-----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, L60U/H4LQYjgXk0ZDT9Ee9Fd5H2ELrXgYOTFn6+Va+9IHqh8sbV6Z+Ubo10aD8fq 3bo28vxjGjhbxnBUW9RqUg== 0000912057-96-030124.txt : 19961225 0000912057-96-030124.hdr.sgml : 19961225 ACCESSION NUMBER: 0000912057-96-030124 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19961224 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: APOLLO BIOPHARMACEUTICS INC CENTRAL INDEX KEY: 0001029495 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043160456 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-18769 FILM NUMBER: 96685836 BUSINESS ADDRESS: STREET 1: ONE KENDALL SQUARE STREET 2: BUILDING 200 SUITE 2200 CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6176217154 MAIL ADDRESS: STREET 1: ONE KENDALL SQUARE STREET 2: BUILDING 200 SUITE 2200 CITY: CAMBRIDGE STATE: MA ZIP: 02139 SB-2 1 SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ APOLLO BIOPHARMACEUTICS, INC. (Name of Small Business Issuer in its Charter) DELAWARE 2834 04-3160456 (State or other jurisdiction (Primary Standard (I.R.S. Employer of incorporation or Industrial Classification Identification organization) Code Number) Number)
ONE KENDALL SQUARE, BUILDING 200, SUITE 2200, CAMBRIDGE, MASSACHUSETTS 02139 (Address, Including zip code, and telephone number, including area code, of registrant's principal executive offices) KATHERINE GORDON, PH.D. PRESIDENT AND CHIEF EXECUTIVE OFFICER Apollo BioPharmaceutics, Inc. One Kendall Square, Building 200, Suite 2200 Cambridge, Massachusetts 02139 (617) 621-7154 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------ COPIES TO: MICHAEL LYTTON, ESQ. HAROLD E. BERRITT, ESQ. Palmer & Dodge LLP Rubin Baum Levin Constant Friedman & One Beacon Street Bilzin Boston, Massachusetts 2500 First Union Financial Center 02108-3190 Miami, Florida 33131-2336 (617) 573-0100 (305) 374-7580
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------ 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. / / CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF OF SECURITIES TO BE REGISTERED REGISTERED(1) UNIT PRICE REGISTRATION FEE Units, each consisting of one share of Common Stock, $.02 par value per share, and a Warrant to purchase one share of Common Stock.......... 1,380,000 $5.75(2) $7,935,000(1)(2) $2,404.54 Warrants to purchase Common Stock................ 120,000 $0.01 $1,200 $0.36 Common Stock, $.02 par value per share(3)........ 1,500,000 $7.15(2) $10,725,000(2) $3,250.00
(1) Includes 180,000 Units which the Underwriters may purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933. (3) Represents shares of Common Stock issuable upon exercise of the Warrants and 120,000 shares of Common Stock to be issued to the Underwriters upon exercise of certain other warrants. ------------------------ 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 SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- APOLLO BIOPHARMACEUTICS, INC. CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM SB-2
FORM SB-2 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS - ---------------------------------------------------------------- ----------------------------------------------------- 1. Front of the Registration Statement and Outside Front Cover Page of Prospectus............................ Forepart of the Registration Statement and Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus.......................................... Inside Front and Outside Back Cover Pages 3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors 4. Use of Proceeds...................................... Prospectus Summary; Use of Proceeds 5. Determination of Offering Price...................... Underwriting 6. Dilution............................................. Risk Factors; Dilution 7. Selling Security Holders............................. Not Applicable 8. Plan of Distribution................................. Outside Front Cover Page; Underwriting 9. Legal Proceedings.................................... Business 10. Directors, Executive Officers, Promoters and Control Persons............................................. Management; Principal Stockholders; Certain Transactions 11. Security Ownership of Certain Beneficial Owners and Management.......................................... Management; Principal Stockholders 12. Description of Securities............................ Outside Front Cover Page; Description of Securities 13. Interests of Named Experts and Counsel............... Not Applicable 14. Disclosure of Commission Position on Indemnification For Securities Act Liabilities...................... Management 15. Organization Within Last Five Years.................. Certain Transactions 16. Description of Business.............................. Prospectus Summary; Capitalization; Selected Financial Data; Business; Management; Certain Transactions; Principal Stockholders; Financial Statements 17. Management's Discussion and Analysis or Plan of Operation........................................... Management's Discussion and Analysis of Financial Condition and Results of Operations 18. Description of Property.............................. Business 19. Certain Relationships and Related Transactions....... Certain Transactions 20. Market for Common Equity and Related Stockholder Matters............................................. Inside Front Cover Page; Risk Factors; Description of Securities; Underwriting 21. Executive Compensation............................... Management 22. Financial Statements................................. Financial Statements 23. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. Not Applicable
SUBJECT TO COMPLETION, DATED DECEMBER , 1996 1,200,000 UNITS [APOLLO LOGO] EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE COMMON STOCK PURCHASE WARRANT -------------------------- Apollo BioPharmaceutics, Inc. (the "Company") is hereby offering 1,200,000 units ("Units"), each Unit consisting of one share of the Company's common stock, $0.02 par value per share (the "Common Stock"), and one redeemable warrant (each, a "Warrant" and collectively, the "Warrants") to purchase one share of Common Stock of the Company. Each Warrant entitles the registered holder thereof to purchase, at any time until the fifth anniversary of the date of this Prospectus (the "Expiration Date"), one share of Common Stock at an exercise price of $ per share [130% of the initial public offering price of the Common Stock], subject to adjustment under certain circumstances. The components of the Units are separately transferable immediately upon issuance. The Warrants are redeemable by the Company, in whole or in part, at a redemption price of $0.25 per Warrant, upon at least 30 days' prior written notice, commencing one year from the date of this Prospectus, if the average of the closing bid prices of the Common Stock shall equal or exceed $ per share [200% of the initial public offering price of the Common Stock] for 20 consecutive business days ending within 10 business days of the date on which notice of redemption is given. See "Description of Securities -- The Warrants Offered." Prior to this offering, there has been no public market for any securities of the Company. It is currently anticipated that the initial public offering price of the Units will be between $4.75 and $5.75 per Unit. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. Application has been made for quotation of the Common Stock and the Warrants on the Nasdaq SmallCap-SM- Market under the symbols "ABPI" and "ABPW," respectively. -------------------------- THE UNITS OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGES 6-17. -------------------------- 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 DISCOUNTS AND PROCEEDS TO PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) Per Unit................................................. $ $ $ Total(3)................................................. $ $ $
(1) Does not reflect additional compensation to be received by the Underwriters in the form of (i) a non-accountable expense allowance equal to 3% of the gross proceeds of this offering, payable to the managing underwriter of the several underwriters (the "Managing Underwriter"), (ii) five-year warrants (the "Managing Underwriter's Warrants") entitling the Managing Underwriter to purchase up to 120,000 shares of Common Stock at an exercise price of $ per share [130% of the initial offering price of the Common Stock], (iii) a commission, based upon the exercise price of the Warrants, equal to 5% of the exercise price of the Warrants and (iv) a three-year consulting agreement with the Company providing for an annual fee of $36,000. In addition, the Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $590,000, including the Managing Underwriter's non-accountable expense allowance. (3) The Company has granted the Underwriters a 45-day option to purchase up to an additional 180,000 Units solely to cover over-allotments, if any. If this option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions, and Proceeds to Company will be $7,245,000, $724,500, and $6,520,500, respectively. See "Underwriting." -------------------------- The Units are offered by the several Underwriters named herein on a firm commitment basis subject to prior sale, when, as and if accepted by them and subject to certain conditions. The Underwriters reserve the right to withdraw, cancel or modify this offer and to reject orders in whole or in part. It is expected that delivery of the Units will be made at the offices of First United Equities Corporation, 200 Garden City Plaza, Suite 518, Garden City, New York 11530 on or about , 1997. FIRST UNITED EQUITIES CORPORATION The date of this Prospectus is , 1997 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. NEUROCALC-TM- and NEUROMIDOL-TM- are trademarks of the Company. Neurestrol-TM- is a registered trademark of Endocon, Inc. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. THE UNITS OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS." EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) HAS BEEN ADJUSTED TO REFLECT A RECENTLY COMPLETED 3 1/3-FOR-1 REVERSE STOCK SPLIT OF THE OUTSTANDING COMMON STOCK AND (II) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE "UNDERWRITING." THE COMPANY Apollo BioPharmaceutics, Inc. ("Apollo" or the "Company") is a development-stage company engaged in the development of proprietary drugs that protect brain cells from damage caused by disease, injury and aging. The Company's target applications include the treatment of Alzheimer's disease, Parkinson's disease, brain damage resulting from stroke and other age-related diseases and conditions. The Company's lead product candidates are based on naturally-occurring hormones that have been demonstrated by Company-sponsored research to protect brain cells from damage caused by disease, trauma and aging. The Company's major product initiatives are based on estrogen compounds, calcitriol or vitamin D-related compounds and other types of neurosteroids. NEUROMIDOL-TM- and NEURESTROL-REGISTERED TRADEMARK-, two of the Company's lead product candidates, are in development by the Company for the prevention of neurodegeneration in Alzheimer's disease. NEUROMIDOL is a type of estrogen that the Company's management believes will be useful in preventing brain cell death without inducing feminizing side effects (e.g. breast enlargement) and therefore could be used to treat men as well as women. NEURESTROL is an estrogen-based, subcutaneous implant in development for the long-term, controlled delivery of estrogen in a single dose for the treatment of Alzheimer's disease. NEURESTROL is the subject of an Investigational New Drug Application for Phase I testing in humans. An additional product candidate, NEUROCALC-TM-, a derivative of vitamin D, is currently being evaluated in a small number of patients with Alzheimer's disease in a trial funded by the National Institutes of Health at the University of Kentucky Medical School. The Company continues to test these as well as other potentially neuroprotective compounds for efficacy in other neurodegenerative conditions such as Parkinson's disease, Age-Related Memory Impairment and brain-cell death from stroke. In addition to its pharmaceutical product candidates, the Company is also currently evaluating a Hormone Responsiveness Diagnostic test that may predict responsiveness to hormone therapy. The Company's development activities to date have been based, in large part, on intellectual property it has licensed and research it has sponsored at the medical schools of two universities. The Company intends to continue to acquire licenses to intellectual property that could advance the Company's product development efforts. Two patents licensed exclusively to the Company have recently been issued in the United States. The first patent covers the use of estrogen compounds for neuroprotection in the treatment of certain diseases, including Alzheimer's disease, and the second patent covers the Company's Hormone Responsiveness Diagnostic test. The Company's commercialization strategy is to enter into strategic alliances with biotechnology and pharmaceutical companies for the development and marketing of its product candidates. The Company currently has a strategic alliance with Athena Neurosciences, Inc. ("Athena"), for the development of estrogen products for chronic neurodegenerative diseases, and with Endocon, Inc. ("Endocon"), for the joint development of NEURESTROL. The Company plans to seek additional strategic partners for the development of its product candidates. The Company is a Delaware corporation that was incorporated on July 9, 1992 as Apollo Genetics, Inc. and subsequently changed its name to Apollo BioPharmaceutics, Inc. in December 1996. The Company's offices are located at One Kendall Square, Building 200, Suite 2200, Cambridge, Massachusetts 02139. The Company's telephone number is (617) 621-7154. 3 THE OFFERING Securities Offered by Company..... 1,200,000 Units, each Unit consisting of one share of Common Stock and a Warrant to purchase one share of Common Stock. The Common Stock and the Warrants will be separately transferable immediately following the offering. See "Description of Securities." Terms of Warrants................. Each Warrant entitles the holder to purchase one share of Common Stock for an exercise price of $ at any time until the fifth anniversary of the date of this Prospectus (the "Expiration Date"), subject, in certain circumstances, to earlier redemption by the Company. The exercise price and number of shares issuable upon the exercise of the Warrants are subject to adjustment in certain circumstances. See "Description of Securities--The Warrants Offered." Shares of Capital Stock Outstanding Common Stock: Prior to this Offering.......... 3,905,348 shares(1) After this Offering............. 5,105,348 shares(1) Use of Proceeds................... The Company intends to utilize the net proceeds of this offering to fund product development activities, hire additional personnel, establish a small laboratory facility and for general working capital purposes and operating expenses. See "Use of Proceeds." Risk Factors...................... Investment in these securities is speculative and involves a high degree of risk and immediate and substantial dilution. See "Risk Factors" and "Dilution." Proposed Nasdaq SmallCap-SM- Market Symbols(2)............... ABPI; ABPW.
- ------------------------ (1) Does not include the possible issuance of (i) 600,000 shares of Common Stock reserved for issuance upon the exercise of options granted or available for grant under the Company's 1993 Incentive and Non-Qualified Stock Option Plan; (ii) 90,000 shares reserved for issuance upon the exercise of options granted or available for grant under the Company's 1996 Director Stock Option Plan; (iii) 210,000 shares of Common Stock reserved for issuance upon exercise of certain warrants previously issued by the Company; (iv) 1,200,000 shares of Common Stock reserved for issuance upon exercise of the Warrants to be issued in this offering; (v) 180,000 Units reserved for issuance upon exercise of the Underwriters' over-allotment option; and (vi) 120,000 shares of Common Stock reserved for issuance upon exercise of the Managing Underwriter's Warrants. See "Management;" "Certain Transactions;" "Description of Securities;" and "Underwriting." (2) No assurance can be given that a trading market will develop for any of the Company's securities. See "Risk Factors--Possible Delisting of Securities from the Nasdaq SmallCap-SM- Market." 4 SUMMARY FINANCIAL DATA
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------ ------------------------ 1995 1994 1996 1995 ----------- ----------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Revenue.................................................... $ 2,535 $ 3,954 $ 177,301 $ -- Expenses................................................... 394,684 526,961 400,213 305,906 Net loss................................................... $ (392,149) $ (523,007) $ (222,912) $ (305,906) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net loss per share......................................... $ (.10) $ (.14) $ (.05) $ (.08) Weighted Average number of shares outstanding.............. 3,784,623 3,660,514 4,185,555 3,649,496
SEPTEMBER 30, 1996 ------------------------ AS ACTUAL ADJUSTED(1) ---------- ------------ BALANCE SHEET DATA: Cash and cash equivalents............................................................. $ 373,645 $ 5,458,645 Working capital....................................................................... 309,739 5,394,739 Total assets.......................................................................... 492,019 5,572,019 Stockholders' equity 315,613 5,395,613
(1) Adjusted to reflect the sale by the Company of the 1,200,000 Units offered hereby at an assumed public offering price of $5.25 per Unit. See "Use of Proceeds," "Capitalization" and "Underwriting." 5 RISK FACTORS IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED BY THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS OF OPERATIONS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. HISTORY OF OPERATING LOSSES; FUTURE PROFITABILITY UNCERTAIN The Company is a development-stage biotechnology company. From its inception in 1992 through September 30, 1996, the Company incurred losses of approximately $1.6 million, substantially all of which consisted of product development and general and administrative expenses. Although the Company has generated fees from options and licenses pursuant to the terms of certain licensing agreements it maintains with third parties, it has not generated any revenues from product sales to date, and there can be no assurance that revenues from product sales will ever be achieved. Moreover, even if the Company eventually generates revenues from product sales, the Company nevertheless expects to incur significant operating losses over the next several years. The Company's ability to achieve profitable operations in the future will depend in large part upon completing development of its products, obtaining regulatory approvals for these products and bringing several of these products to market. The likelihood of the long-term success of the Company must be considered in light of the expenses, difficulties and delays frequently encountered in the development and commercialization of new pharmaceutical products, competitive factors in the marketplace, as well as the regulatory environment in which the Company operates. There can be no assurance that the Company will ever achieve substantial revenues or profitable operations. See "Summary Financial Data;" "Selected Financial Data;" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." TECHNOLOGICAL UNCERTAINTY; EARLY STATE OF PRODUCT DEVELOPMENT; NO ASSURANCE OF REGULATORY APPROVALS The Company's proposed products will require significant further research, development, clinical testing and regulatory clearance. The Company has no products available for sale and does not expect to have any products resulting from its research efforts commercially available for at least several years. With the exception of limited clinical testing of NEUROCALC, none of the Company's proposed pharmaceutical products has been tested in humans. The Company has filed an Investigational New Drug Application ("IND") with the United States Food and Drug Administration (the "FDA") to begin a pharmacokinetic evaluation of NEURESTROL; however, there can be no assurance that this product or any product the Company may develop in the future will prove to be safe to use or effective in humans. The Company's proposed products are subject to the risk of failure inherent in the development of products based on innovative technologies. These risks include the possibilities that some or all of the proposed products could be found to be ineffective or toxic or otherwise fail to receive necessary regulatory clearances; that effective products will be uneconomical to manufacture or market; that third parties may now or in the future hold proprietary rights that preclude the Company from marketing such products; or that third parties will market a superior or equivalent product. Accordingly, the Company is unable to predict whether its product development activities will result in any commercially viable products or applications. Furthermore, due to the extended testing and regulatory review process required before marketing clearance can be obtained, the Company does not expect to be able to commercialize any therapeutic drug for at least several years, either directly or through any existing and potential corporate partners or licensees. There can be no assurance that the Company's proposed products will prove to be safe or effective in humans or will receive the regulatory approvals that are required for commercial sale. See "Business." 6 NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL The Company will require substantial funds for further development and clinical testing of its potential products and to commercialize any products that may be developed. The Company's capital requirements will depend on numerous factors, including the progress of its product development programs, the progress of pre-clinical and clinical testing, the time and cost involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, competing technological and market developments and the ability of the Company to establish strategic alliances. The Company has no current sources of significant funding beyond the proceeds from this offering. The Company believes that its existing capital resources, including the estimated net proceeds of this offering and interest thereon, will be sufficient to satisfy its operations for at least 24 months from the date of this Prospectus. The Company anticipates that after 24 months, it will require substantial additional capital. Moreover, if the Company experiences unanticipated cash requirements during the next 24 months, the Company will require additional capital to fund its operations, to continue product development programs, including the pre-clinical and clinical testing of its potential products, and to commercialize any products that may be developed. The Company may seek additional funding through public or private sales of equity securities or collaborative or other arrangements with third parties. There can be no assurance that additional funds will be available on acceptable terms, if at all. If additional funds are raised by issuing equity securities, further substantial dilution to existing stockholders, including purchasers of the Units offered hereby, may result. If adequate funds are not available, the Company may be required to delay, scale back or eliminate one or more of its development programs, or to obtain funds by entering into arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its products or technologies that the Company would not otherwise relinquish. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." DEPENDENCE ON STRATEGIC ALLIANCES The Company has established strategic alliances with Athena and Endocon with respect to the development and commercialization of certain of the Company's products. The Company is dependent upon its strategic partners to conduct preclinical tests and human trials, to obtain required regulatory approvals for product candidates and, in the case of Athena, to provide adequate funding for product testing. In addition, the Company is dependent on the cooperation of these partners in selecting compounds for subsequent development as product candidates, conducting preclinical testing and clinical trials and obtaining required regulatory approvals for the Company's drug candidates. Failure of these partners to undertake reasonable efforts toward product development would have a material adverse effect on the Company's business, financial condition and results of operations. The Company's strategy for development and commercialization of its products is dependent upon entering into additional arrangements with research collaborators, corporate partners and others, and upon the subsequent success of these third parties in performing their obligations. There can be no assurance that the Company will be able to enter into additional strategic alliances on terms favorable to the Company, if at all. Failure of the Company to enter into additional strategic alliances would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Strategic Alliances and Licenses." The Company cannot control the amount and timing of resources which its corporate partners devote to the Company's programs or potential products. If any of the Company's corporate partners breach or terminate their respective agreements with the Company or otherwise fail to conduct their development activities in a timely manner, the preclinical testing, clinical development or commercialization of product candidates will be delayed, and the Company will be required to devote additional resources to product development and commercialization, terminate certain development programs or seek new corporate partners. The Company's strategic alliances with Athena and Endocon are subject to 7 termination by each of them. There can be no assurance that Athena or Endocon will not elect to terminate their strategic alliances with the Company prior to their scheduled expiration dates. In addition, if the Company's corporate partners effect a merger with a third party, there can be no assurance that the strategic alliances will not be terminated or otherwise materially adversely affected. The termination of any current or future strategic alliances could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's corporate partners may develop, either alone or with others, products that compete with the development and marketing of the Company's potential products. Competing products, either developed by the Company's corporate partners or to which the corporate partners have rights, may result in their withdrawal of support with respect to all or a portion of the Company's technology, which would have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that disputes will not arise in the future with respect to the ownership of rights to any products or technology developed with corporate partners. These and other possible disagreements between corporate partners and the Company could lead to delays in the collaborative research, development or commercialization of certain product candidates or could require or result in litigation or arbitration, which would be time-consuming and expensive, and would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Strategic Alliances and Licenses." UNCERTAIN ABILITY TO PROTECT PROPRIETARY TECHNOLOGY The Company's success, competitive position and potential future income will depend, in part, on its ability to obtain patent protection, in various jurisdictions, relating to the technologies, processes and products it is developing and may develop in the future. The Company has licensed rights to certain proprietary technologies from the University of Kentucky Research Foundation and the University of Florida Research Foundation, Inc. To date, 2 patents have been issued relating to these technologies and 10 related patent applications are pending in major markets of the developed world. Additional applications have been filed in certain other countries. The Company plans to seek additional patents in the future and to file patent applications in other countries and to license additional rights to certain unpatented and patented proprietary technology from research institutions. See "Business--Strategic Alliances and Licenses;" and "Business--Intellectual Property Rights." The patent positions of pharmaceutical, biotechnology and drug delivery companies, including the patent rights licensed by the Company, are uncertain and involve complex legal and factual issues. Additionally, the coverage claimed in a patent application can be significantly reduced if and when a patent is issued. As a consequence, the Company does not know whether its pending patent applications will result in the issuance of patents. Since patent applications in the United States are maintained in secrecy until patents issue, and since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, the Company cannot be certain that the inventions described in its patent applications are not subject to prior art, that the inventors of inventions covered in the pending patent applications were the first inventors or that the patent applications for these inventions were the first to be filed. Moreover, the Company may have to participate in any interference proceedings which may be declared by the United States Patent and Trademark Office to determine the priority of any inventions covered by its patent applications, which could result in substantial cost to the Company, whether or not the eventual outcome is favorable to the Company. There can be no assurance that the Company will develop additional proprietary products that are patentable, that any patents issued to, or licensed by, the Company will be valid or enforceable, or that patents issued to, or licensed by, the Company will afford protection against competitors with similar technology. 