effectively block the Company's ability to further develop or commercialize its products in the United States and abroad and could result in the award of substantial damages. Defense of any lawsuit or failure to obtain any such license could have a material adverse affect on the Company. Finally, litigation, regardless of outcome, could result in substantial cost to and a diversion of efforts by the Company. As part of its confidentiality procedures, the Company generally enters into nondisclosure agreements with its employees and suppliers, and limits access to and distribution of its proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Company's technology without authorization. Accordingly, there can be no assurance that the Company will be successful in protecting its proprietary technology or that Immusol's proprietary rights will preclude competitors from developing products or technology equivalent or superior to that of the Company. The Company may require additional technology to which the Company currently does not have rights. If the Company determines that this additional technology is relevant to the development of future products and further determines that a license to this additional technology is needed, there can be no assurance that the Company can obtain a license from the relevant party or parties on commercially reasonable terms, if at all. There can be no assurance that the Company can obtain any license to any technology that the Company determines it needs, on reasonable terms, if at all, or that the Immusol could develop or otherwise obtain alternate technology. The failure of the Company to obtain licenses, if needed, could have a material adverse affect on the Company. COMPETITION Immusol is engaged in a rapidly changing, highly competitive field. Other products and therapies that may compete directly with the products that the Company is seeking to develop and market currently exist or are being developed. Many other companies are actively seeking to develop products, including ribozymes and other products designed to modulate gene expression, such as antisense oligonucleotides, that have disease targets similar to those being pursued by the Company. Some of these competitive products are in clinical trials. There can be no assurance that the Company's competitors will not succeed in developing products based on ribozyme or other technologies, existing or new, that are more effective than any that are being developed by the Company, or that would render the Company's ribozyme technologies obsolete and noncompetitive. Moreover, there currently are commercially available products for the treatment of certain disease targets being pursued by the Company, including protease inhibitors and reverse transcriptase inhibitors for the treatment of HIV and Intron A for both hepatitis B and hepatitis C. ReoPro, coronary stents and intravascular radiation therapy are being evaluated for the prevention of coronary restenosis. Competition from pharmaceutical and biotechnology companies is intense and is expected to increase. Most of these companies have significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies and clinical trials, obtaining regulatory approvals and marketing than the Company. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and biotechnology companies. Many of these competitors have products that have been approved or are in development and operate large, well funded research and development programs. Academic institutions, governmental agencies and other public and private research organizations also conduct research, seek patent protection and establish collaborative arrangements for products and clinical development and marketing. These companies and institutions compete with the Company in recruiting and retaining highly qualified scientific and management personnel. In addition to the above factors, Immusol faces competition based on product efficacy, safety, timing and scope of regulatory approvals, availability of supply, marketing and sales capability, reimbursement coverage, price and patent position. There can be no assurance that the Company's competitors will not develop more 34 37 effective or more affordable products, achieve earlier product commercialization or have, or will achieve, a patent position superior to that of the Company. HUMAN RESOURCES As of July 31, 1996, Immusol had approximately 39 full-time employees, including 34 in research, development and operations, and five in finance and administration. Of these employees, 19 hold advanced degrees, of which 16 are M.D.s or Ph.D.s. The Company's employees are not represented by any collective bargaining agreements, and the Company has never experienced a work stoppage. The Company believes that its employee relations are good. FACILITIES The Company currently maintains its headquarters in leased facilities in San Diego, California, that contain all research, development and administrative functions in 19,345 square feet of space. The Company leases this space under an operating lease that lasts through June 2001. The Company believes that the existing facility will be sufficient to meet its needs through at least 1998. LEGAL PROCEEDINGS As of the date of this Prospectus, the Company is not a party to any legal proceedings. From time to time, however, Immusol may be involved in litigation relating to claims arising out of its operations in the normal course of business. 35 38 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES The executive officers, directors and key employees of the Company as of July 31, 1996, are as follows:
NAME AGE POSITION - ---- --- -------- Tsvi Goldenberg, Ph.D. ...... 46 Co-founder, Chairman of the Board and Chief Executive Officer Jack R. Barber, Ph.D. ....... 40 Vice President, Research and Development Flossie Wong-Staal, Ph.D. ... 49 Co-Founder, Director and Chairperson of the Scientific Advisory Board Mang Yu, Ph.D. .............. 39 Scientific co-founder and Director of HIV Gene Therapy J. Stanhope Blackburn........ 40 Director of Finance and Acting Chief Financial Officer Anchie Kuo, M.D. ............ 36 Director Frank Litvack, M.D. ......... 40 Co-Founder and Director Melvin Perelman, Ph.D. ...... 65 Director
TSVI GOLDENBERG, PH.D. Dr. Goldenberg is a co-founder of the Company and has served as the Company's Chairman of the Board and Chief Executive Officer since April 1994. From October 1986 through April 1994, Dr. Goldenberg served as Vice President of Research and Development at Advanced Interventional Systems, a vascular disease products company, with primary responsibility for clinical trials. Beginning in 1981, Dr. Goldenberg founded and managed a series of companies involved in the diagnosis and therapy of cardiovascular diseases, including the use of digital subtraction angiography in interventional radiology. Dr. Goldenberg received a B.S. in minerals from the Israel Institute of Technology and a Ph.D. in material science from Ohio State. JACK R. BARBER, PH.D. Dr. Barber joined the Company in September 1994 as Senior Director of Research and Development. Since January 1996, Dr. Barber has served as Vice-President, Research and Development. Prior to joining Immusol, Dr. Barber served, from February 1988 through September 1994, as Associate Director of Oncology at Viagene, Inc., a gene therapy company, where he led a team investigating various cancer therapeutics and was involved in the first clinical application of gene therapy for HIV infection. Dr. Barber received a B.S. and Ph.D. in biochemistry from the University of California, Los Angeles ("UCLA"). FLOSSIE WONG-STAAL, PH.D. Dr. Wong-Staal is a co-founder of the Company and has served as a member of the Company's Board of Directors since September 1994. Dr. Wong-Staal has served as a Professor of Medicine and Biology at UCSD since January 1990. Dr. Wong-Staal received a Ph.D. in molecular biology and a B.A. in bacteriology from UCLA. MANG YU, PH.D. Dr. Yu is a scientific co-founder of the Company and currently serves as director of HIV gene therapy. Dr. Yu established ribozyme gene therapy in Dr. Wong-Staal's laboratory from January 1992 until joining Immusol in September 1994. Dr. Yu received a Ph.D. in molecular biology from Indiana University, School of Medicine, an M.S. in biochemistry from Shanghai Medical University and a B.S. in biochemistry from Fudan University, China. J. STANHOPE BLACKBURN. Mr. Blackburn joined the Company in May 1995 as its director of finance and acting chief financial officer. Mr. Blackburn is a principal of RCG Management ("RCG"), a management services company providing financial and accounting services. Mr. Blackburn has been associated with RCG since January 1989. From October 1985 through August 1988, Mr. Blackburn was controller of Western Pacific Data Systems ("Western Pacific"), a software developer and re-seller. Prior to joining Western Pacific, he was with Arthur Andersen & Co., LLP, for eight years. Mr. Blackburn received a B.S. in accounting from the University of Illinois. ANCHIE KUO, M.D. Dr. Kuo has served as a member of the Company's Board of Directors since May 1996. Since November 1994, Dr. Kuo has served as a Managing Director of BankAmerica Ventures, a venture 36 39 capital firm. From September 1990 through November 1994, Dr. Kuo served as a general partner at Ventures Medical, a venture capital firm. Currently Dr. Kuo is Chairman of the Board of Collegiate Healthcare, Inc., a privately-held healthcare service company, as well as being a director of several other privately-held companies. Dr. Kuo received an M.D. from Dartmouth Medical School and an A.B. in economics from Dartmouth College. FRANK LITVACK, M.D. Dr. Litvack is a co-founder of the Company and has served as a member of the Company's Board of Directors since March 1992. Dr. Litvack has served as the co-director of the Cardiovascular Intervention Center at Cedars-Sinai since July 1987 and as an Associate Professor of Medicine at UCLA. Currently he is Chairman of the Board of Progressive Angioplasty Systems Inc., a privately-held medical device company. Dr. Litvack received an M.D. and D.C.S. from McGill University. MELVIN PERELMAN, PH.D. Dr. Perelman has served as a member of the Company's Board of Directors since May 1996. From December 1986 until his retirement in December 1993, Dr. Perelman served as executive vice president of Eli Lilly & Co. ("Lilly") and president of Lilly Research Laboratories. Prior to 1986, he served in a number of capacities with Lilly, beginning his career in 1957 as an organic chemist and subsequently serving as president of Lilly International. Currently, Dr. Perelman is a director of three publicly-held companies: Cinergy, Inc., an electric and gas utility company, Immune Response Corp., a biotech company and Inhale Therapeutics Systems, Inc., a drug delivery system company, as well as several privately-held companies. Dr. Perelman received a B.S. in chemistry from Northwestern University and a Ph.D. in organic chemistry from Rice University. Members of the Board of Directors hold office and serve until the next annual meeting of the shareholders of the Company or until their respective successors have been elected and qualified. The Company's By-laws authorize the Board of Directors to be comprised of not less than five nor more than nine directors. The number of directors is currently fixed at five. Executive officers are appointed by and serve at the discretion of the Board of Directors. COMMITTEES OF THE BOARD OF DIRECTORS The Company does not currently have standing Audit or Compensation Committees and the functions of those committees are performed by the entire Board of Directors. Dr. Goldenberg, the Company's Chief Executive Officer, participated in the deliberations of the Board of Directors regarding executive compensation since his hiring in 1994, but did not take part in the deliberations regarding his own compensation. Following this Offering, the Board of Directors will have two standing committees: a Compensation Committee and an Audit Committee. The Compensation Committee, consisting of Drs. Kuo, Litvack and Perelman, will provide recommendations concerning salaries and incentive compensation for executive officers and key personnel, including stock options. The Audit Committee, consisting of Drs. Kuo and Litvack, will recommend the Company's independent auditors and will review the results and scope of audit and other services provided by such auditors. 37 40 SCIENTIFIC ADVISORY BOARD The Company relies upon its scientific advisory board (the "SAB") to provide it with strategic and analytic support in developing and expanding the scope of its technologies. The SAB is composed of leading scientists who meet several times each year to review the Company's research and development activities. The following individuals are members of the SAB: Flossie Wong-Staal, Ph.D. ... Chairperson of the Scientific Advisory Board, Professor of Medicine and Biology, UCSD Ken Berns, M.D., Ph.D. ...... R.A. Rees Pritchett Professor and Chairman, Department of Microbiology, Cornell University Medical College James Forrester, M.D. ....... Chief of Research in Cardiology, Cedars-Sinai Medical Center Anthony Ho, M.D. ............ Director of Stem Cell Transplantation, UCSD David Ho, M.D. .............. Director of Aaron Diamond AIDS Research Center, New York Frank Litvack, M.D. ......... Co-Director of Cardiovascular Intervention Center at Cedars-Sinai Medical Center and Associate Professor of Medicine at UCLA Arun Srivastava, Ph.D. ...... Professor, Department of Microbiology & Immunology, Indiana University School of Medicine James Trempe, Ph.D. ......... Associate Professor, Department of Biochemistry and Molecular Biology, Medical College of Ohio
Each member of the SAB has entered into an exclusive scientific advisory board agreement, or similar agreement, with Immusol in the fields of HIV, AAV, coronary restonosis, Hepatitis B, Hepatitis C and ribozyme gene therapy ("Specialty Area"), whereby the member agrees to provide research, investigation and consultation services to the Company in exchange for the grant of stock options. The scientific advisors are employed by employers other than the Company and may have commitments to, or consulting contracts with, other entities that may limit their availability to the Company. Although generally each scientific advisor agrees not to perform services for another person or entity which would create a conflict of interest with the scientific advisor's services for the Company, there can be no assurance that such a conflict will not arise. Inventions or processes discovered by a scientific advisor in the above areas will become the property of the Company. The scientific advisory board agreements contain confidentiality and non-disclosure provisions. 38 41 EXECUTIVE COMPENSATION Summary of Cash and Certain Other Compensation The following table sets forth the aggregate compensation paid by the Company to the current Chief Executive Officer and to the one additional most highly compensated executive officer (the "Named Executive Officers") for services rendered in all capacities to the Company for the year ended December 31, 1995: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS --------------- ANNUAL COMPENSATION SECURITIES ---------------------------------- UNDERLYING NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS OPTIONS/SARS(#) - ------------------------------------------- ------- -------- ------- --------------- Tsvi Goldenberg, Ph.D. .................... 1995 $150,000(2) $35,000 -0- Chief Executive Officer and Director Jack R. Barber, Ph.D. ..................... 1995 $100,000(3) $15,000 15,000 Vice President, Research and Development
- --------------- (1) Pursuant to Instruction to Item 402(b) of Regulation S-K promulgated by the Securities and Exchange Commission (the "Commission"), information with respect to fiscal years prior to 1995 has not been included as the Company was not a reporting company pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the information has not been previously reported to the Commission in response to a filing requirement. (2) Effective January 1, 1996, Dr. Goldenberg's annual salary was increased to $200,000. (3) Effective January 1, 1996, Dr. Barber's annual salary was increased to $120,000. Stock Options The following table sets forth information concerning stock option grants made to each of the Named Executive Officers for the year ended December 31, 1995. The Company granted no stock appreciation rights ("SARs") to Named Executive Officers during 1995. See "Benefit Plans." OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE INDIVIDUAL GRANTS VALUE AT ASSUMED ------------------------------------------------------- ANNUAL RATES OF STOCK NUMBER OF % OF TOTAL PRICE APPRECIATION SECURITIES OPTIONS FOR UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(3) OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------- NAME GRANTED(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($) - --------------------------- ---------- ------------ ----------- ---------- --------- --------- Tsvi Goldenberg............ -0- 0.0% -0- -- -0- -0- Jack R. Barber(4).......... 15,000 1.8% $0.30 7/7/2005 $ 239,835 $ 384,600
- --------------- (1) All of the options were granted under the Prior Plan (as defined below). All such options have been incorporated into the Plan (as defined below) but will continue to be governed by the terms and conditions of the specific instruments evidencing those options. The shares subject to each option will immediately vest in the event the Company is acquired by a merger or asset sale, unless the Company's repurchase rights with respect to those shares are transferred to the acquiring entity. The grant dates for the above options are as follows:
NAME OPTIONS GRANTED(#) GRANT DATE --------------- ------------------ ---------- Jack R. Barber 15,000 7/7/95
(2) The exercise price per share of options granted represented the fair market value of the underlying shares of Common Stock on the dates the respective options were granted as determined by the Board of 39 42 Directors. The exercise price may be paid in cash or in shares of Common Stock valued at fair market value on the exercise date or a combination of cash or shares or any other form of consideration approved by the Board of Directors. The fair market value of shares of Common Stock has been determined in the past by the Company's Board of Directors considering all relevant factors, including the Company's book value, financial condition, the perceived markets for its products, the status of its collaborations and prospects for future business. After the effective date of the Registration Statement of which this Prospectus is a part, the fair market value of shares of Common Stock will be determined in accordance with certain provisions of the Plan based on the closing selling price per share of a share of Common Stock on the date in question on the primary exchange on which the Company's common stock is listed or reported. If shares of the Common Stock are not listed or admitted to trading on any stock exchange nor traded on the Nasdaq National Market, then the fair market value shall be determined by the Plan Administrator (as defined below) after taking into account such factors as the Plan Administrator shall deem appropriate. (3) There is no assurance provided to any executive officer or any other holder of the Company's securities that the actual stock price appreciation over the 10-year option term will be at the assumed 5% or 10% levels or at any other defined level. Unless the market price of the Common Stock does in fact appreciate over the option term, no value will be realized from the option grants made to the executive officers. Assuming the fair market value of the Common Stock at the date of grant is equal to an assumed initial public offering price of $10 (the midpoint of the range set forth on the cover page of this Prospectus), the potential realizable value of these options (a) at a 5% assumed annual rate of stock price appreciation would be $239,835 and (b) at a 10% assumed annual rate of stock price appreciation would be $384,600. (4) Options to purchase 3,750 shares became exercisable on August 23, 1995 and the remainder of options held by optionee become exercisable in 48 equal monthly installments upon completion of each month of service beginning August 23, 1995. Option Exercises and Holdings The following table provides information concerning option exercises during 1995 by the Named Executive Officers and the value of unexercised options held by each of the Named Executive Officers as of December 31, 1995. No SARs were exercised during 1995 or outstanding as of December 31, 1995. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT SHARES DECEMBER 31, 1995(#) DECEMBER 31, 1995(1) ACQUIRED ON VALUE ---------------------------- ---------------------------- NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------- ----------- -------- ----------- ------------- ----------- ------------- Tsvi Goldenberg.......... -0- -0- -0- -0- $ -0- $ -0- Jack R. Barber........... -0- -0- 45,313 99,687 $ 109,845 $ 241,655
- --------------- (1) Value is defined as fair market price of the Common Stock at fiscal year-end, less exercise price. EMPLOYMENT ARRANGEMENTS Dr. Goldenberg is employed by the Company at will under the terms of an offer letter dated April 26, 1994. Such offer letter provides, however, that in the event Dr. Goldenberg's employment is terminated as a result of mutual agreement or if the Company terminates his employment for any reason, he will receive a severance payment in an amount equal to nine months of his then-annual salary. He will also receive the Company's standard vacation, family medical and dental benefits and other benefits enjoyed by the Company's officers for a period of nine months following termination under the circumstances discussed above. 40 43 Dr. Barber is employed by the Company at will under the terms of an offer letter dated August 23, 1994. Such offer letter provides that he will receive the Company's standard vacation, family medical and dental benefits and other benefits enjoyed by the Company's officers. In addition, the offer letter entitles Dr. Barber to certain stock option grants, of which 20,000 are conditioned upon the completion of certain milestones. DIRECTOR COMPENSATION Directors are not currently compensated for serving on the Board of Directors. Dr. Wong-Staal is a party to a consulting agreement with the Company. Outside directors will also be eligible to receive stock options under the Company's 1996 Stock Option/Stock Issuance Plan following the closing of this Offering. See"-- Benefit Plans -- 1996 Stock Option/Stock Issuance Plan." See "Scientific Advisory Board" and "Certain Transactions." BENEFIT PLANS 1996 Stock Option/Stock Issuance Plan The Company's 1996 Stock Option/Stock Issuance Plan (the "Plan") was adopted by the Board of Directors and shareholders on June 27, 1996. The Plan will become effective on the effective date of a Registration Statement on Form S-8 covering the shares of Common Stock issuable under the Plan (which the Company intends to file with the Commission on the effective date of this Offering). The Plan will serve as the successor equity incentive program to the Company's 1992 Stock Plan (the "Prior Plan"), and no further option grants or stock issuances will be made under the Prior Plan following the effective date of the Plan. All outstanding stock options and unvested share issuances under the Prior Plan have been incorporated into the Plan but will continue to be governed by the terms and conditions of the specific instruments evidencing those options and issuances. In general, the Plan altered the provisions of the Prior Plan by: (1) increasing the number of authorized shares by 300,000 shares to a total of 2,600,000 authorized shares; (2) adding a Stock Issuance Program, allowing eligible individuals to purchase shares from the Company at discounts of up to 15% from the fair market value of such shares; and (3) adding other miscellaneous provisions relating to corporate changes, loans, guarantees, and tax withholding. A total of 2,600,000 shares of Common Stock are authorized for issuance under the Plan, including 2,300,000 shares available under the Prior Plan plus an additional 300,000 shares. Under the Prior Plan, 2,009,000 shares were reserved for issuance under options outstanding on July 31, 1996, leaving 465,646 shares available for future option grants or share issuances on such date. Shares reserved for issuance under granted options which are not actually issued will again become available for option grants under the terms of the Plan. The total number of shares authorized, as well as shares subject to outstanding options, will be appropriately adjusted in the event of certain changes to the Company's capital structure, such as stock dividends, stock splits or other recapitalizations. The Plan is divided into two separate programs: the option grant program and the stock issuance program. The Plan will be administered by the Board or by a committee of two or more Board members appointed by the Board (the "Plan Administrator"). The Plan Administrator will have complete discretion under the option grant program and the stock issuance program to determine which eligible individuals are to receive option grants or stock issuances, the number of shares subject to each such grant or issuance, the status of any granted option as either an incentive option (which potentially qualify for certain favorable treatment under federal tax law) or a non-statutory option, the vesting schedule to be in effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding. Participation in such programs is limited to employees (including officers), directors and consultants of the Company or its subsidiary corporations. The exercise price for each incentive stock option must be at least 100% of the fair market value of the stock on the date of the option grant. The exercise price for each non-statutory option or for any share issuance under the Plan must be at least 85% of the fair market value of the shares on the date of the option grant or stock issuance. The purchase price for any shares may be paid in cash, by delivery of shares of Common Stock or through a same-day sale program pursuant to which the purchased shares will be sold immediately and a 41 44 portion of the sale proceeds applied to the payment of the purchase price. The Plan Administrator may also permit a participant to deliver a promissory note in payment of the purchase price and any tax liability incurred in connection with the purchase. Options granted under the option grant program may be immediately exercisable for all the option shares, on either a vested or unvested basis, or may become exercisable for shares in one or more installments over the participant's period of service. Shares issued under the stock issuance program may either be fully-vested or subject to a vesting schedule tied to future service. All unvested shares will be subject to repurchase by the Company, at the original purchase price paid for such shares, upon the participant's cessation of service prior to vesting in the shares. However, the Plan Administrator will have full discretionary authority to accelerate the exercisability of any outstanding option grant or the vesting of any issued shares. Each option granted under the Plan will have a maximum term of ten years and will be subject to earlier termination in the event of the optionee's cessation of service. Incentive stock options are not assignable or transferable by the optionee except in connection with the participant's death. Other options are not assignable or transferable without the consent of the Plan Administrator. The participant will have no shareholder rights with respect to the shares subject to his or her outstanding options until such options are exercised and the purchase price is paid for the shares. The participant will, however, have full shareholder rights with respect to any shares issued under the Plan. Participants subject to federal or state tax withholding in connection with any issuance of shares under the Plan may be permitted to apply a portion of the shares issuable upon the exercise of their outstanding options to the satisfaction of the federal and state withholding taxes incurred in connection with such exercise. Alternatively, such participants may be permitted to deliver existing shares of Common Stock in satisfaction of such tax liability. In either case, the Company will pay cash to the appropriate government authority equal to the fair market value of the stock as a deposit of taxes withheld. Officers and directors of the Company may also be granted special stock appreciation rights in connection with their options under which the outstanding options can be surrendered for cancellation upon a hostile take-over of the Company in return for a cash distribution from the Company, based on the excess of the price per share paid by the acquiring entity in effecting the take-over above the option exercise price. The limited stock appreciation rights may be given to officers and directors receiving option grants. The Plan Administrator may grant other stock appreciation rights with respect to option grants. The other stock appreciation rights would provide the holders with the right to receive an appreciation distribution from the Company equal to the excess of the fair market value (on the date such right is exercised) of the shares of Common Stock in which the optionee is at the time vested under the surrendered option over the aggregate exercise price payable for such shares. Such appreciation distribution would be able to be made, at the Plan Administrator's discretion, in shares of Common Stock valued at fair market value on the exercise date, in cash or in a combination of cash and Common Stock. In the event the Company is acquired, whether by merger or asset sale, each outstanding option which is not to be assumed by the successor corporation or replaced with a comparable option to purchase the capital stock of the successor corporation will automatically accelerate in full, and all unvested shares will automatically vest, except to the extent such accelerated vesting is precluded by the terms of the agreements evidencing those unvested shares. The Plan Administrator can apply this acceleration to options outstanding under the Prior Plan. The Plan provides for the automatic acceleration of outstanding options and the vesting of unvested shares upon the following change in control events: (i) the acquisition of more than 50% of the Company's voting stock by hostile tender offer or (ii) a change in the composition of the Board effected through one or more contested Board elections, except that the Plan Administrator may at the time of a option grant or stock issuance, provide that no such acceleration shall occur. However, no unvested options or stock issuances under the Prior Plan will accelerate in connection with any such change in control unless the Plan Administrator has determined to grant such acceleration. 42 45 To the extent outstanding options terminate prior to exercise, the shares subject to those options will be available for subsequent grant. In addition, the Plan Administrator may effect cancellation/regrant programs pursuant to which outstanding options under the option grant program (including options incorporated from the Prior Plan) are cancelled and new options are granted for the same or different number of option shares at an exercise price per share not less than 85% of the fair market value of the Common Stock on the new grant date. The Board may amend or modify the Plan at any time, and may make any such amendment subject to shareholder approval. The Plan will terminate ten years from the date on which shares of the Company's Common Stock are first registered under the Exchange Act, unless sooner terminated by the Board. LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS The Company has adopted provisions in its Articles of Incorporation that eliminate to the fullest extent permissible under California law the liability of its directors to the Company for monetary damages. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. The Company's Articles of Incorporation and Bylaws provide that the Company shall indemnify its directors and officers to the fullest extent permitted under California law. In addition the Company has entered into indemnification agreements with its officers and directors which provide for indemnification in circumstances in which indemnification is otherwise discretionary under California law. In particular, such indemnification agreements contain provisions that may require the Company, among other things, to indemnify the officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from intentional or knowing and culpable violations of law) and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. The Company has obtained an insurance policy covering officers and directors for claims made that such officers or directors may otherwise be required to pay or for which the Company is required to indemnify them, subject to certain exclusions. There is no pending litigation or proceeding involving a director or officer of the Company as to which indemnification is being sought, nor is the Company aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer. 43 46 CERTAIN TRANSACTIONS Since its incorporation in March 1992, the Company sold Preferred Stock in private financings as follows: 2,000,000 shares of Series A Preferred Stock at a price of $1.00 per share; and 915,477 shares of Series B-1 Preferred Stock at a price of $5.46 per share. As of July 31, 1996, the purchasers of Preferred Stock included the following holders of more than 5% of the Company's outstanding stock (all shares of Preferred Stock are convertible into Common Stock on a one-for-one basis):
PREFERRED STOCK EXECUTIVE OFFICERS, DIRECTORS ------------------------ TOTAL AND 5% SHAREHOLDERS SERIES A SERIES B-1 CONSIDERATION ------------------------------------------------- --------- ---------- ------------- BankAmerica Ventures............................. 2,000,000 -0- $ 2,000,000 Pfizer Inc....................................... -0- 915,477 $ 4,998,504
In May 1995, Immusol and Pfizer entered into the Pfizer Agreements. In May 1995, Pfizer purchased 915,477 shares of Series B-1 Preferred Stock pursuant to the terms of the Stock Purchase Agreement. The Series B-1 Preferred Stock will be converted to Common Stock immediately prior to closing of the Offering. In October 1996, Pfizer is obligated to purchase 264,600 shares of Series B-2 Preferred Stock at a price per share of $7.56. In April 1998, Pfizer is obligated to purchase 304,300 shares of Series B-3 Preferred Stock at a price per share of $9.86, subject to Pfizer's ability to terminate the Collaboration Agreement and its obligations to purchase Series B-3 Preferred Stock. See "Business -- Strategic Alliances and Licenses" and "Description of Capital Stock." Holders of Preferred Stock are entitled to certain registration rights with respect to the Common Stock issued or issuable upon conversion thereof. See "Description of Capital Stock -- Amended Shareholder Rights Agreement." The Company has entered into certain additional transactions with its directors and officers, as described under the captions, "Management -- Executive Compensation", "Management -- Employment Arrangements" and "Management -- Scientific Advisory Board." 44 47 PRINCIPAL SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Common Stock as of July 31, 1996, and as adjusted to reflect the sale of the shares of the Common Stock offered hereby by the Company by (i) all those known by the Company to be beneficial owners of more than 5% of its outstanding Common Stock, (ii) each director and each of the Named Executive Officers of the Company and (iii) all directors and executive officers of the Company as a group.