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. In addition, there can be no assurance that others will not independently develop substantially equivalent proprietary information or otherwise obtain access to the Company's know-how or 8 that others may not be issued patents that may prevent the sale of the Company's products or may require licensing and the payment of significant fees or royalties by the Company for the pursuit of its business. Moreover, there can be no assurance that the Company's technology does not infringe upon any valid claims of patents owned by others. If the Company was found by a court to be infringing on a patent held by another, the Company would have to discontinue all activities related to that patented technology or seek a license to use that patented technology. If a legal action claiming patent infringement were to be brought against the Company or its licensees, the Company could incur substantial costs in defending itself, and there can be no assurance that an action of this sort would be resolved in the Company's favor. If such a dispute were to be resolved against the Company, in addition to incurring potential damages, the Company's continued testing, manufacture or sale of one or more of its technologies or proposed products, if developed, could be enjoined. Defense of any lawsuit or failure to obtain any required license could, depending on the circumstances, have a material adverse effect on the Company. Some of the intellectual property and prospective products that the Company has licensed or invented may involve naturally occurring or synthetic molecules, the patentability of which is uncertain and involves complex legal and factual questions. Legal standards surrounding the viability of biotechnology patents are in transition, and no assurance can be given as to whether patents will be issued, the degree of protection that any patents will afford or the Company's ability to avoid violating or infringing upon patents issued to others. All of the Company's licenses from universities involve programs that were originally funded by the United States Government and, as a result, the United States Government commonly retains certain statutory rights, including a non-exclusive, royalty-free license to use the licensed inventions, and to manufacture and distribute products based thereon, for Government use only. Several of the patents and patent applications licensed to the Company are so-called "use patents" and describe novel uses rather than the specific composition of matter of certain compounds. In these cases, another company could, without infringing on the Company's intellectual property, market these compounds for unrelated disease indications to the extent that those companies already have FDA approval. Marketing of an existing or new compound described by the Company's use patents for the described indication requires that the marketer secure a license from the Company or one of its sublicensees. If a company were to market a product which is the subject of one of the Company's patents, the Company or its sublicensees might have to file suit in order to stop the infringement and report such activities to the FDA. Despite the issuance of patents and the underlying commercial protection afforded by the Company's intellectual property, products produced by third parties may compete "off label" with the Company's products. For example, once prescribed, patients may take commercially available estrogen products for indications other than those that are approved by the FDA. According to current law, companies may not market for off-label indications. The Company relies on certain technologies that are not patentable or proprietary and are therefore available to the Company's competitors. The Company also relies on certain proprietary trade secrets and know-how that are not patentable. Although the Company has taken steps to protect its unpatented trade secrets and know-how, in part through the use of confidentiality agreements with its employees, consultants, and certain of its collaborators, there can be no assurance that (i) these agreements will not be breached; (ii) the Company would have adequate remedies for any breach; or (iii) the Company's trade secrets will not otherwise become known or be independently developed or discovered by its competitors. See "Business--Intellectual Property Rights." 9 COMPETITION Competition in the area of pharmaceutical products is intense. There are many companies, both public and private, including well-known pharmaceutical companies, that are engaged in the development of products for certain of the applications being pursued by the Company. The Company's larger competitors include Amgen, Inc., Warner-Lambert Co., Bristol-Meyers Squibb Company, Glaxo Wellcome plc, Regeneron Pharmaceuticals, Inc., Hoechst Marion Roussel Ltd. and Pfizer, Inc., as well as Athena. There are public and private companies that are also developing products to treat neurodegenerative diseases. There may be other companies of which the Company is not aware with research and development programs similar to those of the Company. Many of the Company's competitors have substantially greater financial, research and development, manufacturing and marketing experience and resources than the Company and represent substantial long-term competition for the Company. Companies may succeed in developing pharmaceutical products that are more effective and/or less costly than any products that may be developed by the Company or its strategic partners. Factors affecting competition in the pharmaceutical industry vary, depending on the extent to which a competitor is able to achieve a competitive advantage based on its proprietary technology. If the Company is able to establish and maintain a significant proprietary position with respect to its products, competition will likely depend primarily on the effectiveness of the product and the number and severity of its unwanted side effects as compared to alternative products. The industry in which the Company competes is characterized by extensive research and development efforts and rapid technological progress. Although the Company believes that its proprietary position may give it a competitive advantage with respect to its proposed drugs, new developments are expected to continue and there can be no assurance that discoveries by others will not render the Company's potential products noncompetitive. The Company's competitive position also depends on its ability to attract and retain qualified scientific and other personnel, develop effective proprietary products, implement development and marketing plans, obtain patent protection and secure adequate capital resources. There can be no assurance that the Company will be able to successfully achieve all of the foregoing objectives. See "Business--Competition." DEPENDENCE ON THIRD PARTIES FOR CLINICAL TESTING, MANUFACTURING AND MARKETING Presently, the Company does not intend to conduct clinical trials or manufacture or market any of its proposed products without the involvement of strategic partners. The Company seeks to enter into arrangements with third parties to conduct these activities for its products. There can be no assurance that any third-party arrangements can be successfully negotiated or that desired arrangements will be on commercially reasonable terms. To the extent that the Company arranges with any third parties to conduct clinical trials, or to manufacture or market its products, the success of clinical trials and/or the manufacture or marketing of the Company's products will depend on the efforts of these third parties. There can be no assurance that either the Company or its third-party collaborators can successfully introduce the Company's proposed products, that they will achieve acceptance by patients, health care providers and insurance companies, or that they can be manufactured and marketed at prices that would permit the Company to operate profitably. See "Business--Marketing and Sales Strategy." LACK OF OPERATING EXPERIENCE To date, the Company has engaged in the development of pharmaceutical technologies and products through the sponsorship of research programs in universities. Although members of the Company's management have substantial experience in biotechnology company operations, the Company has no experience in conducting research, manufacturing, procuring products in commercial quantities, or the marketing and sales of pharmaceutical products. In addition, management of the Company has only limited experience in negotiating and maintaining strategic relationships, conducting clinical trials and 10 other later-stage phases of the regulatory approval process and the commercialization of pharmaceutical products. There can be no assurance that the Company will be able to successfully engage in any of these activities with respect to any of its products. In the event the Company decides to establish a commercial-scale manufacturing facility for its products, the Company will require substantial additional funds and personnel and will be required to comply with extensive regulations applicable to this type of facility. There can be no assurance that the Company will be able to secure funds on acceptable terms, if at all, or will successfully manufacture or market any product it may develop, either independently or pursuant to manufacturing or marketing arrangements, if any, with third parties. See "Business--Manufacturing Plans" and "--Marketing and Sales Strategy." DEPENDENCE ON QUALIFIED PERSONNEL Because of the specialized scientific nature of the Company's business, the Company will be highly dependent upon its ability to attract and retain qualified scientific and technical personnel. There is intense competition for qualified personnel in the areas of the Company's activities, and there can be no assurance that the Company will be able to attract and retain qualified personnel necessary for the development of its business. The Company is highly dependent upon the principal members of its scientific and management staff, including, in particular, Dr. Katherine Gordon. The loss of Dr. Gordon or other key scientific and technical personnel could be harmful to the Company. The Company's employment agreement with Dr. Gordon extends until October 31, 1998 and will thereafter be extended for additional two-year terms unless either party provides notice of its intent not to renew. However, there can be no assurance that the Company will be successful in retaining Dr. Gordon. See "Management--Employment Agreements, Executive Compensation and Agreements With Directors." The Company plans to recruit additional management and scientific personnel, which may require the Company to offer competitive compensation packages, including stock options. Its failure to recruit personnel could have a material adverse effect on the Company's business and results of operations. All of the Company's scientific and clinical advisors are employed on a full-time basis by academic or medical institutions. Accordingly, the Company's advisors and consultants will only be able to devote a small portion of their time to the Company. In addition, in certain circumstances, inventions or processes discovered by the Company's advisors and consultants independently of the Company's sponsored research programs may remain the property of their full-time employers or of other companies and institutions for which they now consult. See "Management--Scientific and Clinical Advisors." Certain agreements for research funded by the Company provide the principal investigators conducting research on the Company's behalf with full discretionary authority over the conduct of the research activities at their laboratories, and further provide for payment on a chronological, rather than performance, basis. There can be no assurance that the interests and motivations of the Company's academic partners will remain consistent with those of the Company. Moreover, there can be no assurance that the Company will be able to successfully negotiate license rights to the intellectual property that may result from these sponsored research programs or that such licenses will be on commercially acceptable terms. DEVELOPMENT OF NEW TECHNOLOGIES AND PRODUCTS The Company is engaged in the biopharmaceutical field, which is characterized by extensive research efforts and rapid technological progress. New developments in molecular cell biology, molecular pharmacology, recombinant DNA technology and other areas are expected to continue at a rapid pace in both industry and academia. There can be no assurance that research and discoveries by others will not render some or all of the Company's programs or products noncompetitive or obsolete. 11 Some of the Company's projects involve the attempt to develop new technologies or to apply existing technologies, several of which are experimental, to the development of new products. This type of experimentation is costly, time consuming and prone to produce unsatisfactory results. No assurance can be given that unforeseen problems will not develop with these technologies or applications or that commercially feasible products will ultimately be developed by the Company. Moreover, even when a new technology or product is successfully developed, the refinement of the new technology or product and the definition of the clinical applications and limitations of the new technology or product may take years and require the expenditure of large sums of money or may prove to be commercially unfeasible. NO ASSURANCE OF UNITED STATES OR FOREIGN REGULATORY APPROVAL; GOVERNMENT REGULATION Human therapeutic and diagnostic products such as the Company's proposed products are subject to premarket approval by the FDA and comparable agencies in foreign countries. The process of obtaining these approvals involves several years of laboratory and clinical testing and other costly and time consuming procedures. The Company cannot predict with certainty when it might submit products, if any, for FDA or other regulatory approval. Government regulation also controls the manufacture and marketing of these types of products. The process of obtaining FDA and other required regulatory approvals is lengthy, expensive, and uncertain. Moreover, regulatory approvals, if granted, may include significant limitations on the indicated uses for which a product may be marketed. The FDA actively enforces the provisions of the Federal Food, Drug and Cosmetic Act (the "FDC Act") and associated regulations, including certain regulations which prohibit the marketing of products for uses not indicated in the labeling of products, and conducts periodic inspections to determine compliance with certain "current Good Manufacturing Practices" ("cGMPs") as described in the applicable regulations. Failure to comply with applicable regulatory requirements can result in, among other things, fines, suspensions of approvals, seizures or recalls of products, operating restrictions, and criminal prosecutions. Furthermore, changes in existing regulations or adoption of new regulations could prevent the Company from obtaining, or affect the timing and cost of, future regulatory approvals. The extent of potentially adverse government regulation which might arise from future legislation or administrative action cannot be predicted. See "Business--Government Regulations." The regulatory process may delay marketing of the Company's products. Government regulation may also impose costly procedures upon the Company's activities and effectively furnish a competitive advantage to larger companies that compete with the Company. There can be no assurance that any approvals will be granted on a timely basis, if at all. Any delay in obtaining or any failure to obtain these approvals would adversely affect the marketing of the Company's products and the ability to generate product revenue. Clinical testing of a pharmaceutical product is itself subject to approval by various government regulatory authorities, including approval of an Investigational New Drug Application ("IND") with the FDA. No assurance can be given that the Company will be permitted by regulatory authorities in the United States or elsewhere to carry out further testing, or that, if permitted, additional clinical testing will prove that the Company's products are safe and efficacious to the extent necessary to permit the Company to continue product testing or obtain marketing approvals for these products from regulatory authorities. The failure to adequately demonstrate the safety and efficacy of a therapeutic product under development could delay or prevent regulatory approval of the product and would have a materially adverse effect on the Company. Delays in obtaining United States or foreign approvals could adversely affect the marketing of the Company's products and diminish any competitive advantage the Company may attain. In addition, delays in regulatory approvals that may be encountered by corporate collaborators or other licensees of the Company, if any, could adversely affect the Company's ability to receive royalties. There can be no assurance that, if clinical trials are completed, the Company will be able to submit a New Drug Application ("NDA") as scheduled or that the Company's NDA will be reviewed and approved by the FDA or foreign regulatory agencies in a timely manner, or at all. See "Business--Marketing and Sales Strategy" and "Business--Government Regulations." 12 While the Company and certain of the Company's collaborators have performed initial testing of some of the Company's products, further testing, including clinical testing, will be required before the Company can obtain marketing approval from regulatory authorities. The results of initial preclinical and clinical testing are not necessarily predictive of results that will be obtained from subsequent or more extensive preclinical and clinical testing, and there can be no assurance that further trials will be successful. The proceeds from this offering will not be sufficient to finance the laboratory and clinical trials and other costs associated with the FDA application and approval process for any products that the Company may develop. Therefore, the future ability of the Company to market its products will depend in part upon its ability to obtain additional funding or to enter into licensing or joint venture arrangements with other companies to finance the FDA application and approval process. BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS The Company expects that the proceeds of this offering will be used for product development, establishment of a small laboratory facility, the hiring and retention of administrative and scientific personnel and for working capital and general corporate purposes. The Company is not currently able to estimate precisely the allocation of the proceeds among these uses, and the timing and amount of expenditures will vary depending upon numerous factors. The Company's management will have broad discretion to allocate the proceeds of this offering and to determine the timing of expenditures. See "Use of Proceeds." UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT The Company's business may be materially adversely affected by the continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals are subject to government control. In the United States, there have been, and the Company expects that there will continue to be, a number of federal and state proposals to implement similar government control in those jurisdictions. In addition, an increasing emphasis on managed care in the United States has put, and will continue to put, pressure on pharmaceutical pricing. These proposals and trends could decrease the price that the Company receives for any products it may develop and thereby have a material adverse effect on the Company's business, financial condition and results of operations. Further, to the extent that these proposals or initiatives have a material adverse effect on other pharmaceutical companies that are corporate partners or prospective corporate partners for certain of the Company's potential products, the Company's ability to commercialize its potential products may be materially adversely affected. The Company's ability to commercialize pharmaceutical products may depend in part on the extent to which reimbursement for the costs of these products and related treatments will be available from government health-administration authorities, private health insurers and other third-party payors. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and third-party payors are increasingly challenging the prices charged for medical products and services. There can be no assurance that any third-party insurance coverage will be available to patients for any products developed by the Company. Government and other third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for new therapeutic products, and by refusing, in some cases, to provide coverage for uses of approved products for disease indications for which the FDA has not granted marketing approval. If adequate coverage and reimbursement levels are not provided by government and third-party payors for the Company's products, the market acceptance of these products would be materially adversely affected. 13 PRODUCT LIABILITY; RISK OF NO INSURANCE The use of the Company's products in clinical trials and the marketing of the Company's products may expose the Company to product liability claims. Although the Company will attempt to obtain product liability insurance and/or be included as an additional insured party under the respective insurance policies of the Company's collaborators prior to the marketing of any of its proposed products, there can be no assurance that the Company will be able to obtain insurance or additional coverage, or, if obtainable, that the insurance and/or coverage can be acquired at a reasonable cost or will be sufficient to cover all possible liabilities. In the event of a successful suit against the Company, lack or insufficiency of insurance coverage could have a material adverse effect on the Company. Further, certain distributors of pharmaceutical and biological products require a minimum level of product liability insurance coverage as a condition precedent to purchasing or accepting products for distribution. Failure to satisfy insurance requirements could impede the ability of the Company to achieve broad distribution of its proposed products, which would have a material adverse effect on the business and financial condition of the Company. CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS The Company's directors and executive officers will, in the aggregate, beneficially own approximately 13.8% of the Company's outstanding Common Stock following the completion of this offering, assuming no exercise of the Warrants, the Underwriters' over-allotment option or the Managing Underwriter's Warrant. These stockholders, if acting together, would have a significant impact on all matters requiring approval by the stockholders of the Company, including the election of directors and the approval of mergers or other business combination transactions. This concentration of ownership could discourage or prevent a change in control of the Company. See "Principal Stockholders." POSSIBLE VOLATILITY OF STOCK PRICE The stock market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of the Company's Common Stock and/or the Warrants. In addition, the market price of the Common Stock and/or the Warrants is likely to be highly volatile. Factors such as fluctuations in the Company's results of operations, timing and announcements of technological innovations or new products by the Company or its competitors, FDA and foreign regulatory actions, developments with respect to patents and proprietary rights, public concern as to the safety of products developed by the Company or others, changes in health care policy in the United States and in foreign countries, changes in stock market analyst recommendations regarding the Company, the pharmaceutical industry generally and general market conditions each may have a significant adverse effect on the market price of the Common Stock and/or the Warrants. In addition, it is likely that, during at least some future financial reporting periods, the Company's results of operations will fail to meet the expectations of stock market analysts and investors and, in that event, the market price of the Company's Common Stock and/or the Warrants could be materially and adversely affected. NO PUBLIC TRADING MARKET Prior to this offering, there has been no public market for the Common Stock and no public market for the Warrants. There can be no assurance that an active trading market will develop or, if one does develop, that it will be maintained. The initial public offering price of the Units and the exercise price of the Warrants were established by negotiations between the Company and the Managing Underwriter and may not be indicative of prices that will prevail in the public trading market. See "Underwriting." 14 EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS Certain provisions of the Company's Amended and Restated Certificate of Incorporation and By-laws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of Common Stock. These provisions may also make it more difficult for stockholders to take certain corporate actions and could have the effect of delaying or preventing a change in control of the Company. See "Management" and "Description of Securities." SHARES ELIGIBLE FOR FUTURE SALE Sales of Common Stock (including Common Stock issued upon the exercise of outstanding options and warrants) in the public market after this offering could materially adversely affect the market price of the Common Stock. These sales also might make it more difficult for the Company to sell equity securities or equity-related securities in the future at a time and price that the Company's management deems acceptable, or at all. Upon the completion of this offering, the Company will have 5,105,348 shares of Common Stock outstanding, assuming no exercise of options or warrants after December 19, 1996 and assuming no exercise of the Underwriters' over-allotment option. Of these outstanding shares of Common Stock, the 1,200,000 shares sold in this offering as part of the Units will be freely tradeable, without restriction under the Securities Act, unless purchased by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act. The remaining 3,905,348 shares of Common Stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act and were issued and sold by the Company in reliance on exemptions from the registration requirements of the Securities Act. These shares may be resold in the public market only if registered or pursuant to an exemption from registration, such as Rule 144 or Rule 701 under the Securities Act. All officers, directors and certain holders of Common Stock owning, in the aggregate, shares of Common Stock have agreed, pursuant to certain lock-up agreements, that they will not offer, sell, contract to sell, grant any option to sell, pledge, hypothecate or otherwise dispose of, directly or indirectly, any shares of Common Stock owned by them, or that could be purchased by them through the exercise of options or warrants to purchase Common Stock of the Company, for a period of 13 months after the date of this Prospectus without the prior written consent of the Managing Underwriter. Upon expiration of the lock-up agreements, approximately shares of Common Stock held by existing stockholders will be immediately eligible for resale pursuant to Rule 144, and approximately shares will be eligible for resale under Rule 144 from time to time thereafter. The remaining shares held by existing stockholders will become eligible for resale pursuant to Rule 144 upon the expiration of their respective two-year holding periods. As of December 19, 1996, shares were subject to outstanding options and warrants, of which shares are subject to the lock-up agreements described above. Immediately following the completion of this offering, 214,285 of the outstanding shares will be entitled to certain registration rights. The number of shares sold in the public market could increase if registration rights are exercised. See "Description of Securities--Registration Rights" and "Shares Eligible for Future Sale." CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS; ADVERSE EFFECT OF POSSIBLE REDEMPTION OF WARRANTS Purchasers of the Units will be able to exercise the Warrants included therein only if a current prospectus relating to the securities underlying the Warrants is then in effect under the Securities Act and if the securities are qualified for sale or exempt from qualification under the applicable securities or "blue sky" laws of the states in which the various holders of the Warrants then reside. The value of the Warrants may be greatly reduced if a current prospectus covering the securities issuable upon the exercise of the Warrants is not kept effective or if the securities are not qualified or exempt from qualification in the states 15 in which the holders of the Warrants then reside. There can be no assurance that the Company will be able to keep effective any prospectus or obtain any qualifications or exemptions. See "Description of Securities--The Warrants Offered." In addition, the Warrants are subject to redemption by the Company at $0.25 per Warrant, commencing on the date one year from the date of this Prospectus, on at least 30 days' prior written notice if the average of the closing bid prices of the Common Stock for 20 consecutive business days ending within 10 business days of the date on which the notice of redemption is given equals or exceeds $ per share [200% of the initial public offering price of the Common Stock]. If the Warrants are redeemed, holders of Warrants will lose their right to exercise the Warrants, except during the 30-day notice of redemption period. Upon the receipt of a notice of redemption of the Warrants, the holders thereof would be required to: exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for them to do so; sell the Warrants at the then market price, if any, when they might otherwise wish to hold the Warrants; or accept the redemption price, which is likely to be substantially less than the market value of the Warrants at the time of redemption. See "Description of Securities--The Warrants Offered." DILUTION Investors acquiring shares of Common Stock included within the Units offered hereby will incur immediate and substantial net tangible book value dilution of $4.19. To the extent that currently outstanding options and warrants to purchase the Company's securities are exercised, there will be further dilution. See "Dilution." POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET In order to qualify for initial listing on the Nasdaq SmallCap-SM- Market, a company must, among other requirements, have at least $4,000,000 in total assets and a minimum bid price for its common stock of $3.00 per share. While it is presently expected that the Company's Common Stock and Warrants will be eligible for initial listing on the Nasdaq SmallCap-SM- Market upon the completion of this offering, there can be no assurance that this will actually occur. In addition, even if the Company qualifies for initial listing on the Nasdaq SmallCap-SM- Market, there can be no assurance that the Company will meet the criteria for continued listing of securities on the Nasdaq SmallCap-SM- Market adopted by the Securities and Exchange Commission (the "Commission"). These continued listing criteria include a minimum of $2,000,000 in total assets and a minimum bid price of $1.00 per share of common stock. If an issuer does not meet the $1.00 minimum bid price standard, it may, however, remain on the Nasdaq SmallCap-SM- Market if the market value of its public float is at least $1,000,000 and the issuer has capital surplus of at least $2,000,000. If the Company became unable to meet the continued listing criteria of the Nasdaq SmallCap-SM- Market because of continued operating losses or otherwise and became delisted therefrom, trading, if any, in the Common Stock and the Warrants would thereafter be conducted in the over-the-counter market in the so-called "pink sheets" of the NASD's "Electronic Bulletin Board." As a result, an investor may find it more difficult to dispose of the Company's securities. RISK OF LOW-PRICE; "PENNY STOCK" REGULATIONS If the Company's securities are delisted from the Nasdaq SmallCap-SM- Market, they may become subject to Rule 15g-9 under the Securities Exchange Act of 1934 (the "Exchange Act"), which imposes additional sales practice requirements on broker-dealers that sell these securities, except in transactions exempted by Rule 15g-9, including transactions meeting the requirements of Rules 505 or 506 or Regulation D under the Securities Act, and transactions in which the purchaser is an institutional accredited investor (as defined) or an established customer (as defined) of the broker/dealer. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Consequently, the rule may affect the ability and/or willingness of broker-dealers to sell the Company's securities and may 16 consequently affect the ability of purchasers in this offering to sell any of the securities acquired in this offering in the secondary market. The Commission has also adopted regulations which define a "penny stock" to be any equity security that has a market price (as therein defined) of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. Unless exempt, the rules require the delivery, prior to any transactions in a penny stock, of a disclosure schedule prepared by the Commission relating to the penny stock market. Disclosure also has to be made about commissions payable to both the broker-dealer and the registered representative and about current quotations for the securities. Finally, monthly statements have to be sent, disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The foregoing penny stock restrictions will not apply to the Company's securities if those securities are listed on the Nasdaq SmallCap-SM- Market and have certain price and volume information provided on a current and continuing basis or if the Company meets certain minimum net tangible assets or average revenue criteria. There can be no assurance that the Company's securities will qualify for exemption from these restrictions. In any event, even if the Company were exempt from these restrictions, it would remain subject to Section 15(b)(6) of the Exchange Act, which gives the Commission the authority to prohibit any person that is engaged in unlawful conduct while participating in a distribution of penny stock from associating with a broker-dealer or participating in a distribution of penny stock, if the Commission finds that a restriction would be in the public interest. If the Company's securities were subject to the rules on penny stocks, the prices of and market liquidity for the Company's securities would be severely adversely affected. ABSENCE OF DIVIDENDS The Company has never paid cash dividends on its Common Stock and does not anticipate paying cash dividends in the foreseeable future. See "Dividend Policy." INEXPERIENCE OF MANAGING UNDERWRITER The Managing Underwriter, which commenced operations in 1994, has acted as an underwriter, or a member of an underwriting syndicate, in only three public offerings of securities. The Managing Underwriter's lack of experience may have an adverse impact on its ability to market the Common Stock offered hereby as well as the development and maintenance of a trading market for the Company's Common Stock following this offering. The Managing Underwriter intends to make a market in the Company's Common Stock. The Managing Underwriter's inexperience may result in the potential inability of the Managing Underwriter to utilize correctly over-allotment, stabilization and market maintenance strategies that more experienced underwriters employ to assist in maintaining orderly trading markets. This may adversely affect the proposed public offering of the Units and the ability of purchasers in the offering to resell any Units and/or any component thereof. See "Underwriting." 17 USE OF PROCEEDS The net proceeds from the sale of the Units offered hereby are estimated to be $5,080,000 ($5,902,150 if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $5.25 per Unit, after deducting the estimated underwriting discounts and commissions and estimated offering expenses and assuming no exercise of the Warrants. The Company's management expects to use approximately $3.1 million of the net proceeds of this offering to fund future development of products, of which approximately $1.9 million will be used for sponsored research, approximately $900,000 will be used to establish a small laboratory facility and approximately $300,000 will be used to hire and retain scientific personnel for approximately the next 24 months. The balance of the net proceeds of this offering will be used for working capital and general corporate purposes. Where the Company's management believes appropriate, proceeds of this offering may also be used to acquire products or technologies that complement the Company's existing business, although there are no present understandings, agreements or commitments with respect to any acquisitions. The amount and the timing of the expenditures will depend on numerous factors, including the progress of the Company's research and development programs. The amounts actually expended on any particular project may vary significantly from the Company's current plans, particularly given the Company's early stage of development and the uncertainty of the drug development process. Pending the uses described above, the net proceeds will be invested in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY The Company has never paid dividends on its capital stock. The Company currently intends to retain earnings, if any, and does not anticipate paying cash dividends in the foreseeable future. Future cash dividends, if any, will be determined by the Board of Directors. 18 CAPITALIZATION The following table sets forth, as of September 30, 1996, (i) the actual capitalization of the Company and (ii) capitalization of the Company, as adjusted to reflect the sale of the 1,200,000 Units offered hereby, after deducting the underwriting discount and offering expenses, at an assumed initial public offering price of $5.25 per Unit. This table should be read in conjunction with the financial statements, related notes and other financial information included herein.
SEPTEMBER 30, 1996 ----------------------------- ACTUAL AS ADJUSTED(1) ------------- -------------- Notes payable...................................................................... $ 73,425 $ 73,425 Stockholders' equity: Preferred Stock - $0.01 par value; 1,000,000 shares authorized, no shares issued and outstanding................................................................ -- -- Common Stock - $0.02 par value; 20,000,000 shares authorized, 3,905,348 shares issued, actual; 5,105,348 shares issued, as adjusted........................... 78,107 102,107 Additional paid-in capital....................................................... 1,807,879 6,863,879 Deficit accumulated during the development stage................................... (1,570,373) (1,570,373) ------------- -------------- Total stockholders' equity....................................................... 315,613 5,395,613 ------------- -------------- Total capitalization............................................................. $ 389,038 $ 5,469,038 ------------- -------------- ------------- --------------
- ------------------------ (1) Does not include (a) Units issuable upon the exercise of the Underwriters' over-allotment option, (b) shares issuable upon exercise of the Managing Underwriter's Warrants, or (c) 570,000 shares reserved for issuance upon the exercise of options and warrants outstanding as of September 30, 1996 having a weighted average exercise price of $0.96 per share. See "Management--Stock Option Plans"; "Description of Securities--Other Warrants and Convertible Notes." 19 DILUTION The net tangible book value of the Company as of September 30, 1996 was $309,739 or approximately $0.08 per share. Net tangible book value per share represents the total tangible assets of the Company, less total liabilities, divided by 3,905,348 shares of Common Stock outstanding before the completion of this offering. Assuming the receipt by the Company of the net proceeds from the sale of 1,200,000 Units offered hereby at an assumed initial public offering price of $5.25 per Unit, the net tangible book value of the Company as of September 30, 1996 would have been $5,394,739, or $1.06 per share. This represents an immediate increase in the net tangible book value of $0.98 per share to existing stockholders of the Company and an immediate dilution of $4.19 per share to new investors purchasing Units in this offering. The following table illustrates the per share dilution to be incurred by new investors as of September 30, 1996: Assumed initial public offering price......................... $ 5.25 Net tangible book value per share at September 30, 1996....... 0.08 Increase per share attributable to new investors.............. 0.98 Net tangible book value per share after the offering..........
1.06 Dilution per share to new investors...........................
$ 4.19
The following table sets forth, as of September 30, 1996, the difference between the existing stockholders and the new investors with respect to the number of shares of Common Stock acquired from the Company, the total consideration paid and the average price per share, assuming an initial public offering price of $5.25 per Unit:
SHARES PURCHASED CASH CONSIDERATION ----------------------- ------------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ----------- ------------ ----------- --------------- Existing Stockholders............................. 3,905,348 76.5% $ 1,866,000 22.9% $ .48 New Investors..................................... 1,200,000 23.5 6,300,000 77.1 5.25 ---------- ----- ------------ ----- Total......................................... 5,105,348 100.0% $ 8,166,000 100.0% ---------- ----- ------------ ----- ---------- ----- ------------ -----
The above information assumes that $0.25 of the Unit price is attributable to the Warrant and excludes (a) Units issuable upon the exercise of the Underwriters' over-allotment option, (b) shares of Common Stock issuable upon exercise of the Managing Underwriter's Warrants and (c) an aggregate of 570,000 shares of Common Stock issuable upon the conversion of convertible notes and the exercise of options and warrants outstanding as of September 30, 1996 with a weighted average conversion/exercise price of $0.96 per share. To the extent that rights to acquire Common Stock of the Company are exercised, there will be further dilution to new investors. See "Management--Stock Option Plans," "Description of Securities--The Warrants Offered," "--Other Warrants and Convertible Notes," and Note E of Notes to Financial Statements. 20 SELECTED FINANCIAL DATA The data set forth below with respect to the balance sheet as of December 31, 1995 and the related statement of operations for the two years ended December 31, 1995 have been derived from the Company's audited financial statements. The selected data presented below at September 30, 1996 and for the nine months ended September 30, 1994 and 1995 have been derived from, and are qualified by reference to, the Company's unaudited financial statements also appearing herein. The unaudited financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim period. Operating results for the nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1996. The data should be read in conjunction with the Financial Statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus. The historical results are not necessarily indicative of the results of operations to be expected in the future.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------ ------------------------ 1995 1994 1996 1995 ----------- ----------- ----------- ----------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenue: Licensing and option revenue............................. $ -- $ -- $ 170,000 $ -- Interest income.......................................... 2,535 3,954 7,301 -- ----------- ----------- ----------- ----------- Total revenue.......................................... 2,535 3,954 177,301 -- Expenses: Research and development................................. 131,842 199,654 100,716 94,966 General and administrative............................... 230,592 323,613 268,819 187,462 Amortization expense..................................... 1,049 1,049 787 787 Interest expense......................................... 31,201 2,645 29,891 22,691 ----------- ----------- ----------- ----------- Total expenses......................................... 394,684 526,961 400,213 305,906 ----------- ----------- ----------- ----------- Net loss................................................. $ (392,149) $ (523,007) $ (222,912) $ (305,906) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net loss per share (1)................................... $ (.10) $ (.14) $ (.05) $ (.08) Weighed average number of shares outstanding (1)........................................ 3,784,623 3,660,514 4,185,555 3,649,496
SEPTEMBER 30, 1996 DECEMBER 31, -------------------------- 1995 ACTUAL AS ADJUSTED(2) ------------ ---------- -------------- BALANCE SHEET DATA: Cash, cash equivalents................................................ $ 246,721 $ 373,645 $ 5,458,645 Working capital...................................................... 84,798 309,739 5,394,739 Total assets......................................................... 248,382 492,019 5,572,019 Notes payable........................................................ 204,400 73,425 73,425 Total stockholders' equity (deficit)................................. $ (117,941) $ 315,613 $ 5,395,613
- ------------------------ (1) In each case, gives effect to a 3 1/3 to 1 reverse stock split effective December 20, 1996. (2) Gives effect to the sale of 1,200,000 Units offered by the Company hereby, after deducting the underwriting discount and offering expenses, at an assumed initial public offering price of $5.25 per Unit. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S FUTURE RESULTS MAY DIFFER CONSIDERABLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. OVERVIEW Since its founding in July 1992, the Company has been engaged in the development of pharmaceutical and diagnostic products for age-related neurodegenerative diseases. To date, the Company has not had any revenue from the sale of products and does not expect to generate any revenue from product sales in the foreseeable future. The Company's accumulated deficit was $1,570,373 as of September 30, 1996. The Company has financed its operations through the sale of Common Stock and Convertible Notes and from option and license fees received from Athena Neurosciences ("Athena") and Cephalon, Inc. ("Cephalon"). The Company has raised a total of $1,615,000 from the sale of Common Stock in three private placement offerings resulting in gross proceeds as follows: $640,000 in 1992, $475,000 in 1995 and $500,000 through the first nine months of 1996. The Company issued Convertible Notes in 1994 and 1995, which provided gross proceeds to the Company of $210,000. Through September 30, 1996, certain of the Company's strategic partners made aggregate payments to the Company totaling $170,000 under option and license arrangements. As of September 30, 1996, the Company had incurred a cumulative net loss of $1,570,373 and expects to incur substantial additional operational losses in the future. In April 1996, the Company entered into an exclusive License and Collaboration Agreement with Athena, which became a wholly-owned subsidiary of Elan Corporation plc ("Elan") as of July 1, 1996, for the development of certain estrogen compounds for chronic neurodegenerative diseases, such as Alzheimer's disease. During the term of the Athena agreement, Athena is obligated to pay the Company yearly license fees and royalties based on future product sales. Athena is also obligated to pay certain research and development expenses and costs associated with performing clinical trials. In October 1996, the Company entered into an agreement with Cephalon on a non-exclusive basis for the license of intellectual property related to vitamin-D compounds for the treatment of neurodegenerative diseases. Cephalon is obligated to pay the Company yearly license fees that increase if the patent covering this technology is issued. The yearly maintenance fee also increases if Cephalon files for regulatory approval for one or more products covered by this technology. Cephalon is also obligated to pay the Company royalties based on future product sales. In June 1994, the Company entered into an agreement with Endocon to co-develop certain estrogens within subcutaneous drug delivery vehicles. As currently in effect, the Endocon agreement focuses on the development of 17b-estradiol in a subcutaneous drug delivery vehicle for the treatment of Alzheimer's disease (NEURESTROL). Neither the Company nor Endocon is obligated to pay the other for any rights to intellectual property underlying their agreement or for development of the product. The parties intend to seek a strategic partner for the commercialization and development of NEURESTROL. Any future proceeds to the parties relating to NEURESTROL will be allocated 60% to the Company and 40% to Endocon. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 The Company had licensing and option revenues of $170,000 in the nine months ended September 30, 1996 as a result of the Company's agreements with Athena and Cephalon and no revenues during the corresponding period for 1995. Total expenses were $400,213 in the nine months ended September 30, 22 1996, compared to $305,906 for the nine months ended September 30, 1995. The increase in operating expenses was principally due to an increase in general and administrative expenses of $81,357 or 43.4%, resulting primarily from increases in patent prosecution expenses associated with the filing of several patent applications and increased consulting costs. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 There were no licensing and option revenues in the years ended December 31, 1995 and 1994. Total expenses were $394,684 in 1995, compared to $526,961 in 1994. Total expenses decreased $132,277 or 25.1%, primarily due to a decrease in general and administrative expenses of $93,021 or 28.7% associated with a decrease in legal and patent expenses of approximately $56,000 due to reduced activity. Research and development expenses decreased by $67,812 or 34.0%, primarily due to a decrease in sponsored research expenses of approximately $56,000. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations since inception primarily through private placements of Common Stock and Convertible Notes. From its inception through September 30, 1996, the Company raised approximately $1,825,000 in total proceeds from these private placements. On September 30, 1996, the Company's cash and cash equivalents totaled $373,645. This excludes an additional $1.0 million received by the Company in December 1996. In December 1996, Neuroscience Partners Limited Partnership ("NPLP"), a limited partnership of which MDS Associes--Neuroscience Inc. is the general partner, purchased shares of the Company's Common Stock for $500,000. Also in December 1996, the Company entered into a Royalty Purchase Agreement with NPLP, pursuant to which NPLP paid the Company an additional $500,000, in exchange for the issuance by the Company of warrants to purchase Common Stock and the agreement by the Company to pay NPLP a certain percentage of the Company's revenues earned from future sales of certain products. The Company's future cash requirements will depend on many factors, including the speed and progress of the Company's product development programs, the scope and results of clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patents, competing technological and market developments and the cost of product commercialization. For the foreseeable future, the Company's cash requirements will exceed its revenues. The Company intends to seek additional funding through agreements with suitable corporate collaborators and through public or private financing. There are no assurances that strategic alliances, or any public or private financing, will be available on acceptable terms, if at all. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its product development programs. The Company estimates that its existing capital resources, including the net proceeds of this offering and interest thereon will be sufficient to fund its current and planned operations through approximately January 1999. There can be no assurance, however, that changes in the Company's product development plans or other changes affecting the Company's operating expenses will not result in the expenditure of these resources before such time. 23 BUSINESS THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER CONSIDERABLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. OVERVIEW Apollo BioPharmaceutics, Inc. ("Apollo" or the "Company") is a development-stage company engaged in the development of proprietary drugs that protect brain cells from damage caused by disease, injury and aging. The Company's target applications include the treatment of Alzheimer's disease, Parkinson's disease, brain damage resulting from stroke and other age-related diseases and conditions. The Company's lead product candidates are based on naturally-occurring hormones that have been demonstrated by Company-sponsored research to protect brain cells from damage caused by disease, trauma and aging. The Company's major product initiatives are based on estrogen compounds, calcitriol or vitamin D-related compounds and other types of neurosteroids. NEUROMIDOL-TM- and NEURESTROL-REGISTERED TRADEMARK-, two of the Company's lead product candidates, are in development by the Company for the prevention of neurodegeneration in Alzheimer's disease. NEUROMIDOL is a type of estrogen that the Company's management believes will be useful in preventing brain cell death without inducing feminizing side effects (e.g. breast enlargement) and therefore could be used to treat men as well as women. NEURESTROL is an estrogen-based, subcutaneous implant in development for the long-term, controlled delivery of estrogen in a single dose for the treatment of Alzheimer's diesease. NEURESTROL is the subject of an Investigational New Drug Application for Phase I testing in humans. An additional product candidate, NEUROCALC-TM-, a derivative of vitamin D, is currently being evaluated in a small number of patients with Alzheimer's disease in a trial funded by the National Institutes of Health at the University of Kentucky Medical School. The Company continues to test these as well as other potentially neuroprotective compounds for efficacy in other neurodegenerative conditions such as Parkinson's disease, Age-Related Memory Impairment and brain-cell death from stroke. In addition to its pharmaceutical product candidates, the Company is also currently evaluating a Hormone Responsiveness Diagnostic test that may predict responsiveness to hormone therapy. The Company's development activities to date have been based, in large part, on intellectual property it has licensed and research it has sponsored at the medical schools of two universities. The Company intends to continue to acquire licenses to intellectual property that could advance the Company's product development efforts. Two patents licensed exclusively to the Company have recently been issued in the United States. The first patent covers the use of estrogen compounds for neuroprotection in the treatment of certain diseases, including Alzheimer's disease, and the second patent covers the Company's Hormone Responsiveness Diagnostic test. The Company's commercialization strategy is to enter into strategic alliances with biotechnology and pharmaceutical companies for the development and marketing of its product candidates. The Company currently has strategic alliances with Athena Neurosciences, Inc. ("Athena"), for the development of estrogen products for chronic neurodegenerative diseases, and with Endocon, Inc. ("Endocon"), for the joint development of NEURESTROL. The Company plans to seek additional strategic partners for the development of its product candidates. BACKGROUND INTRODUCTION The human brain contains some 10 billion cells known as neurons, each of which has connections with many other neurons. Sensory, motor and cognitive activities are all governed by this complex network 24 of brain cells each member of which communicates with other neurons across junctions known as synapses. Communication between neurons involves chemical "messengers" known as neurotransmitters, which are released by the sending neuron and bind to corresponding receptors on the receiving neuron after crossing a synapse. In many neurodegenerative diseases like Alzheimer's and Parkinson's, this communication malfunctions, largely as a result of brain cell death. The treatment of many diseases is facilitated by cell regeneration, a natural component of human healing. However, in the highly complex realm of neurological diseases, treatment is more difficult because brain cells do not naturally regenerate. Currently available drugs for the treatment of some neurological disorders act by increasing or replacing supplies of some neurotransmitters. The benefits realized from these drugs are limited, however, because the eventual loss of brain cells, without regeneration, means there are fewer brain cells for neurotransmitters to activate. The Company's proposed products are intended to prevent the deterioration and death of these brain cells. BRAIN CELL LOSS DURING AGING Neurons do not multiply after birth. As adults age, the number of brain cells decreases as cells die and are not regenerated, even in the absence of disease. The rate of brain cell loss varies from individual to individual. The genetic or environmental causes that determine the rate of brain cell loss during aging are unknown. The progressive and cumulative effect of brain cell loss over a prolonged period results in many physiological changes and short-term memory loss. There is evidence suggesting that almost everyone who lives long enough is subject to some form of age-related disease, such as Alzheimer's or Parkinson's, each of which is generally associated with brain cell loss in different regions of the brain. The prevalence of many neurodegenerative diseases increases with aging. Scientific studies have shown that, although less than 5% of individuals below age 65 have Alzheimer's disease, this prevalence increases almost exponentially over age 65, with the result that as many as 50% of individuals over 85 years of age may have Alzheimer's disease to some extent. Thus, aging itself is a major risk factor for many types of neurodegenerative diseases. The following table summarizes physiological changes in various parts of the brain in both normal and disease-related situations. 25 BRAIN CELL LOSS AND OTHER DEGENERATIVE CHANGES THAT OCCUR IN AGING AND CERTAIN DISEASES
PARKINSON'S BRAIN REGION NORMAL CHANGES DURING AGING ALZHEIMER'S DISEASE DISEASE - --------------- ------------------------------------------ -------------------- ---------------- Hippocampus and -Loss of neurons in subiculum; -Extensive neuron Amygdala -Some other loss neuron or shrinkage; degeneration/death; -Few amyloid plaques; -Extensive plaques -Few neurofibrillary tangles; and tangles; Cerebral Cortex -Large neurons shrink or die; -Neurons die; -Lewy bodies -Few amyloid plaques; -Extensive plaques; -Few neurofibrillary tangles; -Extensive tangles; Basal Forebrain -Shrinkage of neurons; -Loss of cholinergic -Some loss of -Decline in acetylcholine content; neurons; cholinergic -Extensive loss of neurons acetylcholine; Substantia -Gradual loss of dopamine (DA) neurons in -Extensive loss Nigra and Basal the substantia nigra; of Ganglia -Gradual decline of DA DA neurons in receptors in basal ganglia; substantia nigra; -Lewy bodies; Locus Coeruleus -Significant but gradual loss of neurons -Loss of neurons in -Loss of with some cases neurons; aging -Lewy bodies Note: See glossary for technical definitions.
HORMONAL CHANGES DURING AGING The brain controls the output of certain hormones, including estrogen, which in turn controls the function of many different organs in the human body. Many neuroendocrine hormones (e.g., growth hormone, estrogen and progesterone) undergo age-related declines which can lead to deterioration of tissues and organs and the malfunctioning of major organ systems. These include the thymus, kidneys, cardiovascular system, muscle and bone. Recent studies have shown that hormone replacement therapy can be used to bypass, and even reverse, the degenerative effects of these dwindling hormones. For example, estrogen administered to postmenopausal women has been shown to protect against osteoporosis and cardiovascular disease. ESTROGEN AND PREVENTION OF ALZHEIMER'S DISEASE Several clinical studies have shown that women undergoing estrogen replacement therapy tend to be diagnosed with Alzheimer's disease about half as frequently as women who are not taking estrogen supplements. In one study in which the post-mortem records of 2,519 women were analyzed, there was a significant difference in the apparent incidence of Alzheimer's disease among women who had taken estrogen as compared to women who did not take estrogen. The National Institutes of Health is currently sponsoring a study to evaluate the effectiveness of a certain commercially-marketed estrogen product in post-menopausal women with Alzheimer's disease. A separate clinical study, published in 1996 in the medical journal THE LANCET, analyzed a group of 1,124 women over a five-year period. In each year of the study, approximately 3% of the women who 26 took estrogen supplements developed Alzheimer's disease, while approximately 8% of the women who did not take the hormone developed the disease. Furthermore, the women who took estrogen and did develop Alzheimer's disease developed it later than women who did not take estrogen. The graph below, excerpted from the article in THE LANCET, shows the significant difference in the age of onset of Alzheimer's disease between women taking estrogen compared to women who did not take estrogen. Among 90 year olds, for example, approximately 50% of the women who never took estrogen had some form of Alzheimer's disease whereas only approximately 10% of women using estrogen for more than one year had Alzheimer's disease. The researchers concluded that estrogen use leads to a reduction in the incidence and a delay in the onset of Alzheimer's disease. Management expects that the Company's estrogen-based products will also reduce the incidence and delay the onset of Alzheimer's disease. [CHART] [Graph showing the relative effects of estrogen at differing durations of use by elderly women in delaying the onset of Alzheimer's disease.] (Excerpted with permission) BUSINESS STRATEGY STRATEGIC FOCUS ON HORMONES AND NEUROPROTECTION The Company's overall business strategy is to identify and develop neuroprotective products that are based on substances produced by the human body. The Company's lead product candidates are based on hormones such as estrogens which have been demonstrated by the Company's sponsored research to protect brain cells from the damage caused by disease, trauma or aging. The Company is developing and evaluating a number of products for the treatment of Alzheimer's disease, Parkinson's disease and brain damage resulting from stroke. By understanding the mechanisms by which these substances protect brain cells from death and damage, the Company intends to design new products which have improved properties and which will be useful for treating a wide range of neurodegenerative diseases. The Company's lead product candidates are currently in various stages of development. 27 ACQUISITION AND LICENSING OF INTELLECTUAL PROPERTY The Company has acquired and plans to continue to acquire proprietary rights to intellectual property and technologies which have been developed at universities and other research institutions. In exchange for exclusive licenses, the Company has sponsored several research programs at the University of Florida School of Medicine and the University of Kentucky School of Medicine. See "--Intellectual Property Rights." To date, all of the Company's basic research has been conducted in academic laboratories through sponsored research programs. The Company has also outsourced most of its regulatory and clinical development activities. The Company's strategy has been to use outside resources for research and development activities in order to minimize fixed costs and preserve capital. The Company plans to lease a small laboratory facility in the future and to continue this outsourcing strategy in order to preserve its capital. See "Use of Proceeds." PRODUCT COMMERCIALIZATION THROUGH STRATEGIC ALLIANCES The Company does not intend to become a fully-integrated pharmaceutical company combining marketing, sales, manufacturing and regulatory capabilities. Rather, the Company's strategy is to enter into strategic alliances with biotechnology and pharmaceutical companies that have the technological resources, operational expertise or financial resources that will aid in the development and sale of the Company's products. The Company has entered into two strategic alliances to date: (i) Athena, for the development of certain estrogen compounds for chronic neurodegenerative diseases; and (ii) Endocon, for the co- development of NEURESTROL. There can be no assurance that either of these alliances will result in the development of any products. See "--Strategic Alliances and Licenses." PRODUCTS IN DEVELOPMENT The Company's lead product candidates, which are based on hormones such as estrogen, are designed to protect brain cells from the damage caused by disease, trauma or aging. The predominant circulating form of estrogen in the body is 17b-estradiol, which is produced primarily by the ovaries. Only small amounts of 17b-estradiol are produced in women after menopause. Men of all ages have small amounts of circulating estrogen produced by the conversion of male hormones. Estrogen is used by many women following the menopause in hormone replacement therapy to treat hot flashes, and to protect against osteoporosis and cardiovascular disease. In the United States, an estrogen product known as Premarin, produced from the urine of horses, is widely used. Several clinical studies have indicated that estrogen use may reduce the incidence and delay the onset of Alzheimer's disease. Even though none of the Company's estrogen-based product candidates has been tested in humans with respect to neuroprotection, management believes that the potential effectiveness of the Company's products is supported by reported results of research conducted by others on similar compounds. See "--Estrogen and the Prevention of Alzheimer's Disease." The following table summarizes the Company's most advanced product candidates currently in development, along with the disease targets, strategic partners and commercial rights associated with each product candidate. In the future, the Company may choose to evaluate these product candidates for the treatment of other diseases or for prophylaxis of certain neurodegenerative diseases. All information presented in this table is qualified by more detailed descriptions presented elsewhere in this Prospectus. 28 APOLLO BIOPHARMACEUTICS, INC. PRODUCTS UNDER DEVELOPMENT
STRATEGIC PARTNERSHIP --------------------------------------------- PROGRAM/LEAD COMPOUND DISEASE TARGET DEVELOPMENT STATUS COMMERCIAL RIGHTS RELATIONSHIP - ------------------------ -------------------- ---------------------- ------------------- ------------------------ ESTROGEN COMPOUNDS NEUROMIDOL -Alzheimer's disease Lead candidate(1) Athena Exclusive license -Parkinson's disease Planning(2) Athena Exclusive license -Other chronic Planning Athena Exclusive license neurodegenerative diseases -Stroke and other Research(3) Athena Right of first refusal acute for exclusive license neurodegenerative diseases NEURESTROL -Alzheimer's disease IND filed(4) Apollo/Endocon Co-development -Parkinson's disease IND filed Apollo/Endocon Co-development -Age-Associated IND filed Apollo/Endocon Co-development Memory Impairment CALCITRIOL-RELATED COMPOUNDS NEUROCALC -Alzheimer's disease Physician's Phase I(5) Apollo(7) (8) OTHER VITAMIN D -Alzheimer's disease Research Apollo(7) (8) COMPOUNDS -Other chronic Planning Apollo(7) (8) neurodegenerative diseases OTHER NEUROSTEROIDS -Chronic Research Apollo (8) neurodegenerative diseases -Acute neurodegenerative diseases HORMONE RESPONSIVENESS -Determination of Clinical testing(6) Apollo (8) DIAGNOSTIC responsiveness
- -------------------------- (1) "Lead candidate" means that a particular compound (or compounds) has been selected for further preclinical study, based on positive results from one or more IN VITRO or IN VIVO disease models. (2) "Planning" means that the disease target is being assessed by the Company for potential future research and clinical activities. (3) "Research" means that research is underway by the Company to synthesize and/or select compounds for further development. (4) "IND filed" means that an Investigational New Drug Application has been submitted to the FDA to initiate human testing. This IND was co-sponsored by Endocon and the Company. Phase I dosing studies on female volunteers is to be conducted at the National Institutes of Health (NIH). (5) "Physician's Phase I" means that a Phase I human trial is being conducted based on a Physician's IND. In the case of NEUROCALC, the Physician's IND was filed by an independent physician and a small NIH-funded study is underway in humans at the University of Kentucky School of Medicine. (6) "Clinical testing" means that, in the case of the Company's diagnostic initiative, the Hormone Responsiveness Diagnostic test has been, and continues to be, evaluated using blood samples from human volunteers. 29 (7) The Company has sublicensed to Cephalon, on a non-exclusive basis, certain of the Company's rights to its intellectual property in the vitamin-D area for neuroprotection. See "--Strategic Alliances and Licenses." (8) The Company will evaluate the potential for sublicensing these potential products and programs to corporate partners in the future, as appropriate. 30 The Company's product candidates are hormones or compounds similar in structure to known hormones, including estrogen, as well as compounds based on vitamin D, which are able to penetrate the blood-brain barrier due to their physical characteristics. The blood-brain barrier is a physical structure formed by a tight network of cells which separates the brain from the circulatory system and which restricts the passage of most molecules into the brain. Normally, access to the brain occurs only through the circulation of blood. Large proteins, such as nerve growth factor and other neurotrophic factors, cannot gain access through the blood-brain barrier on their own. While the blood-brain barrier serves to protect the brain from being exposed to potentially harmful compounds, it makes delivery of pharmaceutical drugs extremely difficult, requiring either a short-term breakdown of the barrier, the physical placement of a shunt through the skull for the direct delivery of drugs or the use of a chemical carrier system. These procedures are difficult to implement and can be risky or invasive. Inaccessibility of the brain due to the blood-brain barrier has greatly limited drug development for the treatment of diseases of the central nervous system. The Company's product candidates are expected to diffuse to the brain through the blood-brain barrier. ESTROGEN COMPOUNDS Estrogens are believed to act directly on brain cells to reduce the incidence and to delay the onset of Alzheimer's disease. Estrogens readily enter the brain and interact with brain cells to provide neuroprotection. Estrogens have been shown to be highly neuroprotective in situations where brain cell viability is compromised by trauma, or by glucose or oxygen deprivation. Activation of estrogen receptors at other sites in the body causes cell growth in the breast, the uterus and the endometrium. Currently, the use of estrogen therapy is not recommended for men due to its feminizing side effects (e.g. breast enlargement), or for certain women because of a history of breast cancer or because of some women's intolerance to the hormonal side effects of estrogens. Discoveries resulting from the Company's sponsored research indicate that it is possible for estrogens to act on brain cells through a novel mechanism that does not require the estrogen to bind to its normal receptor. Management believes that this mechanism would result in fewer hormonal side effects. This novel approach should enable the Company to design and evaluate a variety of estrogens that lack sex hormone activity and therefore will be useful in the treatment of men, as well as women. The Company's lead product candidates in this area are NEUROMIDOL and NEURESTROL. Both products are in development primarily to treat neurodegeneration associated with Alzheimer's disease. NEUROMIDOL is a trademark of the Company representing certain novel estrogens for use in the prevention of neurodegeneration. NEUROMIDOL is being developed by the Company together with Athena for the treatment of Alzheimer's disease. See "--Strategic Alliances and Licenses." NEUROMIDOL has been shown by the Company's sponsored research to protect brain cells, while it is not known to interact with other tissues. Management believes that NEUROMIDOL and related products will have specificity for the central nervous system and therefore will have fewer side effects than compounds which are active as sex hormones. The Company and Athena are currently evaluating NEUROMIDOL and other compounds in Athena's proprietary animal model for Alzheimer's disease. The Company is the exclusive licensee of a broad patent recently issued in the United States covering the use of estrogen in the prevention of neurodegeneration, including the treatment of Alzheimer's disease. NEURESTROL is the brand name for 17b-estradiol formulated within Endocon's bioerodible implant for the treatment of women with neurodegenerative diseases, such as Alzheimer's. NEURESTROL is delivered in the form of a small pellet, inserted into the underside of a patients' forearm, which is capable of the sustained release of an active drug for in excess of one year. Because the pellet is fully bioerodible, there is no need for its retrieval. This type of formulation is expected to greatly increase patient compliance and will relieve a burden currently placed on caregivers of patients undergoing long-term therapy. The Company and Endocon have agreed to co-develop NEURESTROL. See "--Strategic Alliances and Licenses." The Company and Endocon have submitted an IND for NEURESTROL to the FDA in order to begin Phase I 31 dosing studies on female volunteers at the National Institutes of Health. NEURESTROL is the subject of intellectual property licensed to the Company on the use of estrogens for neuroprotection and numerous Endocon patents related to the proprietary delivery system. See "--Intellectual Property Rights." CALCITRIOL-RELATED COMPOUNDS As people age, develop neurodegenerative disease or are subjected to injury, their brain cells tend to accumulate calcium in greater quantities than brain cells of young, healthy people. This is due, in part, to the inability of aged, diseased or injured brain cells to extrude calcium efficiently. Calcium accumulation in brain cells, especially over long periods of time, can make brain cells increasingly vulnerable to certain environmental factors and can lead to brain cell death. Levels of calcium in the body are regulated by complex interactions of a number of "calcitropic" hormones, including calcitriol. In aging and neurodegenerative diseases, such as Alzheimer's, these hormones can become inappropriately regulated. Several studies have indicated that Alzheimer's patients have low vitamin-D levels. Low serum calcium and phosphorous levels (which are indicative of low vitamin-D activity) are believed to precede the onset of Alzheimer's disease symptoms. Calcitriol, the active metabolite of vitamin D, is an extremely potent hormone that regulates calcium and phosphorous levels. NEUROCALC is the Company's brand name for calcitriol. The Company's academic partners have demonstrated that animals treated with calcitriol for 8-12 months show significant neuroprotection and a greater density of brain cells than animals without calcitriol administration. A small-scale human trial sponsored by the National Institutes of Health is underway at the University of Kentucky School of Medicine to evaluate the therapeutic effectiveness of NEUROCALC in deterring the long-term progression of Alzheimer's disease. The Company has plans to produce its own and/or license from other companies or research institutions certain novel vitamin-D compounds and evaluate these compounds for efficacy in the treatment of neurodegenerative disorders. If any of these compounds are identified, the Company may further test these compounds in humans. In addition, the Company has entered into a non-exclusive license relationship with Cephalon pursuant to which the Company has licensed to Cephalon certain of its intellectual property in this area. See "--Strategic Alliances and Licenses." The Company may choose to issue additional licenses to its intellectual property in this field. ADDITIONAL COMPOUNDS IN DEVELOPMENT Neurosteroids are a class of steroidal compounds located in the central nervous system that have a wide range of effects on brain cells. The Company has sponsored research to design and produce a number of additional neurosteroid compounds in order to test their ability to protect against brain cell death. A library of approximately 40 compounds has been synthesized in connection with the Company's sponsored research. These include certain compounds derived from adrenal steroids such as dehydroepiandrosterone (DHEA) (which has been shown in animal studies to have memory-enhancing effects) and dehydroepiandrosterone sulfate (DHEAS). Research sponsored by the Company indicates that certain structural properties of a number of other neurosteroids can predict their neuroprotective activity, which could assist the Company in the design of additional compounds and new product candidates. The Company and the University of Florida School of Medicine have two patents pending in this area. HORMONE RESPONSIVENESS DIAGNOSTIC Estrogen replacement therapy is currently being used by millions of women worldwide for the treatment of menopausal symptoms, including hot flashes, and to protect against osteoporosis and cardiovascular disease. Despite its widespread use, estrogen replacement therapy is currently prescribed without information as to whether the treatment will be effective and as to the optimal dosages for individual patients. There is a need for tools which can better determine appropriate treatment guidelines. 32 The Company is developing a Hormone Responsiveness Diagnostic test, a proprietary diagnostic blood test that predicts how well patients will respond to hormone therapy. To date, clinical evaluation of the test has been conducted with approximately thirty people of both sexes and of various ages. The Company plans to expand this testing significantly. A United States patent has recently been issued on this diagnostic test and has been licensed to the Company on an exclusive basis. Management expects that information derived from this diagnostic test will aid clinicians in designing rational long-term hormonal treatment protocols. STRATEGIC ALLIANCES AND LICENSES ATHENA NEUROSCIENCES, INC. In April 1996, the Company entered into a License and Collaboration Agreement with Athena (the "Athena Agreement") in which the Company granted to Athena an exclusive, worldwide license (with the right to sublicense), under certain of the Company's patent rights, to develop and commercialize certain estrogen compounds for the treatment of chronic neurodegenerative diseases (i.e., those with a treatment duration of six months or more), including Alzheimer's disease. Athena also has the first right to fund any proposal of the Company for acute indications in exchange for an exclusive license. These rights are exercisable on a case-by-case basis. Under the Athena Agreement, research and product development is managed by a joint committee with two representatives from each company. The Athena Agreement provides for the payment by Athena of an annual maintenance fee until an NDA is approved for a product incorporating a licensed compound, after which Athena will pay a royalty based on Athena's direct net sales. The Company would also receive a portion of any income Athena receives from fees and sales of licensed products by Athena's sublicensees. Athena has the responsibility to fund all research and clinical expenses approved by the joint committee and to undertake reasonable efforts to develop estrogen products under its license, and will receive a credit against royalties for its research and development expenses. Athena may terminate the agreement at any time, in its sole discretion, upon 90 days' written notice. Athena has previously granted to Eli Lilly and Company ("Lilly") an option to acquire exclusive, worldwide licenses from Athena to certain compounds which are the subject of their research collaboration. Certain of the compounds licensed to Athena under the Athena Agreement may fall within this definition. The Athena-Lilly collaboration is presently scheduled to expire as of December 31, 1996. The Company does not know whether and on what terms the Athena-Lilly collaboration may be renewed, or whether any such renewal will alter the basis upon which Lilly may participate in Athena's rights under the Athena Agreement. ENDOCON, INC. In June 1994, the Company entered into an agreement with Endocon to co-develop certain estrogens within subcutaneous drug delivery vehicles. As currently in effect, the Endocon agreement focuses on the development of 17b-estradiol within a subcutaneous drug delivery vehicle for the treatment of Alzheimer's disease (NEURESTROL). Neither the Company nor Endocon is obligated to pay the other for any rights to intellectual property underlying their agreement or for development of the product. The parties intend to seek a strategic partner for the commercialization and development of NEURESTROL. All proceeds to the parties relating to NEURESTROL will be allocated 60% to the Company and 40% to Endocon. The Company and Endocon each have the right to terminate the agreement upon 60 days' notice to the other party, provided that the terminating party will grant an exclusive, fully-paid license to the non-terminating party to continue to develop and market NEURESTROL independently. 