PERCENTAGE BENEFICIALLY OWNED (2) NUMBER OF ------------------------------------ OFFICERS, DIRECTORS AND 5% SHAREHOLDERS (1) SHARES (2) PRIOR TO OFFERING AFTER OFFERING - ---------------------------------------------------- ---------- ----------------- -------------- BankAmerica Ventures (3)............................ 2,000,000 20.0% 15.4% 950 Tower Lane Suite 700 Foster City, CA 94404 Pfizer Inc. ........................................ 915,477 9.1% 7.0% Eastern Point Road Groton, CT 06340 Anchie Kuo (3)...................................... 2,000,000 20.0% 15.4% Frank Litvack (4)................................... 2,777,000 27.7% 21.3% Melvin Perelman (5)................................. 3,333 * * Flossie Wong-Staal (6).............................. 1,432,916 13.5% 10.5% Tsvi Goldenberg (7)................................. 2,822,000 28.1% 21.7% Jack R. Barber (8).................................. 74,583 * * All directors and executive officers as a group (6 persons) (9)...................................... 9,109,832 85.3% 66.6%
- --------------- * Less than 1% (1) Except as otherwise indicated, the address of all individuals listed below is: 3050 Science Park Road, San Diego, California 92121. (2) Unless otherwise indicated in the footnotes to this table and subject to the community property laws where applicable, each of the shareholders named in this table has sole voting and investment power with respect to the shares shown as beneficially owned by them. Share ownership in each case includes shares issuable on exercise of certain outstanding options held by the particular beneficial owners as described in the footnotes below. See "Certain Transactions." (3) Dr. Kuo, a director of the Company, is a Managing Director of BankAmerica Ventures. Dr. Kuo disclaims beneficial ownership of these shares. (4) Dr. Litvack is the trustee of one trust for the benefit of his children. (5) Includes 3,333 shares issuable upon exercise of stock options that are exercisable within 60 days of July 31, 1996. (6) Dr. Wong-Staal is the trustee of two trusts for the benefit of her children. Also includes 572,916 shares issuable upon exercise of stock options exercisable within 60 days of July 31, 1996. (7) Dr. Goldenberg is the custodian of three accounts for the benefit of his children. (8) Includes 74,583 shares issuable upon exercise of stock options that are exercisable within 60 days of July 31, 1996. (9) Includes 8,459,000 shares and 650,832 shares issuable upon exercise of stock options that are exercisable within 60 days of July 31, 1996. 45 48 DESCRIPTION OF CAPITAL STOCK Upon the closing of this Offering, the authorized capital stock of the Company will consist of 30,000,000 shares of Common Stock, par value $0.001 per share ("Common Stock"), and 5,000,000 shares of Preferred Stock, par value $0.001 per share ("Preferred Stock"). COMMON STOCK At June 30, 1996, there were 10,024,477 shares of Common Stock outstanding (as adjusted to reflect the conversion of all outstanding shares of Series A and Series B-1 Preferred Stock into Common Stock immediately prior to this Offering) and held of record by approximately 17 shareholders. The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. Subject to preferences that may be applicable to any outstanding shares of Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available. See "Dividend Policy." Effective immediately prior to the closing of this Offering, holders of Preferred Stock will no longer have a liquidation preference. All outstanding shares of Common Stock are fully paid and nonassessable. See "Possible Anti-Takeover Effect of Certain Charter Provisions." PREFERRED STOCK Effective immediately prior to the closing of this Offering, the Board of Directors will have the authority to issue up to 5,000,000 shares of the Preferred Stock in one or more series and to fix the rights, priorities, preferences, qualifications, limitations and restrictions, including the dividend rates, conversion rights, voting rights, terms of redemption, terms of sinking funds, liquidation preferences and the number of shares constituting any series or the designation of such series, without any further vote or action by the shareholders, which could decrease the amount of earnings and assets available for distribution to holders of Common Stock or adversely affect the rights and powers, including voting rights, of the holders of the Common Stock. The Company anticipates that the Board of Directors, pursuant to its authority to issue Preferred Stock as described above, will authorize the filing of a certificate of determination following the closing of this Offering setting forth the rights and preferences of the Series B-2 and Series B-3 Preferred Stock, which will include among other things the right to convert such Preferred Stock into Common Stock. The issuance of Preferred Stock may have the effect of delaying or preventing a change in control of the Company and may adversely affect the rights of the holders of Common Stock. In May 1995, Pfizer purchased 915,477 shares of Series B-1 Preferred Stock pursuant to the terms of the Stock Purchase Agreement. The Series B-1 Preferred Stock will be converted to Common Stock immediately prior to Closing of the Offering. In October 1996, Pfizer is obligated to purchase 264,600 shares of Series B-2 Preferred Stock at a price per share of $7.56. In April 1998, Pfizer is obligated to purchase 304,300 shares of Series B-3 Preferred Stock at a price per share of $9.86, subject to Pfizer's ability to terminate the Collaboration Agreement and its obligations to purchase Series B-3 Preferred Stock. Effective immediately prior to the closing of this Offering, there will be no shares of Preferred Stock outstanding. AMENDED SHAREHOLDER RIGHTS AGREEMENT The Company, BankAmerica Ventures and Pfizer are parties to an Amended and Restated Shareholder Rights Agreement dated as of May 3, 1995 (the "Amended Shareholders' Agreement"). Pursuant to the terms of the Amended Shareholders' Agreement, Pfizer and BankAmerica Ventures, which as of the date of this Prospectus are the holders of approximately 2,915,477 shares of Common Stock (the "Registrable Securities"), or their permitted transferrees (the "Holders") are entitled to certain rights with respect to the registration of such Registrable Securities under the Securities Act. The Amended Shareholders' Agreement provides that if the Company proposes to register any of its securities under the Securities Act for its own account, the Holders are entitled to notice of such registration and are entitled to include shares of such 46 49 Common Stock therein, provided, among other conditions, that the underwriters of any such offering have the right to limit the number of shares included in such registration. The Amended Shareholders' Agreement further provides that the Holders at least 500,000 shares of outstanding Registrable Securities have the right to demand on two occasions at any time after 180 days following the effective date of the Registration Statement of which this Prospectus is a part that the Company register all or a portion of such shares under the Securities Act for resales by such Holders. The Holders of approximately 2,915,477 shares of Registrable Securities may also request the Company to register such shares on Form S-3 when such registration form becomes available for use by the Company provided the shares registered have an aggregate market value of at least $1,000,000. Generally, the Company is required to bear the expense of all such registrations. The registration rights of the Holders expire on the date five years from the closing of this Offering. The Amended Shareholders' Agreement provides that if the valuation of the Company upon the close of this Offering is greater than $150 million and this Offering raises at least $15 million in the aggregate, then concurrently with the closing of this Offering, Pfizer is obligated to purchase from the Company a pro rata number of shares of Common Stock based upon Pfizer's original holdings. Should such pro rata purchase by Pfizer occur, the Company intends to use the proceeds consistent with the use of the net proceeds of this Offering as described under "Use of Proceeds." The Amended Shareholders' Agreement does not define a specific method for valuation of the Company. The Company expects such valuation to be made using the then current industry standards, which would likely require the Company to multiply the number of outstanding shares by the price paid by the public in this Offering. POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS The holders of Common Stock are currently entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders other than the election of directors, in which event any holder may demand cumulative voting. Under cumulative voting, the holders of Common Stock are entitled to cast for each share held the number of votes equal to the number of directors to be elected, which is currently five. A holder may cast all of his or her votes for one nominee or distribute them among any number of nominees for election. Effective immediately prior to the closing of this Offering, the Company's Articles of Incorporation will be amended to provide that the shareholders' right to cumulative voting will terminate when the Company's shares are qualified for trading on the Nasdaq National Market if the Company has at least 800 shareholders as of the record date for the most recent annual meeting of shareholders. The Company presently expects that upon consummation of this Offering, the Common Stock will be qualified for trading on Nasdaq National Market and the Company will have at least 800 shareholders. The absence of cumulative voting may have the effect of limiting the ability of minority shareholders to effect changes in the Board of Directors and, as a result, may have the effect of deterring hostile takeovers or delaying or preventing changes in control or management of the Company. Effective immediately prior to the closing of this Offering, the Company's Articles of Incorporation also will be amended to require that any action required or permitted to be taken by shareholders of the Company must be effected at a duly called annual or special meeting of shareholders and may not be effected by written consent. The Company's Articles of Incorporation and Bylaws, as amended, will further provide that newly created directorships resulting from any increase in the authorized number of directors may only be filled by a majority vote of the directors then in office. In addition, the Articles of Incorporation and Bylaws of the Company, as amended, will require that shareholders give advance notice to the Company's secretary of any directorship nominations or other business to be brought by shareholders at any shareholders' meeting. These provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of the Company. See "Risk Factors -- Concentration of Ownership; Possible Anti-Takeover Effect of Certain Charter Provisions" and "Management." TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Company's Common Stock is Continental Stock Transfer. 47 50 SHARES ELIGIBLE FOR FUTURE SALE Prior to this Offering, there has been no public market for the Common Stock. Future sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices. Upon completion of this Offering, the Company will have outstanding 13,024,477 shares of Common Stock (without taking into account shares of Common Stock issuable upon exercise of outstanding options). The 3,000,000 shares of Common Stock sold in this Offering will be freely tradeable without restriction under the Securities Act, except for any shares held by an "affiliate" of the Company, which will be subject to the resale limitations of Rule 144 under the Securities Act. The remaining 10,024,477 shares held by existing shareholders were issued by the Company in private transactions in reliance upon one or more exemptions under the Securities Act, are "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act and may be sold in compliance with such Rule, pursuant to registration under the Securities Act or pursuant to an exemption therefrom. Generally, under Rule 144, each person holding restricted securities for a period of two years may, every three months after such two-year holding period, sell in ordinary brokerage transactions or to market makers an amount of shares equal to the greater of one percent of the Company's then outstanding Common Stock (approximately 130,000 shares immediately after this Offering) or the average weekly trading volume during the four weeks prior to the proposed sale. In addition, sales under Rule 144 may be made only through unsolicited "broker's transactions" or to a "market maker" and are subject to various other conditions. The limitation on the number of shares which may be sold under the Rule and the "broker's transaction" requirement do not apply to restricted securities sold for the account of a person who is not and has not been an "affiliate" of the Company (as that term is defined in the Act) during the three months prior to the proposed sale and who has beneficially owned the securities for at least three years. Of the outstanding shares, 7,045,000 shares are currently freely tradeable without limitation under Rule 144, subject to the lock-up period described below. Shareholders owning an aggregate of 9,574,477 shares of Common Stock, representing approximately 96% of the total shares outstanding (and 1,847,500 shares issuable upon exercise of outstanding options), including shares held by all employees, officers and directors and certain other shareholders of the Company, have agreed not to directly or indirectly offer, sell, contract to sell, grant any option to purchase, transfer or otherwise dispose of or make a distribution of any of their shares or securities exercisable or convertible into or exchangeable for the Common Stock without the prior written consent of PaineWebber for a period of 180 days after the date of this Prospectus. Any employee, officer or director of or consultant to the Company who purchased his or her shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701, which permits nonaffiliates to sell their Rule 701 shares without having to comply with the public information, holding period, volume limitation or notice provisions of Rule 144 and permits affiliates to sell their Rule 701 shares without having to comply with Rule 144's holding period restrictions. An aggregate of 124,000 shares of Common Stock issued on exercise of stock options will be tradeable pursuant to Rule 701 subject to the lock-up period described above. Such options were exercised at prices below the initial public offering price. As of June 30, 1996, 124,000 shares are outstanding under the Prior Plan, 2,002,500 shares of Common Stock are subject to outstanding options and 473,500 additional shares are reserved for issuance under the Company's stock option plans. See "Management -- Benefit Plans." The Company intends to file a registration statement under the Securities Act on Form S-8 covering an aggregate of approximately 2,600,000 shares of Common Stock reserved for issuance under the Plan. Such registration statement is expected to be filed on the effective date of this Offering and will automatically become effective upon filing. Accordingly, shares registered under such registration statement will be available for resale by nonaffiliates in the public market, subject to any vesting restrictions with the Company or any contractual restrictions. 48 51 UNDERWRITING The Underwriters named below (the "Underwriters"), for whom PaineWebber Incorporated, Needham & Company, Inc. and Sutro & Co. Incorporated are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement among the Company and the Underwriters (the "Underwriting Agreement"), to purchase from the Company, and the Company has agreed to sell to the Underwriters, the number of shares of Common Stock set forth opposite their names below at the price per share set forth on the cover page of this Prospectus under "Proceeds to Company":
NUMBER OF UNDERWRITER SHARES ------------------------------------------------------------------ ---------- PaineWebber Incorporated.......................................... Needham & Company, Inc............................................ Sutro & Co. Incorporated.......................................... --------- Total................................................... 3,000,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters to purchase the shares of Common Stock listed above are subject to certain conditions. The Underwriters are committed to purchase all of the shares of Common Stock offered by this Prospectus (other than those covered by the over-allotment option described below), if any are purchased. The Underwriting Agreement provides that, in the event of a default by an Underwriter, in certain circumstances, the purchase commitments of non-defaulting Underwriters may be increased or the Underwriting Agreement may be terminated. The Representatives have advised the Company that the Underwriters propose to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus and to selected dealers at such price less a concession not in excess of $ per share, and that the Underwriters and such dealers may reallow a concession to other dealers, including the Underwriters, not in excess of $ per share. After the commencement of the public offering of the shares of Common Stock, the initial public offering price, the concessions to selected dealers and the discount to other dealers may be changed by the Representatives. The Company has granted the Underwriters an option, expiring at the close of 30 business days after the date of this Prospectus, to purchase up to 450,000 additional shares of Common Stock from the Company at the initial public offering price set forth on the cover page of this Prospectus less the underwriting discounts and commissions. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Common Stock as the percentage it was obligated to purchase pursuant to the Underwriting Agreement. The Underwriters may exercise the option only to cover over-allotments, if any, made in connection with the offering of the shares of Common Stock offered hereby. The Company, its directors and all employees and certain of the Company's current shareholders have agreed not to offer, sell or otherwise dispose of any shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of PaineWebber. See "Shares Eligible for Future Sale." The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. 49 52 The Underwriters do not intend to confirm sales of the Common Stock offered hereby to any accounts over which they exercise discretionary authority. Prior to this Offering, there has been no public market for the Common Stock. The initial public offering price of the Common Stock was determined by negotiations between the Company and the Representatives. Among the factors considered in determining the initial public offering price were the technology base of the Company, the quality and experience of the Company's scientific talent, the previous experience of the Company's executive officers, the medical and research applications and potential markets to be addressed by the Company's product development programs, the market prices of publicly traded stock of comparable companies in recent periods and the general condition of the securities markets at the time of the Offering. The initial public offering price set forth on the cover page of this Prospectus should not be considered an indication of the actual value of the Common Stock. Such price is subject to change as a result of market conditions and other factors and no assurance can be given that the Common Stock can be sold. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Brobeck, Phleger & Harrison LLP, San Diego, California. Certain legal matters will be passed upon for the Underwriters by Shearman & Sterling, San Francisco, California. EXPERTS The financial statements of Immusol, Inc. at December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995 appearing in this Prospectus have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act, with respect to the Common Stock offered hereby. This Prospectus, which is part of the Registration Statement, 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 the Common Stock offered hereby, reference is hereby made to such Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus regarding the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may be obtained at prescribed rates from the Commission's Public Reference Section at such addresses. Also, the Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. Upon approval of the Common Stock for quotation on the Nasdaq National Market, such reports, proxy and information statements and other information also can be inspected at the office of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. 50 53 IMMUSOL, INC. INDEX TO FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors...................................... F-2 Balance Sheets at December 31, 1994 and 1995 and at June 30, 1996 (Unaudited).......... F-3 Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 (Unaudited).............................. F-4 Statements of Shareholders' Equity for the years ended December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1996 (Unaudited)............................... F-5 Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 (Unaudited).............................. F-6 Notes to Financial Statements.......................................................... F-7
F-1 54 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders Immusol, Inc. We have audited the accompanying balance sheets of Immusol, Inc. as of December 31, 1994 and 1995, and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Immusol, Inc. at December 31, 1994 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Diego, California June 27, 1996 F-2 55 IMMUSOL, INC. BALANCE SHEETS
UNAUDITED PRO FORMA SHAREHOLDERS' DECEMBER 31, EQUITY AT ------------------------- JUNE 30, 1994 1995 1996 ---------- ---------- JUNE 30, ------------------- 1996 ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents......... $1,113,904 $1,414,163 $ 1,628,235 Short-term investments (Note 3)... -- 5,453,082 6,056,549 Other current assets.............. 204,475 145,700 140,133 ---------- ---------- ---------- Total current assets................ 1,318,379 7,012,945 7,824,917 Property and equipment, net (Note 4)................................ 56,011 282,135 302,023 Other assets........................ 110,521 48,657 312,951 ---------- ---------- ---------- $1,484,911 $7,343,737 $ 8,439,891 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.................. $ 269,046 $ 499,783 $ 557,506 Accrued expenses.................. -- 18,113 95,533 Deferred contract revenue (Note 2)............................. -- 436,330 436,330 Current portion of capital lease obligations.................... -- 10,306 10,833 ---------- ---------- ---------- Total current liabilities........... 269,046 964,532 1,100,202 Capital lease obligations, less current portion (Note 5).......... -- 37,874 32,322 Long-term debt (Note 5)............. -- -- 152,725 Commitments (Note 5) Shareholders' equity (Note 6): Preferred stock, $.001 par value; 3,491,700 shares authorized (5,000,000 shares pro forma), issuable in series: Series A convertible; 2,000,000 shares authorized, issued and outstanding (no shares pro forma), liquidation preference of $2,000,000.................. 2,000 2,000 2,000 $ -- Series B-1 convertible; 1,491,700 shares authorized; 915,477 shares issued and outstanding (no shares pro forma), liquidation preference of $4,998,504..................... -- 915 915 -- Common stock, $.001 par value; 20,000,000 shares authorized, 7,045,000, 7,069,000 and 7,109,000 shares issued and outstanding at December 31, 1994 and 1995 and June 30, 1996, respectively (30,000,000 shares authorized and 10,024,477 shares issued and outstanding pro forma)......... 7,045 7,069 7,109 10,024 Deferred compensation............. -- -- (1,445,377) (1,445,377) Additional paid-in capital........ 2,103,955 7,102,840 8,602,100 8,602,100 Accumulated deficit............... (897,135) (771,493) (12,105) (12,105) ---------- ---------- ---------- ---------- Total shareholders' equity.......... 1,215,865 6,341,331 7,154,642 $ 7,154,642 ========== ---------- ---------- ---------- $1,484,911 $7,343,737 $ 8,439,891 ========== ========== ==========
See accompanying notes. F-3 56 IMMUSOL, INC. STATEMENTS OF OPERATIONS
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, --------------------------------------- ------------------------- 1993 1994 1995 1995 1996 --------- --------- ----------- --------- ----------- (UNAUDITED) Total revenue (Note 2)..... $ -- $ 204,475 $ 3,174,515 $ 621,937 $ 2,941,489 Costs and expenses: Research and development......... 157,101 492,513 2,831,860 1,246,189 1,982,939 General and administrative...... 47,948 127,360 487,234 238,491 396,571 --------- --------- ----------- --------- ----------- Total costs and expenses... 205,049 619,873 3,319,094 1,484,680 2,379,510 --------- --------- ----------- --------- ----------- Income (loss) from operations............... (205,049) (415,398) (144,579) (862,743) 561,979 Interest income............ 50,743 57,798 275,564 99,230 200,795 Interest expense........... -- -- (5,343) (2,326) (3,386) --------- --------- ----------- --------- ----------- Net income (loss).......... $(154,306) $(357,600) $ 125,642 $(765,839) $ 759,388 ========= ========= =========== ========= =========== Pro forma net income (loss) per share................ $ (0.02) $ (0.05) $ 0.01 $ (0.10) $ 0.06 ========= ========= =========== ========= =========== Shares used in computing pro forma net income (loss) per share......... 7,342,653 7,471,420 11,830,427 7,479,860 12,404,535 ========= ========= =========== ========= ===========
See accompanying notes. F-4 57 IMMUSOL, INC. STATEMENTS OF SHAREHOLDERS' EQUITY
PREFERRED STOCK ------------------------------------- SERIES A SERIES B COMMON STOCK ADDITIONAL ------------------ ---------------- ------------------ PAID-IN NOTE DEFERRED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION --------- ------ ------- ------ --------- ------ ---------- ---------- ------------ Balance at December 31, 1992... 2,000,000 $2,000 -- $ -- 6,045,000 $6,045 $2,054,955 $ -- $ -- Issuance of common stock..... -- -- -- 1,000,000 1,000 49,000 (50,000) -- Reduction in note receivable................. -- -- -- -- -- -- -- 28,108 -- Net loss..................... -- -- -- -- -- -- -- -- -- --------- ------ ------- ---- --------- ------ ---------- -------- --------- Balance at December 31, 1993... 2,000,000 2,000 -- -- 7,045,000 7,045 2,103,955 (21,892) -- Reduction in note receivable................. -- -- -- -- -- -- -- 21,892 -- Net loss..................... -- -- -- -- -- -- -- -- -- --------- ------ ------- ---- --------- ------ ---------- -------- --------- Balance at December 31, 1994... 2,000,000 2,000 -- -- 7,045,000 7,045 2,103,955 -- -- Issuance of common stock..... -- -- -- -- 24,000 24 1,296 -- -- Issuance of Series B convertible preferred stock...................... -- -- 915,477 915 -- -- 4,997,589 -- -- Net income................... -- -- -- -- -- -- -- -- -- --------- ------ ------- ---- --------- ------ ---------- -------- --------- Balance at December 31, 1995... 2,000,000 2,000 915,477 915 7,069,000 7,069 7,102,840 -- -- Issuance of common stock (unaudited)................ -- -- -- -- 40,000 40 3,960 -- -- Deferred compensation related to issuance of stock options (unaudited)........ -- -- -- -- -- -- 1,495,300 -- (1,495,300) Amortization of deferred compensation (unaudited)... -- -- -- -- -- -- -- -- 49,923 Net income (unaudited)....... -- -- -- -- -- -- -- -- -- --------- ------ ------- ---- --------- ------ ---------- -------- --------- Balance at June 30, 1996 (unaudited).................. 2,000,000 $2,000 915,477 $915 7,109,000 $7,109 $8,602,100 $ -- $(1,445,377) ========= ====== ======= ==== ========= ====== ========== ======== ========= TOTAL ACCUMULATED SHAREHOLDERS' DEFICIT EQUITY ----------- ------------- Balance at December 31, 1992... $(385,229) $ 1,677,771 Issuance of common stock..... -- -- Reduction in note receivable................. -- 28,108 Net loss..................... (154,306) (154,306) --------- ---------- Balance at December 31, 1993... (539,535) 1,551,573 Reduction in note receivable................. -- 21,892 Net loss..................... (357,600) (357,600) --------- ---------- Balance at December 31, 1994... (897,135) 1,215,865 Issuance of common stock..... -- 1,320 Issuance of Series B convertible preferred stock...................... -- 4,998,504 Net income................... 125,642 125,642 --------- ---------- Balance at December 31, 1995... (771,493) 6,341,331 Issuance of common stock (unaudited)................ -- 4,000 Deferred compensation related to issuance of stock options (unaudited)........ -- -- Amortization of deferred compensation (unaudited)... -- 49,923 Net income (unaudited)....... 759,388 759,388 --------- ---------- Balance at June 30, 1996 (unaudited).................. $ (12,105) $ 7,154,642 ========= ==========
See accompanying notes. F-5 58 IMMUSOL, INC. STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30 ------------------------------------- ----------------------- 1993 1994 1995 1995 1996 ---------- ---------- ----------- ---------- ---------- (UNAUDITED) OPERATING ACTIVITIES Net income (loss)................... $ (154,306) $ (357,600) $ 125,642 $ (765,839) $ 759,388 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization..... 730 7,917 50,395 15,212 40,942 Stock issued for consulting services..................... 28,108 21,892 -- -- -- Stock compensation expense..... -- -- -- -- 49,923 Changes in operating assets and liabilities: Other current assets......... -- (204,475) 58,775 (65,899) 5,567 Accounts payable............. 50,193 78,745 230,737 186,120 57,724 Accrued expenses............. -- -- 18,113 115,887 77,420 Deferred contract revenue.... -- -- 436,330 773,438 -- ------- ------- ------- ------ ------ Net cash provided by (used in) operating activities.............. (75,275) (453,521) 919,992 258,919 990,964 INVESTING ACTIVITIES Purchases of property and equipment......................... -- (62,282) (219,012) (24,106) (60,648) Purchases of short-term investments....................... -- -- (6,453,082) (2,405,265) (1,903,467) Proceeds from maturities of short-term investments............ -- -- 1,000,000 -- 1,300,000 Other assets........................ -- (109,490) 61,864 (1,000) (264,476) ------- ------- ------- ------ ------ Net cash used in investing activities........................ -- (171,772) (5,610,230) (2,430,371) (928,591) FINANCING ACTIVITIES Payments on capital lease obligations....................... -- -- (9,327) -- (5,026) Proceeds from long-term debt........ -- -- -- -- 152,725 Proceeds from issuance of Series B convertible preferred stock....... -- -- 4,998,504 4,998,504 -- Proceeds from issuance of common stock............................. -- -- 1,320 1,320 4,000 ------- ------- ------- ------ ------ Net cash provided by financing activities........................ -- -- 4,990,497 4,995,277 151,699 ------- ------- ------- ------ ------ Net increase (decrease) in cash and cash equivalents.................. (75,275) (625,293) 300,259 2,823,825 214,072 Cash and cash equivalents at beginning of period............... 1,814,472 1,739,197 1,113,904 1,113,904 1,414,163 ------- ------- ------- ------ ------ Cash and cash equivalents at end of period............................ $1,739,197 $1,113,904 $ 1,414,163 $3,937,729 $1,628,235 ======= ======= ======= ====== ====== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Property and equipment acquired under capital lease obligations... $ -- $ -- $ 57,507 $ 57,507 $ -- ======= ======= ======= ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid....................... $ -- $ -- $ 5,343 $ 2,326 $ 3,386 ======= ======= ======= ====== ======
See accompanying notes. F-6 59 IMMUSOL, INC. NOTES TO FINANCIAL STATEMENTS (INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Immusol, Inc. (the "Company") was incorporated in California on March 6, 1992. The Company is a biopharmaceutical company dedicated to the discovery, development and commercialization of products based on its proprietary technologies in the area of ribozyme gene therapy and ribozyme-mediated gene functional analysis. INTERIM FINANCIAL INFORMATION The financial statements at June 30, 1996 and for the six-month periods ended June 30, 1995 and 1996 are unaudited, but include all adjustments (consisting only of normal recurring adjustments) which management considers necessary for a fair statement of the financial position at such dates and the operating results and cash flows for those periods. Results for interim periods are not necessarily indicative of results for the entire year or any future periods. CONCENTRATION OF CREDIT RISK The Company invests its excess cash in U.S. Government securities and debt instruments of corporations with strong credit ratings. The Company has established guidelines relative to diversification of its cash investments and their maturities that should maintain liquidity and safety. The Company has not experienced any losses on these investments. In 1995, 92% of the Company's revenue was related to a single collaborative research and development agreement with Pfizer, Inc., a related party (Note 2). CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents. SHORT-TERM INVESTMENTS The Company accounts for its short-term investments in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. In accordance with SFAS No. 115, available-for-sale securities are carried at fair value, with unrealized gains and loses, net of tax, reported in shareholders' equity. At December 31, 1995 and June 30, 1996, the net unrealized losses were not material. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest on securities classified as available-for-sale is included in interest income. PROPERTY AND EQUIPMENT Property and equipment consist primarily of laboratory and office equipment and leasehold improvements and are stated at cost. Depreciation and amortization are calculated using the straight-line method over an estimated useful life of five years, or the lease term, as appropriate. F-7 60 IMMUSOL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) ACCOUNTING STANDARD ON IMPAIRMENT OF LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted SFAS No. 121 effective January 1, 1996 and such adoption had no effect on the financial statements. RESEARCH AND DEVELOPMENT REVENUE Revenue under collaborative research agreement is recognized over the term of the agreement or upon the achievement of certain milestones. Payments received in excess of amounts earned are classified as deferred revenue. STOCK OPTIONS The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related Interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. HISTORICAL NET INCOME (LOSS) PER SHARE Except as noted below, historical net income (loss) per share is computed using the weighted average number of common shares outstanding. Common equivalent shares from stock options, warrants and convertible preferred stock are also included in the shares used in computing net income per share. Such common equivalent shares are excluded from the computation of net loss per share as their effect is antidilutive. In addition, pursuant to the Securities and Exchange Commission Staff Accounting Bulletins, common and common equivalent shares issued during the period beginning twelve months prior to the initial filing of the proposed public offering at prices substantially below the initial public offering price have been included in the calculation of historical net income (loss) per share as if they were outstanding for all periods presented (using the treasury stock method and the assumed public offering price for stock options and warrants and the if-converted method for convertible preferred stock). Historical net income (loss) per share information is as follows:
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ---------------------------- ----------------- 1993 1994 1995 1995 1996 ------ ------ ------ ------ ------ Net income (loss) per share................... $(0.02) $(0.05) $0.01 $(0.10) $0.06 ====== ====== ======= ====== ======= Shares used in computing net income (loss) per share (in thousands)........................ 7,343 7,471 11,830 7,480 12,405 ====== ====== ======= ====== =======
PRO FORMA NET INCOME (LOSS) PER SHARE AND UNAUDITED PRO FORMA SHAREHOLDERS' EQUITY Pro forma net income per share is unchanged from historical net income per share as described above. Pro forma net loss per share has been computed as described above and also gives effect to the conversion of the preferred shares, which will automatically convert upon completion of the Company's initial offering, using the if-converted method from the original date of issuance. If the offering contemplated by this Prospectus is consummated, all of the convertible preferred stock outstanding as of the closing date will automatically be F-8 61 IMMUSOL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) converted into 2,915,477 shares of common stock, based on the shares of convertible preferred stock outstanding at June 30, 1996. Unaudited pro forma shareholders' equity at June 30, 1996, as adjusted for the conversion of preferred stock, is disclosed in the accompanying balance sheet. 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. 2. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT In May 1995, the Company and Pfizer, Inc. ("Pfizer") entered into a Collaborative Agreement, a License and Royalty Agreement and a Preferred Stock Agreement (together, the "Pfizer Agreements") for ribozyme-based gene therapy useful in treating or preventing HIV infection. Pursuant to the Preferred Stock Agreement, Pfizer purchased 915,477 shares of the Company's Series B-1 Preferred Stock at $5.46 per share. In addition, the Pfizer Agreements provide for additional purchases of Series B-2 Preferred Stock of 264,600 shares at $7.56 per share and Series B-3 Preferred Stock of 304,300 shares at $9.86 per share in October 1996 and April 1998, respectively. Under the Pfizer Agreements, Pfizer has agreed to provide research support, make milestone payments and equity investments which could total up to $49 million through May 2000. In addition, Pfizer has agreed to fund certain clinical trial and patent filing and maintenance costs. Amounts received by Immusol under the Pfizer Agreements totalled approximately $11.2 million through June 30, 1996. The agreement may be terminated at certain intervals with advance notice upon payment of a predetermined amount to the Company. 3. SHORT-TERM INVESTMENTS Investments consist of debt securities with maturities greater than three months at the date of purchase. The following is a summary of available-for-sale securities at cost (which approximates market):
DECEMBER 31, JUNE 30, 1995 1996 ------------ ---------- U.S. treasury notes........................................ $ 801,215 $ -- Corporate debt securities.................................. 4,651,867 6,056,549 ---------- ---------- Short-term investments................................ $5,453,082 $6,056,549 ========== ==========
Maturities of short-term investments are as follows:
DECEMBER 31, JUNE 30, 1995 1996 ------------ ---------- 1996....................................................... $3,054,414 $ 755,747 1997....................................................... 2,398,668 3,788,297 1998....................................................... -- 1,512,505 ---------- ---------- $5,453,082 $6,056,549 ========== ==========
F-9 62 IMMUSOL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31, -------------------- JUNE 30, 1994 1995 1996 ------- -------- -------- Laboratory equipment................................ $60,249 $294,101 $338,149 Office equipment.................................... 3,864 27,448 44,049 Leasehold improvements.............................. -- 18,719 18,719 ------- -------- -------- 64,113 340,268 400,917 Less accumulated depreciation and amortization...... (8,102) (58,133) (98,894) ------- -------- -------- $56,011 $282,135 $302,023 ======= ======== ========
Included in laboratory equipment is $57,507 of equipment under a capital lease. Accumulated depreciation related to this asset at December 31, 1995 and June 30, 1996 amounted to $12,459 and $17,253, respectively. 5. COMMITMENTS LEASE OBLIGATIONS The Company leased its offices and laboratory facility under a noncancellable operating lease which expired in June, 1996. Thereafter, the Company entered into a new facilities noncancellable operating lease which expires in June, 2001. These leases require the Company to pay for all maintenance, insurance and property taxes. The Company has the option to terminate the lease after two years with prior notice. The Company leases equipment under both capital and operating lease agreements. Future minimum payments at December 31, 1995 are as follows:
CAPITAL LEASE OPERATING OBLIGATIONS LEASES ------------- --------- Year ending December 31, 1996.................................................... $ 14,670 $192,526 1997.................................................... 14,670 61,626 1998.................................................... 14,670 22,586 1999.................................................... 14,670 -- ----- ------ 58,680 $276,738 ====== Less amount representing interest......................... (10,500) ----- Present value of net minimum payments..................... 48,180 Less current portion...................................... (10,306) ----- Long-term capital lease obligations....................... $ 37,874 =====
Rent expense was approximately $67,000 and $318,000 for the years ended December 31, 1994 and 1995, respectively, and $151,000 and $178,000 for the six months ended June 30, 1995 and 1996, respectively. LICENSING AND RESEARCH AGREEMENT The Company has entered into a licensing agreement with a university under which it has obtained exclusive licenses to technology, or technology claimed, in certain patents or patent applications. The Company is required to make payments of royalties on future sales of products which employ the technology, F-10 63 IMMUSOL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) or technology claimed, under this agreement. Upon commercial sale of licensed products, the Company is required to pay certain minimum royalty payments. LONG-TERM DEBT In April 1996, the Company executed an equipment term loan with a financial institution. The Company can borrow up to $500,000 through December 31, 1996 at the Prime Rate plus 1.5% (9.75% at June 30, 1996), when the balance at that date converts to a 42 month term loan with monthly installments including interest at a fixed rate determined at the U.S. Treasury Note rate plus 4.25%. The note payable is fully collateralized by the related equipment. As of June 30, 1996, the Company had borrowings of $152,725 against this facility. 6. SHAREHOLDERS' EQUITY COMMON STOCK The majority of the outstanding shares of common stock have been issued to founders and directors of, and consultants to, the Company. In connection with a certain stock purchase agreement, the Company has the option to repurchase, at the original issue price, the unvested shares in the event of termination of services. Shares issued under this agreement vest over a period no longer than five years. At December 31, 1995 and June 30, 1996, 395,833 and 333,333 shares, respectively, were subject to repurchase by the Company. CONVERTIBLE PREFERRED STOCK The holders of Series A and Series B-1 preferred stock are entitled to receive noncumulative dividends at the rate of $0.08 and $0.44 per share, respectively, per annum, or if greater, an amount equal to that paid on any other outstanding shares of the Company, payable when, as and if, declared by the Board of Directors. As of December 31, 1995, no dividends have been declared. The Series A and Series B-1 preferred stock, which have equal priority over any other stock issuance, have liquidation preferences of $1.00 and $5.46 per share, respectively, plus any declared but unpaid dividends. The Company currently does not anticipate paying any dividends within the foreseeable future. At the option of the holder, the Series A and Series B-1 preferred stock are convertible into common shares on a one-for-one basis, subject to adjustment for antidilution, and will automatically convert into common shares concurrent with the closing of qualified underwritten public offering of common stock. The preferred shareholders have voting rights equal to the common shares they would own upon conversion. The Company has reserved 2,915,477 shares of common stock for issuance upon the conversion of the Series A and Series B convertible preferred stock. 1996 STOCK OPTION PLAN/STOCK ISSUANCE PLAN In 1992, the Company adopted the 1992 Stock Plan. During 1995, the Plan was amended to increase the number of shares available under the Plan to 2,300,000. The Company's 1996 Stock Option/Stock Issuance Plan (the "Plan") was adopted by the Board of Directors and shareholders on June 27, 1996. The Plan will serve as the successor equity incentive program to the Company's 1992 Stock Plan (the "Prior Plan"), and no further option grants or stock issuances will be made under the Prior Plan following the effective date of the Plan. All outstanding stock options and unvested share issuances under the Prior Plan have been incorporated into the Plan but will continue to be governed by the terms and conditions of the specific instruments evidencing those options and issuances. A total of 2,600,000 shares of Common Stock are authorized for issuance under the Plan, including 2,300,000 shares available under the Prior Plan plus an additional 300,000 shares. The Plan provides for the grant of incentive and nonstatutory stock options, stock bonuses and rights to purchase stock to employees, directors or consultants of the Company. The Plan provides that incentive stock F-11 64 IMMUSOL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) options will be granted only to employees at no less than the fair value of the Company's common stock (no less than 85% of the fair value for nonstatutory stock options), as determined by the Board of Directors at the date of the grant. Options expire no more than ten years after the date of grant, or earlier if the employment terminates. The purchase price under each stock purchase agreement resulting from stock bonuses and purchase rights granted will be at no less than 85% of the fair value of the Company's common stock on the award date. Shares of stock sold or awarded under the Plan may be subject to a repurchase option by the Company as determined by the Board of Directors. The options vest over a period not to exceed five years. The following table summarizes stock option activity:
WEIGHTED EXERCISE AVERAGE NUMBER OF PRICE PER EXERCISE SHARES SHARE PRICE --------- ------------- -------- Outstanding at December 31, 1992................. 30,000 $.10 $.10 Granted.......................................... 60,000 $.05 $.07 --------- Outstanding at December 31, 1993................. 90,000 $.05 - $.10 $.07 Granted.......................................... 1,024,000 $.05 - $.055 $.05 --------- Outstanding at December 31, 1994................. 1,114,000 $.05 - $.055 $.05 Granted.......................................... 835,000 $.05 - $.30 $.10 Exercised........................................ (24,000) $.055 $.09 Cancelled........................................ (170,000) $.05 - $.10 $.09 --------- Outstanding at December 31, 1995................. 1,755,000 $.05 - $.30 $.09 Granted.......................................... 287,500 $.60 $.10 Exercised........................................ (40,000) $.10 $.10 --------- Outstanding at June 30, 1996..................... 2,002,500 $.05 - $.60 $.10 =========
At December 31, 1995, options exercisable and available for future grant totalled 586,208 and 461,000, respectively. At June 30, 1996, options exercisable and available for future grant totalled 781,656 and 473,500, respectively. DEFERRED COMPENSATION The Company records and amortizes over the related vesting periods deferred compensation representing the difference between the exercise price of stock options granted and the deemed fair value (for accounting purposes) of the Company's common stock at the date of grant. Stock options vest over a period not to exceed five years. Shares included in the computation of deferred compensation include option grants to employees, directors and consultants of the Company from November 1995 through May 1996. 7. INCOME TAXES Significant components of the Company's deferred tax assets are shown below. A valuation allowance of $269,000 has been recognized to offset the deferred tax assets as realization of such assets is uncertain. F-12 65 IMMUSOL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, ----------------------- 1995 1994 --------- --------- Deferred tax assets: Net operating loss carryforwards........................... $ 240,000 $ 290,000 Research and development credits........................... 35,000 35,000 Other -- net............................................... (6,000) (3,000) ------ ------ Net deferred tax assets...................................... 269,000 322,000 Valuation allowance for deferred tax assets.................. (269,000) (322,000) ------ ------ Total deferred tax assets.................................... $ -- $ -- ====== ======
A reconciliation between the amount of tax computed by multiplying income (loss) before taxes by the applicable statutory rates and the amount of reported taxes is as follows:
YEAR ENDED DECEMBER 31, ----------------------------------- 1993 1994 1995 -------- --------- -------- Federal income taxes at 34%....................... $(52,000) $(122,000) $ 43,000 State income taxes, net of federal tax benefit.... (9,000) (21,000) 8,000 Nondeductible expenses............................ -- 10,000 2,000 -------- --------- -------- (61,000) (133,000) 53,000 Change in valuation allowance..................... 61,000 133,000 (53,000) -------- --------- -------- $ -- $ -- $ -- ======== ========= ========
At December 31, 1995, the Company had federal and California tax net operating loss carryforwards of approximately $592,000 and $646,000, respectively. The federal and California tax loss carryforwards will begin expiring in 2008 and 1999, respectively, unless previously utilized. The Company also has federal and California research and development tax credit carryforwards totalling $28,000 and $11,000, respectively, which will expire beginning in 2009 unless previously utilized. Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company's net operating loss and credit carryforwards may be limited because of cumulative changes in ownership of more than 50% which occurred within a three year period. However, the Company does not believe such limitation will have a material impact upon the utilization of these carryforwards. 8. PROFIT SHARING AND 401(k) PLAN All employees of the Company are eligible to participate in the profit sharing and 401(k) Plan. Profit sharing contributions, if any, are based on a discretionary amount determined by the Company and are allocated to each participant based on the relative compensation of the participant, subject to certain limitations, to the compensation of all participants. The 401(k) matching contributions, if any, are determined by the Company in its sole discretion. To date, there have been no Company contributions under the Plan. F-13 66 - ------------------------------------------------------------ - ------------------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary......................... 3 Risk Factors............................... 5 Use of Proceeds............................ 14 Dividend Policy............................ 14 Capitalization............................. 15 Dilution................................... 16 Selected Financial Data.................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 18 Business................................... 21 Management................................. 36 Certain Transactions....................... 44 Principal Shareholders..................... 45 Description of Capital Stock............... 46 Shares Eligible for Future Sale............ 48 Underwriting............................... 49 Legal Matters.............................. 50 Experts.................................... 50 Additional Information..................... 50 Index to Financial Statements.............. F-1
------------------------ UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS 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. - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ 3,000,000 SHARES LOGO IMMUSOL COMMON STOCK ------------------------ PROSPECTUS ------------------------ PAINEWEBBER INCORPORATED NEEDHAM & COMPANY, INC. SUTRO & CO. INCORPORATED ------------------------ , 1996 - ------------------------------------------------------------ - ------------------------------------------------------------ 67 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 registration fee, the Nasdaq National Market filing fee and the NASD fee. Registration fee.................................................. $ 13,087 Nasdaq National Market fee........................................ 22,250 NASD fee.......................................................... 4,295 Blue Sky fees and expenses........................................ 22,500 Printing and engraving expenses................................... 100,000 Legal fees and expenses........................................... 250,000 Accounting fees and expenses...................................... 100,000 Transfer Agent and Registrar fees................................. 5,000 Miscellaneous expenses............................................ 82,868 -------- Total................................................... $600,000 ========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS. (a) Section 317 of the California General Corporation Law provides for the indemnification of officers and directors of the Company against expenses, judgments, fines and amounts paid in settlement under certain conditions and subject to certain limitations. (b) Article VI of the Bylaws of the Company provides that the Company shall have power to indemnify any person who is or was an agent of the Company as provided in Section 317 of the California General Corporation Law. The rights to indemnity thereunder continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of the person. In addition, expenses incurred by a director or officer in defending a civil or criminal action, suit or proceeding by reason of the fact that he or she is or was a director or officer of the Company (or was serving at the Company's request as a director or officer of another corporation) shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company as authorized by the relevant section of the California General Corporation Law. (c) Article IV of the Company's Articles of Incorporation provides that the liability of the directors of the Company for monetary damages shall be eliminated to the fullest extent permissible under California law. Accordingly, a director will not be liable for monetary damages for breach of duty to the Company or its shareholders in any action brought by or in the right of the Company. However, a director remains liable to the extent required by law (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the Company or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director's duty to the Company or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the Company or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Company or its shareholders, (vi) for any act or omission occurring prior to the date when the exculpation provision became effective and (vii) for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her actions, if negligent or improper, have been ratified by the directors. The effect of the provisions in the Articles of Incorporation is to eliminate the rights of the Company and its shareholders (through shareholders' derivative suits on behalf of the Company) to recover monetary damages against a director for II-1 68 breach of duty as a director, including breaches resulting from negligent behavior in the context of transactions involving a change of control of the Company or otherwise, except in the situations described in clauses (i) through (vii) above. These provisions will not alter the liability of directors under federal securities laws. (d) Pursuant to authorization provided under the Articles of Incorporation, in connection with this Offering, the Company will enter into indemnification agreements with each of its directors and officers. Generally, the indemnification agreements attempt to provide the maximum protection permitted by California law as it may be amended from time to time. Moreover, the indemnification agreements provide for certain additional indemnification. Under such additional indemnification provisions, however, an individual will not receive indemnification for judgments, settlements or expenses if he or she is found liable to the Company (except to the extent the court determines he or she is fairly and reasonably entitled to indemnity for expenses), for settlements not approved by the Company or for settlements and expenses if the settlement is not approved by the court. The indemnification agreements provide for the Company to advance to the individual any and all reasonable expenses (including legal fees and expenses) incurred in investigating or defending any such action, suit or proceeding. In order to receive an advance of expenses, the individual must submit to the Company copies of invoices presented to him or her for such expenses. Also, the individual must repay such advances upon a final judicial decision that he or she is not entitled to indemnification. The Company's Bylaws contain a provision of similar effect relating to advancement of expenses to a director or officer, subject to an undertaking to repay if it is ultimately determined that indemnification is unavailable. (e) The Underwriting Agreement (Exhibit 1.1 hereto) contains provisions by which the Underwriters have agreed to indemnify the Company, each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, each director of the Company, and each officer of the Company who signs this Registration Statement, with respect to information furnished in writing by or on behalf of the Underwriters for use in the Registration Statement. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since May 31, 1993, the Company has sold and issued the following unregistered securities: (1) From May 31, 1993 to May 31, 1996, the Company issued an aggregate of 2,036,500 options to purchase shares of Common Stock under the Prior Plan and an aggregate of 64,000 shares of Common Stock were issued through the exercise of options granted under the Prior Plan. For additional information concerning these transactions, reference is made to the information contained under the caption "Management -- Benefit Plans" in the form of the Prospectus included herein. (2) On May 3, 1995, the Company issued an aggregate of 915,477 shares of Series B-1 Preferred Stock to Pfizer Inc. for an aggregate consideration of $4,998,504. The sales and issuances of securities in the above transactions were deemed to be exempt under the Act by virtue of Section 4(2) thereof and/or Regulation D and Rule 701 promulgated thereunder as transactions not involving any public offering. The purchasers in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate legends were affixed to the stock certificates issued in such transactions. Similar representations of investment intent were obtained and similar legends imposed in connection with any subsequent transfers of any such securities. The Company believes that all recipients had adequate access, through employment or other relationships, to information about the Company to make an informed investment decision. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits.
EXHIBIT NUMBER - ------- +1.1 Form of Underwriting Agreement. +3.1 Amended and Restated Articles of Incorporation of the Company.
II-2 69
EXHIBIT NUMBER - ------- +3.2 Form of Second Amended and Restated Articles of Incorporation of the Company to be effective immediately prior to this Offering. +3.3 Bylaws of the Company, as amended. +3.4 Form of Amended and Restated Bylaws of the Company to be effective upon completion of this Offering. +4.1 Form of Certificate for Common Stock. +5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the Common Stock being registered. +10.1 Waiver of Registration Rights by BankAmerica Ventures, effective June 25, 1996. +10.2 Amended and Restated Shareholder Rights Agreement among the Company and certain shareholders of the Company, dated May 3, 1995. +10.3 Immusol, Inc. Preferred Stock Purchase Agreement among the Company and the purchasers identified on Exhibit A to the Agreement, dated May 3, 1995. +10.4 Loan and Security Agreement between the Company and Silicon Valley Bank dated April 3, 1996. +10.5 Amendment to Loan and Security Agreement between the Company and Silicon Valley Bank dated May 15, 1996. +10.6 Sublease for the Company's facilities at 3050 Science Park Road, dated March 11, 1996. +10.7 First Amendment to Sublease for the Company's facilities at 3050 Science Park Road, dated June 6, 1996. *10.8 Exclusive License Agreement between the Company and The Regents of the University of California, dated December 7, 1993. *10.9 Collaborative Research Agreement between the Company and Pfizer Inc., dated May 3, 1995. *10.10 License and Royalty Agreement between the Company and Pfizer Inc., dated May 3, 1995. +10.11 Co-Founder Agreement between the Company and Flossie Wong-Staal, Ph.D., dated February 16, 1993. +10.12 Offer Letter to Dr. Tsvi Goldenberg dated April 26, 1994. +10.13 Offer Letter to Jack Barber dated August 23, 1994. +10.14 Pfizer Letter dated July 1, 1996. +10.15 The Company's 1992 Stock Plan, as amended. +10.16 1992 Stock Option Plan Form of Incentive Stock Option Agreement and Exercise Notice. +10.17 1992 Stock Option Plan Form of Nonstatutory Option Agreement and Exercise Notice. +10.18 1996 Stock Option/Stock Issuance Plan. +10.19 1996 Stock Option/Stock Issuance Plan Form of Notice of Grant. +10.20 1996 Stock Option/Stock Issuance Plan Form of Stock Option Agreement. +10.21 Form of Proprietary Information Agreement. +10.22 Form of Scientific Advisory Board Agreement. +10.23 Form of Indemnification Agreements between the Company and each of its directors. +10.24 Form of Indemnification Agreement between the Company and each of its officers. 11.1 Computation of pro forma net income (loss) per share. +14.1 List of Material Foreign Patents. +23.1 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1).
II-3 70
EXHIBIT NUMBER - ------- 23.2 Consent of Ernst & Young LLP, Independent Auditors (see Page II-6). +24.1 Power of Attorney (See Page II-5). 27.1 Financial Data Schedule
- --------------- + To be filed by Amendment. * Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. + Previously filed. (b) Financial Statement Schedules included separately in the Registration Statement. All other schedules are omitted because they are not required, are not applicable or the information is included 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 Company pursuant to the provisions described in Item 14, or otherwise, the Company 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 Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company 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 hereby 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 this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 71 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, County of San Diego, State of California, on the 19th day of September, 1996. IMMUSOL, INC. By: /s/ TSVI GOLDENBERG, PH.D. ------------------------------------ Tsvi Goldenberg, Ph.D. Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------- ----------------------------------- ------------------- /s/ TSVI GOLDENBERG Chairman of the Board, Chief September 19, 1996 - ------------------------------------- Executive Officer and Director Tsvi Goldenberg (Principal Executive Officer) * Director of Finance and Acting September 19, 1996 - ------------------------------------- Chief Financial Officer J. Stanhope Blackburn (Principal Financial and Accounting Officer) Director September 19, 1996 - ------------------------------------- Anchie Kuo * Director September 19, 1996 - ------------------------------------- Frank Litvack * Director September 19, 1996 - ------------------------------------- Melvin Perelman * Director September 19, 1996 - ------------------------------------- Flossie Wong-Staal *By: /s/ TSVI GOLDENBERG - ------------------------------------- Tsvi Goldenberg Attorney-in-Fact
II-5 72 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Experts" and "Selected Financial Data" and to the use of our report dated June 27, 1996 in Amendment No. 3 to the Registration Statement (Form S-1) and the related prospectus of Immusol, Inc. for the registration of shares of its common stock. ERNST & YOUNG LLP San Diego, California September 19, 1996 II-6 73 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------- ------------------------------------------------------------------------- ------------ 1.1 Form of Underwriting Agreement. +3.1 Amended and Restated Articles of Incorporation of the Company. +3.2 Form of Second Amended and Restated Articles of Incorporation of the Company to be effective immediately prior to this Offering. +3.3 Bylaws of the Company, as amended. +3.4 Form of Amended and Restated Bylaws of the Company to be effective upon completion of this Offering. 4.1 Form of Certificate for Common Stock. 5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the Common Stock being registered. 10.1 Waiver of Registration Rights by BankAmerica Ventures, effective June 25, 1996. +10.2 Amended and Restated Shareholder Rights Agreement among the Company and certain shareholders of the Company, dated May 3, 1995. +10.3 Immusol, Inc. Preferred Stock Purchase Agreement among the Company and the purchasers identified on Exhibit A to the Agreement, dated May 3, 1995. +10.4 Loan and Security Agreement between the Company and Silicon Valley Bank dated April 3, 1996. +10.5 Amendment to Loan and Security Agreement between the Company and Silicon Valley Bank dated May 15, 1996. +10.6 Sublease for the Company's facilities at 3050 Science Park Road, dated March 11, 1996. +10.7 First Amendment to Sublease for the Company's facilities at 3050 Science Park Road, dated June 6, 1996. *10.8 Exclusive License Agreement between the Company and The Regents of the University of California, dated December 7, 1993. *10.9 Collaborative Research Agreement between the Company and Pfizer Inc., dated May 3, 1995. *10.10 License and Royalty Agreement between the Company and Pfizer Inc., dated May 3, 1995. +10.11 Co-Founder Agreement between the Company and Flossie Wong-Staal, Ph.D., dated February 16, 1993. +10.12 Offer Letter to Dr. Tsvi Goldenberg dated April 26, 1994. +10.13 Offer Letter to Jack Barber dated August 23, 1994. +10.15 The Company's 1992 Stock Plan, as amended. +10.16 1992 Stock Option Plan Form of Incentive Stock Option Agreement and Exercise Notice. +10.17 1992 Stock Option Plan Form of Nonstatutory Option Agreement and Exercise Notice. +10.18 1996 Stock Option/Stock Issuance Plan. +10.19 1996 Stock Option/Stock Issuance Plan Form of Notice of Grant. +10.20 1996 Stock Option/Stock Issuance Plan Form of Stock Option Agreement. +10.21 Form of Proprietary Information Agreement. +10.22 Form of Scientific Advisory Board Agreement. +10.23 Form of Indemnification Agreements between the Company and each of its directors. +10.24 Form of Indemnification Agreement between the Company and each of its officers. +11.1 Computation of pro forma net income (loss) per share.