33 CEPHALON, INC. In November 1996, the Company entered into a Nonexclusive Sublicense Agreement with Cephalon (the "Cephalon Agreement") in which certain rights to its intellectual property in the vitamin-D area (see "--Calcitriol-Related Products") for neuroprotection were licensed on a non-exclusive basis to Cephalon. Under the Cephalon Agreement, the Company will receive annual maintenance payments, which escalate upon the achievement of certain milestones, and a royalty based on product sales including a minimum royalty. THERAPEUTIC TARGET MARKETS THE AGING POPULATION AND DISEASE MANAGEMENT During the national debate on the reform of the health care system in the United States, major pharmaceutical companies studied outcomes data on non-pharmaceutical interventions, i.e. hospitalization, earliest possible release dates, readmittances and long-term care (nursing homes and rehabilitation facilities). These studies showed that an integrated approach to broad areas of disease management would result in both superior outcomes as well as greater profitability than earlier industry paradigms. Accordingly, pharmaceutical companies have sought to develop and license a range of diagnostic and pharmaceutical interventions that could result in shorter hospital stays and reduced reliance on long-term in-patient care of the aging population. Cognitive problems and the incidence of Alzheimer's disease increase with age and thereby put the patient at considerable risk of mismedication, falls and generally poor attention to personal health matters--all resulting in increased hospital admittances and protracted long-term in-patient care. Management believes that the Company's therapeutic and diagnostic product candidates could become significant tools in neurodegenerative disease management and address significant market opportunities. As the population ages and baby boomers reach retirement age the number of people with one or more neurodegenerative disease is expected to increase exponentially. ALZHEIMER'S DISEASE Alzheimer's disease is a complex neurodegenerative disease characterized by brain atrophy. The progression of the disease always leads to memory loss and dementia. The course of Alzheimer's disease typically runs eight or more years and results in death. The earliest sign of the disease is an impairment in short-term memory and intellectual ability. Over the course of the disease, memory loss becomes severe, ability to reason deteriorates, and patients become depressed, agitated, irritable and restless. In the final stages of the disease, patients become unable to care for themselves and frequently require long-term care in nursing homes. Alzheimer's disease is directly correlated to aging. Less than 5% of persons between the ages of 60 and 65 have the disease, while approximately 50% of persons over the age of 85 have the disease. According to the National Alzheimer's Association, over four million Americans currently suffer from Alzheimer's disease and the direct costs associated with their diagnosis, treatment and care is approximately $100 billion per year. The prevalence of this disease is expected to increase to 14 million persons in the United States by the year 2050. There is no treatment currently available to slow the progression of the disease. PARKINSON'S DISEASE Parkinson's disease is associated with trembling of the arms and legs, stiffness and rigidity of muscles and slowness of movement. These symptoms are caused by a chemical imbalance in the brain caused by the loss of key brain cells. Parkinson's disease is characterized by neuron loss in the substantia 34 nigra and the locus coeruleus regions of the brain. Parkinson's disease can cause depletion of 70% or more of the cells in these regions. Approximately 10% of patients with Parkinson's disease also experience dementia. The American Academy of Neurology estimates that there are approximately 1,000,000 persons afflicted with Parkinson's disease in the United States. The total direct health care costs in the United States have been estimated to be $340 million annually. Although there are a number of pharmaceuticals in use today to treat Parkinson's disease, their effects are only temporary and none can treat the underlying neurodegeneration associated with the disease. STROKE Most strokes are caused by blockage of critical blood vessels leading to the brain. This causes a reduction in blood flow to the brain and results in deprivation of oxygen in the affected regions ("ischemia"). Ischemia, in turn, leads to the death of brain cells. Brain cell death following stroke is the major cause of stroke-related disability, including paralysis, impaired cognition and loss of sensation. Stroke is a leading cause of morbidity and mortality in the United States. According to the American Heart Association (the "AHA"), approximately 500,000 persons in the United States have new or recurrent strokes each year. While 30% of stroke victims die within a year, the AHA estimates that there are 3,820,000 stroke survivors in the United States today. Many stroke survivors suffer stroke-related crippling disabilities and require long-term care at enormous cost. The American Academy of Neurology estimates that $30 billion is spent annually in the United States on stroke-related hospital, physician and rehabilitation expenses. Currently, there are no products available that minimize stroke-related brain damage. ACUTE NEUROLOGICAL INJURY Acute neurological injury can result from decreased blood flow to the brain during cardiac surgery as well as from hypoglycemia (brain glucose deficiency) and trauma (injury). In each case, the injury can lead to damage or to the death of brain cells. The death of brain cells is largely due to the deprivation of oxygen, as in stroke. Between 400,000 and 500,000 people in the United States undergo coronary bypass operations each year. Approximately 10% of coronary by-pass patients suffer neurological side effects due to occlusion (blockage) of small blood vessels leading to the brain and brain damage ranging from minor cognitive deficits to debilitation. Trauma due to brain or spinal injury is also a major cause of morbidity in the United States, afflicting over 500,000 persons annually. Brain cell death and brain damage caused by recurrent and untreated hypoglycemia is less well characterized but is estimated to occur in about 100,000 persons annually in the United States. Currently, there are no therapeutic products on the market to prevent, treat or limit damage in acute neurological injury. AGE-ASSOCIATED MEMORY IMPAIRMENT Age-Associated Memory Impairment (AAMI) is an age-associated disorder that is characterized by memory loss in otherwise healthy, elderly individuals. Persons with AAMI experience a gradual decline in the ability to perform the tasks of daily life dependent on memory, as compared to the overall population of same-aged individuals. Age-related memory loss is frequently described as "normal." Presently the causes of AAMI are not well understood. However, brain cell death with aging has been reported to occur in certain regions of the brain implicated in memory. Currently, there is no pharmacological treatment for AAMI. Although several classes of experimental drugs have been proposed in the scientific literature to treat AAMI, none has proved efficacious to date in humans. 35 INTELLECTUAL PROPERTY RIGHTS The Company is the exclusive licensee of two patents issued in the United States, as well as a number of patent applications that are currently pending in various countries. The Company is also the co-owner of two patent applications which are pending. In addition, the Endocon drug delivery technology used in NEURESTROL and licensed to the Company is the subject of 12 patents and one pending application. The Company also has exclusive options to acquire additional licenses from the University of Florida School of Medicine and the University of Kentucky School of Medicine related to research programs which have been sponsored by the Company. The Company has filed and will continue to file patent applications in the United States and in foreign countries throughout the world in order to protect intellectual property of its own and intellectual property which it has licensed. The Company intends to maintain an aggressive strategy for filing, maintaining and prosecuting its intellectual property. The Company's success in large part will depend on its ability to obtain patent protection in various jurisdictions relating to the technologies, processes and products it is developing and may develop in the future. The Company also intends to rely on trade secrets to protect certain other technologies (e.g., animal models for aging) which may be used in discovering and evaluating new drugs which could become marketable products. To protect its inventions, trade secrets and other proprietary information, the Company has confidentiality agreements in place with its staff, consultants and scientific and clinical advisors. See "Risk Factors." ESTROGEN COMPOUNDS In December 1993, the Company was granted an exclusive worldwide license from the University of Florida Research Foundation, Inc. (the "UFRFI") to certain technology developed at the University of Florida School of Medicine related to a method of protection against brain-cell loss using estrogen compounds. The agreement was amended in October 1996. In consideration of the grant of the license, the Company has funded certain research programs at the University of Florida School of Medicine and agreed to pay a royalty based on product sales. The Company extended its research contract through the end of 1997. A U.S. patent on this technology that has been licensed to the Company was issued in September of 1996 and covers the use of estrogen compounds for the treatment of neuron loss in a subject, including a subject with Alzheimer's disease. Corresponding patent applications are pending in the United States and several other countries throughout the world. The Company entered into an agreement with Athena in April 1996 for the clinical development and marketing of estrogen products for chronic neurodegenerative diseases. See "--Strategic Alliances and Licenses." CALCITRIOL-RELATED COMPOUNDS In April 1993, the Company was granted an exclusive worldwide license from the University of Kentucky Research Foundation to certain technology developed at the University of Kentucky School of Medicine related to a method of protection against brain-cell loss using vitamin-D derivatives and compounds which bind the vitamin-D receptor. In consideration of the grant of the license, the Company funded certain research programs at the University of Kentucky School of Medicine and agreed to pay a royalty based on product sales. Patent applications in the U.S. and foreign jurisdictions are currently pending. The Company entered into a non-exclusive license agreement with Cephalon in November 1996 covering certain of the Company's rights in the vitamin-D area for neuroprotection. See "--Strategic Alliances and Licenses." HORMONE RESPONSIVENESS DIAGNOSTIC In September 1994, the Company was granted an exclusive worldwide license from the UFRFI to certain technology developed at the University of Florida School of Medicine related to a method of diagnosing hormonal responsiveness using an IN VITRO sample. In consideration of the grant of the license, the Company has committed to pay a royalty based on product sales. A U.S. patent was issued on this 36 technology in August 1996 and claims a method of diagnosis as well as the diagnostic kit itself. Corresponding patent applications are pending in the United States and several other countries throughout the world. COMPETITION Competition in the area of pharmaceutical products is intense. There are many companies, both public and private, including well-known pharmaceutical companies, that are engaged in the development of products for certain of the applications being pursued by the Company. The Company's larger competitors include Amgen, Inc., Warner-Lambert Co., Bristol-Meyers Squibb Company, Glaxo Wellcome plc, Regeneron Pharmaceuticals, Inc., Hoechst Marion Roussel Ltd. and Pfizer, Inc., as well as Athena. There are other public and private companies that are also developing products to treat neurodegenerative diseases. There may be other companies of which the Company is not aware with product development programs similar to those of the Company. Many of the Company's competitors have substantially greater financial, research and development, manufacturing and marketing experience and resources than the Company and represent substantial long-term competition for the Company. These companies may succeed in developing pharmaceutical products that are more effective and/or less costly than any products that may be developed by the Company or its strategic partners. The Company is aware of two products currently being marketed for the treatment of cognitive deficits in Alzheimer's disease, COGNEX and ARICEPT, neither of which slows the progression of the disease or protects brain cells. Both products are acetylcholinesterase inhibitors and act by increasing levels of a deficient neurotransmitter. Factors affecting competition in the pharmaceutical industry vary, depending on the extent to which a competitor is able to achieve a competitive advantage based on its proprietary technology. If the Company is able to establish and maintain a significant proprietary position with respect to its products, competition will likely depend primarily on the effectiveness of the product and the number and severity of its unwanted side effects as compared to alternative products. The industry in which the Company competes is characterized by extensive research and development efforts and rapid technological progress. Although the Company believes that its proprietary position may give it a competitive advantage with respect to its proposed drugs, new developments are expected to continue and there can be no assurance that discoveries by others will not render the Company's potential products noncompetitive. The Company's competitive position also depends on its ability to attract and retain qualified scientific and other personnel, develop effective proprietary products, implement development and marketing plans, obtain patent protection and secure adequate capital resources. There can be no assurance that the Company will be able to successfully achieve all of the foregoing objectives. See "Risk Factors--Competition" and "--Development of New Technologies and Products." MANUFACTURING PLANS The Company has no experience in manufacturing products for commercial purposes and has no manufacturing facilities of its own for production of either the bulk biological compounds or the final dosage form of its product candidates. The Company relies, and intends to continue to rely, upon its corporate partners and third party subcontractors for the production of products, for research, preclinical and clinical studies. The Company may be unable to contract with suitable third-party manufacturers at commercially feasible prices which would have the impact of adversely affecting the Company's ability to commercialize its products. At this time, the Company does not intend to build a fully-integrated manufacturing operation to support production of the Company's products. In manufacturing pharmaceutical products a company must comply with cGMPs that are promulgated and enforced by the U.S. Food and Drug Administration as set forth under Title 25 of the Code of Federal Regulations. The investment that would be required to develop and validate a commercial manufacturing operation for a new drug would be significant. The 37 Company may consider, however, retaining the rights to certain key proprietary processes used in the production of precursor molecules which would be indispensable to the manufacturing of the final formulation. In that case, a manufacturing revenue stream may be achievable without requiring the magnitude of capital investment described above. There can be no assurance that the Company will be able to develop necessary key processes or that the practice of key processes would be cost effective. MARKETING AND SALES STRATEGY The Company has no experience in marketing or selling products and does not intend to build up a marketing operation that would compete with those of existing multinational pharmaceutical companies, but rather intends to work with other organizations for the marketing of the Company's products. The Company has entered into strategic alliances, and will continue to attempt to do so, with larger pharmaceutical companies which have their own marketing, sales and distribution staffs and expertise. There can be no assurance that the Company will establish productive strategic alliances or that any of its strategic alliances will be in place long enough so that the Company recognizes any significant profits. GOVERNMENT REGULATIONS The manufacturing and marketing of the Company's potential products are subject to comprehensive regulation by numerous governmental authorities in the United States and other countries. In the United States, products that the Company anticipates developing are subject to rigorous regulation under the Federal Food, Drug and Cosmetic Act, the Public Health Service Act and other federal and state statutes and regulations which govern, among other things, the testing, approval, manufacture, labelling, storage, record keeping, advertising and promotion of these products. Human therapeutic products require rigorous testing, both preclinical and clinical, and approval by the FDA or other appropriate foreign regulatory agencies for marketing in foreign countries. Other statutory provisions and regulations govern testing, manufacturing, labeling, storage and record keeping related to product development and marketing of products. The process of applying for and obtaining regulatory approval in compliance with the relevant statutes and regulations requires the expenditure of substantial time and financial resources. Failure by the Company or its licensees to comply with relevant statutes could result in, among other things, fines, suspension of approvals, seizures, recalls of products, or criminal prosecutions, and could delay regulatory approval, which in turn could adversely impact the Company's plans for product introduction. The Company believes that certain of its planned products may be classified, for purposes of FDA regulation, as biological products, while others may be classified as drugs. New drugs or biological products require several steps in order to receive regulatory approval, including: (i) preclinical laboratory and animal tests; (ii) submission to the FDA of an Investigational New Drug Application ("IND"), which must become effective before human clinical trials may start; (iii) the performance of well-controlled clinical trials; and (iv) submission to the FDA of a New Drug Application ("NDA") for a new drug or a Product License Application ("PLA") for a biologic. The NDA or PLA contains the results of preclinical tests and clinical trials as well as required information on product composition and manufacturing processes. In addition, for a biological product, an Establishment License Application ("ELA") covering the manufacturing facilities for the product must be submitted to the FDA. If the Company does not manufacture the product that is the subject of the PLA, contractual issues may complicate the ELA/PLA application and approval process as a result of the FDA's rules pertaining to manufacturing of biological products. The NDA or PLA/ELA must be approved by the FDA before commercial marketing of the product may begin. Prior to testing products in humans, a rigorous series of preclinical studies must be performed on animals in order to assess the safety of potential products. After testing on animals, an IND must be filed with the FDA to obtain authorization for human testing. Unless the FDA objects, the IND becomes effective 30 days after submission. Extensive clinical testing must then be undertaken to demonstrate 38 optimal use, safety and efficacy of each product in humans. Human clinical trials are typically conducted in a three-step process. In Phase I clinical trials, the potential product is tested on a small number of healthy human subjects to determine the safety, dosage tolerance, pattern of drug distribution, pharmacokinetic properties and metabolism. In Phase II, clinical trials are conducted with groups of patients afflicted with a specific disease or condition in order to determine preliminary efficacy and optimal dosages and to identify potential adverse effects. In Phase III, large-scale, multi-center, comparative trials are conducted in order to provide controlled and adequate demonstration of safety and efficacy. The FDA reviews the clinical plans and the results of trials, and can discontinue the trials at any time for any of a number of reasons. Each clinical trial is conducted under the auspices of an Institutional Review Board ("IRB"). The IRB considers, among other things, ethical factors, the safety and welfare of human subjects, and the adequacy of the informed consent form. When completed, results from the preclinical and clinical trials are submitted to the FDA as a NDA for approval to commence commercial sales. The approval process is affected by several factors, including the severity of the disease, the availability of alternative treatments, and the risks and benefits demonstrated in clinical trials. Following an extensive review, the FDA may grant product marketing approval, request additional information (including additional studies) or deny the application if the FDA deems that it does not satisfy the regulatory approval criteria. There can be no assurance that approvals will be granted on a timely basis, if at all. Similar procedures are in place in countries outside the United States for product approvals in those countries. Even if new drugs are approved in a foreign country, they may not be exported for commercial sale until either FDA approval for sale in the United States or FDA approval of an export application has been obtained. The Company is also subject to regulations and recommendations related to work place conditions, use and disposal of radioactive compounds and other potentially hazardous materials, use of recombinant genetically engineered organisms and potentially pathogenic organisms. Specifically, the Company will be subject to government regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Atomic Energy Act, the Clean Air Act, the Clean Water Act, the National Environmental Policy Act, the Toxic Substance Control Act, and the Resource Conservation and Recovery Act, and other national, state, or local regulations. This list of regulations and recommendations is not an exclusive list nor is it static. The extent of regulations from future legislation or mandates cannot be predicted with certainty. FACILITIES The Company's executive offices are located at One Kendall Square, Building 200, Suite 2200, Cambridge, Massachusetts. Its offices include office space and conference rooms which are shared with other companies. The Company believes its facilities are adequate for its current operations. In the future, the Company plans to establish a small laboratory. EMPLOYEES As of December 19, 1996, the Company had three employees. Dr. Katherine Gordon is employed by the Company as President and Chief Executive Officer. Robert J. Leonard is employed by the Company as Vice President of Business Development. John J. Curry is Vice President of Finance and Chief Financial Officer. Each of the Company's employees has entered into confidentiality agreements with the Company. See "Risk Factors--Uncertain Ability to Protect Proprietary Technology." LEGAL PROCEEDINGS The Company is not a party to any legal proceedings. 39 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The names and ages of the directors and executive officers of the Company are as follows:
NAME AGE POSITION - -------------------------------------- --- -------------------------------------------------------------------- Katherine Gordon, Ph.D. .............. 42 President and Chief Executive Officer; Director Robert J. Leonard..................... 45 Vice President of Business Development; Secretary; Director John J. Curry......................... 42 Vice President of Finance, Chief Financial Officer and Treasurer Theodore J. Gordon.................... 65 Director Donald L. Weise....................... 62 Director George W. Masters..................... 56 Director
Messrs. Gordon and Weise have been designated Class I directors, to serve until the Company's 1997 Annual Meeting of Stockholders; Dr. Gordon and Mr. Masters have been designated Class II directors, to serve until the Company's 1998 Annual Meeting of Stockholders; and Mr. Leonard has been designated a Class III director, to serve until the Company's 1999 Annual Meeting of Stockholders. KATHERINE GORDON, PH.D. has served as the President, Chief Executive Officer and a director of the Company since its inception. Prior to founding the Company in 1992, Dr. Gordon was an Associate Director at Genzyme Corporation. At Genzyme, Dr. Gordon launched a business unit that utilized transgenic expression technology to produce pharmaceuticals. In 1993, this department was spun off from Genzyme as a free-standing company known as Genzyme Transgenics Corporation (listed on the Nasdaq National Market as GZTC). Dr. Gordon was at Integrated Genetics (acquired by Genzyme) and Genzyme from 1984 to 1991. She has over 15 years of research experience in mammalian genetics/molecular biology and has had numerous publications, patent applications and speaking engagements. Dr. Gordon is the daughter of Theodore Gordon, a director of the Company. ROBERT J. LEONARD has served as Vice President of Business Development since June 1996 and as Secretary and a director of the Company since 1995. Mr. Leonard is also the acting CEO of Endocon, Inc., a company that he founded in 1981 for the commercialization of controlled release drug delivery systems for therapeutic use in humans and animals and has been President and CEO of Endocon since that time. From 1975 through 1979 Mr. Leonard was founder and President of Robert J. Leonard & Company, Inc., a small, privately-held corporation specializing in medical and health care marketing services. JOHN J. CURRY has served as the Vice President of Finance, Chief Financial Officer and Treasurer of the Company since November, 1996. Prior to joining the Company, Mr. Curry was self-employed as a consultant from 1994 until 1996. From 1986 until 1994, Mr. Curry held various positions at Seragen, Inc., including Director of Finance and Administration. Seragen is a publicly-traded biotechnology company focused on the development of therapeutic biological products for cancer and autoimmune diseases. Mr. Curry held various financial positions with W.R. Grace & Co. and The B.F. Goodrich Company from 1980 until 1984 and 1979 to 1980, respectively. THEODORE J. GORDON, a director of the Company, is Director and Senior Advisor for The Futures Group, Glastonbury, Connecticut, a company which he founded in 1971. The Futures Group performs contract research studies for private corporations and government agencies on future-oriented topics which range from the frontiers of technology to specific changes in consumer markets. Mr. Gordon also consults for several corporations, providing strategic planning services to management. He is also a member of the Board of Directors of the Institute for Global Ethics and Registry Magic, Inc. He was previously Chief Engineer of McDonnell Douglas's Saturn space vehicle and Director of Advanced Space 40 Stations and Planetary Systems. Mr. Gordon is the father of Katherine Gordon, the President, Chief Executive Officer and a director of the Company. DONALD L. WEISE is a Director of the Company. Mr. Weise is an Independent Business Consultant with international expertise in licensing, acquisitions, strategic alliances and marketing in the fields of pharmaceuticals, biotechnology, drug delivery and medical devices. He has 37 years of management experience in the health care industry. Mr. Weise recently retired as Director of Licensing and Acquisition of the Ortho-McNeil Pharmaceutical Division of Johnson & Johnson. GEORGE W. MASTERS, a current director of the Company, recently retired as Vice Chairman, President and Chief Executive Officer of Seragen, Inc. He presently serves as Chairman of the Board of Directors of ImmuCell Corporation and Vice-Chairman of Hemosol, Inc. and CME Telemetrix. Mr. Masters has spent his entire business career in the healthcare industry, including 20 years with Warner-Lambert. He left Warner-Lambert in 1983 as a Group President and, for the past 13 years, has held senior management positions with a number of biotechnology companies. Mr. Masters has been a board member of approximately 15 medically oriented companies and currently serves as a member of the Board of Directors of CME Telemetrix, Hemosol, Inc., ImmuCell Corporation, PharmX Inc., ProScript Inc., CompuCyte, Inc., the Marshalton Group and Intelligent Medical Imaging. SCIENTIFIC AND CLINICAL ADVISORS DR. JEFFREY FREED is currently a surgeon and an Associate Clinical Professor at Mt. Sinai Medical Center. Dr. Freed also has a joint appointment as Section Chief of Surgery at the Bronx Veterans Hospital. Dr. Freed specializes in colo-rectal surgery. Dr. Freed is active in the home health care field and is currently the Chairman of BioTime, Inc.'s scientific advisory board. Dr. Freed received his M.D. degree Cum Laude from the State University of New York, Brooklyn in 1970. Dr. Freed has recently been appointed Vice President--Strategic Planning for NuGene Technologies, Inc., a company doing research in gene therapy delivery systems. DR. PHILIP LANDFIELD is Professor and Chair of Pharmacology at the University of Kentucky School of Medicine. Dr. Landfield's research programs are in the areas of brain aging and memory and the pharmacological/biological mechanisms of neuropathology. His research group is investigating hippocampal synaptic structure and physiology during aging, biomarkers of brain aging and the mechanism(s) of glucocorticoid interaction in brain aging. Dr. Landfield received a Ph.D. degree in Psychobiology from the University of California at Irvine in 1971, had a post-doctoral appointment at the University of North Carolina from 1972-1974, was Assistant Professor at the University of California until 1978, Assistant/ Associate Professor at Wake Forest University, Winston-Salem, North Carolina, from 1979-1991 and has been at the University of Kentucky School of Medicine since that time. DR. JAMES SIMPKINS is Professor of Pharmacodynamics and Co-Director of the Center for the Neurobiology of Aging at the University of Florida Health Science Center. In 1996, he was named the Frank A. Duckworth Professor of Drug Discovery in the College of Pharmacy, University of Florida. Dr. Simpkins' major research interests relate to the regulation of pituitary hormone secretion during aging, the neuroprotective effect of steroid-like compounds, and the pharmacology of brain-specific drug delivery systems. His group has recently initiated a major extramurally-funded program, sponsored by the National Institutes of Health, for the discovery of novel drugs for Alzheimer's disease. Dr. Simpkins received a Ph.D. degree in physiology from Michigan State University in 1977 and has been at the University of Florida since that time. He is also a professor of pharmacology and therapeutics in the College of Medicine, University of Florida. Each of the Company's scientific and clinical advisors is employed by another entity. Certain advisors also have consulting agreements with businesses other than the Company. These advisors are expected to devote only a limited portion of their time to the Company and are not expected to participate actively in the day-to-day affairs of the Company. 41 EMPLOYMENT AGREEMENTS, EXECUTIVE COMPENSATION AND AGREEMENTS WITH DIRECTORS The Company has entered into an employment agreement with Dr. Katherine Gordon under which the Company has agreed to employ Dr. Gordon as the Company's President and Chief Executive Officer through a term ending in November 1998. The agreement provides for automatic renewal for additional two-year periods thereafter until unless party gives 90 days' notice of its intent not to renew. The Board of Directors determines Dr. Gordon's annual salary, currently $115,000, and Dr. Gordon is also eligible for an annual bonus at the Board's discretion, based upon achievement of established performance criteria. If Dr. Gordon is terminated by the Company without cause, she will be entitled to continue to receive her salary and health and other insurance benefits for a period of 12 additional months. During 1993, 1994 and 1995, Dr. Katherine Gordon agreed to defer a portion of her accrued salary and bonus. In December 1996, the Company and Dr. Gordon entered into an agreement whereby the Company agreed to pay Dr. Gordon an aggregate of $80,000 in deferred salary and bonus, together with interest calculated at a rate of 9% per annum, in equal installments over the 24 months beginning January 1997. The Company has a group medical plan and management plans to offer, disability and life insurance coverage to all full-time employees. Health, group disability and life insurance benefits are currently provided only to Dr. Gordon. The Company pays each of its independent directors annual fees of $5,000 for service on the full board and annual fees of $500 for service on each of its Audit and Compensation Committees. BOARD COMMITTEES The Company has standing Audit and Compensation Committees of the Board of Directors, but does not have a Nominating Committee. The Audit Committee, currently consisting of Messrs. Masters and Weise, was created in November 1996. The primary function of the Audit Committee is to assist the Board of Directors in the discharge of its duties by providing the Board with an independent review of the financial health of the Company and of the reliability of the Company's financial controls and financial reporting systems. The Audit Committee will review the scope of the Company's annual audit, the fees charged by the Company's independent accountants and other matters relating to internal control systems. The Compensation Committee of the Board of Directors determines the compensation to be paid to all executive officers of the Company, including the Chief Executive Officer. The Compensation Committee also administers the Company's 1993 Incentive and Non-Qualified Stock Option Plan, including the grant of stock options under the Plan. The Compensation Committee is currently composed of Messrs. Masters and Weise. 1993 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN In June 1994, the Company's stockholders approved the Company's 1993 Incentive and Non-Qualified Stock Option Plan (the "1993 Option Plan"). The 1993 Option Plan currently permits the granting of options to purchase an aggregate of 600,000 shares of the Company's Common Stock to key employees, consultants and directors of the Company or any parent or subsidiary of the Company. Options granted under the 1993 Option Plan may be either incentive stock options ("ISOs") or non-qualified stock options ("NSOs"). ISOs may only be granted to management and key employees. The 1993 Option Plan is administered by the Compensation Committee. Subject to the provisions of the 1993 Option Plan, the Committee has the authority to determine the individuals to whom stock options will be granted, the number of shares to be covered by each option, the option price, the type of option, the option period, the vesting restrictions, if any, with respect to the exercise of the option, the terms for the payment of the option price and other terms and conditions. Payment for shares acquired upon exercise of an option may be made in cash or shares of Common Stock. 42 The exercise price for shares covered by an ISO may not be less than 100% of the fair market value of the Common Stock on the date of grant (110% in the case of a grant to an employee who owns more than 10% of the combined total voting power of all classes of stock of the Company or any subsidiary (a "10% Stockholder") and not less than the par value thereof. The exercise price for shares covered by NSOs may not be less than the greater of 50% of the fair market value and the par value of the Common Stock at the date of grant. Options may be exercised as determined by the Committee, provided that all options expire no later than ten years (five years in the case of an ISO granted to a 10% Stockholder) from the date of grant. If the employment of an optionee terminates other than for reasons of death or retirement, any options held by that optionee will expire three months after the termination of the optionee's service with the Company and any of its subsidiaries. No individual may be granted ISOs that become exercisable for the first time in any calendar year for Common Stock having a fair market value at the time of grant in excess of $100,000. Options granted under the 1993 Option Plan are generally exercisable during the lifetime of the optionee only by the optionee. Options may not be transferred except as provided by the Committee or by will or the laws of descent and distribution. Subject to certain limitations set forth in the 1993 Option Plan and applicable law, the Board of Directors may amend or terminate the 1993 Option Plan. By its own terms, the 1993 Option Plan will terminate on December 17, 2003. In the case of certain events, including certain dividends, recapitalizations and reorganizations, the Committee will equitably adjust (1) the number of shares available under the 1993 Option Plan, (2) the number of shares subject to outstanding options, or (3) the exercise price of outstanding options. The 1993 Option Plan also empowers the Board of Directors and the Committee to take other actions to protect outstanding options if the Company is, among other things, merged or consolidated with another company or liquidated. 1996 DIRECTOR STOCK OPTION PLAN All of the directors who are not employees of the Company (the "Eligible Directors") are currently eligible to participate in the Company's 1996 Director Stock Option Plan (the "Director Plan"). The Director Plan currently permits the granting of options to purchase an aggregate of 90,000 shares of the Company's Common Stock. Under the Director Plan, options to purchase 9,000 shares of Common Stock are automatically granted to each Eligible Director on the date of the annual meeting of the stockholders of the Company in every third year (a "Grant Year"). In addition, Eligible Directors that are initially elected to the Board other than at an annual meeting in a Grant Year are automatically granted options to purchase 3,000 shares of Common Stock for each year, or portion thereof, between the date of the Eligible Director's election and the date of the next annual meeting in a Grant Year. Options become exercisable with respect to 3,000 shares on the date of grant and on the date of each annual meeting of stockholders thereafter, so long as the optionee is then a director of the Company. The options have a term of ten years and currently have an exercise price, payable in cash or shares of Common Stock, equal to the fair market value of the Common Stock as determined by the Board of Directors. After completion of the offering, the last sale price for the Common Stock on the business day immediately preceding the date of grant, as reported by Nasdaq, shall be the exercise price. 43 EXECUTIVE COMPENSATION SUMMARY COMPENSATION The following table shows, for the fiscal year ended December 31, 1995, certain compensation paid by the Company, including salary, bonuses, stock options, and certain other compensation, to the Chief Executive Officer.
LONG-TERM COMPENSATION AWARDS ------------- ANNUAL COMPENSATION SHARES --------------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION - ------------------------------------------------------ ------------- ------------ ------------- ------------- Katherine Gordon, Ph.D. ............................. $ 115,000(1) $ 25,000(2) 135,000 -- President and Chief Executive Officer
- ------------------------ (1) A portion of Dr. Gordon's salary in the amount of $65,000 was accrued and not paid in 1995, with the agreement of Dr. Gordon. (2) The entire portion of Dr. Gordon's bonus was paid to Dr. Gordon in the form of shares of the Company's Common Stock at $.83 per share. OPTION GRANTS The following table sets forth certain information regarding options granted during the twelve months ended December 31, 1995 by the Company to the Chief Executive Officer:
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE SHARES % OF TOTAL APPRECIATION FOR UNDERLYING OPTIONS GRANTED OPTION TERM(3) OPTIONS TO EMPLOYEES IN EXERCISE OR EXPIRATION -------------------- NAME GRANTED FISCAL 1995 BASE PRICE DATE 5% 10% - ------------------------------------------- ----------- --------------- ----------- ----------- --------- --------- Katherine Gordon, Ph.D. ................... 75,000 45.5% $ 0.83 11/29/05 $ 39,149 $ 99,210
- ------------------------ (3) Potential realizable value is based on the assumption that the Common Stock of the Company appreciates at the annual rate shown (compounded annually) from the date of the grant until the expiration of the ten-year option term. These numbers are calculated based on the requirements promulgated by the Commission and do not reflect the Company's estimate of future stock price growth. OPTION EXERCISES AND FISCAL YEAR-END VALUES. There were no option exercises during the fiscal year ended December 31, 1995. 44 CERTAIN TRANSACTIONS TRANSACTION WITH NPLP In December 1996, Neuroscience Partners Limited Partnership ("NPLP"), a limited partnership of which MDS Associes--Neuroscience Inc. ("MDS") is the general partner, invested $500,000 in the Company in exchange for 214,287 shares of Common Stock on the same terms as the other purchasers of Common Stock in the Company's most recent private placement financing. Also in December 1996, the Company entered into a Royalty Purchase Agreement with NPLP, pursuant to which NPLP agreed to provide an additional $500,000 (the "NPLP Development Financing") to the Company. In exchange for the NPLP Development Financing, the Company is obligated to pay NPLP royalties on sales of, and license fees and other revenues received by the Company in connection with, any products developed that relate to the use of estrogen in the treatment of chronic, neurodegenerative diseases, subject to the Company's right to terminate these obligations upon its payment to NPLP of a cash payment buyout. In connection with the NPLP Development Financing, NPLP received (i) warrants to purchase 105,000 shares of Common Stock at an exercise price of $2.33 per share and (ii) warrants to purchase 45,000 shares of Common Stock at an exercise price of $2.92 per share. All or any portion (not less than $150,000) of the aggregate amount of the NPLP Development Financing may be converted at any time at the option of MDS into shares of Common Stock at a conversion price equal to (i) with respect to 50% of the amount of the NPLP Development Financing, the lesser of (a) $2.92 and (b) the price per share of the Common Stock reflected in the Company's most recent financing prior to any conversion and (ii) with respect to the remaining 50% of the amount of the NPLP Development Financing, the lesser of (a) $3.50 and (b) the price per share of the Common Stock reflected in the Company's most recent financing prior to any conversion. In the event that NPLP exercises its right to convert the amount of the NPLP Development Financing, the amount of royalties payable under the agreement will be reduced on a pro rata basis. AGREEMENT WITH ENDOCON In June 1994, the Company entered into an agreement with Endocon to co-develop certain estrogens within subcutaneous drug delivery vehicles. As currently in effect, the Endocon agreement focuses on the development of 17b-estradiol within a subcutaneous drug delivery vehicle for the treatment of Alzheimer's disease (NEURESTROL). Neither the Company nor Endocon is obligated to pay the other for any rights to intellectual property underlying their agreement or for development of the product. The parties intend to seek a strategic partner for the commercialization and development of NEURESTROL. All proceeds to the parties relating to NEURESTROL will be allocated 60% to the Company and 40% to Endocon. In June 1996, Robert J. Leonard, the acting CEO and a member of the board of directors of Endocon, became the Secretary and a Director of the Company in 1995 and its Vice President of Business Development in June 1996. The Company believes that the foregoing transactions were in its best interests. It is the Company's current policy that all transactions by the Company with officers, directors, 5% stockholders and their affiliates will be entered into only if those transactions are approved by a majority of the disinterested independent directors, are on terms no less favorable to the Company than could be obtained from unaffiliated parties and are reasonably expected to benefit the Company. 45 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the ownership of the Common Stock as of December 19, 1996 (i) by each person known by the Company to own beneficially five percent or more of its Common Stock, (ii) by each director of the Company, (iii) by the Chief Executive Officer of the Company and (iv) by all directors and executive officers of the Company as a group:
SHARES BENEFICIALLY OWNED PRIOR TO SHARES BENEFICIALLY OFFERING OWNED AFTER OFFERING ---------------------- ---------------------- BENEFICIAL OWNER(2) NUMBER(1) PERCENT NUMBER(1) PERCENT - ------------------------------------------------------------------- ----------- --------- ----------- --------- Neuroscience Partners Limited Partnership(3) ............................................ 528,751 12.5% 528,751 9.8% c/o MDS Associes--Neuroscience Inc. 100 International Boulevard Etobicoke, Ontario Alan Gelband(4) ................................................... 525,000 13.3 525,000 10.2 c/o Gelband Capital 575 Madison Avenue--8th Floor New York, New York Katherine Gordon, Ph.D.(5) ........................................ 465,675 11.6 465,675 8.9 Donna B. Cohen .................................................... 359,400 9.2 359,400 7.0 3050 48th Court, N.E. Lighthouse Point, Florida Theodore J. Gordon(6).............................................. 168,000 4.3 168,000 3.3 Robert J. Leonard(7)............................................... 90,000 2.3 90,000 1.7 George W. Masters(8)............................................... 3,000 * 3,000 * Donald L. Weise(8)................................................. 3,000 * 3,000 * All directors and executive officers as a group (6 persons)(9)..... 735,500 17.7% 735,300 13.8%
- ------------------------ * Indicates less than one percent (1) Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to stock options and warrants currently exercisable or exercisable within 60 days are deemed to be outstanding for computing the percentage ownership of the person holding the options and the percentage ownership of any group of which the holder is a member, but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown beneficially owned by them. (2) Except as otherwise indicated the address of each stockholder identified is c/o the Company, One Kendall Square, Building 200, Suite 2200, Cambridge, Massachusetts 02139. (3) Includes (i) 150,000 shares subject to warrants currently exercisable or exercisable within the 60-day period following December 19, 1996, and (ii) 164,464 shares issuable upon conversion of a right to receive future royalty payments. (4) Includes (i) 15,000 shares issuable upon conversion of a convertible note of the Company and 15,000 additional shares subject to warrants currently exercisable or exercisable within the 60-day period 46 following December 19, 1996, each held of record by the Alden Foundation, and (ii) 45,000 shares of Common Stock owned by the Alan Gelband Company Defined Contribution Pension Plan & Trust. (5) Includes 106,875 shares subject to stock options currently exercisable or exercisable within the 60-day period following December 19, 1996. Dr. Gordon disclaims beneficial ownership of shares beneficially owned by her father, Mr. Theodore J. Gordon. (6) Includes 3,000 shares subject to stock options and 15,000 shares subject to warrants, each currently exercisable or exercisable within the 60-day period following December 19, 1996. Mr. Gordon disclaims beneficial ownership of shares beneficially owned by his daughter, Dr. Katherine Gordon. (7) Consists of 90,000 shares subject to stock options currently exercisable or exercisable within the 60-day period following December 19, 1996. (8) Consists of 3,000 shares subject to stock options currently exercisable or exercisable within the 60-day period following December 19, 1996. (9) Includes (i) 211,500 shares subject to stock options currently exercisable or exercisable within the 60-day period following December 19, 1996, (ii) 30,000 shares subject to warrants currently exercisable or exercisable within 60-day period following December 19, 1996, and (iii) 15,000 shares subject to a currently exercisable debt conversion right. 47 DESCRIPTION OF SECURITIES Upon the closing of this offering, the authorized capital stock of the Company will consist of 20,000,000 shares of Common Stock, $0.02 par value per share, and 1,000,000 shares of Preferred Stock, $0.01 par value per share. As of the date of this Prospectus, the Company had 67 stockholders. Upon the closing of this offering, the Company will have 5,105,348 shares of Common Stock outstanding. The following summary of certain provisions of the Warrants, Common Stock and Preferred Stock does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of the Company's Amended and Restated Certificate of Incorporation, the form of which is included as an exhibit to the Registration Statement, and by the provisions of applicable law. UNITS Each Unit offered hereby consists of one share of Common Stock and one Warrant. Each Warrant entitles the holder thereof to purchase one share of Common Stock. COMMON STOCK Holders of Common Stock are entitled to one vote per share on matters to be voted upon by the stockholders. There are no cumulative voting rights. Holders of Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor. Upon the liquidation, dissolution or winding up of the Company, holders of Common Stock would share ratably in the assets of the Company available for distribution to its stockholders, subject to the preferential rights of any then outstanding shares of Preferred Stock. The Common Stock outstanding upon the effective date of the Registration Statement, and the Units offered by the Company hereby, upon issuance and sale, will be fully paid and nonassessable. PREFERRED STOCK The Company's Board of Directors has the authority to issue up to 1,000,000 shares of Preferred Stock, in one or more series, and to fix the relative rights, preferences, privileges, qualifications, limitations and restrictions thereof, including dividends rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of any series, without further vote or action by the stockholders. The Board of Directors could, without the approval of the stockholders, issue Preferred Stock having voting or conversion rights that could adversely effect the voting power of the holders of Common Stock and the issuance of Preferred Stock could be used, under certain circumstances, to render more difficult or discourage a hostile takeover of the Company. No shares of Preferred Stock will be outstanding immediately following the closing of the offering and the Company has no present plans to issue any shares of Preferred Stock. THE WARRANTS OFFERED The following discussion of the terms and provisions of the Warrants is qualified in its entirety by reference to that certain warrant agreement (the "Warrant Agreement") among the Company, the Managing Underwriter and American Stock Transfer and Trust Company as the warrant agent (the "Warrant Agent"). The Warrants will be evidenced by warrant certificates in registered form. As of the close of this offering, the Company will have 1,200,000 Warrants outstanding, assuming that the Underwriters' over-allotment option is not exercised and assuming that none of the Warrants is exercised. The holder of each Warrant is entitled to purchase one share of Common Stock at an exercise price of $ . The Warrants are exercisable at any time after issuance until the fifth anniversary of the date of this Prospectus, provided that at that time, a current prospectus under the Securities Act relating to 48 the Common Stock is then in effect and the Common Stock is qualified for sale or exempt from qualification under applicable state securities laws. The Warrants included in the Units offered hereby are immediately transferable separately from the Common Stock. The Warrants are subject to redemption, as described below. Commencing one year from the date of this Prospectus, the Warrants are subject to redemption by the Company, on not less than 30 days' prior written notice, at a price of $0.25 per Warrant, if the average of the closing bid prices of the Common Stock for any period of 20 consecutive business days ending within 10 business days of the date on which the notice of redemption is given shall have exceeded $ per share (subject to adjustment). For these purposes, the closing bid price of the Common Stock shall be determined by the closing bid price, as reported by Nasdaq, so long as the Common Stock is quoted on the Nasdaq SmallCap-SM- Market or if the Common Stock is a Nasdaq National Market ("NNM") security or listed on a securities exchange, shall be determined by the last reported sales price. The Company's redemption rights will be in effect only if the Common Stock is either quoted on Nasdaq or listed on a securities exchange. Holders of Warrants will automatically forfeit their rights to purchase the shares of Common Stock issuable upon exercise of their Warrants unless the Warrants are exercised before they are redeemed. A notice of redemption will be mailed to each of the registered holders of the Warrants no later than 30 days