74
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------- ------------------------------------------------------------------------- ------------ 23.1 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1). 23.2 Consent of Ernst & Young LLP, Independent Auditors (see Page II-6). +24.1 Power of Attorney (See Page II-5). +27.1 Financial Data Schedule
- --------------- * Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. + Previously filed. EX-1.1 2 EXHIBIT 1.1 1 Exhibit 1.1 S&S Draft 9/20/96 3,000,000 Shares IMMUSOL, INC. Common Stock UNDERWRITING AGREEMENT _______, 1996 PAINEWEBBER INCORPORATED NEEDHAM & COMPANY, INC. SUTRO & CO. INCORPORATED As Representatives of the several Underwriters c/o PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 Dear Sirs: Immusol, Inc., a California corporation (the "Company"), proposes to sell an aggregate of 3,000,000 shares (the "Firm Shares") of the Company's Common Stock, par value $0.001 per share (the "Common Stock"), to you and to the other underwriters named in Schedule I (collectively, the "Underwriters"), for whom you are acting as representatives (the "Representatives"). The Company has also agreed to grant to you and the other Underwriters an option (the "Option") to purchase up to an additional 450,000 shares of Common Stock (the "Option Shares") on the terms and for the purposes set forth in Section 1(b). The Firm Shares and the Option Shares are hereinafter collectively referred to as the "Shares." The initial public offering price per share for the Shares and the purchase price per share for the Shares to be paid by the several Underwriters shall be agreed upon by the Company and the Representatives, acting on behalf of the several Underwriters, and such agreement shall be set forth in a separate written instrument substantially in the form of Exhibit A hereto (the "Price Determination Agreement"). The Price Determination Agreement may take the form of an exchange of any standard form of written telecommunication among the Company and the Representatives and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Shares will be governed by this Agreement, as supplemented by the Price Determination Agreement. From and after the date of the execution and delivery of the Price Determination Agreement, this 2 2 Agreement shall be deemed to incorporate, and, unless the context otherwise indicates, all references contained herein to "this Agreement" and to the phrase "herein" shall be deemed to include the Price Determination Agreement. The Company confirms as follows its agreements with the Representatives and the several other Underwriters. 1. Agreement to Sell and Purchase. (a) On the basis of the representations, warranties and agreements of the Company herein contained and subject to all the terms and conditions of this Agreement, the Company agrees to sell to each Underwriter named below, and each Underwriter, severally and not jointly, agrees to purchase from the Company at the purchase price per share for the Firm Shares to be agreed upon by the Representatives and the Company in accordance with Section 1(c) and set forth in the Price Determination Agreement, the aggregate number of Firm Shares set forth opposite the name of such Underwriter in Schedule I, plus such additional number of Firm Shares which such Underwriter may become obligated to purchase pursuant to Section 8 hereof. Schedule I may be attached to the Price Determination Agreement. (b) Subject to all the terms and conditions of this Agreement, the Company grants the Option to the several Underwriters to purchase, severally and not jointly, up to 450,000 Option Shares from the Company at the same price per share as the Underwriters shall pay for the Firm Shares. The Option may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters and may be exercised in whole or in part at any time (but not more than once) on or before the 30th day after the date of this Agreement (or, if the Company has elected to rely on Rule 430A, on or before the 30th day after the date of the Price Determination Agreement), upon written or telegraphic notice (the "Option Shares Notice") by the Representatives to the Company no later than 12:00 noon, New York City time, at least two and no more than five business days before the date specified for closing in the Option Shares Notice (the "Option Closing Date") setting forth the aggregate number of Option Shares to be purchased and the time and date for such purchase. On the Option Closing Date, the Company will issue and sell to the Underwriters the number of Option Shares set forth in the Option Shares Notice, and each Underwriter will purchase such percentage of the Option Shares as is equal to the percentage of Firm Shares that such Underwriter is purchasing, as adjusted by the Representatives in such manner as they deem advisable to avoid fractional shares. (c) If the Company has elected to rely on Rule 430A, the initial public offering price per share for the Firm Shares and the purchase price per share for the Firm Shares to be paid by the several Underwriters shall be agreed upon and set forth in the Price Determination Agreement. In the event such price has not been agreed upon and the 3 3 Price Determination Agreement has not been executed by the close of business on the fourteenth business day following the date on which the Registration Statement becomes effective, this Agreement shall terminate forthwith, without liability of any party to any other party except that Section 6 shall remain in effect. 2. Delivery and Payment. Delivery of the Firm Shares shall be made to the Representatives for the accounts of the Underwriters against payment of the purchase price by certified or official bank check or by wire transfer to an account designated by the Company in Federal (same-day) funds. Such payments shall be made at 10:00 a.m., New York City time, on the fourth business day after the date on which the first bona fide offering of the Shares to the public is made by the Underwriters or at such time on such other date, not later than ten business days after such date, as may be agreed upon by the Company and the Representatives (such date is hereinafter referred to as the "Closing Date"). (a) To the extent the Option is exercised, delivery of the Option Shares against payment by the Underwriters (in the manner specified above) will take place at the offices specified above for the Closing Date at the time and date (which may be the Closing Date) specified in the Option Shares Notice. (b) The cost of original issue tax stamps, if any, in connection with the issuance and delivery of the Firm Shares and Option Shares by the Company to the respective Underwriters shall be borne by the Company. The Company will pay and save each Underwriter and any subsequent holder of the Shares harmless from any and all liabilities with respect to or resulting from any failure or delay in paying Federal and state stamp and other transfer taxes, if any, which may be payable or determined to be payable in connection with the original issuance or sale to such Underwriter of the Firm Shares and Option Shares. 3. Representations and Warranties of the Company. The Company represents, warrants and covenants to each Underwriter that: (a) A registration statement (Registration No. ______) on Form S-1 relating to the Shares, including a preliminary prospectus and such amendments to such registration statement as may have been required to the date of this Agreement, has been prepared by the Company under the provisions of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations (collectively referred to as the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, and has been filed with the Commission. The term "preliminary prospectus" as used herein means a preliminary prospectus as contemplated by Rule 430 or Rule 430A ("Rule 430A") of the Rules and Regulations included at any time as part of the registration statement. Copies of such registration statement and amendments and of each related preliminary prospectus 4 4 have been delivered to the Representatives. The term "Registration Statement" means the registration statement as amended at the time it becomes or became effective (the "Effective Date"), including financial statements and all exhibits and any information deemed to be included by Rule 430A or Rule 434 of the Rules and Regulations. If the Company files a registration statement to register a portion of the Shares and relies on Rule 462(b) of the Rules and Regulations for such registration statement to become effective upon filing with the Commission (the "Rule 462 Registration Statement"), then any reference to the "Registration Statement" shall be deemed to include the Rule 462 Registration Statement, as amended from time to time. The term "Prospectus" means the prospectus as first filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no such filing is required, the form of final prospectus included in the Registration Statement at the Effective Date. (b) On the Effective Date, the date the Prospectus is first filed with the Commission pursuant to Rule 424(b) (if required), at all times subsequent to and including the Closing Date and, if later, the Option Closing Date and when any post-effective amendment to the Registration Statement becomes effective or any amendment or supplement to the Prospectus is filed with the Commission, the Registration Statement and the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendment or supplement thereto), including the financial statements included in the Prospectus, did or will comply with all applicable provisions of the Act and the Rules and Regulations and will contain all statements required to be stated therein in accordance with the Act and the Rules and Regulations. On the Effective Date and when any post-effective amendment to the Registration Statement becomes effective, no part of the Registration Statement or any such amendment did or will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. At the Effective Date, the date the Prospectus or any amendment or supplement to the Prospectus is filed with the Commission and at the Closing Date and, if later, the Option Closing Date, the Prospectus did not or will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing representations and warranties in this Section 3(b) do not apply to any statements or omissions made in reliance on and in conformity with information relating to any Underwriter furnished in writing to the Company by the Representatives specifically for inclusion in the Registration Statement or Prospectus or any amendment or supplement thereto. For all purposes of this Agreement, the amounts of the selling concession and reallowance set forth in the Prospectus constitute the only information relating to any Underwriter furnished in writing to the Company by the Representatives specifically for inclusion in the Registration Statement, the preliminary prospectus or the Prospectus. The Company has not distributed any offering material in connection with the offering or sale of the Shares other than the Registration Statement, the preliminary prospectus, the Prospectus or any other materials, if any, permitted by the Act. 5 5 (c) The Company is, and at the Closing Date will be, a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company has, and at the Closing Date will have, full power and authority to conduct all the activities conducted by it, to own or lease all the assets owned or leased by it and to conduct its business as described in the Registration Statement and the Prospectus. The Company is, and at the Closing Date will be, duly licensed or qualified to do business and in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted by it or the character of the assets owned or leased by it makes such licensing or qualification necessary. Except as disclosed in the Registration Statement, the Company does not own, and at the Closing Date will not own, directly or indirectly, any shares of stock or any other equity or long-term debt securities of any corporation or have any equity interest in any firm, partnership, joint venture, association or other entity. Complete and correct copies of the articles of incorporation and of the by-laws of the Company and all amendments thereto have been delivered to the Representatives, and no changes therein will be made subsequent to the date hereof and prior to the Closing Date or, if later, the Option Closing Date. (d) The outstanding shares of Common Stock have been, and the Shares to be issued and sold by the Company upon such issuance will be, duly authorized, validly issued, fully paid and nonassessable and will not be subject to any preemptive or similar right. The description of the Common Stock in the Registration Statement and the Prospectus is, and at the Closing Date will be, complete and accurate in all respects. Except as set forth in the Prospectus, the Company does not have outstanding, and at the Closing Date will not have outstanding, any options to purchase, or any rights or warrants to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell, any shares of Common Stock or any such warrants, convertible securities or obligations. (e) The financial statements and schedules included in the Registration Statement or the Prospectus present fairly the financial condition of the Company as of the respective dates thereof and the results of operations and cash flows of the Company for the respective periods covered thereby, all in conformity with generally accepted accounting principles applied on a consistent basis throughout the entire period involved, except as otherwise disclosed in the Prospectus. The pro forma financial statements and other pro forma financial information included in the Registration Statement or the Prospectus (i) present fairly in all material respects the information shown therein, (ii) have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and (iii) have been properly computed on the bases described therein. The assumptions used in the preparation of the pro forma financial statements and other pro forma financial information included in the Registration Statement or the Prospectus are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. No other financial statements or 6 6 schedules of the Company are required by the Act or the Rules and Regulations to be included in the Registration Statement or the Prospectus. Ernst & Young LLP (the "Accountants") who have reported on such financial statements and schedules, are independent public accountants with respect to the Company as required by the Act and the Rules and Regulations. The statements included in the Registration Statement with respect to the Accountants pursuant to Rule 509 of Regulation S-K of the Rules and Regulations are true and correct in all material respects. (f) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (g) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus and prior to the Closing Date, except as set forth in or contemplated by the Registration Statement and the Prospectus, (i) there has not been and will not have been any change in the capitalization of the Company, or in the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company, arising for any reason whatsoever, (ii) the Company has not incurred nor will it incur any material liabilities or obligations, direct or contingent, nor has it entered into nor will it enter into any material transactions other than pursuant to this Agreement and the transactions referred to herein and (iii) the Company has not and will not have paid or declared any dividends or other distributions of any kind on any class of its capital stock. (h) The Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. (i) Except as set forth in the Registration Statement and the Prospectus, there are no actions, suits or proceedings pending or, to the Company's knowledge, threatened against or affecting the Company or any of its officers in their capacity as such, before or by any Federal or state court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign, wherein an unfavorable ruling, decision or finding might materially and adversely affect the Company or its business, properties, business prospects, condition (financial or otherwise) or results of operations. 7 7 (j) The Company has, and at the Closing Date will have, (i) all governmental licenses, permits, consents, orders, approvals and other authorizations necessary to carry on its business as contemplated in the Prospectus, (ii) complied in all respects with all laws, regulations and orders applicable to it or its business and (iii) performed all its obligations required to be performed by it, and is not, and at the Closing Date will not be, in default, under any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement, lease, contract or other agreement or instrument (collectively, a "contract or other agreement") to which it is a party or by which its property is bound or affected. To the best knowledge of the Company, no other party under any contract or other agreement to which it is a party is in default in any respect thereunder. The Company is not, nor at the Closing Date will be, in violation of any provisions of its articles of incorporation or by-laws. (k) No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required in connection with the authorization, issuance, transfer, sale or delivery of the Shares by the Company, in connection with the execution, delivery and performance of this Agreement by the Company or in connection with the taking by the Company of any action contemplated hereby, except such as have been obtained under the Act or the Rules and Regulations and such as may be required under state securities or Blue Sky laws or the by-laws and rules of the National Association of Securities Dealers, Inc. (the "NASD") in connection with the purchase and distribution by the Underwriters of the Shares. (l) The Company has full corporate power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company and is enforceable against the Company in accordance with the terms hereof. The performance of this Agreement and the consummation of the transactions contemplated hereby and the application of the net proceeds from the offering and sale of the Shares in the manner set forth in the Prospectus under "Use of Proceeds" will not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company pursuant to the terms or provisions of, or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give any other party a right to terminate any of its obligations under, or result in the acceleration of any obligation under, the articles of incorporation or by-laws of the Company, any contract or other agreement to which the Company is a party or by which the Company or any of its properties is bound or affected, or violate or conflict with any judgment, ruling, decree, order, statute, rule or regulation of any court or other governmental agency or body applicable to the business or properties of the Company. (m) The Company has good and marketable title to all properties and assets described in the Prospectus as owned by it, free and clear of all liens, charges, 8 8 encumbrances or restrictions, except such as are described in the Prospectus or are not material to the business of the Company. The Company has valid, subsisting and enforceable leases for the properties described in the Prospectus as leased by it, with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such properties by the Company. (n) There is no document or contract of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. All such contracts to which the Company is a party have been duly authorized, executed and delivered by the Company, constitute valid and binding agreements of the Company and are enforceable against the Company in accordance with the terms thereof. (o) No statement, representation, warranty or covenant made by the Company in this Agreement or made in any certificate or document required by this Agreement to be delivered to the Representatives was or will be, when made, inaccurate, untrue or incorrect. (p) Neither the Company nor any of its directors, officers or controlling persons has taken, directly or indirectly, any action intended, or which might reasonably be expected, to cause or result, under the Act or otherwise, in, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (q) Except as disclosed in the Prospectus, no holder of securities of the Company has rights to the registration of any securities of the Company because of the filing of the Registration Statement. (r) The Shares have been approved for quotation on the Nasdaq National Market. (s) The Company is not involved in any material labor dispute nor, to the knowledge of the Company, is any such dispute threatened. (t) The Company nor, to the Company's knowledge, any employee or agent of the Company has made any payment of funds of the Company or received or retained any funds in violation of any law, rule or regulation or of a character required to be disclosed in the Prospectus. (u) The Company has complied, and until the completion of the distribution of the Shares will comply, with all of the provisions of (including, without limitation, filing all forms required by) Section 517.075 of the Florida Securities and Investor 9 9 Protection Act and regulation 3E-900.001 issued thereunder with respect to the offering and sale of the Shares. (v) The Company owns or possesses adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights, mask works, technology and know-how necessary to conduct the business now or proposed to be conducted by it as described in the Prospectus and the Company has not received any notice of infringement of or conflict with (and knows of no such infringement of or conflict with) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights, mask works, technology or know-how which could result in any material adverse effect upon the Company; and the Company's discoveries, inventions, products or processes referred to in the Prospectus do not, to the knowledge of the Company, infringe or conflict with any right or patent, or any discovery, invention, product or process which is the subject of a patent application known to the Company, which infringement or conflict could result in any material adverse effect upon the Company. (w) The Company has obtained any permits, consents and authorizations required to be obtained by it under laws or regulations relating to the protection of the environment or concerning the handling, storage, disposal or discharge of toxic materials (collectively "Environmental Laws"), and any such permits, consents and authorizations remain in full force and effect. The Company is in compliance with the Environmental Laws in all material respects, and there is no pending or, to the Company's knowledge, threatened, action or proceeding against the Company alleging violations of the Environmental Laws. (x) Except as disclosed in the Registration Statement or the Prospectus, the Company maintains insurance of the types and in amounts generally deemed adequate for its businesses and consistent with insurance coverage maintained by similar companies and businesses, all of which insurance is in full force and effect. (y) There are no subsidiaries of the Company. 4. Agreements of the Company. The Company agrees with the several Underwriters as follows: (a) The Company will not, prior to the Effective Date or thereafter during such period as the Prospectus is required by law to be delivered in connection with sales of the Shares by an Underwriter or dealer, file any amendment or supplement to the Registration Statement or the Prospectus, unless a copy thereof shall first have been submitted to the Representatives within a reasonable period of time prior to the filing thereof and the Representatives shall not have objected thereto in good faith. 10 10 (b) The Company will use its best efforts to cause the Registration Statement to become effective, and will notify the Representatives promptly, and will confirm such advice in writing, (1) when the Registration Statement has become effective and when any post-effective amendment thereto becomes effective, (2) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (3) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, or the threat thereof, (4) of the happening of any event during the period mentioned in the second sentence of Section 4(e) that in the judgment of the Company makes any statement made in the Registration Statement or the Prospectus untrue or that requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements therein, in light of the circumstances in which they are made, not misleading and (5) of receipt by the Company, its counsel or auditors or any representative of the Company of any other communication from the Commission relating to the Company, the Registration Statement, any preliminary prospectus or the Prospectus. If at any time the Commission shall issue any order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible moment. The Company will use its best efforts to comply with the provisions of and make all requisite filings with the Commission pursuant to Rule 430A and to notify the Representatives promptly of all such filings. (c) The Company will furnish to the Representatives, without charge, two signed copies of the Registration Statement and of any post-effective amendment thereto, including financial statements and schedules, and all exhibits thereto and will furnish to the Representatives, without charge, for transmittal to each of the other Underwriters, a copy of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules but without exhibits. (d) The Company will comply with all the provisions of the undertakings contained in the Registration Statement. (e) On the Effective Date, and thereafter from time to time, the Company will deliver to each of the Underwriters, without charge, as many copies of the Prospectus or any amendment or supplement thereto as the Representatives may reasonably request. The Company consents to the use of the Prospectus or any amendment or supplement thereto by the several Underwriters and by all dealers to whom the Shares may be sold, both in connection with the offering or sale of the Shares and for any period of time thereafter during which the Prospectus is required by law to be delivered in connection therewith. If during such period of time any event shall occur which in the judgment of the Company or counsel to the Underwriters should be set forth in the Prospectus in order to make any statement therein, in the light of the circumstances under which it was made, not misleading, or if it is necessary to supplement or amend the Prospectus to comply with law, 11 11 the Company will forthwith prepare and duly file with the Commission an appropriate supplement or amendment thereto, and will deliver to each of the Underwriters, without charge, such number of copies thereof as the Representatives may reasonably request. (f) Prior to any public offering of the Shares by the Underwriters, the Company will cooperate with the Representatives and counsel to the Underwriters in connection with the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives may request; provided, that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject. (g) During the period of five years commencing on the Effective Date, the Company will furnish to the Representatives and each other Underwriter who may so request copies of such financial statements and all annual reports, quarterly reports and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the Commission, and such other documents, reports and information as shall be furnished by the Company to its stockholders or security holders generally. (h) The Company will make generally available to holders of its securities as soon as may be practicable but in no event later than the last day of the fifteenth full calendar month following the calendar quarter in which the Effective Date falls, an earnings statement (which need not be audited but shall be in reasonable detail) for a period of 12 months ended commencing after the Effective Date, and satisfying the provisions of Section 11(a) of the Act (including Rule 158 of the Rules and Regulations). (i) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay, or reimburse if paid by the Representatives, all costs and expenses incident to the performance of the obligations of the Company under this Agreement, including but not limited to costs and expenses of or relating to (1) the preparation, printing and filing of the Registration Statement and exhibits to it, each preliminary prospectus, the Prospectus and any amendment or supplement to the Registration Statement or the Prospectus, (2) the preparation and delivery of certificates representing the Shares, (3) the printing of this Agreement, the Agreement Among Underwriters, any Dealer Agreements and any Underwriters' Questionnaire, (4) furnishing (including costs of shipping, mailing and courier) such copies of the Registration Statement, the Prospectus and any preliminary prospectus, and all amendments and supplements thereto, as may be requested for use in connection with the offering and sale of the Shares by the Underwriters or by dealers to whom Shares may be sold, (5) the listing and quotation of the Shares on the Nasdaq National Market, (6) any filings required to be made by the Underwriters with the NASD, and the fees, disbursements 12 12 and other charges of counsel for the Underwriters in connection therewith, (7) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions designated pursuant to Section 4(f), including the fees, disbursements and other charges of counsel to the Underwriters in connection therewith, and the preparation and printing of preliminary, supplemental and final Blue Sky memoranda, (8) counsel to the Company, (9) the transfer agent for the Shares and (10) the Accountants. (j) If this Agreement shall be terminated by the Company pursuant to any of the provisions hereof (otherwise than pursuant to Section 8) or if for any reason the Company shall be unable to perform its obligations hereunder, the Company will reimburse the several Underwriters for all out-of-pocket expenses (including the fees, disbursements and other charges of counsel to the Underwriters) reasonably incurred by them in connection herewith. (k) The Company will not at any time, directly or indirectly, take any action intended, or which might reasonably be expected, to cause or result in, or which will constitute, stabilization of the price of the shares of Common Stock to facilitate the sale or resale of any of the Shares. (l) The Company will apply the net proceeds from the offering and sale of the Shares to be sold by the Company in the manner set forth in the Prospectus under "Use of Proceeds" and shall file such reports with the Commission with respect to the sale of the Shares and the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Act. (m) During the period of 180 days commencing at the Closing Date, the Company will not, without the prior written consent of PaineWebber Incorporated, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, any Common Stock or securities convertible into Common Stock, other than to the Underwriters pursuant to this Agreement and other than pursuant to employee benefit plans, provided, that the Company will not grant options to purchase shares of Common Stock pursuant to such employee benefit plans at a price less than the initial public offering price. (n) The Company will not, and will cause each of its executive officers, directors, employees and each beneficial owner of outstanding securities of the Company to enter into agreements with the Representatives in the form set forth in Exhibit B to the effect that they will not, for a period of 180 days after the commencement of the public offering of the Shares, without the prior written consent of PaineWebber Incorporated, sell, contract to sell or otherwise dispose of any shares of Common Stock or rights to acquire such shares (other than pursuant to employee stock option plans or in connection with other employee incentive compensation arrangements). 13 13 5. Conditions of the Obligations of the Underwriters. In addition to the execution and delivery of the Price Determination Agreement, the obligations of each Underwriter hereunder are subject to the following conditions: (a) Notification that the Registration Statement has become effective shall be received by the Representatives not later than 5:00 p.m., New York City time, on the date of this Agreement or at such later date and time as shall be consented to in writing by the Representatives and all filings required by Rule 424 of the Rules and Regulations and Rule 430A shall have been made. (b) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall be pending or threatened by the Commission, (ii) no order suspending the effectiveness of the Registration Statement or the qualification or registration of the Shares under the securities or Blue Sky laws of any jurisdiction shall be in effect and no proceeding for such purpose shall be pending before or threatened or contemplated by the Commission or the authorities of any such jurisdiction, (iii) any request for additional information on the part of the staff of the Commission or the authorities of any jurisdiction shall have been complied with to the satisfaction of the staff of the Commission or such authorities and (iv) after the date hereof no amendment or supplement to the Registration Statement or the Prospectus shall have been filed unless a copy thereof was first submitted to the Representatives and the Representatives did not object thereto in good faith, and the Representatives shall have received certificates, dated the Closing Date and the Option Closing Date and signed by the Chief Executive Officer or the Chairman of the Board of Directors of the Company and the Chief Financial Officer of the Company (who may, as to proceedings threatened, rely upon the best of their information and belief), to the effect of clauses (i), (ii) and (iii). (c) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) there shall not have been a material adverse change in the general affairs, business, business prospects, properties, management, condition (financial or otherwise) or results of operations of the Company, taken as a whole, whether or not arising from transactions in the ordinary course of business, in each case other than as set forth in or contemplated by the Registration Statement and the Prospectus and (ii) the Company shall not have sustained any material loss or interference with its business or properties from fire, explosion, flood or other casualty, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree, which is not set forth in the Registration Statement and the Prospectus, if in the judgment of the Representatives any such development makes it impracticable or inadvisable to consummate the sale and delivery of the Shares by the Underwriters at the initial public offering price. 14 14 (d) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall have been no litigation or other proceeding instituted against the Company or any of its officers or directors in their capacities as such, before or by any Federal, state or local court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign, in which litigation or proceeding an unfavorable ruling, decision or finding would materially and adversely affect the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company. (e) Each of the representations and warranties of the Company contained herein shall be true and correct in all material respects at the Closing Date and, with respect to the Option Shares, at the Option Closing Date, as if made at the Closing Date and, with respect to the Option Shares, at the Option Closing Date, and all covenants and agreements herein contained to be performed on the part of the Company and all conditions herein contained to be fulfilled or complied with by the Company at or prior to the Closing Date and, with respect to the Option Shares, at or prior to the Option Closing Date, shall have been duly performed, fulfilled or complied with. (f) The Representatives shall have received an opinion, dated the Closing Date and, with respect to the Option Shares, the Option Closing Date, and satisfactory in form and substance to counsel for the Underwriters, from Brobeck, Phleger & Harrison LLP, counsel to the Company, to the effect set forth in Exhibit C. (g) The Representatives shall have received an opinion, dated the Closing Date, and with respect to the Option Shares, the Option Closing Date, and satisfactory in form and substance to counsel for the Underwriters, from Townsend and Townsend and Crew, patent counsel to the Company, to the effect set forth in Exhibit D. (h) The Representatives shall have received an opinion, dated the Closing Date and the Option Closing Date, from Shearman & Sterling, counsel to the Underwriters, with respect to the Registration Statement, the Prospectus and this Agreement, which opinion shall be satisfactory in all respects to the Representatives. (i) On the date of the Prospectus, the Accountants shall have furnished to the Representatives a letter, dated the date of its delivery, addressed to the Representatives and in form and substance satisfactory to the Representatives, confirming that they are independent public accountants with respect to the Company as required by the Act and the Rules and Regulations and with respect to the financial and other statistical and numerical information contained in the Registration Statement. At the Closing Date and, as to the Option Shares, the Option Closing Date, the Accountants shall have furnished to the Representatives a letter, dated the date of its delivery, which shall confirm, on the basis of a review in accordance with the procedures set forth in the letter from the Accountants, that 15 15 nothing has come to their attention during the period from the date of the letter referred to in the prior sentence to a date (specified in the letter) not more than five days prior to the Closing Date and the Option Closing Date which would require any change in their letter dated the date of the Prospectus, if it were required to be dated and delivered at the Closing Date and the Option Closing Date. (j) At the Closing Date and, as to the Option Shares, the Option Closing Date, there shall be furnished to the Representatives an accurate certificate, dated the date of its delivery, signed by each of the Chief Executive Officer and the Chief Financial Officer of the Company, in form and substance satisfactory to the Representatives, to the effect that: (i) Each signer of such certificate has carefully examined the Registration Statement and the Prospectus and (A) as of the date of such certificate, such documents are true and correct in all material respects and do not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not untrue or misleading and (B) since the Effective Date, no event has occurred as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein not untrue or misleading in any material respect. (ii) Each of the representations and warranties of the Company contained in this Agreement were, when originally made, and are, at the time such certificate is delivered, true and correct in all material respects. (iii) Each of the covenants required herein to be performed by the Company on or prior to the delivery of such certificate has been duly, timely and fully performed and each condition herein required to be complied with by the Company on or prior to the date of such certificate has been duly, timely and fully complied with. (k) On or prior to the Closing Date, the Representatives shall have received the executed agreements referred to in Section 4(n). (l) The Shares shall be qualified for sale in such states as the Representatives may reasonably request, each such qualification shall be in effect and not subject to any stop order or other proceeding on the Closing Date and the Option Closing Date. (m) Prior to the Closing Date, the Shares shall have been qualified for quotation on the Nasdaq National Market. 16 16 (n) The Company shall have furnished to the Representatives such certificates, in addition to those specifically mentioned herein, as the Representatives may have reasonably requested as to the accuracy and completeness at the Closing Date and the Option Closing Date of any statement in the Registration Statement or the Prospectus as to the accuracy at the Closing Date and the Option Closing Date of the representations and warranties of the Company herein, as to the performance by the Company of its obligations hereunder, or as to the fulfillment of the conditions concurrent and precedent to the obligations hereunder of the Representatives. 6. Indemnification. (a) The Company will indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person, if any, who controls each Underwriter within the meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") from and against any and all losses, claims, liabilities, expenses and damages (including any and all investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding between any of the indemnified parties and any indemnifying parties or between any indemnified party and any third party, or otherwise, or any claim asserted), to which they, or any of them, may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, the Registration Statement or the Prospectus or any amendment or supplement to the Registration Statement or the Prospectus, or the omission or alleged omission to state in such document a material fact required to be stated in it or necessary to make the statements in it not misleading, provided that the Company will not be liable to the extent that such loss, claim, liability, expense or damage arises from the sale of the Shares in the public offering to any person by an Underwriter and is based on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to any Underwriter furnished in writing to the Company by the Representatives on behalf of any Underwriter expressly for inclusion in the Registration Statement, any preliminary prospectus or the Prospectus. This indemnity agreement will be in addition to any liability that the Company might otherwise have. (b) Each Underwriter will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each director of the Company and each officer of the Company who signs the Registration Statement to the same extent as the foregoing indemnity from the Company to each Underwriter, but only insofar as losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with 17 17 information relating to any Underwriter furnished in writing to the Company by the Representatives on behalf of such Underwriter expressly for use in the Registration Statement, the Preliminary Prospectus or the Prospectus. (c) Any party that proposes to assert the right to be indemnified under this Section 6 will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 6, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party will not relieve it from any liability that it may have to any indemnified party under the foregoing provisions of this Section 6 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified party or parties. All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent (which consent will not be unreasonably withheld). No 18 18 indemnifying party shall, without the prior written consent of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by this Section 6 (whether or not any indemnified party is a party thereto), unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising or that may arise out of such claim, action or proceeding. (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Section 6 is applicable in accordance with its terms but for any reason is held to be unavailable from the Company or the Underwriters, the Company and the Underwriters will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company from persons other than the Underwriters, such as persons who control the Company within the meaning of the Act, officers of the Company who signed the Registration Statement and directors of the Company, who also may be liable for contribution) to which the Company and any one or more of the Underwriters may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company, on the one hand, and the Underwriters, on the other, with respect to the statements or omissions which resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Representatives on behalf of the Underwriters, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 6(d) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense or damage, or action in respect thereof, referred to above in this Section 6(d) shall be deemed to include, for purpose of this Section 6(d), any legal or 19 19 other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6(d), no Underwriter shall be required to contribute any amount in excess of the underwriting discounts received by it and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute as provided in this Section 6(d) are several in proportion to their respective underwriting obligations and not joint. For purposes of this Section 6(d), any person who controls a party to this Agreement within the meaning of the Act will have the same rights to contribution as that party, and each officer of the Company who signed the Registration Statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 6(d), will notify any such party or parties from whom contribution may be sought, but the omission so to notify will not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 6(d). No party will be liable for contribution with respect to any action or claim settled without its written consent (which consent will not be unreasonably withheld). (e) The indemnity and contribution agreements contained in this Section 6 and the representations and warranties of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of the Underwriters, (ii) acceptance of the Shares and payment therefor or (iii) any termination of this Agreement. 7. Termination. The obligations of the several Underwriters under this Agreement may be terminated at any time on or prior to the Closing Date (or, with respect to the Option Shares, on or prior to the Option Closing Date), by notice to the Company from the Representatives, without liability on the part of any Underwriter to the Company, if, prior to delivery and payment for the Shares (or the Option Shares, as the case may be), in the sole judgment of the Representatives, (i) trading in any of the equity securities of the Company shall have been suspended by the Commission, the NASD, by an exchange that lists the Shares or by the Nasdaq Stock Market, (ii) trading in securities generally on the New York Stock Exchange or in the Nasdaq Stock Market shall have been suspended or limited or minimum or maximum prices shall have been generally established on such exchange or over-the-counter market, or additional material governmental restrictions, not in force on the date of this Agreement, shall have been imposed upon trading in securities generally by such exchange or over-the-counter market or by order of the Commission or the NASD or any court or other governmental authority, (iii) a general banking moratorium shall have been declared by either Federal or New York State or California State authorities or (iv) any material adverse change in the financial or securities markets in the United States or 20 20 in political, financial or economic conditions in the United States or any outbreak or material escalation of hostilities or declaration by the United States of a national emergency or war or other calamity or crisis shall have occurred the effect of any of which is such as to make it, in the sole judgment of the Representatives, impracticable or inadvisable to market the Shares on the terms and in the manner contemplated by the Prospectus. 8. Substitution of Underwriters. If any one or more of the Underwriters shall fail or refuse to purchase any of the Firm Shares which it or they have agreed to purchase hereunder, and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of Firm Shares, the other Underwriters shall be obligated, severally, to purchase the Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase, in the proportions which the number of Firm Shares which they have respectively agreed to purchase pursuant to Section 1 bears to the aggregate number of Firm Shares which all such non-defaulting Underwriters have so agreed to purchase, or in such other proportions as the Representatives may specify; provided that in no event shall the maximum number of Firm Shares which any Underwriter has become obligated to purchase pursuant to Section 1 be increased pursuant to this Section 8 by more than one-ninth of the number of Firm Shares agreed to be purchased by such Underwriter without the prior written consent of such Underwriter. If any Underwriter or Underwriters shall fail or refuse to purchase any Firm Shares and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase exceeds one-tenth of the aggregate number of the Firm Shares and arrangements satisfactory to the Representatives and the Company for the purchase of such Firm Shares are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company for the purchase or sale of any Shares under this Agreement. In any such case either the Representatives or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken pursuant to this Section 8 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 9. Miscellaneous. Notice given pursuant to any of the provisions of this Agreement shall be in writing and, unless otherwise specified, shall be mailed or delivered (a) if to the Company, at the office of the Company, 3050 Science Park Road, San Diego, California 92121, Attention: Tsvi Goldenberg, Ph.D., or (b) if to the Underwriters, to the Representatives at the offices of PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York 10019, Attention: Corporate Finance Department. Any such notice shall be effective only upon receipt. Any notice under Section 7 or 8 may be made by telex or telephone, but if so made shall be subsequently confirmed in writing. 21 21 This Agreement has been and is made solely for the benefit of the several Underwriters and the Company and of the controlling persons, directors and officers referred to in Section 6, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" as used in this Agreement shall not include a purchaser, as such purchaser, of Shares from any of the several Underwriters. All representations, warranties and agreements of the Company contained herein or in certificates or other instruments delivered pursuant hereto, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any of its controlling persons and shall survive delivery of and payment for the Shares hereunder. Any action required or permitted to be taken by the Representatives under this Agreement may be taken by them jointly or by PaineWebber Incorporated. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE. This Agreement may be signed in two or more counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. The Company and the Underwriters each hereby irrevocably waive any right they may have to a trial by jury in respect of any claim based upon or arising out of this Agreement or the transactions contemplated hereby. This Agreement may not be amended or otherwise modified or any provision hereof waived except by an instrument in writing signed by the Representatives and the Company. 22 22 Please confirm that the foregoing correctly sets forth the agreement among the Company and the several Underwriters. Very truly yours, IMMUSOL, INC. By: ------------------------------ Name: Title: Confirmed as of the date first above mentioned: PAINEWEBBER INCORPORATED NEEDHAM & COMPANY, INC. SUTRO & CO. INCORPORATED Acting on behalf of themselves and as the Representatives of the other several Underwriters named in Schedule I hereof. By: PAINEWEBBER INCORPORATED By: ----------------------------------- Name: Title: 23 SCHEDULE I UNDERWRITERS
Number of Name of Firm Shares Underwriters to be Purchased - ------------ --------------- PaineWebber Incorporated Needham & Company, Inc. Sutro & Co. Incorporated Total ................................................... --------- 3,000,000 =========
24 EXHIBIT A IMMUSOL, INC. --------------------- PRICE DETERMINATION AGREEMENT _______, 1996 PAINEWEBBER INCORPORATED NEEDHAM & COMPANY, INC. SUTRO & CO. INCORPORATED As Representatives of the several Underwriters c/o PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 Dear Sirs: Reference is made to the Underwriting Agreement, dated _______, 1996 (the "Underwriting Agreement"), among Immusol, Inc., a California corporation (the "Company"), and the several Underwriters named in Schedule I thereto or hereto (the "Underwriters"), for whom PaineWebber Incorporated, Needham & Company, Inc. and Sutro & Co. Incorporated are acting as representatives (the "Representatives"). The Underwriting Agreement provides for the purchase by the Underwriters from the Company, subject to the terms and conditions set forth therein, of an aggregate of 3,000,000 shares (the "Firm Shares") of the Company's common stock, par value $.001 per share. This Agreement is the Price Determination Agreement referred to in the Underwriting Agreement. Pursuant to Section 1 of the Underwriting Agreement, the undersigned agree with the Representatives as follows: The initial public offering price per share for the Firm Shares shall be $_______. 25 2 The purchase price per share for the Firm Shares to be paid by the several Underwriters shall be $_______ representing an amount equal to the initial public offering price set forth above, less $______ per share. The Company represents and warrants to each of the Underwriters that the representations and warranties of the Company set forth in Section 3 of the Underwriting Agreement are accurate as though expressly made at and as of the date hereof. As contemplated by the Underwriting Agreement, attached as Schedule I is a completed list of the several Underwriters, which shall be a part of this Agreement and the Underwriting Agreement. THIS AGREEMENT SHALL BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE. If the foregoing is in accordance with your understanding of the agreement among the Underwriters and the Company, please sign and return to the Company a counterpart hereof, whereupon this instrument along with all counterparts and together with the Underwriting Agreement shall be a binding agreement among the Underwriters and the Company in accordance with its terms and the terms of the Underwriting Agreement. Very truly yours, IMMUSOL, INC. By: _______________________ Name: Title: 26 3 Confirmed as of the date first above mentioned: PAINEWEBBER INCORPORATED NEEDHAM & COMPANY, INC. SUTRO & CO. INCORPORATED Acting on behalf of themselves and as the Representatives of the other several Underwriters named in Schedule I hereof. By: PAINEWEBBER INCORPORATED By: ____________________________ Name: Title: 27 EXHIBIT B June ___ , 1996 PAINEWEBBER INCORPORATED NEEDHAM & COMPANY, INC. SUTRO & CO. INCORPORATED As Representatives of the several Underwriters c/o PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 Dear Sirs: In consideration of the agreement of the several Underwriters, pursuant to which PaineWebber Incorporated, Needham & Company, Inc. and Sutro & Co. Incorporated (the "Representatives") intend to act as Representatives to underwrite a proposed public offering (the "Offering") of shares of Common Stock, par value $0.001 per share (the "Common Stock"), of Immusol, Inc., a California corporation, as contemplated by a registration statement (the "Registration Statement") with respect to such shares to be filed with the Securities and Exchange Commission on Form S-1, the undersigned hereby agrees that the undersigned will not, directly or indirectly, for a period of 180 days after the commencement of the Offering, without the prior written consent of PaineWebber Incorporated, (1) sell, transfer or otherwise dispose of, or offer, contract or grant an option to sell, transfer or otherwise dispose of, or require the Company to file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, to register, any shares of Common Stock or securities convertible into or exchangeable for Common Stock or warrants or other rights to acquire shares of Common Stock of which the undersigned is now, or may in the future become, the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended [(other than pursuant to employee stock option plans or in connection with other employee incentive compensation arrangements)](1)) or (2) enter into any swap or similar agreement that transfers, in whole or in part, any of the economic consequences of the ownership of the - ------------------- (1) Insert if this letter agreement will be signed by an employee of the Company. 28 2 Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The undersigned acknowledges that the Representatives are relying on the agreements of the undersigned contained herein in carrying out the Offering and in entering underwriting agreements with respect thereto. Very truly yours, By: _______________________ Print Name: _____________________ 29 EXHIBIT C Form of Opinion of Brobeck, Phleger & Harrison LLP* 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has full corporate power and authority to conduct all the activities conducted by it, to own or lease all the assets and properties owned or leased by it and to conduct its business as described in the Registration Statement and the Prospectus. 2. The Company is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company. 3. All of the outstanding shares of Common Stock have been, and the Shares, when paid for by the Underwriters in accordance with the terms of the Agreement, will be, duly authorized, validly issued, fully paid and nonassessable and will not be subject to any preemptive or similar right under (i) the statutes, judicial and administrative decisions, and the rules and regulations of the governmental agencies of the State of California, (ii) the Company's articles of incorporation or by-laws or (iii) any instrument, document, contract or other agreement referred to in the Registration Statement or any instrument, document, contract or agreement filed as an exhibit to the Registration Statement. Except as described in the Registration Statement or the Prospectus, to the best of our knowledge, there is no commitment or arrangement to issue, and there are no outstanding options, warrants or other rights calling for the issuance of, any share of capital stock of the Company to any person or any security or other instrument that by its terms is convertible into, exercisable for or exchangeable for capital stock of the Company. 4. No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required in connection with the authorization, issuance, transfer, sale or delivery of the Shares by the Company, in connection with the execution, delivery and performance of the Agreement by the Company or in connection with the taking by the Company of any action contemplated thereby, except such as have been obtained under the Act and the Rules and Regulations and such as may be - -------------------- * All references in this opinion to the Agreement shall include the Price Determination Agreement. Capitalized terms used herein and not otherwise defined have the same meanings as in the Underwriting Agreement. 30 2 required under state securities or "Blue Sky" laws or by the by-laws and rules of the NASD in connection with the purchase and distribution by the Underwriters of the Shares to be sold by the Company. 5. The authorized, issued and outstanding capital stock of the Company is as set forth in the Registration Statement and the Prospectus under the caption "Capitalization." The description of the Common Stock contained in the Prospectus is complete and accurate in all material respects. The form of certificate used to evidence the Common Stock is in due and proper form and complies with all applicable statutory requirements. 6. The Registration Statement and the Prospectus comply in all material respects as to form with the requirements of the Act and the Rules and Regulations (except that we express no opinion as to financial statements, schedules and other financial data contained in the Registration Statement or the Prospectus). To the best of our knowledge, any instrument, document, lease, license, contract or other agreement (collectively, "Documents") required to be described or referred to in the Registration Statement or the Prospectus has been properly described or referred to therein and any Document required to be filed as an exhibit to the Registration Statement has been filed as an exhibit thereto or has been incorporated as an exhibit by reference in the Registration Statement; and no default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any Document filed or required to be filed as an exhibit to the Registration Statement. 7. To the best of our knowledge, except as disclosed in the Registration Statement or the Prospectus, no person or entity has the right to require the registration under the Act of shares of Common Stock or other securities of the Company by reason of the filing or effectiveness of the Registration Statement. 8. To the best of our knowledge, the Company is not in violation of, or in default with respect to, any law, rule, regulation, order, judgment or decree, except as may be described in the Prospectus or such as in the aggregate do not now have and will not in the future have a material adverse effect upon the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company. 9. All descriptions in the Prospectus of statutes, regulations or legal or governmental proceedings are accurate and fairly present the information required to be shown. 10. The Company has full corporate power and authority to enter into the Agreement, and the Agreement has been duly authorized, executed and delivered by the Company, is a valid and binding agreement of the Company and, except for the 31 3 indemnification and contribution provisions thereof, as to which we express no opinion, is enforceable against the Company in accordance with the terms thereof. 11. The execution and delivery by the Company of, and the performance by the Company of its agreements in, the Agreement do not and will not (i) violate the certificate of articles or by-laws of the Company, (ii) breach or result in a default under, cause the time for performance of any obligation to be accelerated under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company pursuant to the terms of, (x) any indenture, mortgage, deed of trust, loan agreement, bond, debenture, note agreement, capital lease or other evidence of indebtedness of which we have knowledge, (y) any voting trust arrangement or any contract or other agreement to which the Company is a party that restricts the ability of the Company to issue securities and of which we have knowledge or (z) any Document filed as an exhibit to the Registration Statement, (iii) breach or otherwise violate any existing obligation of the Company under any court or administrative order, judgment or decree of which we have knowledge or (iv) violate applicable provisions of any statute or regulation in the State of California or of the United States. Delivery of certificates for the Shares will transfer valid and marketable title thereto to each Underwriter that has purchased such Shares in good faith and without notice of any adverse claim with respect thereto. 12. The Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. 13. The Shares have been duly approved for quotation on the Nasdaq National Market. 14. We hereby confirm to you that we have been advised by the Commission that the Registration Statement has become effective under the Act and that no order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or is pending, threatened or contemplated. 15. Any required filing of the Prospectus or any supplement thereto pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b). 16. We hereby further confirm to you that there are no actions, suits, proceedings or investigations pending or, to our knowledge, overtly threatened in writing against the Company, or any of its officers or directors in their capacities as such, before or by any court, governmental agency or arbitrator which (i) seek to challenge the legality or enforceability of the Agreement, (ii) seek to challenge the legality or enforceability of any of the Documents filed, or required to be filed, as exhibits to the Registration Statement, (iii) 32 4 seek damages or other remedies with respect to any of the Documents filed, or required to be filed, as exhibits to the Registration Statement, (iv) except as set forth in or contemplated by the Registration Statement and the Prospectus, seek money damages or seek to impose criminal penalties upon the Company or any of its officers or directors in their capacities as such and of which we have knowledge or if determined adversely to the Company, would individually or in the aggregate, have a material adverse effect on the Company or its business, properties, business prospects, condition (financial or otherwise) or results of operations, taken as a whole, or (v) seek to enjoin any of the business activities of the Company or the transactions described in the Prospectus and of which we have knowledge. 17. We have participated in the preparation of the Registration Statement and the Prospectus and, without assuming any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus or in any amendment or supplement thereto, nothing has come to our attention that causes us to believe that, both as of the Effective Date and as of the Closing Date and the Option Closing Date, the Registration Statement or any amendment thereto contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that any Prospectus or any amendment or supplement thereto, at the time such Prospectus was issued, at the time any such amended or supplemented Prospectus was issued, at the Closing Date and the Option Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading (except that we express no opinion as to financial statements, schedules and other financial data contained in the Registration Statement or the Prospectus. Opinion 11 is subject to the qualification that the enforceability of the Agreement may be: (i) subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally; and (ii) subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity) including principles of commercial reasonableness or conscionability and an implied covenant of good faith and fair dealing. This letter is furnished by us solely for your benefit in connection with the transactions referred to in the Agreement and may not be circulated to, or relied upon by, any other person, except that this letter may be relied upon by your counsel in connection with the opinion letter to be delivered to you pursuant to Section 5(h). In rendering the foregoing opinion, counsel may rely, to the extent they deem such reliance proper, on the opinions (in form and substance reasonably satisfactory to Underwriters' counsel) of other counsel reasonably acceptable to Underwriters' counsel as to matters governed by the laws of jurisdictions other than the United States and the State of 33 5 California, and as to matters of fact, upon certificates of officers of the Company and of government officials; provided that such counsel shall state that the opinion of any other counsel is in form satisfactory to such counsel. Copies of all such opinions and certificates shall be furnished to counsel to the Underwriters on the Closing Date. 34 EXHIBIT D Form of Opinion of Townsend and Townsend and Crew 1. The portions of the Registration Statement and the Prospectus entitled "Risk Factors--Patents and Proprietary Technology; Reliance Upon Licenses" and "Business--Patents and Proprietary Rights," (together, the "Patent Paragraphs") are accurate and complete statements or summaries of the matters set forth therein. 2. There are no legal or governmental proceedings, other than patent applications pending, relating to patent rights of the Company, to which the Company is a party, and, to our knowledge, no such proceedings are threatened or contemplated by governmental authorities or others and no basis for any such proceedings exist. 3. To our knowledge, the Company has not received any communication in which it is alleged that the Company is infringing or violating patent rights of third parties. 4. The Company owns or possesses licenses or other rights to use all patents, trade secrets, trademarks, service marks or other proprietary information or materials necessary to conduct the business now being or proposed to be conducted by the Company as described in the Prospectus. 5. Although we have not independently verified the accuracy and completeness of the statements contained in the Registration Statement and the Prospectus, nothing has come to our attention that would cause us to believe that, at the time the Registration Statement became effective under the Securities Act of 1933, as amended, the description and statements in the Patent Paragraphs of the Registration Statement contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein not misleading; or as of the date of the Prospectus or the date of this opinion, the description and statements in the Patent Paragraphs of the Prospectus contained or contain any untrue statement of a material fact or omitted or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. EX-4.1 3 EXHIBIT 4.1 1 EXHIBIT 4.1 I IMMUSOL, INC. COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA CUSIP 45253N 10 8 SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies that is the record holder of FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF IMMUSOL, INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: Secretary Chairman and CEO COUNTERSIGNED AND REGISTERED: CONTINENTAL STOCK TRANSFER & TRUST COMPANY (JERSEY CITY, N.J.) TRANSFER AGENT AND REGISTRAR BY AUTHORIZED OFFICER 2 IMMUSOL, INC. The Corporation shall furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation or series thereof and the qualifications, limitations or restrictions of each preference and/or rights. Such requests shall be made to the Corporation s Secretary at the principal office of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT- ................ Custodian ............. TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act .................................... in common (State) UNIF TRF MIN ACT- ......... Custodian (until age ........) (Cust) .................under Uniform Transfers (Minor) to Minors Act .......................... (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated X X THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: By THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15 EX-5.1 4 EXHIBIT 5.1 1 EXHIBIT 5.1 September 20, 1996 Immusol, Inc. 3050 Science Park Road San Diego, California 92121 Re: 3,000,000 Shares of Common Stock of Immusol, Inc. Ladies and Gentlemen: We have acted as counsel to Immusol, Inc., a California corporation (the "Company"), in connection with the proposed issuance and sale by the Company of 3,000,000 shares of the Company's Common Stock (the "Shares"), pursuant to the Company's Registration Statement on Form S-1 filed on July 3, 1996, as amended by Amendment No. 1 filed on July 8, 1996, Amendment No. 2 filed on August 20, 1996, Amendment No. 3 filed on September 20, 1996, and the 462(b) Registration Statement filed in September 1996 (the "Registration Statement"). In connection with this opinion, we have examined and relied upon the Registration Statement and related Prospectus, the Company's Amended and Restated Articles of Incorporation, as amended, the further amendment and restatement of the Amended and Restated Articles of Incorporation which the Registration Statement contemplates will be filed before the sale and issuance of the shares, the Company's bylaws, and originals, or copies certified to our satisfaction, of such records, documents, certificates, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below. On the basis of the foregoing, and in reliance thereon, we are of the opinion that the Shares, if, as and when sold and issued in accordance with the Registration Statement and Prospectus (as amended and supplemented through the date of issuance), will be validly issued, fully paid and nonassessable. We consent to the reference to our firm under the caption "Legal Matters" in the Registration Statement and related Prospectus and to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, BROBECK, PHLEGER & HARRISON LLP EX-10.1 5 EXHIBIT 10.1 1 EXHIBIT 10.1 WAIVER OF REGISTRATION RIGHTS Immusol, Inc. 3050 Science Park Road San Diego, CA 92121 Attention: Tsvi Goldenberg Re: Public Offering of Common Stock of Immusol, Inc. Dear Mr. Goldenberg: In consideration of the proposed initial underwritten public offering of Common Stock of Immusol, Inc., a California corporation (the "Company"), to be managed by PaineWebber Incorporated, Needham & Company, Inc. and Sutro & Co. Incorporated (collectively, the "Representatives"), expected to be consummated on or prior to the end of August 1996 (the "Public Offering"), the undersigned hereby waives, solely with respect to the Public Offering, (i) the Investors' rights under that certain Amended and Restated Shareholder Rights Agreement dated May 3, 1995, between the Company and the Investors listed on Exhibit A thereto (the "Shareholder Agreement") to register and sell Registrable Securities, as defined in the Shareholder Agreement, as part of the Public Offering, and (ii) the requirement to notify the Investors of the Public Offering as set forth in the Shareholder Agreement. Dated: June 25, 1996 Very truly yours, BANKAMERICA VENTURES By: /s/ Anchie Kuo --------------------------------- Name Managing Director ---------------------------------- Title EX-10.8 6 EXHIBIT 10.8 1 EXHIBIT 10.8 * CONFIDENTIAL * TREATMENT REQUESTED EXCLUSIVE LICENSE AGREEMENT BETWEEN THE REGENTS OF THE UNIVERSITY OF CALIFORNIA AND IMMUSOL, INCORPORATED FOR USE OF HIV-1 TARGETED RIBOZYME TO INHIBIT HIV-1 GENE EXPRESSION *_______________* NOVEL HIV-2 *_______________* MULTIPLE DELETION HIV MUTANTS *____________________* RIBOZYME GENE THERAPY FOR AIDS *________________* Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 2 TABLE OF CONTENTS
Page ---- RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2. LIFE OR PATENT EXCLUSIVE GRANT . . . . . . . . . . . . . . . . . . . 4 3. SUBLICENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4. LICENSE-ISSUE FEE . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5. ROYALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6. DUE DILIGENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 7. PROGRESS AND ROYALTY REPORTS . . . . . . . . . . . . . . . . . . . . 9 8. BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . 10 9. LIFE OF THE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 11 10. TERMINATION BY THE REGENTS . . . . . . . . . . . . . . . . . . . . . 11 11. TERMINATION BY LICENSEE . . . . . . . . . . . . . . . . . . . . . . 12 12. DISPOSITION OF LICENSED PRODUCTS ON HAND UPON TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . 12 13. USE OF NAMES AND TRADEMARKS . . . . . . . . . . . . . . . . . . . . 12 14. LIMITED WARRANTY . . . . . . . . . . . . . . . . . . . . . . . . . . 12 15. PATENT PROSECUTION AND MAINTENANCE . . . . . . . . . . . . . . . . . 13 16. PATENT MARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 17. PATENT INFRINGEMENT . . . . . . . . . . . . . . . . . . . . . . . . 15 18. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 16 19. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 20. ASSIGNABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 21. LATE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 22. WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 23. FAILURE TO PERFORM . . . . . . . . . . . . . . . . . . . . . . . . . 18 24. GOVERNING LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 25. PREFERENCE FOR UNITED STATES INDUSTRY . . . . . . . . . . . . . . . 18 26. FOREIGN GOVERNMENT APPROVAL OR REGISTRATION . . . . . . . . . . . . 18 27. EXPORT CONTROL LAWS . . . . . . . . . . . . . . . . . . . . . . . . 18 28. SECRECY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 29. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3 * CONFIDENTIAL * TREATMENT REQUESTED *______________________________________* EXCLUSIVE LICENSE AGREEMENT FOR USE OF HIV-1 TARGETED RIBOZYME TO INHIBIT HIV-1 GENE EXPRESSION; NOVEL HIV-2; MULTIPLE DELETION HIV MUTANTS; AND RIBOZYME GENE THERAPY FOR AIDS THIS LICENSE AGREEMENT (the "Agreement") is made and is effective this 7 day of December, 1993 (the "Effective Date") by and between THE REGENTS OF THE UNIVERSITY OF CALIFORNIA, a California corporation having its statewide administrative offices at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550, hereinafter referred to as "The Regents", and IMMUSOL, INCORPORATED, a California corporation having a principal place of business at 5052 Berean Lane, Irvine, California 92715, hereinafter referred to as the "Licensee". RECITALS WHEREAS, certain inventions, generally characterized as Use Of HIV-1 Targeted Ribozyme To Inhibit HIV-1 Gene Expression (*_________________*), Novel HIV-2 *________________*, Multiple Deletion HIV Mutants and Ribozyme Gene Therapy For AIDS *_________________*, hereinafter collectively referred to as the "Invention", were made in the course of research at the University of California, San Diego by Drs. Rappaport, Wong-Staal, Kraus, Talbott, Looney, Yu, Ojwang, Yamada and Steffy, and are covered by Regents' Patent Rights as defined below; WHEREAS, the Licensee entered into the following Secrecy Agreements for the purpose of evaluating the Invention: *___* Control No. *________*, effective *_______________*, pertaining to *________________*; Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 4 * CONFIDENTIAL * TREATMENT REQUESTED *___* Control No. *________*, effective *_______________*, pertaining to *________________*; and *___* Control No. *________*, effective *_______________*, pertaining to *________________*; WHEREAS, the development of the Invention was sponsored as follows: *________________*: UCSD start-up funds; *________________*: NIH grant *________________*: NIH grant; and *________________*: NIH and U.S. Army grant and as a consequence this license is subject to overriding obligations to the Federal Government as set forth in 35 U.S.C. 200-212 and applicable governmental implementing regulations; WHEREAS, the inventorship of *________________* may be changed in the U.S. Patent and Trademark Office (USPTO) to include a UC inventor, and will be assigned to The Regents unless additional employment obligations required this inventor to assign the application to a third party; WHEREAS, the Licensee is a"small business firm" as defined in 15 U.S.C. 632; WHEREAS, inasmuch as David Looney (named inventor on *_______*) is an employee of the Veterans Administration Medical Center, The Regents will ask Dr. Looney to have the Veterans Administration release its rights to Dr. Looney; if the Veterans Administration releases its rights to Dr. Looney, then Dr. Looney will assign his rights to The Regents; WHEREAS, The Regents is desirous that the Invention be developed and utilized to the fullest extent so that the benefits can be enjoyed by the general public; WHEREAS, the parties hereto entered into a Letter of Intent dated *___________*, covering *_________________________________* ("the LOI"); WHEREAS, the Licensee is desirous of obtaining certain rights from The Regents for the commercial development, use, and sale of the Invention, and The Regents is willing to grant such rights; and WHEREAS, both parties recognize and agree that royalties due hereunder will be paid Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 2 5 * CONFIDENTIAL * TREATMENT REQUESTED on both pending patent application and issued patents; --oo 0 oo-- The parties agree as follows: 1. DEFINITIONS 1.1 "Regents' Patent rights" means patent rights to any subject matter claimed in or covered by any of the following U.S. patent applications that are assigned to The Regents, as well as continuing applications thereof including divisions, substitutions and continuation- in-part (c-i-p) applications (to the extent that such continuation-in-part applications contain claims supported in the original application) and re-examinations; any patents issuing on said applications or continuing applications including reissues; and any corresponding foreign applications or patents: 1.1(a) U.S. patent application Serial No. 07/703,427, filed on *___________* on behalf of the Biotechnology Research and Development Company (BRDC). 1.1(a)(i) *________* 1.1(b) a patent application now in preparation, covering subject matter for *_________* and to be assigned to The Regents and to be paid for by Licensee under the LOI; 1.1(c) pending U.S. Patent Application Serial No. *__________* entitled "Multiple Gene Mutants of Immunodeficiency Virus (HIV) for Vaccine Use", filed *_______________* by Drs. Looney and Wong-Staal and assigned to The Regents and covered by the LOI *________________*; and 1.1(d) pending U.S. Patent Application Serial No. *_________* entitled "Ribozyme Gene Therapy For HIV Infection and AIDS", filed *___________* by Drs. Yu, Yamada, Owjang, Levitt, Ho and Wong-Staal, assigned to The Regents *__________*. 1.2 "Licensed Products" means any product that is covered by Regents' Patent Rights, Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 3 6 that is produced by a Licensed method, or that the use of which would constitute, but for the license granted to the Licensee pursuant to this Agreement, an infringement of any claim within Regents' Patent Rights. 1.3 "Licensed Method" means any method that is covered by Regents' Patent Rights, the use of which would constitute, but for the license granted to the Licensee pursuant to this Agreement, an infringement of any claim within Regents' Patent Rights. 1.4 "Net Sales" means the total of the gross invoice prices of Licensed Products sold by Licensee, an Affiliate, or a sublicensee, less the sum of the following actual and customary deductions where applicable and actually taken: cash, trade, or quantity discounts; sales, value added, use, tariffs, import/export duties or other excise taxes imposed upon particular sales; transportation and insurance charges and allowances or credits to customers because of rejections or returns. 1.5 "Affiliate" means any corporation or other business entity in which the Licensee owns or controls, directly or indirectly, at least fifty percent (50%) of the outstanding stock or other voting rights entitled to elect directors; provided, however, that in any country where the local law shall not permit foreign equity participation of at least 50%, then an "Affiliate" shall include any company in which the Licensee shall own or control, directly or indirectly, the maximum percentage of such outstanding stock or voting rights permitted by local law. 1.6 "Shareholders Agreement" means the Shareholders Agreement attached hereto as Appendix A. This Shareholders Agreement shall be fully executed and effective as of the execution of this Agreement. 