before the date fixed for redemption. The notice of redemption shall specify the redemption price, the date fixed for redemption, the place where the Warrant certificates shall be delivered and the date of expiration of the right to exercise the Warrants. The Warrants may be exercised upon surrender of the certificate therefor on or prior to the expiration or redemption date (as explained above) at the offices of the Company's Warrant Agent with the form of "Election to Purchase" on the reverse side of the certificate filled out and executed as indicated, accompanied by payment (in the form of a certified or cashier's check payable to the order of the Company) of the full exercise price for the number of Warrants being exercised. The Company, in its discretion, has the right to reduce the exercise price of either or both classes of Warrants subject to compliance with Rule 13e-4 promulgated under the Exchange Act, if applicable. The Warrants contain provisions that protect the holders thereof against dilution by adjustment of the exercise price and rate in certain events, like stock dividends, stock splits or combinations, mergers, sales of all or substantially all of the Company's assets at less than market value, sales of stock at below market price and other unusual events. The Company is not required to issue fractional shares and, in lieu thereof, will make a cash payment based upon the current market value of any fractional shares (determined as the mean between the last reported bid and asked prices reported or, if the Common Stock is an NNM security or traded on a securities exchange, the last reported sales price, in each case as of the last business day prior to the date of exercise). The holder of a Warrant will not have any rights as a stockholder of the Company unless and until the Warrant is exercised. OTHER WARRANTS AND CONVERSION RIGHTS In order to fund its continuing operations, the Company completed two bridge financings, one in September 1994 (the "1994 Bridge Financing") and one in April 1995 (the "1995 Bridge Financing"). In connection with the 1994 Bridge Financing, the Company issued (i) an aggregate of $135,000 in principal amount of Convertible Promissory Notes (the "1994 Notes") which were due on the earlier of September 19, 1996 or the closing by the Company of a private placement financing yielding gross proceeds of not less than $1,000,000 and (ii) warrants to purchase an aggregate of 135,000 shares of the Company's Common Stock exercisable at $1.00 per share. In connection with the 1995 Bridge Financing, the Company issued (i) an aggregate of $75,000 in principal amount of Convertible Promissory Notes (the "1995 Notes") which are due on the earlier of April 30, 1997 or the closing by the Company of a private placement financing yielding gross proceeds of not less than $1,000,000 and (ii) warrants to purchase an aggregate of 49 75,000 shares of the Company's Common Stock exercisable at $1.00 per share. In September 1996, the 1994 Notes were converted into 135,000 shares of Common Stock. All of the 1995 Notes remained outstanding as of December 17, 1996. In December 1996, the Company consummated the NPLP Development Financing. In exchange for the NPLP Development Financing, the Company is obligated to pay NPLP royalties on sales of, and license fees and other revenues received by the Company in connection with, any products developed that relate to the use of estrogen in the treatment of chronic, neurodegenerative diseases, subject to the Company's right to terminate these obligations upon its payment to NPLP of a cash payment buyout. In connection with the NPLP Development Financing, NPLP received (i) warrants to purchase 105,000 shares of Common Stock at an exercise price of $2.33 per share and (ii) warrants to purchase 45,000 shares of Common Stock at an exercise price of $2.92 per share. All or any portion (not less than $150,000) of the aggregate amount of the NPLP Development Financing may be converted at any time at the option of MDS into shares of Common Stock at a conversion price equal to (i) with respect to 50% of the amount of the NPLP Development Financing, the lesser of (a) $2.92 and (b) the price per share of the Common Stock reflected in the Company's most recent financing prior to any conversion and (ii) with respect to the remaining 50% of the amount of the NPLP Development Financing, the lesser of (a) $3.50 and (b) the price per share of the Common Stock reflected in the Company's most recent equity financing prior to any conversion. In the event that NPLP exercises its right to convert the amount of the NPLP Development Financing, the amount of royalties payable under the agreement will be reduced on a pro rata basis. STOCK OPTIONS The Company has reserved 600,000 shares of Common Stock for issuance under the 1993 Option Plan, of which 345,000 shares are subject to outstanding options, and 90,000 shares of Common Stock for issuance under the Director Plan, of which 27,000 shares are subject to outstanding options. To date, no options granted under the Company's stock option plans have been exercised. ANTI-TAKEOVER MEASURES In addition to the Board of Directors' ability to issue shares of Preferred Stock, the charter and the By-laws of the Company contain several other provisions that are commonly considered to discourage unsolicited takeover bids. The charter includes provisions classifying the Board of Directors into three classes and staggered three-year terms and prohibiting stockholder action by written consent. The Board of Directors may also enlarge the size of the Board and fill any vacancies on the Board. The By-laws provide that nominations for directors may not be made by stockholders at any annual or special meeting unless the stockholder intending to make a nomination notifies the Company of its intention a specified period in advance and furnishes certain information. The By-laws also provide that special meetings of the Company' stockholders may be called only by the President or the Board of Directors and require advance notice of business to be brought by a stockholder before the annual meeting. In February 1988, a law regulating corporate takeovers (the "Anti-Takeover Law") took effect in Delaware. In certain circumstances, the Anti-Takeover Law prevents certain Delaware corporations, including those whose securities are listed on the Nasdaq SmallCap-SM- Market, from engaging in a "business combination" (which includes a merger or sale of more than 10% of the corporation's assets) with an "interested stockholder" (a stockholder who owns 15% or more of the corporation's outstanding voting stock) for three years following the date on which that stockholder became an "interested stockholder" subject to certain exceptions, unless the transaction is approved by the board of directors and the holders of at least 66 2/3% of the outstanding voting stock of the corporation (excluding shares held by the interested stockholder). The statutory ban does not apply if, upon consummation of the transaction in which any person becomes an interested stockholder, the interested stockholder owns at least 85% of the outstanding voting stock of the corporation (excluding shares held by persons who are both directors and officers or by certain employee stock plans). A Delaware corporation subject to the Anti-Takeover Law may "opt out" of 50 the Anti-Takeover Law with an express provision either in its certificate of incorporation or by-laws resulting from a stockholders' amendment approved by at least a majority of the outstanding voting shares. This type of amendment is effective following expiration of twelve months from adoption. The Company is a Delaware corporation that is subject to the Anti-Takeover Law and has not "opted out" of its provisions. The foregoing provisions of Delaware law and the Restated Certificate and By-laws could have the effect of discouraging others from attempting a hostile takeover of the Company and, as a consequence, they may also inhibit temporary fluctuations in the market price of the Common Stock that might result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the management of the Company. It is possible that these provisions could make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests. REGISTRATION RIGHTS NPLP, which is the holder of 214,287 shares of Common Stock, warrants to purchase 150,000 shares of Common Stock and rights to convert the NPLP Development Financing into shares of Common Stock (collectively, the "Registrable Shares"), is entitled to certain rights with respect to registration under the Securities Act of the Registrable Shares. If the Company proposes to register any of its securities under the Securities Act at any time after the consummation of this offering, either for its own account or for the account of other security holders, NPLP is entitled to notice of any such registration and is entitled to include Registrable Shares in the registration. The rights are subject to certain conditions and limitations, among them, the right of the underwriters of a registered offering to limit the number of shares included in the registration. NPLP may also require the Company to file at its expense a registration statement under the Securities Act with respect to 214,287 of the Registrable Shares at any time commencing 13 months from the consummation of this offering and with respect to all Registrable Shares at any time commencing 25 months from the consummation of this offering and, subject to certain conditions and limitations, the Company is required to effect a registration. Furthermore, NPLP may, subject to certain conditions and limitations, require the Company to file additional registration statements on Form S-3 with respect to the Registrable Shares. TRANSFER AGENT The transfer agent and registrar for the Common Stock is American Stock Transfer & Trust Company. 51 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have 5,105,348 shares of Common Stock outstanding. Of these shares, the 1,200,000 shares sold in this offering, assuming no exercise of the Underwriters' over-allotment option, will be freely tradeable without restriction under the Securities Act, unless they are held by "affiliates" of the Company as that term is used under the Securities Act and the regulations promulgated thereunder. The remaining 3,905,348 shares held by officers, directors, employees, consultants and other stockholders of the Company were sold by the Company in reliance on exemptions from the registration requirements of the Securities Act and are "restricted" securities within the meaning of Rule 144 under the Securities Act (the "Restricted Shares"). The Company and [all] holders of Common Stock have agreed not to offer, sell, pledge, hypothecate or otherwise dispose of any shares of the Company's Common Stock for a period of 13 months after the effective date of the Registration Statement of which this prospectus is a part (the "Effective Date") without the prior written consent of the Managing Underwriter. As a result of these contractual restrictions (the "Lock-Up Agreements"), notwithstanding possible earlier eligibility for sale under the provisions of Rules 144 and 701, shares subject to Lock-Up Agreements will not be saleable until the agreements expire. Beginning 180 days after the Effective Date, of the Restricted Shares will become eligible for sale in reliance on Rule 144 or Rule 701 and Rule 144 upon the expiration of the Lock-Up Agreements, subject, in some cases, to certain volume and other limitations. The approximately remaining Restricted Shares will become eligible from time to time upon the lapse of the two-year holding period pursuant to Rule 144. In addition, beginning 90 days after the Effective Date, holders of then vested options to purchase shares will be entitled to exercise their options and sell the underlying shares, and beginning 13 months after the Effective Date, an additional shares subject to vested options will be available for sale upon the expiration of the Lock-Up Agreements, and subject, in the case of directors and officers of the Company, to the provisions of Rule 144. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned shares for at least two years is entitled to sell, within any three-month period commencing 90 days after the Effective Date, a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock ( shares immediately after this offering) or (ii) the average weekly trading volume in the Common Stock during the four calendar weeks preceding the sale, subject to the filing of a Form 144 with respect to the sale and certain other limitations and restrictions. In addition, a person, other than an affiliate or an individual who was an affiliate within 90 days of the proposed sale, who has beneficially owned the shares proposed to be sold for at least three years, would be entitled to sell those shares under Rule 144(k) without regard to the requirements described above. 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 non-affiliates 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, in each case commencing 90 days after the Effective Date. However, all officers and directors and certain other stockholders have agreed, in the Lock-Up Agreements, not to sell or otherwise dispose of Common Stock or the Company for the 13-month period after the Effective Date without the prior written consent of the Managing Underwriter. See "Underwriting." The Company intends to file S-8 registration statements under the Securities Act to register all shares of Common Stock issuable under the 1993 Option Plan and the Director Plan. Shares covered by this kind of registration statement will be eligible for sale in the public market immediately upon filing of 52 the registration statement, subject to Rule 144 limitations applicable to affiliates and the expiration of the Lock-Up Agreements, if applicable. Prior to this offering, there has been no public market for the Common Stock and no prediction can be made as to the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price of the Common Stock. Nevertheless, sales of substantial amounts of Common Stock in the public market may have an adverse impact on the market price of the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. 53 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Company has agreed to sell to each of the underwriters named below (the "Underwriters"), and each of the Underwriters, for whom the Managing Underwriter is acting as representative, has agreed severally to purchase from the Company, the respective number of Units set forth opposite its name below. The Underwriters are committed to purchase and pay for all Units if any Units are purchased.
UNDERWRITER NUMBER OF UNITS - --------------------------------------------------------------------------------------- --------------- First United Equities Corporation...................................................... --------------- Total............................................................................ 1,200,000 --------------- ---------------
The Managing Underwriter has advised the Company that the Underwriters propose to offer the Units to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at the same price, less a concession of not in excess of $ per share, of which $ may be reallocated to other dealers. After the initial public offering, the public offering price, concession and reallowance to dealers may be reduced by the Managing Underwriter. No reduction of this sort shall change the amount of proceeds to be received by the Company as set forth on the cover page of this Prospectus. The Company has granted the Underwriters an option for 45 days after the date of this Prospectus to purchase, at the initial public offering price, less the underwriting discounts and commissions as set forth on the cover page of this Prospectus, up to 180,000 additional Units at the same price per share as the Company received for the 1,200,000 Units offered hereby, solely to cover over-allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of Units to be purchased by each of them, as shown in the foregoing table, bears to the 1,200,000 Units offered hereby. The Underwriters may exercise their option only to cover the over-allotments in connection with the sale of the 1,200,000 Units. The Company has also agreed to pay the Managing Underwriter a nonaccountable expense allowance of 3% of the offering proceeds, including proceeds from the over-allotment option, if exercised, of which $ has been paid to the Managing Underwriter to date. The Managing Underwriter's expenses in excess of the nonaccountable expense allowance, including its legal expenses, will be borne by the Managing Underwriter. To the extent that the expenses of the Managing Underwriter are less than the nonaccountable expense allowance, the excess will be deemed to be compensation to the Managing Underwriter. The Underwriting Agreement provides that, for a period of three years after the completion of this offering, the Managing Underwriter shall have the right, subject to reasonable approval by the Company, to nominate one person to attend the Company's Board of Directors meetings. The Managing Underwriter has not yet designated its nominee. The Managing Underwriter has agreed to provide investment banking services to the Company upon completion of this offering for a period of three years for an aggregate fee of $108,000, payable at the closing (the "Closing") of this offering. The consulting arrangement will not require the Managing Underwriter to devote a specific amount of time to the performance of its duties thereunder. 54 The Company has also agreed that, for a period of five years from the date of the Underwriting Agreement, it will (i) not negotiate with or enter into an agreement with respect to the public offering or private placement of equity securities or securities convertible into equity securities of the Company without first attempting to negotiate the transaction with the Managing Underwriter, and (ii) use its best efforts to induce any other underwriter to include the Managing Underwriter in the underwriting syndicate, with respect to any public offerings by the Company during the five-year period following the Closing. The Company has agreed to sell to the Managing Underwriter, for nominal consideration, the Managing Underwriter's Warrant to purchase up to 120,000 shares of Common Stock at an exercise price equal to $ per share. The Managing Underwriter's Warrant will be exercisable during the six-year period commencing the date of the closing of the offering and are not transferable for a period of one year from the date of this Prospectus, except to officers of the Managing Underwriter or to members of the Managing Underwriter's selling group. Each of the Company's directors and officers and certain other employees and securityholders of the Company has agreed not to offer, sell, contract to sell or otherwise dispose of Common Stock or securities convertible into or exchangeable for, or any rights to purchase or acquire, Common Stock for a period of 13 months following the Effective Date, without the prior written consent of the Managing Underwriter. The Company has also agreed not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exchangeable for, or any rights to purchase or acquire, Common Stock for a period of 13 months following the date of this Prospectus without the prior written consent of the Managing Underwriter, except for the granting of options or the sale of stock pursuant to the Company's existing option plans. The Managing Underwriter, in its discretion, may waive the foregoing restrictions, in whole or in part, with or without a public announcement to that effect. Prior to this offering, there has been no public market for the Common Stock. The initial public offering price of the Units will be determined by negotiations among the Company and the Managing Underwriter. Among the factors considered in determining the initial public offering price of the Units, in addition to prevailing market conditions, will be the Company's historical performance, estimates of the business potential and earnings prospects of the Company, an assessment of the Company's management and the consideration of the above factors in relation to market valuations of companies in related businesses. The Company has agreed to indemnify the Underwriters against certain liabilities that may be incurred in connection with this offering, including liabilities under the Securities Act, or to contribute payments that the Underwriters may be required to make in respect thereof. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Certain legal matters relating to the offering will be passed upon for the Underwriters by Rubin Baum Levin Constant Friedman & Bilzin, Miami, Florida. EXPERTS The financial statements of the Company at December 31, 1995 and for each of the years in the two-year period then ended, appearing in this Prospectus and the Registration Statement have been audited by Richard A. Eisner & Company, LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and are included herein in reliance upon that report given upon the authority of that firm as experts in accounting and auditing. 55 ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), a Registration Statement on Form SB-2 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act relating to the Units offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement, and the exhibits and schedules thereto, which may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the Commission's regional offices located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven World Trade Center, 13th Floor, New York, New York 10048. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of the contract or other document filed as an Exhibit to the Registration Statement, each statement being qualified in all respects by that reference. Copies of these materials may be obtained upon written request from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company intends to distribute to its stockholders annual reports containing financial statements audited by its independent auditors and will make available copies of quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. 56 GLOSSARY OF TECHNICAL TERMS Acetylcholine A neurotransmitter. Alzheimer's disease A disease of presenile dementia which is characterized by loss of memory and cortical atrophy in frontal and temporal lobes of the brain. Amyloid plaques Degenerating neuron components surrounding a core of ("Plaques") B-amyloid. Animal model An animal which can be used to study a human disease or condition due to resemblance to disease or condition. Cholinergic neurons Neurons that use acetylcholine as a neurotransmitter. Dehydroepiandrosterone A steroid hormone which is a product of cholesterol and is a (DHEA) precursor to androgens and estrogen. Dehydroepiandrosterone A sulfated form of DHEA. sulfate (DHEAS) Dementia Deterioration or loss of intellectual faculties, reasoning power and memory due to organic brain disease. Dopamine A neurotransmitter. Dopaminergic neurons Neurons that use dopamine as a neurotransmitter. Endocrine A gland or system responsible for secretion of hormones directly into the bloodstream. Estrogen A hormone, produced principally by the ovaries, which stimulates the accessory sex structures. Growth factor A substance, either genetic or extrinsic, which affects growth. Growth hormone A hormone that promotes growth and also has direct influence on metabolism of carbohydrates, fats and proteins. Hippocampus A region of the brain involved in cognitive function and memory. Hormone A chemical product of an organ which has a specific regulatory effect on cells remote from its origin. Hormone replacement therapy Replacement or supplementation of hormones which are deficient in the body. IN VITRO Refers to studies and/or phenomena that take place outside the body (e.g., in test tubes). IN VIVO Refers to studies and/or phenomena that take place inside the body of animals or humans. IND Investigational New Drug application. A formal notice submitted to the FDA for review and approval prior to beginning clinical trials to evaluate a new drug. Lewy bodies Characteristic masses found within cells of degenerating neurons in certain brain regions.
57 NEURESTOL A registered trademark of Endocon representing 17b-estradial within a subcutaneous delivery system for use in the prevention of neurodegeneration. NEUROCALC A trademark of the Company representing calcitriol for use in the prevention of neurodegeneration. Neurodegeneration Refers to degeneration or death of cells in the nervous system. Neuroendocrine Pertaining to the nervous and endocrine systems in anatomic or functional relationship. Neuroendocrine aging Refers to age-related changes in the neuroendocrine system. Neurofibrillary tangles Refers to thick, twisted bands of fibrous material which ("Tangles") deposits irregularly in the cytoplasm in degenerating neurons. NEUROMIDOL A trademark of the Company representing certain novel estrogens for use in the prevention of neurodegeneration. Neurotransmitter A chemical messenger responsible for transmitting signals from sending to receiving neurons. Osteoporosis A condition in which bone tissue is decreased, resulting in enlargement of marrow and decreased thickness of bone cortex. Parkinson's disease A disease characterized by tremor and rigidity caused by damage to pigmented brainstem nuclei. Progesterone A steroid hormone secreted by the ovary which is essential for maintenance of pregnancy. Prophylaxis A method of maintaining health or preventing disease. Receptor A specific structure on a cell's surface to which a hormone or other interactive molecule binds to affect cellular function in a specific way.