1.7 "Ribozymen Products" means Licensed Products and Licensed methods for delivering to human patients in need thereof biologically active material which includes an RNA molecule having catalytic activity (commonly known as a ribozyme). Ribozymen products include the RNA molecule, its vector and delivery system, its formulation and packaging for commercial sale, and services, in connection with the treatment of the patient with the ribozyme product. A "Not Ribozyme Product" is a Licensed Product that is not a Ribozyme Product as defined herein, such as a vaccine. 2. LIFE OR PATENT EXCLUSIVE GRANT 2.1 Subject to the limitations set forth in this Agreement, The Regents hereby grants to the Licensee a world-wide license under Regents' Patent Rights to make, have made, use, and sell Licensed Products and to practice License Methods. 2.2 Except as otherwise provided herein, the license granted in section 2.1 shall be exclusive for the life of the Agreement. 4 7 * CONFIDENTIAL * TREATMENT REQUESTED 2.3 The license granted hereunder shall be subject to all the applicable provisions of any License to the United States Government executed by The Regents. The license granted hereunder shall be subject to the overriding obligations to the U.S. Government set forth in 35 U.S.C. 200-212 and applicable governmental implementing regulations. 2.4 The Licenses granted in paragraphs 2.1 and 2.2 to make, use and sell Licensed Products throughout the world shall be limited, in the case of Ribozyme Products, to products that are sold for use in human health care. For other Licensed Products that are ribozymes (for example ribozymes useful for agricultural purposes), Licensee shall have no license hereunder. 2.5 The Regents expressly reserve the right to make and use the Invention and Licensed Products and to practice the Licensed Method under Regents' Patent Rights for educational and research purposes. 3. SUBLICENSES 3.1 The Regents also grants to the Licensee the right to issue sublicenses to third parties to make, have made, use, and sell Licensed Products and to practice Licensed Methods, provided the Licensee has current exclusive rights thereto under this Agreement. To the extent applicable, such sublicenses shall include all of the rights of and obligations due to The Regents (and, if applicable, the United States Government) that are contained in this Agreement. 3.2 Licensee shall provide The Regents with a copy of each sublicense issued hereunder; collect and guarantee payment of all royalties due The Regents from sublicensees; and summarize and deliver all reports due The Regents from sublicensees. 3.3 Upon termination of this Agreement for any reason, The Regents, at its sole discretion, shall determine whether any or all sublicenses shall be canceled or assigned to The Regents. 4. LICENSE-ISSUE FEE 4.1 The Licensee shall pay to The Regents a LICENSE-ISSUE FEE of *___________________________________* within *_____* days after the execution of this Agreement. 4.2 Also as a LICENSE ISSUE FEE, The Licensee shall transfer to The Regents Immusol preferred stock having a value of *____________________________* as set forth in the Shareholders Agreement. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 5 8 * CONFIDENTIAL * TREATMENT REQUESTED 4.3 Both LICENSE ISSUE FEES are non-refundable and not an advance against royalties. 5. ROYALTIES 5.1 During the term of this Agreement the Licensee shall also pay to The Regents (a) an EARNED ROYALTY of *________________* of Net Sales of Licensed Products which are Not Ribozyme Products, and (b) an EARNED ROYALTY of *_______________* of Net Sales of Licensed Products which are Ribozyme Products. 5.2 Paragraphs 1.1, 1.2, and 1.3 define Regents' Patent Rights, Licensed Products and License Methods so that royalties shall be payable on products and methods covered by both pending patent applications and issued patents. Earned royalties shall accrue in each country for the duration of Regents' Patent Rights in that country and shall be payable to The Regents when Licensed Products are invoiced, or if not invoiced, when delivered to a third party. 5.3 Royalties accruing to The Regents shall be paid to The Regents quarterly on or before the following dates of each calendar year: February 28 May 31 August 31 November 30 Each such payment will be for royalties which accrued within the Licensee's most recently completed calendar quarter. 5.4 During the term of this Agreement the Licensee shall pay to The Regents a MINIMUM ANNUAL ROYALTY in the amounts defined below for the life of Regents' Patent Rights, beginning with the year of the first commercial sale of a FDA approved Licensed Product. For the first year of applicable commercial sales, Licensee's obligation to pay the applicable minimum annual royalties shall be pro-rated for the number of months remaining in that calendar year when commercial sales commence and shall be due the following February 28. For subsequent years, the applicable minimum annual royalty shall be paid to The Regents by February 28 of each year and shall be credited against the applicable earned royalty (for either a Ribozyme Product or a Not Ribozyme Product) due and owing for the calendar year in which the minimum payment was made. The minimum annual royalties shall be in the following amounts: (a) for Ribozyme Products: *____________________________________* per year for the first *_______* years, and *________________________________________________* per year thereafter; and (b) for Not Ribozyme Products: *______________________________* per year Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 6 9 * CONFIDENTIAL * TREATMENT REQUESTED for the first *__________* years and *_________________________________________* per year thereafter. 5.5 The Licensee shall pay to The Regents an annual license MAINTENANCE FEE in the amounts recited below, beginning on the one-year anniversary date of the Effective Date of this Agreement and continuing annually on each anniversary date of the Effective Date of this Agreement. This license maintenance fee shall not be due and payable as to a particular licensed product (Ribozyme Product or Not Ribozyme product) on any anniversary date of the Effective Date of this Agreement if on said date Licensee is commercially selling that FDA approved Licensed Product and paying an earned royalty to The Regents on the sales of that Licensed Product. This license maintenance fee is non-refundable and not an advance against royalties. The license maintenance fees shall be as follows: (a) for Ribozyme Products, *____* per year, going to *_____________________* per year on initiation of a clinical trial intended to show efficacy which is significant enough to support filing for marketing approval (NDA, PLA or equivalent), i.e., a Phase II or Phase II/III clinical trial; and (b) For a Not Ribozyme Product, *_________* per year, going to *_________________________________________* per year on initiation of a clinical trial intended to show efficacy which is significant enough to support filing for marketing approval (NDA, PLA, or equivalent). 5.6 All monies due The Regents shall be payable in United States funds collectible at par in San Francisco, California. When Licensed Products are sold for monies other than United States dollars, the earned royalties will first be determined in the foreign currency of the country in which such Licensed Products were sold and then converted into equivalent United States funds. The exchange rate will be that rate quoted in the Wall Street Journal on the last business day of the reporting period. 5.7 Royalties earned with respect to sales occurring in any country outside the United States shall not be reduced by any taxes, fees, or other charges imposed by the government of such country on the remittance of royalty income. The Licensee shall also be responsible for all bank transfer charges. Notwithstanding this, all payments made by the Licensee in fulfillment of The Regents' tax liability in any particular country shall be credited against earned royalties, royalties or fees due The Regents for that country. 5.8 If at any time legal restrictions prevent the prompt remittance of part or all royalties by the Licensee with respect to any country where a Licensed Product is sold, the Licensee may deposit such royalties in local currency in a local bank on other depository designated by The Regents. The Licensee shall use its best efforts to transfer such funds to its U.S. account. If it cannot do so after one year, it shall pay such royalties out of its U.S. source of funds. 5.9 In the event that any patent or any claim thereof included within The Regents' Patent Rights shall be held invalid on unenforceable in an unappealed or unappealable decision by a court of competent jurisdiction, any obligation to pay royalties based on such patent or claim, or any claim patentably indistinct therefrom, shall cease as of the date of such decision. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 7 10 * CONFIDENTIAL * TREATMENT REQUESTED The Licensee shall not, however, be relieved from paying any royalties that accrued before such decision or that are based on another patent or claim with The Regents' Patent Rights not involved in such decision. 5.10 No royalties shall be collected or paid hereunder on Licensed Products sold to the account of the U.S. Government, any agency thereof, or any state or domestic municipal government as provided for in the License to the Government. 6. DUE DILIGENCE 6.1 The Licensee, upon execution of this Agreement, shall diligently proceed with the development, manufacture and sale of Licensed Products and shall diligently endeavor to market the same within a reasonable time after execution of this Agreement and in quantities sufficient to meet the market demands therefor. Licensee shall have the right to negotiate an extension of time for any milestone based on its use of reasonably diligent efforts to meet the milestone dates. 6.2 The Licensee shall be entitled to exercise prudent and reasonable business judgment in meeting its due diligence obligations hereunder. 6.3 The Licensee shall endeavor to obtain all necessary governmental approvals for the manufacture, use and sale of Licensed Products. 6.4 If the Licensee is unable to perform any of the following: (6.4a) submit an IUD covering a Ribozyme product to the United States FDA within *________* from the Effective Date of this Agreement; or (6.4b) submit an IND covering a Licensed Product that is a Not Ribozyme Product to the United States FDA within *_____________* from the Effective Date of this Agreement; or (6.4c) submit an application for marketing approval to the U.S. FDA for a Ribozyme Product within *__________* from the Effective Date of this Agreement; or (6.4d) submit an application for marketing approval to the U.S. FDA for a Licensed Product that is a Not Ribozyme Product within *_____________* from the Effective Date of this Agreement; or (6.4e) market any Licensed Product in the United States within *____________* of receiving marketing approval from the U.S. FDA for such Licensed Product; or (6.4f) reasonably fill the market demand for Licensed Products following commencement of marketing at any time during the exclusive period of this Agreement; Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 8 11 * CONFIDENTIAL * TREATMENT REQUESTED then The Regents shall have the right and option either to terminate this Agreement or to reduce the Licensee's exclusive license to a nonexclusive license. This right, if exercised by The Regents, supersedes the rights granted in Article 2 (GRANT). 6.5 In addition to the obligations set forth above, the Licensee shall spend an aggregate of not less than *____________________________* per year for the development of Licensed Products during the first *____________* of this Agreement. 6.6 Either party to this Agreement may refer a dispute arising under Article 6 of this Agreement to binding arbitration. Such referral to arbitration shall be made by so notifying the other party in writing in accordance with the provisions of Article 19 hereto (NOTICES), stating the nature of the dispute to be resolved. Any such arbitration shall be conducted by three arbitrators controlled by the provisions of the Commercial Arbitration Rules of the American Arbitration Association then in effect, with the proviso that the arbitrators shall not be employees of the parties and shall establish an arbitration timetable resulting in a hearing in San Francisco, California within 120 days of the original request to arbitrate. The parties shall be entitled to discovery in like manner as if the arbitration were a civil suit in the California Superior Court; provided, however, the arbitrator may limit the scope, time and/or issues involved in discovery. The decision of the arbitrators shall be enforceable, but not appealable, in any court of competent jurisdiction. The parties agree that any provision or applicable law notwithstanding, they will not request and the arbitrators shall have no authority to award punitive or exemplary damages against any party. The costs of the arbitration, including administrative fees and fees of the arbitrators shall be shared equally by the parties. Each party shall bear the cost of its own attorneys' fees and expert fees. 7. PROGRESS AND ROYALTY REPORTS 7.1 Beginning *_______________* and *___________* thereafter, the Licensee shall submit to The Regents a detailed progress report covering the Licensee's activities related to the development and testing of all Licensed Products and the obtaining of the governmental approvals necessary for marketing. These progress reports shall be made for each Licensed Product until the first commercial sale of that Licensed Product occurs in the United States. 7.2 The progress reports submitted under section 7.1 should include, but not be limited to, the following topics: - summary of work completed - key scientific discoveries - summary of work in progress Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 9 12 * CONFIDENTIAL * TREATMENT REQUESTED - current schedule of anticipated events or milestones - market plans for introduction of Licensed Products, and - a summary of resources (dollar value) spent in the reporting period 7.3 The Licensee shall have a continuing responsibility to keep The Regents informed of the large/small entity status (as defined by the United States Patent and Trademark Office) of itself and its sublicensees and Affiliates. 7.4 The Licensee also agrees to report to The Regents the date of first commercial sale of a Licensed Product in each country. 7.5 After the first commercial sale of a Licensed Product anywhere in the world, the Licensee will make quarterly royalty reports to The Regents on or before each February 28, May 31, August 31 and November 30 of each year. Each such royalty report will cover the Licensee's most recently completed calendar quarter and will show (a) the gross sales and Net Sales of Licensed Products sold by the Licensee during the most recently completed calendar quarter; (b) the number of each type of Licensed Product sold; (c) the royalties, in U.S. dollars, payable hereunder with respect to such sales; (d) the method used to calculate the royalty; and (e) the exchange rates used. 7.6 If no sales of Licensed Products has been made during any reporting period, a statement to this effect shall be required. 8. BOOKS AND RECORDS 8.1 The Licensee shall keep books and records accurately showing all Licensed Products manufactured, used, and/or sold under the terms of this Agreement. Such books and records shall be preserved for at least *__________* from the date of the royalty payment to which they pertain and shall be open to inspection by representatives or agents of The Regents at reasonable times *____* per calendar year during the term of this Agreement, for the sole purpose of verifying the reports and royalty payments made by Licensee. Such examination shall be made at Licensee's place of business during ordinary business hours with at least *___________* days prior written notice. The representative of the Regents shall report to The Regents only whether there has been a royalty underpayment and, if so, the amount thereof. 8.2 The fees and expenses of The Regents' representatives performing such an examination shall be borne by The Regents. However, if an error in royalties of more than *_________________* of the total royalties due for any year is discovered, then the fees and expenses of these representatives shall be borne by the Licensee. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 10 13 * CONFIDENTIAL * TREATMENT REQUESTED 9. LIFE OF THE AGREEMENT 9.1 Unless otherwise terminated by operation of law or by acts of the parties in accordance with the terms of this Agreement, this Agreement shall be in force from the Effective Date and shall remain in effect for the life of the last-to-expire patent licensed under this Agreement; or for *___________* from the Effective Date of this Agreement if no patent issues; or until the last patent application licensed under this Agreement is abandoned and no patent in Regents' Patent Rights ever issues, whichever occurs first. 9.2 Any termination of this Agreement shall not affect the rights and obligations set forth in the following Articles: Article 8 Books and Records Article 12 Disposition of Licensed Products on Hand Upon Termination Article 13 Use of Names and Trademarks Article 18 Indemnification Article 23 Failure to Perform Article 28 Secrecy Appendix A Shareholders Agreement
10. TERMINATION BY THE REGENTS 10.1 If the Licensee should violate or fail to perform any term or covenant of this Agreement, then The Regents may give written notice of such default (Notice of Default) to the Licensee. If the Licensee should fail to repair such default within *__________* days of receipt of such notice, The Regents shall have the right to terminate this Agreement and the licenses herein by a second written notice (Notice of Termination) to the Licensee. If a Notice of Termination is sent to the Licensee, this Agreement shall automatically terminate on the effective date of such notice. Such termination shall not relieve the Licensee of its obligation to pay any royalty or license fees owing at the time of such termination and shall not impair any accrued right of The Regents. These notices shall be subject to Article 19 (Notices). 11. TERMINATION BY LICENSEE 11.1 The Licensee shall have the right at any time to terminate this Agreement in whole or as to any patent application or patent within The Regents' Patent Rights by giving notice in writing to The Regents. Such notice of termination shall be subject to Article 19 Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 11 14 * CONFIDENTIAL * TREATMENT REQUESTED (Notices) and termination of this Agreement shall be effective ninety (90) days from the effective date of such notice. 11.2 Any termination pursuant to the above paragraph shall not relieve the Licensee of any obligation or liability accrued hereunder prior to such termination or rescind anything done by the Licensee or any payments made to The Regents hereunder prior to the time such termination becomes effective, and such termination shall not affect in any manner any rights of The Regents arising under this Agreement prior to such termination. 12. DISPOSITION OF LICENSED PRODUCTS ON HAND UPON TERMINATION 12.1 Upon termination of this Agreement the Licensee shall have the privilege of disposing of all previously made or partially made Licensed Products, but no more, within a period of *_______________________________*, provided, however, that the sale of such Licensed Products shall be subject to the terms of this Agreement including, but not limited to, the payment of royalties at the rate and at the time provided herein and the rendering of reports thereon. 13. USE OF NAMES AND TRADEMARKS 13.1 Nothing contained in this Agreement shall be construed as conferring any right to use in advertising, publicity, or other promotional activities any name, trade name, trademark, or other designation of either party hereto (including contraction, abbreviation or simulation of any of the foregoing). Unless required by law, the use by Licensee of the name, "The Regents of the University of California" or the name of any campus of the University of California is expressly prohibited. 14. LIMITED WARRANTY 14.1 The Regents warrants to the Licensee that it has the lawful right to grant this license. 14.2 This license and the associated Invention are provided WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. THE REGENTS MAKES NO REPRESENTATION OR WARRANTY THAT THE LICENSED PRODUCTS OR LICENSED METHODS WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT. 14.3 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF THE INVENTION OR LICENSED PRODUCTS. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 12 15 14.4 Nothing in this Agreement shall be construed as: ** (14.4a) a warranty or representation by The Regents as to the validity or scope of any Regents' Patent Rights; or (14.4b) a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents of third parties; or (14.4c) an obligation to bring or prosecute actions or suits against third parties for patent infringement except as provided in Article 17; or (14.4d) conferring by implication, estoppel or otherwise any license or rights under any patents of The Regents other than Regents' Patent Rights as defined herein, regardless of whether such patents are dominant or subordinate to Regent's Patent Rights; or (14.4e) an obligation to furnish any know-how not provided in Regents' Patent Rights. 15. PATENT PROSECUTION AND MAINTENANCE 15.1 The Regents shall diligently prosecute and maintain the United States and foreign patents comprising Regents' Patent Rights using counsel of its choice reasonably acceptable to Licensee. The Regents shall provide the Licensee with copies of all relevant documentation so that the Licensee may be informed and apprised of the continuing prosecution and the Licensee agrees to keep this documentation confidential. The Regents' counsel will take instructions only from The Regents. 15.2 The Regents shall use all reasonable efforts to amend any patent application to include claims reasonably requested by the Licensee to protect any processes or products contemplated to be used or sold under this Agreement. 15.3 Licensee shall apply for an extension of the term of any patent included within Regents' Patent Rights if appropriate under the Drug Price Competition and Patent Term Restoration Act of 1984, and/or Japanese and European counterparts of this law. The Licensee shall prepare all such documents, and The Regents agrees to execute such documents and to take such additional action as the Licensee may reasonably request in connection therewith. 15.4 In the event either party receives notice pertaining to infringement or potential infringement of any issued patent included within Regents' Patent Rights pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984, such party shall notify the other party within ten (10) days after receipt of such notice. 15.5 The reasonable costs of preparing, filing, prosecuting and maintaining all United 13 16 * CONFIDENTIAL * TREATMENT REQUESTED States patent applications contemplated by this Agreement shall be borne by Licensee. This includes patent prosecution costs for this Invention incurred by The Regents prior to the execution of this Agreement. Such prior costs will be approximately *_______* and will be due upon execution of this Agreement and billing by The Regents. 15.6 The Licensee shall have the continuing responsibility to notify The Regents if Licensee or any of its sublicensees is not a small entity under the provisions of 35 U.S.C. 41(h). 15.7 The Licensee shall have the right to obtain patent protection on the Invention in foreign countries if available and if it so desires. The Licensee must notify The Regents within *_____________* of the filing of the corresponding United States application of its decision to obtain foreign patents. This notice concerning foreign filing shall be in writing, must identify the countries desired, and reaffirm Licensee's obligation to underwrite the costs thereof. The absence of such a notice from the Licensee to The Regents shall be considered an election not to secure foreign rights. 15.8 The preparation, filing and prosecuting of all foreign patent applications filed at the Licensee's request, as well as the maintenance of all resulting patents, shall be at the sole expense of the Licensee. Such patents shall be held in the name of The Regents and shall be obtained using counsel of The Regents' choice. 15.9 The Licensee's obligation to underwrite and to pay patent prosecution costs shall continue for so long as this Agreement remains in effect, provided, however, that the Licensee may terminate its obligations with respect to any given patent application or patent upon *______________* written notice to The Regents. The Regents will use its best efforts to curtail patent costs when such a notice is received from the Licensee. The Regents may continue prosecution and/or maintenance of such application(s) or patent(s) at its sole discretion and expense; provided, however, that the Licensee shall have no further right or licenses thereunder. 15.10 The Regents shall have the right to file patent applications at its own expense in any country in which the Licensee has not elected to secure patent rights, and such applications and resultant patents shall not be subject to this Agreement. 16. PATENT MARKING 16.1 The Licensee agrees to mark all Licensed Products made, used or sold under the terms of this Agreement, or their containers, in accordance with the applicable patent marking laws. 17. PATENT INFRINGEMENT 17.1 In the event that the Licensee shall learn of the substantial infringement of any Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 14 17 * CONFIDENTIAL * TREATMENT REQUESTED patent licensed under this Agreement, the Licensee shall call The Regents' attention thereto in writing and shall provide The Regents with reasonable evidence of such infringement. Both parties to this Agreement agree that during the period and in a jurisdiction where the Licensee has exclusive rights under this Agreement, neither will notify a third party of the infringement of any of Regents' Patent Rights without first obtaining consent of the other party, which consent shall not be unreasonably denied. Both parties shall use their best efforts in cooperation with each other to terminate such infringement without litigation. 17.2 The Licensee may request that The Regents take legal action against the infringement of Regents' Patent Rights. Such request shall be made in writing and shall include reasonable evidence of such infringement and damages to the Licensee. If the infringing activity has not been abated within *______________* following the effective date of such request, The Regents shall have the right to: (17.2a) commence suit on its own account; or (17.2b) refuse to participate in such suit, and The Regents shall give notice of its election in writing to the Licensee by the end of the *___________________* day after receiving notice of such request from the Licensee. The Licensee may thereafter bring suit for patent infringement if and only if The Regents elects not to commence suit and if the infringement occurred during the period and in a jurisdiction where the Licensee had exclusive rights under this Agreement. However, in the event the Licensee elects to bring suit in accordance with this paragraph, The Regents may thereafter join such suit at its own expense. 17.3 Such legal action as is decided upon shall be at the expense of the party on account of whom suit is brought and all recoveries recovered thereby shall belong to such party, provided, however, that legal action brought jointly by The Regents and the Licensee and fully participated in by both shall be at the joint expense of the parties and all recoveries shall be shared jointly by them in proportion to the share of expense paid by each party. 17.4 Each party agrees to cooperate with the other in litigation proceedings instituted hereunder but at the expense of the party on account of whom suit is brought. Such litigation shall be controlled by the party bringing the suit, except that The Regents may be represented by counsel of its choice and at its expense in any suit brought by the Licensee. 18. INDEMNIFICATION 18.1 The Licensee agrees to indemnify, hold harmless and defend The Regents, its officers, employees, and agents; the sponsors of the research that led to the Invention; and the inventors of the patents and patent applications in Regents' Patent Rights and their employers against any and all claims, suits, losses, damage, costs, fees, and expenses resulting from or arising out of exercise of this license or any sublicense. This indemnification will include, but Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 15 18 * CONFIDENTIAL * TREATMENT REQUESTED will not be limited to, any product liability. 18.2 The Licensee, at its sole cost and expense, shall insure its activities in connection with the work under this Agreement and obtain, keep in force and maintain insurance or an equivalent program of self insurance, said insurance to have the following limits, as of the date when a Licensed Product is first used on a human being: Comprehensive or Commercial Form General Liability Insurance (contractual liability included) with limits as follows: (a) Each Occurrence *__________* (b) Products/Completed Operations Aggregate *__________* (c) Personal and Advertising Injury *__________* (d) General Aggregate (commercial form only) *__________* It should be expressly understood, however, that the coverages and limits referred to under the above shall not in any way limit the liability of Licensee. Licensee shall furnish The Regents with certificates of insurance evidencing compliance with all requirements. Such certificates shall: (a) Provide for *__________* advance written notice to University of any modification. (b) Indicate that The Regents has been endorsed as an additional Insured under the coverages referred to under the above. (c) Include a provision that the coverages will be primary and will not participate with nor will be excess over any valid and collectable insurance or program of self-insurance carried or maintained by The Regents. 18.3 The Regents shall promptly notify Licensee in writing of any claim or suit brought against The Regents in respect of which The Regents intends to invoke the provisions of this Article 18. Licensee will keep The Regents informed on a current basis of its defense of any claims pursuant to this Article 18. 19. NOTICES 19.1 Any notice or payment required to be given to either party shall be deemed to have been properly given and to be effective (a) on the date of delivery if delivered in person or (b) *_______* days after mailing if mailed by first-class certified mail, postage paid, to the respective addresses given below, or to such other address as it shall designate by written notice given to the other party. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 16 19 * CONFIDENTIAL * TREATMENT REQUESTED In the case of the Licensee: Immusol, Incorporated 5052 Berean Lane Irvine, California 92715 Attention: President In the case of The Regents: THE REGENTS OF THE UNIVERSITY OF CALIFORNIA 1320 Harbor Bay Parkway Suite 150 Alameda, California 94501 Attention: Director; Office of Technology Transfer Referring to: *__________________________* 20. ASSIGNABILITY 20.1 This Agreement is binding upon and shall inure to the benefit of The Regents, its successors and assigns, but shall be personal to the Licensee and assignable by the Licensee only with the written consent of The Regents, which consent shall not be unreasonably withheld; provided, however, the Licensee may assign the Agreement to a successor of all or substantially all its assets without the consent of The Regents. 21. LATE PAYMENTS 21.1 In the event royalty payments or fees are not received by The Regents when due, the Licensee shall pay to The Regents interest charges at a rate of *____________* per annum. Such interest shall be calculated from the date payment was due until actually received by The Regents. 22. WAIVER 22.1 It is agreed that no waiver by either party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 23. FAILURE TO PERFORM 23.1 In the event of a failure of performance due under the terms of this Agreement and if it becomes necessary for either party to undertake legal action against the other on account thereof, then the prevailing party shall be entitled to reasonable attorney's fees in addition to costs and necessary disbursements. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 17 20 24. GOVERNING LAWS 24.1 THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, but the scope and validity of any patent or patent application shall be governed by the applicable laws of the country of such patent or patent application. 25. PREFERENCE FOR UNITED STATES INDUSTRY 25.1 Because this Agreement grants the exclusive right to use or sell the Invention in the United States, the Licensee agrees that any products embodying this Invention or product through the use thereof will be manufactured substantially in the United States. 26. FOREIGN GOVERNMENT APPROVAL OR REGISTRATION 26.1 If this Agreement or any associated transaction is required by the law of any nation to be either approved or registered with any governmental agency, the Licensee shall assume all legal obligations to do so. 27. EXPORT CONTROL LAWS 27.1 The Licensee shall observe all applicable United States and foreign laws with respect to the transfer of Licensed Products and related technical data to foreign countries, including, without limitation, the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations. 28. SECRECY 28.1 With regard to confidential information ("Data"), which can be oral or written or both, received from The Regents regarding this Invention, the Licensee agrees: (1) not to use the Data except for the sole purpose of performing under the terms of this Agreement; (2) to safeguard Data against disclosure to others with the same degree of care as it exercises with its own data of a nature; (3) not to disclose Data to others (except to its employees, agents or consultants who are bound to Licensee by a like obligation of confidentiality) without the express written permission of The Regents, except that Licensee shall not be prevented from using or disclosing any of the Data: (a) which Licensee can demonstrate by written records or other evidence was previously known to it; (b) which is now, or becomes in the future, public knowledge other than through acts or omissions of Licensee; (c) which is lawfully obtained by Licensee from sources independent of The Regents; (d) is disclosed pursuant to law or the order or requirement of a court, administrative agency, or other governmental body; or 18 21 * CONFIDENTIAL * TREATMENT REQUESTED (e) is disclosed by Licensee to accountants, banks, or another financing source (or their advisors) or in connection with a merger, acquisition or securities offering, subject to a non-disclosure agreement. (4) that the secrecy obligations of Licensee with respect to Data shall continue for a period ending *_____* years from the termination date of this Agreement. With regard to biological material received from The Regents, including any cell lines, vectors, derivatives, products progeny or material derived therefrom ("Biological Material"), Licensee hereby agrees: (1) not to use Biological Material except for the sole purpose of performing under the terms of this Agreement; (2) not to transfer Biological Material to others (except to its employees, agents or consultants who are bound to the Licensee by like obligations conditioning and restricting access, use and continued use of Biological Material) without the express written permission of The Regents, except that Licensee shall not be prevented from transferring Biological Material which: (a) becomes publicly available other than through acts or omissions of Licensee, or (b) is lawfully obtained by Licensee from sources independent of The Regents; (3) to safeguard Biological Material against disclosure and transmission to others with the same degree of care as it exercises with its own biological materials of a similar nature. 28.2 The Regents shall use due care to maintain any confidential business information provided by LICENSEE to the Regents, and any reports and information provided by Licensee to The Regents pursuant to Sections 7 and 8, in confidence and not disclose such information or reports to any third party, except as required by law and disclosed after notice to Licensee and after requesting confidential treatment and a protective order, if available. The Licensee acknowledges that The Regents is a public institution and is subject to the California Public Records Act. 29. MISCELLANEOUS 29.1 The headings of the several sections are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 29.2 This Agreement will not be binding upon the parties until it has been signed below on behalf of each party, in which event, it shall be effective as of the date recited on page one. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 19 22 * CONFIDENTIAL * TREATMENT REQUESTED 29.3 No amendment or modification hereof shall be valid or binding upon the parties unless made in writing and signed on behalf of each party. 29.4 This Agreement embodies the entire understanding of the parties and shall supersede all previous communications, representations or understandings, either oral or written, between the parties relating to the subject matter hereof. The Secrecy Agreements dated *_______________*, and the LOI are hereby terminated. 29.5 In case any of the provisions contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, but this Agreement shall be construed as if such invalid or illegal or unenforceable provisions had never been contained herein. 29.6 This Agreement includes Appendix A which is attached hereto as a Shareholder's Agreement. As long as The Regents is a shareholder, The Regents shall receive the same notice of all Board of Directors meetings of the Company as it gives to its regular Board members. A representative of The Regents, chosen by The Regents after consultation with the Licensee (i.e. the Company), shall have the right to attend such meetings, except for executive sessions of the Board. The Regents shall have the right to vote its shares, to inspect books and records, and to approve corporate actions in accordance with generally applicable laws and rules of the Company applying to preferred stock holders. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 20 23 IN WITNESS WHEREOF, both The Regents and the Licensee have executed this Agreement, in duplicate originals, by their respective officers hereunto duly authorized, on the day and year hereinafter written. IMMUSOL, INCORPORATED THE REGENTS OF THE UNIVERSITY OF CALIFORNIA By: /s/ TSVI GOLDENBERG, Ph.D. By: /s/ William T.Davis --------------------------- ------------------------- (Signature) (Signature) Name: /s/ TSVI GOLDENBERG, Ph.D. Name: William T. Davis (Please Print) Title: Chairman & CEO Title: Associate Director; Office of Technology Transfer Date: 11-19-93 Date: 12-6-93 --------------------- ----------------------- Approved as to legal form: /s/ EDWIN H. BAKER 10-22-93 --------------------------------------------- Edwin H. Baker, ASSOCIATE OFFICE OF TECHNOLOGY TRANSFER University OF CALIFORNIA 21 24 * CONFIDENTIAL * TREATMENT REQUESTED APPENDIX A SHAREHOLDERS AGREEMENT 1. The authorized and outstanding capital of the Company consists of: (a) 2,000,000 shares of Preferred Stock (the "Preferred Stock"), all of which are designated Series A Preferred Stock and outstanding. (b) 20,000,000 shares. of Common Stock (the "Common Stock"), of which 7,045,000 shares are outstanding. (c) 400,000 shares of Common Stock reserved for issuance under the Company's 1992 Stock Plan, of which 60,000 shares have been issued pursuant to exercise of an option, 30,000 shares are issuable upon exercise of an outstanding option, leaving 310,000 shares available for issuance under the 1992 Stock Plan. 2. According to the latest determination of the Company's board of directors, the Company's Common Stock has a per share value of $*____*. 3. The Company proposes to issue and sell additional shares of capital stock (most likely Series B Preferred Stock) as part of its next financing (the "Financing") and anticipates that the Company's capitalization will be increased by the number of shares of capital stock to be issued and sold pursuant to the Financing. 4. Pursuant to Section 4.2 of the Exclusive License Agreement between the Company and the Regents of the University of California, the Company hereby agrees to transfer to the Regents that whole number of shares of capital stock issued and sold pursuant to the Financing equal to an aggregate value of *___________________________________________*. 5. (a) It is hereby agreed that the Company has delivered to The Regents the offering documents used in connection with the most recently completed security-based financing of the Company. (b) Unless otherwise stated herein or in any written agreement between the Company and the Regents, upon the issuance of the capital stock pursuant to Section 4 above, the Regents shall have the same rights, preferences and privileges to be granted to the investors to the Financing. (c) A stock certificate evidencing the transfer pursuant to Section 4 above shall be delivered to The Regents within thirty (30) days after the close of the Financing. 6. It is hereby expressly reiterated that all provisions of the Agreement relating to indemnification, limited warranty, and use of names apply to this Shareholders Agreement. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 22 25 * CONFIDENTIAL * TREATMENT REQUESTED [UNIVERSITY OF CALIFORNIA LETTERHEAD] *____________* IN DUPLICATE VIA FEDERAL EXPRESS Tsvi Goldenberg, Ph.D. Chairman and CEO Immusol, Incorporated 3050 Science Park Road San Diego, CA 92121 Re: USE OF HIV-1 TARGETED RIBOZYME TO INHIBIT HIV-1 GENE EXPRESSION *____________________* NOVEL HIV-2 *____________________* MULTIPLE DELETION HIV MUTANTS *_________________________* RIBOZYME GENE THERAPY FOR HIV *____________________* Dear Tsvi: The Regents acknowledges that Immusol, Inc. ("Immusol") recently issued shares of Series B1 Preferred Stock pursuant to an equity stock financing. In compliance with the Exclusive License Agreement *___________________________* dated *_______________* ("License Agreement"), Immusol issued to The Regents of the University of California ("The Regents") 7,323 shares of Series B1 Preferred Stock, certification no. B1-2 (the "Certificate") on *___________*. The Regents now wishes to return and cancel the Certificate and amend the License Agreement to receive *______* in cash or check instead of such shares of Series B1 Preferred Stock. Immediately upon receipt of this letter executed by an officer of Immusol, The Regents agrees to return the Certificate. Subject to receipt of the Certificate, Immusol hereby agrees to the following: 1. This letter confirms our telephone conversation on *__________*, and amends the License Agreement. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 26 * CONFIDENTIAL * TREATMENT REQUESTED Tsvi Goldenberg, Ph.D., Immusol Inc., June 15, 1995, page 2 2. The Regents hereby waives all existing and future rights to the Immusol preferred stock required under Paragraph 4.2 of the License Agreement in return for *________* in cash. To that end Paragraph 4.2 is hereby replaced in its entirety with the following: "4.2 Also as a license issue fee, The Licensee shall pay to The Regents *_________________________________*, which is due on or before *___________*." 3. In accordance with the provisions of paragraph 2 of this letter, the following references to Immusol preferred stock and the corresponding shareholders' agreement are removed from the License Agreement: Paragraph 1.6; the last line of Paragraph 9.2; Paragraph 29.6; and Appendix A. 4. Immusol's obligation to pay the Cash Payment is subject to receipt of the Certificate from The Regents at least * business days prior to payment of the Cash Payment. Immusol shall pay the Cash Payment on the later of (i) *___________* or (ii) *_____________* after Immusol's receipt of the Certificate from The Regents. If Immusol agrees with this First Amendment, please sign both originals of this letter and return one original to me for our files. Sincerely, /s/ DAVID J. ASTON David J. Aston Assistant Director cc: George Y. Choi - Wilson, Sonsini - ------------------------------------------------------------------------------ ACCEPTED BY IMMUSOL INCORPORATED /s/ TSVI GOLDENBERG - --------------------------- Tsvi Goldenberg, Ph.D. Chairman & CEO 6-27-95 - --------------------------- Date Approved as to legal form: /s/ SANDRA S. SCHULTZ 6/19/95 ............................. ............ Sandra S. Schultz, Attorney Date Office of Technology Transfer, University of California Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. EX-10.9 7 EXHIBIT 10.9 1 EXHIBIT 10.9 * CONFIDENTIAL * TREATMENT REQUESTED COLLABORATIVE RESEARCH AGREEMENT This COLLABORATIVE RESEARCH AGREEMENT (The "Agreement") is entered into as of the Effective Date by and between PFIZER INC, a Delaware corporation, having an office at 235 East 42nd Street, New York, NY 10017 and its Affiliates ("Pfizer"), and IMMUSOL INCORPORATED ("Immusol"), a California corporation, having an office at 3050 Science Park Road, La Jolla, California 92121. WHEREAS, Immusol has expertise in * ______________________ * research; and WHEREAS, Immusol or its licensor have filed the patent applications set forth in Exhibit A attached to and made part of this Agreement; and WHEREAS, the parties plan to seek patent protection for all Products which make up the subject matter of this Agreement and the License Agreement; and WHEREAS, the parties will also execute a License and Royalty Agreement with respect to the commercialization of the subject matter of this Agreement on the same date that this Agreement is executed; and WHEREAS, Pfizer has the capability to undertake research for the discovery and evaluation of agents for treatment of disease and also the capability for clinical analysis, manufacturing and marketing with respect * ______________ *; and WHEREAS, Pfizer and Immusol are planning to develop ribozymes for use in other applications, and to that end will discuss programs for other indications; Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 2 2 NOW, THEREFORE, the parties agree as follows: 1. DEFINITIONS. Whenever used in this Agreement, the terms defined in this Section 1 shall have the meanings specified. The capitalized terms used in this Agreement and not defined elsewhere in it or in this Section 1 shall have the meanings specified in the License Agreement. 1.1. "Affiliate" means any corporation or other legal entity owning, directly or indirectly, fifty percent (50%) or more of the voting capital shares or similar voting securities of Pfizer or Immusol; any corporation or other legal entity fifty percent (50%) or more of the voting capital shares or similar voting rights of which is owned, directly or indirectly, by Pfizer or Immusol or any corporation or other legal entity fifty percent (50%) or more of the voting capital shares or similar voting rights of which is owned, directly or indirectly, by a corporation or other legal entity which owns, directly or indirectly, fifty percent (50%) or more of the voting capital shares or similar voting securities of Pfizer or Immusol. 1.2. "Annual Commitment" means the maximum amount to be paid to Immusol by Pfizer to fund the Research Program for any Commitment Year. 1.3. "Annual Research Plan" means the written plan describing the research and manning in the Area to be carried out during each Commitment Year by Pfizer and Immusol pursuant to this Agreement. Each Annual Research Plan will be attached to and made a part of this Agreement as Exhibit C. 3 * CONFIDENTIAL * TREATMENT REQUESTED 3 1.4. "Research Program" is the collaborative research program in the Area conducted by Pfizer and Immusol pursuant to the Annual Research Plans in effect during the Contract Period as originally set forth *_______________* attached to and made a part of this Agreement as Exhibit B. 1.5. "Effective Date" is *_________*. 1.6. "Contract Period" means the period beginning on the Effective Date and ending on the date on which the Research Program terminates. 1.7. "Commitment Year" means a twelve-month period commencing on each anniversary of the Effective Date. 1.8. "Area" means research or development with respect to gene therapy of AIDS/HIV infection using ribozymes, the primary goal of which *_______*. 1.9. "Technology" means and includes all materials, technology, technical information, know-how, expertise and trade secrets within the Area. 1.10. "Immusol Technology" means technology that is or was: (a) developed by employees of or consultants to Immusol prior to the Effective Date; or (b) acquired by purchase, license, assignment or other means from third parties by Immusol prior to the Effective Date or during the Contract Period that would not otherwise be part of Joint Technology. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 4 4 1.11. "Joint Technology" means Technology that is or was: (a) developed by employees of or consultants to Pfizer or Immusol solely or jointly with each other during the Contract Period in connection with the performance of the Research Program; or (b) acquired by purchase, license, assignment or other means from third parties by Immusol or Pfizer during the Contract Period for use in the performance of the Research Program which may be licensed by either Immusol or Pfizer, as the case may be, to the other. 1.12. "Pfizer Technology" means Technology that is or was: (a) developed by employees of or consultants to Pfizer alone or jointly with third parties prior to the Effective Date or during the Contract Period in the course of activities not described in an Annual Research Plan; or (b) acquired by purchase, license, assignment or to other means from third parties by Pfizer prior to the Effective Date or during the Contract Period that would not otherwise be part of Joint Technology. 1.13. "Immusol Confidential Information" means all information about any element of the Immusol or Joint Technology which is disclosed by Immusol to Pfizer and designated "Confidential" in writing by Immusol at the time of disclosure to Pfizer to the extent that such information is not (i) known to Pfizer as of the date of disclosure to Pfizer as shown by its prior written records, other than by virtue of a prior confidential disclosure to Pfizer by Immusol; or (ii) then or thereafter disclosed in published literature, or 5 5 otherwise generally known to the public through no fault or omission of Pfizer; or (iii) obtained from a third party free from any obligation of confidentiality to Immusol. 1.14. "Pfizer Confidential Information" means all information about any element of Pfizer or Joint Technology which is disclosed by Pfizer to Immusol and designated "Confidential" in writing by Pfizer at the time of disclosure to Immusol to the extent that such information is not (i) known to Immusol as of the date of disclosure to Immusol as shown by its prior written records, other than by virtue of a prior confidential disclosure to Immusol by Pfizer; or (ii) then or thereafter disclosed in published literature, or otherwise generally known to the public through no fault or omission of Immusol; or (iii) obtained from a third party free from any obligation of confidentiality to Pfizer. 1.15. "Patent Rights" shall mean: (a) Subject to the rights of the US Government pursuant to 35 USC Sections 200-212, the patents and patent applications listed in Exhibit A hereto, and patents issuing on them, including any division, continuation, continuation-in-part, renewal, extension, reexamination, reissue or foreign counterpart of such patents and patent applications; and (b) all patents and patent applications claiming inventions within the Pfizer Technology, Immusol Technology (except to the extent subject to Section 1.15(a) above) and Joint Technology, whether domestic or foreign, including all continuations, continuations-in-part, divisions, and renewals, all letters patent granted thereon, and all reissues, reexaminations and extensions thereof. 6 * CONFIDENTIAL * TREATMENT REQUESTED 6 1.16. "Product" means * ___________________ *. 1.17. "Ex Vivo" Product means * ___________ *. 1.18. "In Vivo" Product means * ___________ *. 1.19. "UC License" means that certain License Agreement entered by Immusol, Inc. and the Regents of the University of California, effective as of * ____________ *. 2. COLLABORATIVE RESEARCH PROGRAM 2.1.1 Purpose. Immusol and Pfizer shall conduct the Research Program throughout the Contract Period. * _____________*. The objective of the Research Program is to discover, develop and patent Products. 2.1.2 Annual Research Plan. The overall five-year research plan is attached as Exhibit B. The Annual Research Plan for the first Commitment Year is described in the attached Exhibit C. For each Commitment Year after the first, the Annual Research Plan shall be prepared by the Research Committee for submission to and approval by Pfizer and Immusol no later than ninety (90) days before the end of the prior Commitment Year. Each new Annual Research Plan for each succeeding Commitment Year shall be appended to Exhibit C and made part of this Agreement. The Annual Research Plan may be amended, Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 7 * CONFIDENTIAL * TREATMENT REQUESTED 7 from time to time, by the Research Committee with the consent of the managements of both parties. 2.1.3 Exclusivity. Immusol and Pfizer each agree that neither party nor any of its Affiliates shall conduct research itself or sponsor any other research in the Area, or engage in any such research sponsored by any third party, without the prior written consent of the other party hereto. 2.2. Research Committee 2.2.1. Purpose. Pfizer and Immusol shall establish a Research Committee (the "Research Committee"): (a) to review and evaluate progress under each Annual Research Plan; (b) to prepare the Annual Research Plan including Product candidate nomination criteria for each Commitment Year; and (c) to coordinate and monitor publication of research results obtained from and the exchange of information and materials that relate to the Research Program. (This function shall survive the termination of this Agreement.) 2.2.2. Membership. Pfizer and Immusol each shall appoint, in its sole discretion, *________* members to the Research Committee. Substitutes may be appointed at any time. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 8 * CONFIDENTIAL * TREATMENT REQUESTED 8 The members initially shall be: Pfizer Appointees: * Immusol Appointees: * 2.2.3. Chair. The Research Committee shall be chaired by * ___________________________ *. 2.2.4. Meetings. The Research Committee shall meet at least quarterly, at places and on dates selected by each party in turn. Representatives of Pfizer or Immusol or both, in addition to members of the Research Committee, may attend such meetings at the invitation of either party. 2.2.5. Minutes. The Research Committee shall keep accurate minutes of its deliberations which record all proposed decisions and all actions recommended or taken. Drafts of the minutes shall be delivered to all Research Committee members within five (5) business days after each meeting. The party hosting the meeting shall be responsible for the preparation and circulation of the draft minutes. Draft minutes shall be edited by the co-chairpersons and shall be issued in final form only with their approval and agreement. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 9 * CONFIDENTIAL * TREATMENT REQUESTED 9 2.2.6. Decisions. All technical decisions of the Research Committee shall be made by majority of the members. 2.2.7. Expenses. Pfizer and Immusol shall each bear all expenses of their respective members related to their participation on the Research Committee. 2.3. Reports and Materials. 2.3.1. Reports. During the Contract Period, Pfizer and Immusol each shall furnish to the Research Committee: (a) summary written reports within *________* days after the end of each *_________* period commencing on the Effective Date, describing its progress under the Annual Research Plan; and (b) comprehensive written reports within *________* days after the end of each Commitment Year, describing in detail the work accomplished by it under the Annual Research Plan during the Commitment Year and discussing and evaluating the results of such work. 2.3.2. Materials. Subject to any contractual obligations to third parties, Immusol and Pfizer shall, during the Contract Period, as a matter of course as described in the Annual Research Plan, or upon each other's written or oral request, furnish to each other samples of biochemical, biological or synthetic chemical materials which are part of Pfizer Technology, Immusol Technology or Joint Technology and which are necessary for each party to carry out its responsibilities under the Annual Research Plan. To the extent that the quantities of materials requested by either party exceed the quantities set forth in the Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 10 * CONFIDENTIAL * TREATMENT REQUESTED 10 Annual Research Plan, the requesting party shall reimburse the other party for the reasonable costs of such materials if they are furnished. 2.4. Laboratory Facilities and Personnel. Immusol shall provide suitable laboratory facilities, equipment and personnel for the work to be done by Immusol in carrying out the Research Program. Subject to the approval of the Research Committee and the prospective host laboratory, employees of both Pfizer and Immusol may be assigned to work in the other's laboratory in numbers and at times deemed reasonable by the host laboratory. 2.5. Diligent Efforts. * _____________________________________*. 3. FUNDING THE RESEARCH PROGRAM. 3.1. The Annual Commitment for each Commitment Year is as follows:
COMMITMENT YEAR ANNUAL COMMITMENT * $ *
Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 11 * CONFIDENTIAL * TREATMENT REQUESTED 11 3.2. Payments by Pfizer to cover Immusol's total, actual direct and indirect research costs (the "Funding Payments") shall not exceed the Annual Commitment in any Commitment Year. Immusol shall have no obligation to expend any amount or incur any financial obligation in connection with the performance of the Research Program in excess of the aggregate Funding Payments received from Pfizer for such quarter. 3.2.1. All Funding Payments shall be made quarterly in advance for research and development activities scheduled to be performed by Immusol during any three (3) month quarterly period, against Immusol's invoice for such three (3) month quarterly period. Adjustments as necessary to reflect the research and development activities actually performed by Immusol shall be made within *_______________* days of the end of each three (3) month quarterly period and shall be reflected in Immusol's next invoice. 3.2.2. Each Funding Payment shall be paid by Pfizer in U.S. currency by wire transfer to an account designated by Immusol or by other mutually acceptable means on the first day of the quarter or thirty (30) days after receipt of invoice, whichever is later. 3.2.3. Immusol shall keep for *_________________* from the conclusion of each Commitment Year complete and accurate records of its expenditures of Funding Payments received by it. The records shall conform to good accounting principles as applied to a similar company similarly situated. Pfizer shall have the right at its own expense during the term of this Agreement and during the subsequent *________* period to appoint an independent certified public accountant reasonably acceptable to Immusol to inspect said records to verify the accuracy of such expenditures, pursuant to each Annual Research Plan. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 12 * CONFIDENTIAL * TREATMENT REQUESTED 12 Upon reasonable notice by Pfizer, Immusol shall make its records available for inspection by the independent certified public accountant during regular business hours at the place or places where such records are customarily kept, to verify the accuracy of the expenditures. This right of inspection shall not be exercised more than *_______* in any calendar year and not more than *______* with respect to records covering any specific period of time. All information concerning such expenditures, and all information learned in the course of any audit or inspection, shall be deemed to be Immusol Confidential Information. The failure of Pfizer to request verification of any expenditures before or during the *_________* period shall be considered acceptance by Pfizer of the accuracy of such expenditures, and Immusol shall have no obligation to maintain any records pertaining to such report or statement beyond such *____________* period. The results of such inspection, if any, shall be binding on the parties. 4. TREATMENT OF CONFIDENTIAL INFORMATION 4.1. Confidentiality 4.1.1. Pfizer and Immusol each recognize that the other's Confidential Information constitutes highly valuable, confidential information. Subject to the terms and conditions of the License and Royalty Agreement between the parties of even date with this Agreement (the "License Agreement"), the obligations set forth in Section 4.3 and the publication rights set forth in Section 4.2, Pfizer and Immusol each agree that during the term of this Agreement and for *_________* years thereafter, it will keep confidential, and will cause its Affiliates to keep confidential, all Immusol Confidential Information or Pfizer Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 13 * CONFIDENTIAL * TREATMENT REQUESTED 13 Confidential Information, as the case may be, that is disclosed to it, or to any of its Affiliates pursuant to this Agreement. Neither Pfizer nor Immusol nor any of their respective Affiliates shall use such Confidential Information except as expressly permitted in this Agreement. 4.1.2. Pfizer and Immusol each agree that any disclosure of the other's Confidential Information to any officer, employee or agent of the other party or of any of its Affiliates shall be made only if and to the extent necessary to carry out its rights and obligations under this Agreement and shall be limited to the maximum extent possible consistent with such responsibilities. Pfizer and Immusol each agree not to disclose the other's Confidential Information to any third parties under any circumstance without written permission from the other party except to the extent necessary to exercise its rights pursuant to this Agreement or to comply with applicable law. Each party shall take such action, and shall cause its Affiliates to take such action, to preserve the confidentiality of each other's Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential Information. Each party will return all the Confidential Information disclosed to the other party pursuant to this Agreement, including all copies within *_______________* days of the request upon the termination of this Agreement except for one (1) copy which may be kept for archival purposes. 4.1.3. Immusol and Pfizer each represent that all of its employees, and any consultants to such party, participating in the Research Program who shall have access to Pfizer Technology, Immusol Technology or Joint Technology and Pfizer Confidential Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 14 * CONFIDENTIAL * TREATMENT REQUESTED 14 Information and Immusol Confidential Information are bound by agreement to maintain such Confidential Information in confidence. 4.2. Publication. Notwithstanding any matter set forth with particularity in this Agreement to the contrary, results obtained in the course of the Research Program may be submitted for publication following scientific review by the Research Committee and subsequent approval by Immusol's and Pfizer's managements, which approval shall not be unreasonably withheld. After receipt of the proposed publication by both Pfizer's and Immusol's managements' written approval or disapproval shall be provided within *______________* for a manuscript, within *_________________* for an abstract for presentation at, or inclusion in the proceedings of a scientific meeting, and within *_________* for a transcript of an oral presentation to be given at a scientific meeting. 4.3. Publicity. Except as required by law, neither party may disclose the terms of this Agreement nor the research described in it without the written consent of the other party, which consent shall not be unreasonably withheld; provided, however, that, upon execution of this Agreement, the parties will issue a press release with respect to its contents; and, further provided, that copies of this Agreement will be forwarded in confidence to the University of California; and, further provided, that copies of this Agreement may be disclosed in confidence by Immusol to prospective investors, banks and other sources of financing. 4.4. Disclosure of Inventions. Each party shall promptly inform the other about all inventions in the Area that are conceived, made or developed in the course of carrying Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 15 * CONFIDENTIAL * TREATMENT REQUESTED 15 out the Research Program by employees of, or consultants to, either of them solely, or jointly with employees of, or consultants to the other. 4.5. Restrictions on Transferring Materials. Pfizer and Immusol recognize that the biological, synthetic chemical and biochemical materials which are part of Pfizer Technology, Immusol Technology or Joint Technology, represent valuable commercial assets. Therefore, throughout the Contract Period and *________________* thereafter, Immusol and Pfizer agree not to transfer such materials to any third party for use in the Area, unless prior written, consent for any such transfer is obtained from the other party to this Agreement. 5. INTELLECTUAL PROPERTY RIGHTS. The following provisions relate to rights in the intellectual property developed by Immusol or Pfizer, or both, during the course of carrying out the Research Program. 5.1. Ownership. All Immusol Confidential Information and Immusol Technology shall be owned by Immusol. All Pfizer Confidential Information and Pfizer Technology shall be owned by Pfizer. *_________________________*. All Patent Rights claiming Immusol Technology only shall be Immusol Patent Rights. All Patent Rights claiming Pfizer Technology only shall be Pfizer Patent Rights. *___________________________ *. 5.2. Grants of Research Licenses. (a) Immusol and Pfizer each hereby grants to the other a nonexclusive, worldwide, royalty-free license or sublicense, as the case may be, including the right to Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 16 * CONFIDENTIAL * TREATMENT REQUESTED 16 grant sublicenses to Affiliates, to make and use Confidential Information, the Technology and Patent Rights during the term of this Agreement solely for the performance of the Research Program. (b) Following the Contract Period, Immusol and Pfizer shall each have a non-exclusive license or sublicense, as the case may be, with the right to grant sublicenses to Affiliates, to make and use all Technology and Patent Rights solely for research purposes, excluding any use in connection with the sale or manufacture for sale of any products or processes. Such licenses do not state or imply any obligation on the part of either party to provide any additional information or materials to the other after the termination of this Agreement. 5.3. Research Outside the Area. Immusol grants Pfizer a right of first negotiation for a period of *________* beginning on the Effective Date of this Agreement to establish collaborative research programs in any or all of *_______________________*. Immusol also agrees during the term of this Agreement to use reasonable efforts to keep Pfizer informed of new opportunities for collaborative research as they arise. 6. PROVISIONS CONCERNING THE FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHTS. The following provisions relate to the filing, prosecution and maintenance of Patent Rights during the term of this Agreement: Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 17 17 6.1. Filing, Prosecution and Maintenance by Immusol. With respect to Immusol and Joint Patent Rights, subject to the terms of the UC License, Immusol shall have the exclusive right and obligation: (a) to file applications for letters patent on any invention included in Patent Rights; provided, however, that Immusol shall consult with Pfizer regarding countries in which such patent applications should be filed and shall file patent applications in those countries where Pfizer requests that Immusol file such applications; and, further provided, that Immusol, at its option and expense, may file in countries where Pfizer does not request that Immusol file such applications; (b) to take all reasonable steps to prosecute all pending and new patent applications included within Patent Rights; (c) to respond to oppositions, nullity actions, re-examinations, revocation actions and similar proceedings filed by third parties against the grant of letters patent for such applications; (d) to maintain in force any letters patent included in Patent Rights by duly filing all necessary papers and paying any fees required by the patent laws of the particular country in which such letters patent were granted; and (e) to cooperate fully with, and take all necessary actions requested by, Pfizer in connection with the preparation, prosecution and maintenance of any letters patent included in Patent Rights. 18 * CONFIDENTIAL * TREATMENT REQUESTED 18 Immusol shall notify Pfizer in a timely manner of any decision to abandon a pending patent application or an issued patent included in Patent Rights. Thereafter, Pfizer shall have the option, at its expense, of continuing to prosecute any such pending patent application or of keeping the issued patent in force. 6.1.1. Copies of Documents. With the prior consent of the University of California with respect to Patent Rights which are subject to the terms of the UC License, Immusol shall provide to Pfizer copies of all patent applications that are part of Patent Rights prior to filing, for the purpose of obtaining substantive comment of Pfizer patent counsel and for the inclusion of all reasonable claims suggested by such counsel. With the prior consent of the Regents of the University of California with respect to Patent rights which are subject to the UC License, Immusol shall also provide to Pfizer copies of all documents relating to prosecution of all such patent applications in a timely manner and shall provide to Pfizer every *____________* a report detailing their status. Pfizer shall provide to Immusol *__________________* a report detailing the status of all patent applications that are a part of Pfizer Patent Rights. 6.1.2. Reimbursement of Costs for Filing Prosecuting and Maintaining Patent Rights. Within *______________* of receipt of invoices from Immusol, Pfizer shall reimburse Immusol for all the costs of filing, prosecuting, responding to opposition and maintaining patent applications and patents in countries where Pfizer requests that patent applications be filed, prosecuted and maintained. Such reimbursement shall be in addition to Funding Payments. However, Pfizer may, upon *_____________* notice, request that Immusol Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 19 * CONFIDENTIAL * TREATMENT REQUESTED 19 discontinue filing or prosecution of patent applications in any country and discontinue reimbursing Immusol for the costs of filing, prosecuting, responding to opposition or maintaining such patent application or patent in any country. If Pfizer requests Immusol to discontinue filing in any of the key countries listed below and Immusol agrees, Pfizer's license with respect to such patent applications or patents shall terminate concurrently in any such country. *________________________*. Immusol shall pay all costs in those countries in which Pfizer does not request that Immusol file, prosecute or maintain patent applications and patents, but in which Immusol, at its option, elects to do so. 6.1.3. Pfizer shall have the right to file on behalf of and as an agent for Immusol all applications and take all actions necessary to obtain patent extensions pursuant to 35 USC Section 156 and foreign counterparts for Patent Rights described in this Section 6.1 licensed to Pfizer; provided, with respect to those Patent Rights described in Section 1.15(a), Pfizer may only conduct such activities with the prior consent of the University of California. Immusol agrees, to sign, at Pfizer's expense, such further documents and take such further actions as may be requested by Pfizer in this regard. 6.2. Filing, Prosecution and Maintenance by Pfizer. With respect to Pfizer Patent Rights, Pfizer shall have those rights and duties ascribed to Immusol in Section 6.1; provided, Immusol shall have no obligation to reimburse Pfizer for the payment of any expenses incurred in connection with the Pfizer Patent Rights. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 20 * CONFIDENTIAL * TREATMENT REQUESTED 20 6.3. Disclaimer. Neither party may disclaim a claim within Patent Rights without the consent of the other. 7. ACQUISITION OF RIGHTS FROM THIRD PARTIES. During the Contract Period, Immusol and Pfizer shall each promptly notify each other of any and all opportunities to acquire in any manner from third parties, technology or patents or information which may be useful in or may relate to the Research Program. In each case, Pfizer shall decide if such rights should be acquired in connection with the Research Program and, if so, whether by Immusol, Pfizer or both. If acquired such rights shall become part of the Confidential Information, Technology or Patent Rights, whichever is appropriate, of the acquiring party or Joint Technology, as the case may be. Pfizer shall pay all costs of acquiring and maintaining rights to such intellectual property, at Pfizer's sole discretion. 8. OTHER AGREEMENTS. Concurrently with the execution of this Agreement, Immusol and Pfizer shall enter into the License Agreement appended to and made part of this Agreement as Exhibit D. This Agreement, the License Agreement and the Confidentiality Agreements between the parties of *_______________* are the sole agreements with respect to the subject matter and supersede all other agreements and understandings between the parties with respect to same. 9. TERM, TERMINATION AND DISENGAGEMENT. 9.1. Term. Unless sooner terminated or extended, the Contract Period and this Agreement shall expire on May 2, 2000. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 21 * CONFIDENTIAL * TREATMENT REQUESTED 21 9.2. Events of Termination. The following events shall constitute events of termination ("Events of Termination"): (a) any written representation or warranty by Immusol or Pfizer, or any of their respective officers, made under or in connection with this Agreement shall prove to have been incorrect in any material respect when made and concerning which the declaring party knew or should have known the correct version. (b) Immusol or Pfizer shall fail in any material respect to perform or observe any term, covenant or understanding contained in this Agreement or in any of the other documents or instruments delivered pursuant to, or concurrently with, this Agreement, and any such failure shall remain unremedied for *________* days after written notice to the failing party provided, in the case of a failure to pay any amount due hereunder, any failure to pay such amount within *_______________________* after written notice to the failing party shall be an event of termination. (c) Dr. Wong-Staal's association with Immusol terminates or is terminated and the parties are unable to agree on a mutually acceptable successor within *______________________* days. 9.3. Termination. 9.3.1. Upon the occurrence of any Event of Termination, the party not responsible may, by *______________* notice to the other party, terminate this Agreement. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 22 * CONFIDENTIAL * TREATMENT REQUESTED 22 9.3.2. If Pfizer terminates this Agreement pursuant to Section 9.3.1, the License Agreement shall continue according to its terms. If Immusol terminates this Agreement pursuant to Section 9.3.1, the License Agreement shall terminate immediately. 9.4. Termination by Pfizer. 9.4.1. *_____________* 9.5. Termination of this Agreement by either party, with or without cause, will not terminate such portions of the Research Licenses granted pursuant to Section 5.2(b) which by their terms extend beyond termination of this Agreement. 9.6. Termination of this Agreement for any reason shall be without prejudice to: (a) the rights and obligations of the parties provided in Sections 2.21(c), 3.2.3, 4, 5.1, 5.2, 6 with respect to Joint Patent Rights and 12; (b) Immusol's right to receive all payments accrued under Section 3; or (c) any other remedies which either party may otherwise have. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 23 23 10. REPRESENTATIONS AND WARRANTIES. Immusol and Pfizer each represents and warrants as follows: 10.1. It is a corporation duly organized, validly existing and is in good standing under the laws of the State of California and Delaware, respectively, is qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification and has all requisite power and authority, corporate or otherwise, to conduct its business as now being conducted, to own, lease and operate its properties and to execute, deliver and perform this Agreement. 10.2. The execution, delivery and performance by it of this Agreement have been duly authorized by all necessary corporate action and do not (a) require any consent or approval of its stockholders, (b) violate any provision of any law, rule, regulations, order, writ, judgment, injunctions, decree, determination award presently in effect having applicability to it or any provision of its certificate of incorporation or bylaws, or (c) as of the Effective Date, result in a breach of or constitute a material default under any material agreement, mortgage, lease, license, permit or other instrument or obligation to which it is a party or by which it or its properties may be bound or affected. 10.3. This Agreement is a legal, valid and binding obligation of it enforceable against it in accordance with its terms and conditions, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws, from time to time in effect, affecting creditor's rights generally. 24 24 10.4. It is not under any obligation to any person, or entity, contractual or otherwise, that is conflicting or inconsistent in any respect with the terms of this Agreement or that would impede the diligent and complete fulfillment of its obligations. 10.5. To the best of its knowledge and belief as of the Effective Date, it has good and marketable title to or valid leases or licenses for, all of its properties, rights and assets necessary for the fulfillment of its responsibilities under the Research Program. 11. COVENANTS OF IMMUSOL AND PFIZER OTHER THAN REPORTING REQUIREMENTS. Throughout the Contract Period, Immusol and Pfizer each shall: 11.1. maintain and preserve its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in good standing in each jurisdiction in which such qualification is from time to time necessary or desirable in view of their business and operations or the ownership of their properties. 11.2. comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any government authority to the extent necessary to conduct the Research Program, except for those laws, rules, regulations, and orders it may be contesting in good faith. 12. INDEMNIFICATION. Pfizer will indemnify, defend and hold Immusol and its Affiliates and their respective directors, officers, employees and agents (the "Immusol Indemnitees") harmless from and against any damages, liabilities, settlements, costs, legal fees and other 25 25 expenses incurred in connection with a claim against the Immusol Indemnitees based on any action or omission of Pfizer, its agents or employees related to the obligations of Pfizer under this Agreement, provided, however, that the foregoing shall not apply (i) if the claim is found in a final judgment to be based upon the negligence, recklessness or willful misconduct of Immusol, Indemnitees, or (ii) if Immusol Indemnitees fail to give Pfizer prompt notice of any claim it receives within fifteen (15) days of such receipt and such failure materially prejudices Pfizer with respect to any claim or action to which Pfizer's obligation pursuant to this Section applies. Pfizer, in its sole discretion, shall choose legal counsel, shall control the defense of such claim or action and shall have the right to settle same on such terms and conditions it deems advisable; provided, however, that an Immusol Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by Pfizer, if representation of such Immusol Indemnitee by the counsel retained by Pfizer would be inappropriate due to actual or potential differing interests between Pfizer and any other party represented by such counsel in such proceeding. 13. NOTICES. All notices shall be in writing mailed via certified mail, return receipt requested, courier, or facsimile transmission addressed as follow, or to such other address as may be designated from time to time: If to Pfizer: To Pfizer at its address as set forth at the beginning of this Agreement. Attention: President, Central Research with copy to: Office of the General Counsel. If to Immusol: Immusol at its address as set forth at the beginning of this Agreement. Attention: Chief Executive Officer Notices shall be deemed given as of the date received. 26 26 14. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 15. MISCELLANEOUS. 15.1. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and permitted assigns. 15.2. Headings. Paragraph headings are inserted for convenience of reference only and do not form a part of this Agreement. 15.3. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original. 15.4. Amendment; Waiver. This Agreement may be amended, modified, superseded or canceled, and any of the terms may be waived, only by a written instrument executed by each party or, in the case of waiver, by the party or parties waiving compliance. The delay or failure of any party at any time or times to require performance of any provisions shall in no manner affect the rights at a later time to enforce the same. No waiver by any party of any condition or of the breach of any term contained in this Agreement, whether by conduct, or otherwise, in any one or more instances, shall be deemed to be, or considered as, a further or continuing waiver of any such condition or of the breach of such term or any other term of this Agreement. 27 27 15.5. No Third Party Beneficiaries. No third party, including any employee of any party to this Agreement, shall have or acquire any rights by reason of this Agreement. Nothing contained in this Agreement shall be deemed to constitute the parties partners with each other or any third party. 15.6. Assignment and Successors. This Agreement may not be assigned by either party, except that each party may assign this Agreement and the rights and interests of such party, in whole or in part, to any of its Affiliates, any purchaser of all or substantially all of its assets or to any successor corporation resulting from any merger or consolidation of such party with or into such corporations. 15.7. Force Majeure. Neither Pfizer nor Immusol shall be liable for failure of or delay in performing obligations set forth in this Agreement, and neither shall be deemed in breach of its obligations, if such failure or delay is due to natural disasters or any causes reasonably beyond the control of Pfizer or Immusol. 15.8. Severability. If any provision of this Agreement is or becomes invalid or is ruled invalid by any court of competent jurisdiction or is deemed unenforceable, it is the intention of the parties that the remainder of the Agreement shall not be affected. 15.9. Disclaimer of Warranties. Pfizer and Immusol specifically disclaim any guarantee that the Research Program will be successful, in whole or part. Pfizer and Immusol expressly disclaim any warranties or conditions, express, implied, statutory or otherwise, with respect to the Research Program. IMMUSOL AND PFIZER MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OR CONDITIONS OF ANY 28 28 KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR VALIDITY OF THE IMMUSOL TECHNOLOGY, PFIZER TECHNOLOGY AND JOINT TECHNOLOGY, PATENTED OR UNPATENTED, INCLUDING WITHOUT LIMITATION THE PATENT RIGHTS OR WARRANTIES OF NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. 15.10. No Implied Licenses. No rights or licenses with respect to the Immusol Technology, Pfizer Technology and Joint Technology, including without incitation the Patent Rights, are granted or deemed granted pursuant to this Agreement, other than those rights and licenses expressly granted in is Agreement. 15.11. Compliance with Law. In exercising their rights under this Agreement, the parties shall fully comply with the requirements of any and all applicable laws, regulations, rules and orders of any governmental body having jurisdiction over the exercise of rights under this Agreement. 15.12. Compliance by Pfizer with Immusol's Obligations Pursuant to the UC License Agreement. During the term of this Agreement and the License Agreement, Pfizer agrees to perform in all respects Immusol's obligations due the Regents of the University of California pursuant to the following provisions of the UC License Agreement with respect to the subject matter of this Agreement: Articles 6, 7, 13, 15, 17, 18, 25, 26 and 27. At Pfizer's request, Immusol shall provide any reasonable assistance in assuring such compliance. 29 29 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. PFIZER INC. By /s/ GEORGE M. M. (illegible) --------------------------------- IMMUSOL INCORPORATED By /s/ T. GOLDENBERG --------------------------------- 30 * CONFIDENTIAL * TREATMENT REQUESTED EXHIBIT A * * * Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 31 EXHIBIT B * CONFIDENTIAL * TREATMENT REQUESTED IMMUSOL INCORPORATED GENE THERAPY FOR HIV INFECTION USING ANTI-VIRAL RIBOZYMES PFIZER/IMMUSOL * _____ * RESEARCH AND DEVELOPMENT PLAN * _________ * * * * 36 consecutive pages have been omitted pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 1 32 EXHIBIT C * CONFIDENTIAL * TREATMENT REQUESTED GENE THERAPY FOR HIV INFECTION USING ANTI-VIRAL RIBOZYMES PFIZER/IMMUSOL * _____ * RESEARCH AND DEVELOPMENT PLAN * _________ * * * * 34 consecutive pages have been omitted pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 1 EX-10.10 8 EXHIBTI 10.10 1 EXHIBIT 10.10 * CONFIDENTIAL * TREATMENT REQUESTED LICENSE AND ROYALTY AGREEMENT This LICENSE AND ROYALTY AGREEMENT (the "Agreement") is entered into as of May 3, 1995 (the "Effective Date") by and between PFIZER INC, a Delaware corporation, having an office at 235 East 42nd Street, New York, NY 10017 and its Affiliates ("Pfizer") and IMMUSOL INCORPORATED ("Immusol"), a California corporation, having an office at 3050 Science Park Road, La Jolla, California 92121. WHEREAS, Pfizer desires to obtain an exclusive license and sublicense to Immusol's right, title and interest in the Patent Rights so that Pfizer can manufacture, use and sell the Licensed Products; and WHEREAS, Immusol is willing to grant such license and sublicense; Therefore, in consideration of the mutual covenants and promises set forth in this Agreement, the parties agree as follows: 1. Definitions. The capitalized terms used in this Agreement and not defined elsewhere in it shall have the meanings specified for such terms in this Section 1 and in the Research Agreement. 1.1 "Research Agreement" means the Collaborative Research Agreement between Pfizer and Immusol effective May 3, 1995. 1.2 "Net Sales" means the gross amount invoiced by Pfizer and any sublicensee of Pfizer for sales to a third party or parties of Licensed Products, less normal and customary trade discounts actually allowed, rebates, returns, credits, taxes the legal incidence of which is on the purchaser and separately shown on Pfizer's or any sublicensee of Pfizer's invoices and transportation, insurance and postage charges, if prepaid by Pfizer or any sublicensee of Pfizer and billed on Pfizer's or any sublicensee of Pfizer's invoices as a separate item. 1.3 "Licensed Product" means any Product, *____________________*, the manufacture, use or sale of which is covered by Patent Rights or would infringe the Patent Rights in the absence of a license or sublicense or employs Immusol Technology, Pfizer Technology or Joint Technology in its manufacture. 2. Grant of License, Term, Rights and Obligations. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 2 * CONFIDENTIAL * TREATMENT REQUESTED 2.1 License Granted to Pfizer under the Patent Rights. Subject to the terms and conditions of this Agreement, Immusol grants to Pfizer the exclusive, worldwide license or sublicense, as the case may be, including the right to grant sublicenses, to manufacture, use and sell Licensed Products in the Area under all Immusol's right, title and interest in the Patent Rights (the "License"). 2.2 Term of License Grant and Payment of Royalties. Unless terminated earlier as provided below, the License shall commence on the Effective Date and shall terminate on a country-by-country basis on the expiration of the last to expire of the Patent Rights in each such country. 2.3 Pfizer Obligations. 2.3.1 Pfizer shall use reasonably diligent efforts to exploit Licensed Products commercially, including conducting clinical trials and obtaining regulatory approvals at its sole expense. Immusol may offer advice and assistance in the conduct of clinical trials. 2.3.2 If Pfizer grants a sublicense pursuant to Section 2, Pfizer shall guarantee that any sublicensee fulfills all of Pfizer's obligations under this Agreement; provided, however, that Pfizer shall not be relieved of its obligations pursuant to this Agreement. Pfizer shall provide Immusol a copy of any such sublicense promptly following execution thereof. 2.4 Technical Assistance. Immusol shall provide to Pfizer or any sublicensee of Pfizer, at Pfizer's request and expense, any technical assistance reasonably necessary to enable Pfizer or such sublicensee to manufacture, use or sell each Licensed Product and to enjoy fully all the rights granted to Pfizer pursuant to this Agreement; provided, however, that Immusol is reasonably capable of providing that assistance, such assistance shall be provided at mutually convenient times and locations, and such assistance is requested during the term of the Research Agreement or within a reasonable period after its termination. 2.5 *______________________* Manufacture If *______________________* or its designee has a *______________________* for *______________________* which at the time of such manufacture are *______________________* may elect to manufacture such *______________________* for such *______________________* itself or through a designee. Once the *______________________* for the *______________________* is selected by *___________________* and in any case at least *___________________* before *______________________* with respect to such *______________________* will notify *______________________* of its *______________________* required to *______________________* will be based on *______________________* to be used on *______________________* for the *______________________* whether *______________________* must notify *______________________* of its *______________________* within *______________________* after its receipt of notification from *______________________* failure to so notify *______________________* of its *______________________* with respect to any such *______________________* shall be determinative and *______________________* shall have no further obligations to *______________________* with respect to *______________________* If *______________________* notifies *______________________* that it intends to manufacture, it must provide *____________________* with a plan that outlines: (a) The *______________________* for such *______________________* and its compliance with all FDA and other regulatory requirements of *______________________* place at the time of submission to *______________________*. (b) The *______________________* that will ensure that the *______________________* filed by *______________________* and the *______________________* filed by *______________________* will occur *______________________* will bear all costs associated with manufacture of clinical material. *______________________* will bear all *______________________* and other costs associated with filing and obtaining the *______________________*. 2.6 *______________________* Option. 2.6.1 Subject to the terms and conditions set forth below, *______________________* grants to *______________________* an option to *______________________* or the *______________________* under all *______________________* right, title and interest in the *______________________*. Upon receipt of notice from *______________________* that it has elected to exercise the option, *______________________* and *______________________* shall negotiate in good faith *______________________* which will include provisions addressing the following topics, among other things: *_________________________________________________________________* 2.6 2. The option described above shall be subject to the following conditions: (a) *______________________* shall be under no obligation to grant a *______________________* of any kind to *______________________* in an area in which *______________________* is developing a product for the *______________________* and (b) the *______________________* described shall *______________________*. 2.7 Service. If an*______________________* developed which requires an additional service for *______________________* Service"), *______________________* or its designee will provide the Service. *______________________* and *______________________* will *______________________* any of *______________________* generated by providing the Service *______________________* shall have the right to bid to provide the Service. In no event will *______________________* charge less than the *______________________* to be administered by means of Service. 2.8 Reversion of Rights. If Pfizer discontinues the development of any Licensed Product; and if such discontinuance results from *______________________*. In such event, Immusol shall have the right to develop and commericalize such Licensed Product alone or with third parties pursuant to the terms of a license agreement to be negotiated in good faith by the parties. Such agreement shall grant *__________________________________* Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 2 3 * CONFIDENTIAL * TREATMENT REQUESTED 2.6 *_________________* 2.7 *_________________* Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 3 4 * CONFIDENTIAL * TREATMENT REQUESTED 3. Royalties, Payments of Royalties, Accounting for Royalties, Records, Milestone Payments. 3.1 Patent Rights. Pfizer shall pay Immusol a royalty based on the Net Sales of each Licensed Product. Such royalty shall be paid with respect to each country of the world from the date of the first commercial sale (the date of the invoice of Pfizer or any sublicensee of Pfizer with respect to such sale) of such Licensed Product in each such country until the expiration of the last Patent Right to expire with respect to each such country and each such Licensed Product. 3.2 Royalty Rates. 3.2.1 Pfizer shall pay Immusol a royalty for the sale of each Licensed Product under Section 2.1 as set forth in Sections 3.2.2, 3.2.3 and 3.2.4. 3.2.2 Royalties with Respect to Sales in *________________* Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 4 5 * CONFIDENTIAL * TREATMENT REQUESTED The royalty paid by Pfizer to Immusol shall be *______________* of Net Sales; provided, however, that if Immusol exercises the right set forth in Section 2.5 to *______________* for sale in counties which are, at the time of such sale, *______________* will receive *______________* the form of a percentage of Net Sales *______________* Such compensation shall be determined by multiplying the Net Sales in each Tier by the additional compensation rate for that Tier. *______________* Net Sales in Compensation Rate as a Millions of Dollars ("Tiers") Percentage of Net Sales *______________* *______________* *______________* *______________* *______________* *______________* *______________* *______________* *______________* *______________* 3.2.3 Royalties with Respect to Sales Outside of *______________* The royalty paid by Pfizer to Immusol with respect to sales of Licensed Products in countries which, at the time of such sales, are not *______________* shall be *______________* 3.2.4 In addition to the royalties described in Sections 3.2.2 and 3.2.3, Pfizer will pay to Immusol an *______________* with respect to *______________* subject to the *______________* that Immusol may meet its obligations in that amount to *______________* provided, however, that such royalty shall not be assessed or paid with respect to Net Sales of Licensed Products made to the US government or any of its agencies or licensees. 3.3 Sales of *______________* If Pfizer sell, in any country in the world, a Licensed Product *______________* Pfizer will pay Immusol on *______________* a royalty of *______________* of Net Sales of each such Licensed Product beginning *______________* 3.4 Payment Dates. Royalties shall be paid by Pfizer on Net Sales within *______________* after the end of each calendar quarter in which such Net Sales are made. Such payments shall be accompanied by a statement showing the Net Sales of each Licensed Product by Pfizer and any sublicensee of Pfizer in each country, the applicable royalty rate for such Licensed Product, and a calculation of the amount of royalty due. 3.5 Accounting. The Net Sales used for computing the royalties payable to Immusol by Pfizer shall be computed and paid in U.S. dollars by wire transfer to an account designated by Immusol or other mutually acceptable means. For purposes of determining the amount of royalties due, the amount of Net Sales in any foreign currency shall be computed by (a) converting such amount into dollars at the prevailing commercial Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 5 6 * CONFIDENTIAL * TREATMENT REQUESTED rate of exchange for purchasing dollars with such foreign currency as quoted by Citibank in New York on the last business day of the calendar quarter for which the relevant royalty payment is to be made by Pfizer and (b) deducting the amount of any governmental tax, duty, charge, or other fee actually paid in respect of such conversion into, and remittance of dollars. 3.6 Records. Pfizer shall keep for three (3) years from the date of each payment of royalties complete and accurate records of sales by Pfizer of each Licensed Product in sufficient detail to allow the accruing royalties to be determined accurately. Immusol shall have the right for a period of three (3) years after receiving any report or statement with respect to royalties due and payable to appoint at its expense an independent certified public accountant reasonably acceptable to Pfizer to inspect the relevant records of Pfizer to verify such report or statement. Pfizer shall make its records available for inspection by such independent certified public accountant during regular business hours at such place or places where such records are customarily kept, upon reasonable notice from Immusol, to verify the accuracy of the reports and payments. Such inspection right shall not be exercised more than once in any calendar year nor more than once with respect to sales in any given period. Immusol agrees to hold in strict confidence all information concerning royalty payments and reports, and all information learned in the course of any audit or inspection. The failure of Immusol to request verification of any report or statement during said three-year period shall be considered acceptance of the accuracy of such report, and Pfizer shall have no obligation to maintain records pertaining to such report or statement beyond said three-year period. The results of each inspection, if any, shall be binding on both parties. *_________________*. 3.7 Milestone Payments. Pfizer shall pay Immusol, within *______* of the completion of each respective event set forth below ("Event"), the payment listed opposite that Event. Payments shall be made in U.S. dollars by wire transfer or other mutually acceptable means. *____________* Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 6 7 * CONFIDENTIAL * TREATMENT REQUESTED 4. Legal Action. 4.1 Actual or Threatened Disclosure or Infringement. When information comes to the attention of Pfizer to the effect that any Patent Rights relating to a Licensed Product have been or are threatened to be unlawfully infringed in the Area. Pfizer shall promptly notify Immusol and Pfizer shall have the right (subject in the case of Patent Rights within the scope of Section 1.15(a) of the Research Agreement, to the UC License Agreement), at Pfizer's expense, to take such action as it may deem necessary to prosecute or prevent such unlawful infringement, including the right to bring or defend any suit, action or proceeding involving any such infringement. Pfizer shall notify Immusol promptly of the receipt of any such information and of the commencement of any such suit, action or proceeding. If Pfizer determines that it is necessary or desirable for Immusol to join any such suit, action or proceeding, Immusol shall, at Pfizer's expense, execute all papers and perform such other acts as may be reasonably required to permit Pfizer to act in Immusol's name and Pfizer shall hold Immusol free, clear harmless from any and all costs and expenses of such litigation, including attorneys fees. If Pfizer determines that it is necessary or desirable for the University of California to join in any such suit, action, or proceeding, Immusol shall, at Pfizer's expense, join Pfizer in requesting that the University, at Pfizer's expense, execute all papers and perform such other acts as may be reasonably required to permit Pfizer to act in the University of California's name. If Pfizer brings a suit, it shall have the right first to reimburse itself out of any sums recovered in such suit or in its settlement for all costs and expenses, including attorney's fees, related to such suit or settlement, and subject to the terms and conditions of Article 17 of the UC License Agreement, *_________________________* of any funds that shall remain from said recovery shall be paid to Immusol or to the University of California or both, as the case may be, and the balance of such funds shall be retained by Pfizer. If Pfizer does not, within one hundred twenty (120) days after giving notice to Immusol of the above-described information, notify Immusol of Pfizer's intent to bring suit against any infringer, Immusol shall have the right to bring suit for such alleged infringement, but it shall not be obligated to do so, and may join Pfizer as party plaintiff, if appropriate, in which event Immusol shall hold Pfizer free, clear and harmless from any and all costs and expenses of such litigation, including attorney's fees, and any sums recovered in any such suit or in its settlement shall belong to Immusol. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 7 8 * CONFIDENTIAL * TREATMENT REQUESTED However, *________________________* of any such sums received by Immusol, after deduction of all costs and expenses related to such suit or settlement, including attorney's fees paid, shall be paid to Pfizer; provided, Immusol shall have no obligation to pay Pfizer any amount recovered in any action which does not relate to an infringement of the Patent Rights in the Area. Each party shall always have the right to be represented by counsel of its own selection and at its own expense in any suit instituted by the other for infringement under the terms of this Section. If Pfizer lacks standing and Immusol or the University of California has standing to bring any such suit, action or proceeding, then Immusol shall do so or shall join Pfizer in requesting that the University do so at the request of Pfizer and at Pfizer's expense. 4.2 Defense of Infringement Claims. Immusol will cooperate with Pfizer at Pfizer's expense in the defense of any suit, action or proceeding against Pfizer or any sublicensee of Pfizer alleging the infringement of the intellectual property rights of a third party by reason of the manufacture, use or sale of the Licensed Product. Pfizer shall give Immusol prompt written notice of the commencement of any such suit, action or proceeding or claim of infringement and will furnish Immusol a copy of each communication relating to the alleged infringement. Immusol shall give to Pfizer all authority (including the right to exclusive control of the defense of any such suit, action or proceeding and the exclusive right after consultation with Immusol, to compromise, litigate, settle or otherwise dispose of any such suit, action or proceeding), information and assistance necessary to defend or settle any such suit, action or proceeding; provided, Pfizer shall not make any admission regarding the invalidity or unenforceability of any aspect of the Immusol Patent Rights or Joint Patent Rights without the prior written consent of Immusol. If the parties agree that Immusol should institute or join any suit, action or proceeding pursuant to this Section, Pfizer may, at Pfizer's expense, join Immusol as a defendant if necessary or desirable, and Immusol shall execute all documents and take all other actions, including giving testimony, which may reasonably be required in connection with the prosecution of such suit, action or proceeding. 4.3 Hold Harmless. Immusol agrees to defend, protect, indemnify and hold harmless Pfizer and any sublicensee of Pfizer, from and against any loss or expense arising from any proved claim (i.e., established in a final judgment by a court of competent jurisdiction, which judgment is unappealed or unappealable) of a third party that it has been granted rights by Immusol that Pfizer or any sublicensee of Pfizer in exercising their rights granted to Pfizer by Immusol pursuant to this Agreement, has infringed upon such rights granted to such third party by Immusol. 4.4 Third Party Licenses. If the manufacture, use or sale by Pfizer of a Licensed Product in any country would, in the opinion of both Pfizer and Immusol, infringe the patent rights owned by a third party, Pfizer will attempt to obtain a license under such patent rights or other intellectual property and shall pay all costs, expenses and royalties Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 8 9 * CONFIDENTIAL * TREATMENT REQUESTED due with respect to the acquisition and maintenance of rights under any such third party license. 5. Representation and Warranty. 5.1 Immusol represents and warrants to Pfizer that it has the right to grant the License granted pursuant to this Agreement, and that the License so granted does not conflict with or violate the terms of any agreement between Immusol and any third party. 5.2 Immusol represents and warrants to Pfizer that the royalties to be paid by Pfizer to the Regents of the University of California pursuant to Section 3 are the sole royalties owed by Immusol as of the Effective Date to any third party with respect to Immusol Technology or Immusol Patent Rights. 6. Treatment of Confidential Information. 6.1 Confidentiality. 6.1.1 Pfizer and Immusol each recognize that the other's Confidential Information constitutes highly valuable, confidential information. Subject to Pfizer's rights and obligations pursuant to this Agreement, Pfizer and Immusol each agree that during the term of the Research Agreement and for *____________* thereafter, it will keep confidential, and will cause its Affiliates to keep confidential, all Immusol Confidential Information or Pfizer Confidential Information, as the case may be, that is disclosed to it or to any of its Affiliates pursuant to this Agreement. 6.1.2 Pfizer and Immusol each agree that any disclosure of the other's Confidential Information to any officer, employee or agent of the other party or of any of its Affiliates shall be made only if and to the extent necessary to carry out its rights and obligations under this Agreement and shall be limited to the maximum extent possible consistent with such responsibilities. Subject to Pfizer's rights and obligations pursuant to this Agreement, Pfizer and Immusol each agree not to disclose the other's Confidential Information to any third parties under any circumstance without written permission from the other party except to the extent necessary to exercise its rights pursuant to this Agreement or to comply with applicable law. Each party shall take such action, and shall cause its Affiliates to take such action, to preserve the confidentiality of each other's Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential Information. Each party will return all the Confidential Information disclosed to the other party pursuant to this Agreement, including all copies of documents, within sixty (60) days of the request upon the termination of this Agreement except for one (1) copy which may be kept for archival purposes. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 9 10 6.2 Publicity. Except as required by law, neither party may disclose the terms of this Agreement nor the research described in it without the written consent of the other party, which consent shall not be unreasonably withheld; provided, however, that, upon execution of this Agreement, the parties will issue a press release with respect to its contents; and, further provided, that copies of this Agreement will be forwarded in confidence to the University of California; and, further provided, that copies of this Agreement may be disclosed in confidence by Immusol to prospective investors, banks and other sources of financing. 7. Provisions Concerning the Filing, Prosecution and Maintenance of Patent Rights. The following provisions relate to the filing, prosecution and maintenance of Patent Rights during the term of this Agreement: 7.1 Filing, Prosecution and Maintenance by Immusol. With respect to Immusol and Joint Patent Rights, subject to the terms of the UC License, Immusol shall have the exclusive right and obligation: (a) to file applications for letters patent on any patentable invention included in Patent Rights; provided, however, that Immusol shall consult with Pfizer regarding countries in which such patent applications should be filed and shall file patent applications in those countries where Pfizer requests that Immusol file such applications; and, further provided, that Immusol, at its option and expense, may file in countries where Pfizer does not request that Immusol file such applications; (b) to prosecute all pending and new patent applications included within Patent Rights; (c) to respond to oppositions, nullity actions, re-examinations, revocation actions and similar proceedings filed by third parties against the grant of letters patent for such applications; and (d) to maintain in force any letters patent included in Patent Rights by duly filing all necessary papers and paying any fees required by the patent laws of the particular country in which such letters patent were granted. Immusol shall notify Pfizer in a timely manner of any decision to abandon a pending patent application or an issued patent included in Patent Rights. Thereafter, Pfizer shall 10 11 * CONFIDENTIAL * TREATMENT REQUESTED have the option, at its expense, of continuing to prosecute any such pending patent application or of keeping the issued patent in force. 7.1.1 Copies of Documents. With the prior consent of the University of California with respect to Patent Rights subject to the terms of the UC License, Immusol shall provide to Pfizer copies of all patent applications that are part of Patent Rights prior to filing, for the purpose of obtaining substantive comment of Pfizer patent counsel and inclusion of reasonable claims suggested by such counsel. Immusol shall also provide to Pfizer copies of all documents relating to prosecution of all such patent applications in a timely manner and shall provide to Pfizer every *__________* a report detailing their status. Pfizer shall provide to Immusol every *____________* a report detailing the status of all patent applications that are a part of Patent Rights in which Pfizer employees or consultants alone are named as inventors. 7.1.2 Reimbursement of Costs for Filing, Prosecuting and Maintaining Patent Rights. Within thirty (30) days of receipt of invoices from Immusol, Pfizer shall reimburse Immusol for all the costs of filing, prosecuting, responding to opposition and maintaining patent applications and patents in countries where Pfizer requests that patent applications be filed, prosecuted and maintained. Such reimbursement shall be in addition to Funding Payments. However, Pfizer may, upon sixty (60) days notice, request that Immusol discontinue filing or prosecution of patent applications in any country and discontinue reimbursing Immusol for the costs of filing, prosecuting, responding to opposition or maintaining such patent application or patent in any country. If Pfizer requests Immusol to discontinue filing in any of the key countries listed below and Immusol agrees, Pfizer's license with respect to such patent applications or patents shall terminate concurrently in any such country. The key countries are the members of NAFTA, the members of the European Union, Japan, Australia, China, Taiwan, Brazil, Argentina, Finland, Switzerland, Hungary, and Russia. Immusol shall pay all costs in those countries in which Pfizer does not request that Immusol file, prosecute or maintain patent applications and patents, but in which Immusol, at its option, elects to do so. 7.1.3 Pfizer Right to Prosecute. Pfizer shall have the right to file on behalf of and as an agent for Immusol all applications and take all actions necessary to obtain patent extensions pursuant to 35 USC Section 156 and foreign counterparts for Patent Rights described in this Section 6.1 licensed to Pfizer; provided, with respect to those Patent Rights described in Section 1.15(a) of the Research Agreement, Pfizer may only conduct such activities with the prior consent of the Regents of the University of California. Immusol agrees to sign, at Pfizer's expense, such further documents and take such further actions as may be requested by Pfizer in this regard. 7.2 Filing, Prosecution and Maintenance by Pfizer. With respect to Pfizer Patent Rights, Pfizer shall have those rights and duties ascribed to Immusol in Section 7.1, Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 11 12 * CONFIDENTIAL * TREATMENT REQUESTED provided, Immusol shall have no obligation to reimburse Pfizer for the payment of any expenses incurred in connection with the Pfizer Patent Rights. 7.3 Disclaimer. Neither party may disclaim a claim within Patent Right without the consent of the other. 8. Other Agreements. Concurrently with the execution of this Agreement, Immusol and Pfizer shall enter into the Research Agreement. This Agreement, the Research Agreement and the Confidentiality Agreements of July 20 and September 14, 1994 are the sole agreements with respect to the subject matter and supersede all other agreements and understanding between the parties with respect to same. *____________________________*. 9. Termination and Disengagement. 9.1 Events of Termination. The following events shall constitute events of termination ("Events of Termination"): (a) Any written representation or warranty by Immusol or Pfizer, or any of its officers, made under or in connection with this Agreement shall prove to have been incorrect in any material respect when made and concerning which the declaring party knew or should have known the correct version. (b) Immusol or Pfizer shall fail in any material respect to perform or observe any term, covenant or understanding contained in this Agreement or in any of the other documents or instruments delivered pursuant to, or concurrently with, this Agreement, and any such failure shall remain unremedied for sixty (60) days after written notice to the failing party; provided, in the case of a failure to pay any amount due hereunder, any failure to pay such amount within twenty (20) business days after written notice to the failing party shall be an event of termination. 9.2 Termination. Upon the occurrence of any Event of Termination, the party not responsible may, by thirty (30) days notice to the other party, terminate this Agreement. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 12 13 9.3 Termination of this Agreement by either party, with or without cause, will not terminate the licenses granted pursuant to Section 5.2(b) of the Research Agreement. 9.4 Pfizer shall have the right at any time to terminate this Agreement in whole or as to any portion of Immusol Patent Rights or Joint Patent Rights upon ninety (90) days notice. 9.5 Termination of this Agreement for any reason shall be without prejudice to: (a) the rights and obligations of the parties provided in Sections 3, 6, 7 with respect to Joint Patent Rights, 10, 12 and 13; (b) Immusol's right to receive all royalty payments and other payments accrued hereunder; or (c) any other remedies which either party may otherwise have. 10. Indemnification. Pfizer will indemnify, defend and hold Immusol and its Affiliates and their respective directors, officers, employees and agents (the "Immusol Indemnitees") harmless from and against any damages, liabilities, settlements, costs, legal fees and other expenses incurred in connection with any claim against the Immusol Indemnitees based on any action or omission of Pfizer or its sublicensee and their respective agents or employees related to manufacture, use, sale or other distribution of Licensed Products or other exercise of the rights granted Pfizer under this Agreement including, without limitation, any product liability claims; provided, however, that the foregoing shall not apply (i) if the claim is found in a final judgment to be based upon the negligence, recklessness or willful misconduct of Immusol, Indemnitees or (ii) if Immusol Indemnitees fail to give Pfizer prompt notice of any claim it receives within fifteen (15) days of such receipt and such failure materially prejudices Pfizer with respect to any claim or action to which Pfizer's obligation pursuant to this Section applies. Pfizer, in its sole discretion, shall choose legal counsel, shall control the defense of such claim or action, and shall have the right to settle same on such terms and conditions it deems advisable; provided, however, that an Immusol Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by Pfizer, if representation of such Immusol Indemnitee by the counsel retained by Pfizer would be inappropriate due to actual or potential differing interests between Pfizer and any other party represented by such counsel in such proceeding. 11. Notices. 13 14 All notices shall be in writing mailed via certified mail, return receipt requested, courier, or facsimile transmission addressed as follows, or to such other address as may be designated from time to time: If to Pfizer: To Pfizer at its address as set forth at the beginning of this Agreement Attention: President, Central Research with copy to: Office of the General Counsel If to Immusol: Immusol at its address as set forth at the beginning of this Agreement Attention: Chief Executive Officer Notices shall be deemed given as of the date received. 12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 13. Miscellaneous. 13.1 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and permitted assigns. 13.2 Headings. Paragraph headings are inserted for convenience of reference only and do not form a part of this Agreement. 13.3 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original. 13.4 Amendment; Waiver. This Agreement may be amended, modified, superseded or canceled, and any of the terms may be waived, only by a written instrument executed by each party or, in the case of waiver, by the party or parties waiving compliance. The delay or failure of any party at any time or times to require performance of any provisions shall in no manner affect the rights at a later time to enforce the same. No waiver by any party of any condition or of the breach of any term contained in this Agreement, whether by conduct, or otherwise, in any one or more instances, shall be deemed to be, or considered as, a further or continuing waiver of any such condition or of the breach of such term or any other term of this Agreement. 14 15 13.5 No Third Party Beneficiaries. Except for the Regents of the University of California, no third party including any employee of any party to this Agreement, shall be a third party beneficiary of this Agreement or have or acquire any rights by reason of this Agreement. Nothing contained in this Agreement shall be deemed to constitute the parties partners with each other or any third party. 13.6 Assignment and Successors. This Agreement may not be assigned by either party, except that each party may assign this Agreement and the rights and interests of such party, in whole or in part, to any of its Affiliates, any purchaser of all or substantially all of its assets or to any successor corporation resulting from any merger or consolidation of such party with or into such corporations. 13.7 Force Majeure. Neither Pfizer nor Immusol shall be liable for failure of or delay in performing obligations set forth in this Agreement, and neither shall be deemed in breach of its obligations, if such failure or delay is due to natural disasters or any causes reasonably beyond the control of Pfizer or Immusol. 13.8 Severability. If any provision of this Agreement is or becomes invalid or is ruled invalid by any court of competent jurisdiction or is deemed unenforceable, it is the intention of the parties that the remainder of the Agreement shall not be affected. 13.9 Disclaimer of Warranties. IMMUSOL AND PFIZER MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR VALIDITY OF THE IMMUSOL TECHNOLOGY, PFIZER TECHNOLOGY AND JOINT TECHNOLOGY, PATENTED OR UNPATENTED, INCLUDING, WITHOUT LIMITATION, THE PATENT RIGHTS OR WARRANTIES OF NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. 13.10 Patent Marking. Pfizer agrees to mark and have its sublicensees mark all Products they sell or distribute pursuant to this Agreement in accordance with the applicable statute or regulations in the country or countries of their manufacture and sale. 13.11 No Implied Licenses. No rights or licenses with respect to the Immusol Technology, Pfizer Technology and Joint Technology, including without limitation the Patent Rights, are granted or deemed granted hereunder or in connection herewith, other than those rights and licenses expressly granted in this Agreement. 13.12 Compliance with Law. In exercising their rights under this Agreement, the parties shall fully comply with the requirements of any and all applicable laws, regulations, rules and orders of any governmental body having jurisdiction over the exercise of rights under this Agreement. 15 16 13.13 Compliance by Pfizer with Immusol's Obligations Pursuant to the Agreement between Immusol and the University of California of December 7, 1993. During the term of this Agreement and the Research Agreement, Pfizer agrees to perform in all respects Immusol's obligations due the Regents of the University of California pursuant to the following provisions of the UC License Agreement with respect to the subject matter of this Agreement: Articles 6, 7, 13, 15, 17, 18, 25, 26 and 27. At Pfizer's request, Immusol shall provide any reasonable assistance in assuring such compliance. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. PFIZER INC IMMUSOL INCORPORATED By: /s/ [illegible] By: /s/ TSVI GOLDENBERG --------------------------------- ------------------------------- Title: Title: Chairman & CEO ------------------------------ ---------------------------- Date: Date: ------------------------------- ----------------------------- cc: Pfizer Inc, Legal Division, Groton, CT 06340 16 17 * CONFIDENTIAL * TREATMENT REQUESTED EXHIBIT 1 * * * 5 Consecutive pages have been omitted pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. 18 * CONFIDENTIAL * TREATMENT REQUESTED EXHIBIT 2 * * * Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 406 under the Securities Act. -----END PRIVACY-ENHANCED MESSAGE-----