58 APOLLO BIOPHARMACEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) - I N D E X -
PAGE NUMBER ----------- REPORT OF INDEPENDENT AUDITORS.......................................................................... F-2 BALANCE SHEETS.......................................................................................... F-3 STATEMENTS OF OPERATIONS................................................................................ F-4 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)................................................. F-5 STATEMENTS OF CASH FLOWS................................................................................ F-6 NOTES TO FINANCIAL STATEMENTS........................................................................... F-7
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Apollo BioPharmaceutics, Inc. Cambridge, Massachusetts We have audited the accompanying balance sheet of Apollo BioPharmaceutics, Inc. (a development stage company) as at December 31, 1995, and the related statements of operations, changes in stockholders' equity (deficit) and cash flows for each of the years in the two-year period then ended, and for the period from July 9, 1992 (inception) through 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 enumerated above present fairly, in all material respects, the financial position of Apollo BioPharmaceutics, Inc. at December 31, 1995, and the results of its operations and its cash flows for each of the years in the two-year period then ended, and for the period from July 9, 1992 (inception) through December 31, 1995 in conformity with generally accepted accounting principles. /s/ Richard A. Eisner & Company, LLP Cambridge, Massachusetts July 15, 1996 With respect to Note A December 20, 1996 F-2 APOLLO BIOPHARMACEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
DECEMBER 31, 1995 ------------- SEPTEMBER 30, 1996 ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents......................................................... $ 246,721 $ 373,645 Stock subscriptions receivable (Note C)........................................... 112,500 ------------- ------------- Total current assets.......................................................... 246,721 486,145 Organization costs, net of accumulated amortization of $3,584 at December 31, 1995 and $4,371 at September 30, 1996 (Note B)......................................... 1,661 874 Deferred public offering costs...................................................... 5,000 ------------- ------------- TOTAL......................................................................... $ 248,382 $ 492,019 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses............................................. $ 161,923 $ 102,981 Notes payable (Note D)............................................................ 73,425 ------------- ------------- Total current liabilities..................................................... 161,923 176,406 ------------- ------------- Notes payable (Note D).............................................................. 204,400 ------------- Commitments (Note F) Stockholders' equity (deficit) (Note E): Preferred stock--$.01 par value; 1,000,000 shares authorized, none issued Common stock--$.02 par value; 20,000,000 shares authorized, 3,531,000 shares issued at December 31, 1995 and 3,905,348 shares issued at September 30, 1996... 70,620 78,107 Additional paid-in capital........................................................ 1,158,900 1,807,879 Deficit accumulated during the development stage.................................. (1,347,461) (1,570,373) ------------- ------------- Total stockholders' equity (deficit).......................................... (117,941) 315,613 ------------- ------------- TOTAL......................................................................... $ 248,382 $ 492,019 ------------- ------------- ------------- -------------
Attention is directed to the foregoing auditors' report and to the accompanying notes to financial statements. F-3 APOLLO BIOPHARMACEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
JULY 9, 1992 JULY 9, 1992 YEAR ENDED (INCEPTION) NINE MONTHS ENDED (INCEPTION) DECEMBER 31, THROUGH SEPTEMBER 30, THROUGH ------------------------ DECEMBER 31, ------------------------ SEPTEMBER 30, 1995 1994 1995 1996 1995 1996 ----------- ----------- ------------- ----------- ----------- ------------- (UNAUDITED) (UNAUDITED) Revenue: Licensing and option revenue (Note B[1])............... $ 170,000 $ 170,000 Interest income............. $ 2,535 $ 3,954 $ 12,071 7,301 19,372 ----------- ----------- ------------- ----------- ------------- Total revenue........... 2,535 3,954 12,071 177,301 189,372 ----------- ----------- ------------- ----------- ------------- Expenses: Research and development.... 131,842 199,654 466,838 100,716 $ 94,966 567,554 General and administrative............ 230,592 323,613 857,909 268,819 187,462 1,126,728 Amortization expense........ 1,049 1,049 3,584 787 787 4,371 Interest expense............ 31,201 2,645 31,201 29,891 22,691 61,092 ----------- ----------- ------------- ----------- ----------- ------------- Total expenses.......... 394,684 526,961 1,359,532 400,213 305,906 1,759,745 ----------- ----------- ------------- ----------- ----------- ------------- NET LOSS...................... $ (392,149) $ (523,007) $ (1,347,461) $(222,912) $ (305,906) $(1,570,373) ----------- ----------- ------------- ----------- ----------- ------------- ----------- ----------- ------------- ----------- ----------- ------------- Net loss per share............ $ (.10) $ (.14) $ (.05) $ (.08) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of shares outstanding.......... 3,784,623 3,660,514 4,185,555 3,649,496
Attention is directed to the foregoing auditors' report and to the accompanying notes to financial statements. F-4 APOLLO BIOPHARMACEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
DEFICIT COMMON STOCK ACCUMULATED $.02 PAR VALUE ADDITIONAL DURING --------------------- PAID-IN DEVELOPMENT SHARES AMOUNT CAPITAL STAGE TOTAL ---------- --------- ------------ ------------- ----------- Sale of common stock at $.07 per share from inception through December 31, 1992............................. 615,000 $ 12,300 $ 28,700 $ 41,000 Issuance of common stock for services at $.07 per share from inception through December 31, 1992.............. 60,000 1,200 2,800 4,000 Net loss for the year ended December 31, 1992........... $ (77,972) (77,972) ---------- --------- ------------ ------------- ----------- Balance--December 31, 1992.............................. 675,000 13,500 31,500 (77,972) (32,972) Additional shares sold at $.07 per share................ 1,200,000 24,000 56,000 80,000 Shares issued for services at $.07 per share............................................. 162,000 3,240 7,560 10,800 Sale of common stock in connection with private placement of stock at $.67 per share.................. 960,000 19,200 620,800 640,000 Costs related to private placement...................... (36,530) (36,530) Shares issued for services at $.67 per share............ 9,000 180 5,820 6,000 Net loss for the year ended December 31, 1993..................................... (354,333) (354,333) ---------- --------- ------------ ------------- ----------- Balance--December 31, 1993.............................. 3,006,000 60,120 685,150 (432,305) 312,965 Repurchase of common stock by the Company and cancellation of shares................................ (15,000) (300) (700) (1,000) Common stock warrants issued in connection with notes payable............................................... 6,750 6,750 Net loss for the year ended December 31, 1994........... (523,007) (523,007) ---------- --------- ------------ ------------- ----------- Balance--December 31, 1994.............................. 2,991,000 59,820 691,200 (955,312) (204,292) Sale of common stock at $.83 per share.................. 540,000 10,800 439,200 450,000 Costs of raising capital................................ (12,250) (12,250) Purchase (for $8,000) and resale (for $20,000) of 60,000 shares of common stock........ 12,000 12,000 Capital contributed by stockholder...................... 25,000 25,000 Common stock warrants issued in connection with notes payable............................................... 3,750 3,750 Net loss for the year ended December 31, 1995........... (392,149) (392,149) ---------- --------- ------------ ------------- ----------- Balance--December 31, 1995.............................. 3,531,000 70,620 1,158,900 (1,347,461) (117,941) Shares issued for services at $1.00 per share........... 25,066 501 24,565 25,066 Conversion of debt into common stock.................... 135,000 2,700 128,700 131,400 Sale of common stock in connection with private placement of stock at $2.33 per share................. 214,282 4,286 495,714 500,000 Net loss for the nine months ended September 30, 1996... (222,912) (222,912) ---------- --------- ------------ ------------- ----------- BALANCE--SEPTEMBER 30, 1996 (UNAUDITED)................. 3,905,348 $ 78,107 $ 1,807,879 $ (1,570,373) $ 315,613 ---------- --------- ------------ ------------- ----------- ---------- --------- ------------ ------------- -----------
Attention is directed to the foregoing auditors' report and to the accompanying notes to financial statements. F-5 APOLLO BIOPHARMACEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
JULY 9, 1992 JULY 9, 1992 YEAR ENDED (INCEPTION) NINE MONTHS ENDED (INCEPTION) DECEMBER 31, THROUGH SEPTEMBER 30, THROUGH ------------------------ DECEMBER 31, ------------------------ SEPTEMBER 30, 1995 1994 1995 1996 1995 1996 ----------- ----------- ------------- ----------- ----------- ------------- (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net loss............................... $ (392,149) $ (523,007) $ (1,347,461) $(222,912) $ (305,906) $(1,570,373) Adjustments to reconcile net loss to net cash (used in) operating activities: Amortization......................... 1,049 1,399 3,934 1,212 786 5,146 Common stock issued for services rendered........................... 20,800 25,066 45,866 Organization costs................... (5,245) (5,245) Increase (decrease) in accounts payable and accrued expenses....... 138,071 56,643 216,473 (58,942) 130,697 157,531 ----------- ----------- ------------- ----------- ----------- ------------- Net cash (used in) operating activities....................... (253,029) (464,965) (1,111,499) (255,576) (174,423) (1,367,075) ----------- ----------- ------------- ----------- ----------- ------------- Cash flows from financing activities: Sale of common stock................... 445,000 1,206,000 387,500 121,000 1,593,500 Stock offering costs................... (12,250) (48,780) (48,780) Repurchase of common stock............. (8,000) (1,000) (9,000) (9,000) Proceeds from notes payable (Note C)... 75,000 135,000 210,000 75,000 210,000 Deferred public offering costs......... (5,000) (5,000) ----------- ----------- ------------- ----------- ----------- ------------- Net cash provided by financing activities....................... 499,750 134,000 1,358,220 382,500 196,000 1,740,720 ----------- ----------- ------------- ----------- ----------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 246,721 (330,965) 246,721 126,924 21,577 373,645 Cash and cash equivalents at beginning of period................................. -0- 330,965 -0- 246,721 -0- -0- ----------- ----------- ------------- ----------- ----------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................. $ 246,721 $ -0- $ 246,721 $ 373,645 $ 21,577 $ 373,645 ----------- ----------- ------------- ----------- ----------- ------------- ----------- ----------- ------------- ----------- ----------- ------------- Supplemental disclosures of cash flow information: Interest paid.......................... $ 15,000 $ 15,000 $ 25,000 $ 32,000 Accounts payable converted into stock................................ 25,000 25,000 25,000 Capital contributed by forgiveness of debt................................. 25,000 25,000 25,000 Notes payable converted to common stock................................ 135,000 135,000
Attention is directed to the foregoing auditors' report and to the accompanying notes to financial statements. F-6 APOLLO BIOPHARMACEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED) (NOTE A)--THE COMPANY: Apollo Biopharmaceutics, Inc. (formerly Apollo Genetics, Inc.) (the "Company"), was incorporated on July 9, 1992. The Company's objective is to develop biopharmaceutical products for deterring aspects of human aging. The Company is in the development stage and its efforts through December 31, 1995 have been principally devoted to organizational activities, raising capital and initial research and development activities. It does not expect commercial operations in the foreseeable future. The Company anticipates that it will need substantial additional financing to complete its research and to develop commercial products. The Company is endeavoring to obtain additional financing for the next phase of its research activities; however, there is no assurance that such financing can be obtained or that the Company's research will be successful. On November 6, 1996 the Board of Directors of the Company authorized the filing of a registration statement with the Securities and Exchange Commission for the initial public offering of shares of the Company's common stock. In December 1996, Neuroscience Partners Limited Partnership ("NPLP"), a limited partnership of which MDS Associes-Neuroscience Inc. ("MDS") is the general partner, invested $500,000 in the Company in exchange for 214,285 shares of Common Stock on the same terms as the other purchasers of Common Stock in the Company's most recent private placement financing. Also in December 1996, the Company entered into a Royalty Purchase Agreement with NPLP, pursuant to which NPLP agreed to provide an additional $500,000 (the "NPLP Development Financing") to the Company. In exchange for the NPLP Development Financing, the Company is obligated to pay NPLP royalties on sales of, and license fees and other revenues received by the Company in connection with, any products developed that relate to the use of estrogen in the treatment of chronic, neurodegenerative disease, subject to the Company's right to terminate these obligations upon its payment to NPLP of a cash payment buyout. In connection with the NPLP Development Financing, NPLP received (i) warrants to purchase 105,000 shares of Common Stock at an exercise price of $2.33 per share and (ii) warrants to purchase 145,000 shares of Common Stock at an exercise price of $2.92 per share. All or any portion (not less than $150,000) of the aggregate amount of the NPLP Development Financing may be converted at any time at the option of MDS into shares of Common Stock at a conversion price equal to (i) with respect to 50% of the amount of the NPLP Development Financing, the lesser of (a) $2.92 and (b) the price per share of Common Stock reflected in the Company's most recent financing prior to any conversion and (ii) with respect to the remaining 50% of the amount of the NPLP Development Financing, the lesser of (a) $3.50 and (b) the price per share of the Common Stock reflected in the Company's most recent equity financing prior to any conversion. In the event that NPLP exercises its right to convert the amount of the NPLP Development Financing, the amount of royalties payable under the agreement will be reduced on a pro rata basis. In December, 1996 the Company amended its Certificate of Incorporation whereby, among other things, the following changes were effected: [1] The name of the Company was changed from Apollo Genetics, Inc. to Apollo BioPharmaceutics, Inc. F-7 APOLLO BIOPHARMACEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED) (NOTE A)--THE COMPANY: (CONTINUED) [2] A reverse stock split of 1 for 3 1/3 shares of common stock and all securities of the Company convertible into common stock was made. [3] The number of authorized shares of the Company's preferred stock was reduced from 4,000,000 to 1,000,000 shares. All references to preferred stock, common stock, options, warrants and per share data have been restated to give effect to the above amendments to the Certificate of Incorporation. (NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [1] REVENUE RECOGNITION: Licensing and option fees are recognized when they are earned in accordance with the performance requirements and contractual terms of the underlying agreements. Licensing revenue represents amounts paid by companies for the use of or access to the Company's proprietary technology. Option revenue represents payments for the right to negotiate with the Company which may or may not result in a licensing or collaborative development agreement. [2] ORGANIZATION COSTS: The Company has capitalized certain costs, primarily legal expenses, related to its organization. These costs are being amortized by the straight-line method over five years. [3] PATENT AND LICENSING COSTS: As a result of research and development effors conducted by the Company, it has received and applied for, and is in the process of applying for, a number of patents to protect proprietary inventions and licenses to use certain intellectual property. Costs incurred in connection with patent applications and licenses have been expensed as incurred and are reflected as general and administrative expenses. [4] 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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. [5] CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments with a maturity of three months or less, when acquired, to be cash equivalents. [6] LOSS PER SHARE: Loss per share is calculated based on the weighted average number of shares of common stock outstanding during the period. Pursuant to the requirements of the Securities and Exchange Commission, common shares, or other potentially dilutive instruments issued by the Company during the twelve months F-8 APOLLO BIOPHARMACEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED) (NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) immediately preceding the expected initial filing of the registration statement for the Company's proposed initial public offering at prices below the expected public offering price have been included in the calculation as if they were outstanding for all periods presented. Assuming the conversion of the notes discussed in the last sentence of Note D as of January 1, 1995, there would have been no effect on the supplementary loss per share for any period presented. [7] INTERIM CONDENSED FINANCIAL STATEMENTS: The condensed financial statements as of September 30, 1996 and for the nine months ended September 30, 1996 and September 30, 1995 are unaudited. In management's opinion, the unaudited financial statements as of September 30, 1996 and for the nine months ended September 30, 1996 and September 30, 1995, include all adjustments necessary for a fair presentation. Such adjustments were of a recurring nature. (NOTE C)--STOCK SUBSCRIPTIONS RECEIVABLE: All stock subscriptions receivable were paid in full in October 1996. (NOTE D)--NOTES PAYABLE: During 1995 and 1994, the Company issued $210,000 of 10% convertible notes payable. The notes are due in full at the earlier of September 19, 1997 or the closing of the next offering of common stock of the Company with aggregate gross proceeds to the Company of not less than $1,000,000. Interest is payable annually on September 19. The notes may be redeemed at the option of the Company at a price equal to 110% of the principal amount plus any accrued and unpaid interest. The notes may be converted into common stock of the Company at any time prior to the redemption or maturity date. The conversion price is subject to adjustment as defined in the agreement. The principal amount of the notes outstanding is $75,000 and $210,000 at September 30, 1996 and December 31, 1995, respectively. In conjunction with these notes, the Company issued warrants for the purchase of 210,000 shares of its common stock. The value assigned to the warrants, amounting to $10,500, has been accounted for as debt discount and is being amortized over the period of time the notes are expected to be outstanding. The effective interest rate on the notes, including the debt discount, is approximately 12%. The warrants are more fully discussed in Note E[3]. Through September 30, 1996 a total of $135,000 of the notes, all of which were issued in 1994, were converted into 135,000 shares of common stock. (NOTE E)--COMMON STOCK, OPTIONS AND WARRANTS: [1] COMMON STOCK: Through December 31, 1995, the Company has been financed primarily through the sale of common stock. Through December 31, 1995, of the 3,531,000 shares issued since inception, 3,300,000 were sold for cash and the remaining 231,000 shares were issued for payment of services rendered to the Company. Through September 30, 1996, of the 3,905,348 shares issued since inception, 3,649,282 were sold for cash and the remaining 256,066 shares were issued for payment of services rendered to the Company. F-9 APOLLO BIOPHARMACEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED) (NOTE E)--COMMON STOCK, OPTIONS AND WARRANTS: (CONTINUED) [2] OPTION PLAN: The Company has a stock option plan that provides for the issuance of both incentive and nonqualified stock options. This plan provides for the granting of options to purchase not more than 600,000 shares of common stock. The exercise price of the incentive options cannot be less than the fair market value on the date of the grant, while the exercise price for the nonqualified options is determined by the option committee. Option activity through September 30, 1996 has been as follows:
NUMBER OF OPTION PRICE SHARES PER SHARE ----------- ------------- Balance--December 31, 1992......................................... -0- $-0- Granted............................................................ 60,000 $.67 ----------- Balance--December 31, 1993......................................... 60,000 $.67 Granted............................................................ 150,000 $.67 - $1.00 ----------- Balance--December 31, 1994......................................... 210,000 $.67 - $1.00 Cancelled.......................................................... (90,000) $.67 - $1.00 Granted............................................................ 180,000 $.83 ----------- Balance--December 31, 1995 and September 30, 1996.................. 300,000 $.67 - $1.00 ----------- -----------
At September 30, 1996, options to purchase 195,000 shares were exercisable at an average exercise price of $.87 per share. In November of 1996, the Company's Board of Directors authorized an increase of the number of shares of the Company's common stock issuable under the plan by 300,000 shares. Also in November of 1996, the Company's Board of Directors authorized the establishment of the 1996 Directors Stock Option Plan, and reserved 90,000 shares of the Company's common stock for issuance under the Plan. [3] WARRANTS: In conjunction with the notes described in Note D, the Company issued warrants for the purchase of 210,000 shares of the Company's common stock. The warrants are exercisable until September 17, 1999 at the lower of $1.00 per share or the price per share of the common stock at the closing of the next offering of common stock with aggregate gross proceeds of at least $1,000,000. The number and character of shares which may be purchased upon the exercise of these warrants are subject to adjustment as provided in the warrant agreement. F-10 APOLLO BIOPHARMACEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED) (NOTE F)--COMMITMENTS: [1] LEASE: Through December 31, 1995, the Company was subleasing its facilities under a tenant-at-will agreement. Rent expense for the year ended December 31, 1995 amounted to $5,850 and the rent paid since inception is $21,100. [2] RESEARCH, LICENSE AND CONSULTING AGREEMENTS: The Company has entered into various research, license and consulting agreements to support its research and development activities. These agreements generally expire over several future years. Amounts charged to operations in connection with these agreements for the year ended December 31, 1995 amounted to approximately $55,000. The Company expects to increase its research and development expenses in future years. Some of the above agreements contain provisions for future royalties to be paid by and/or to the Company on the sale of products developed under the agreements. [3] EMPLOYMENT AGREEMENT: The Company has entered into an employment agreement, which expires in November 1998, with its president which provides for an annual salary of $115,000 and twelve months of severance pay. The agreement will automatically extend for additional two-year periods unless terminated by either party to the agreement. (NOTE G)--INCOME TAXES: Pursuant to provisions of the Internal Revenue Code, for tax purposes the Company is deferring all start-up costs until operations, as defined by the Internal Revenue Code, commence and is deferring research and development costs until revenue is generated. Accordingly, through December 31, 1995 only interest income and expense have entered into the determination of taxable income. At December 31, 1995, the Company had no current tax liability or deferred tax liability. It had deferred tax assets due to temporary differences and research and development tax credits of approximately $480,000, all of which has been fully reserved since the likelihood of the realization of the benefits cannot be established. The temporary differences relate primarily to the deferral of start-up costs and research and development costs noted above. The Internal Revenue Code contains provisions which may limit the net operating loss carryovers available for use in any given year if significant changes in ownership interest of the Company occur. F-11 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 Risk Factors.............................................................. 6 Use of Proceeds........................................................... 18 Dividend Policy........................................................... 18 Capitalization............................................................ 19 Dilution.................................................................. 20 Selected Financial Data................................................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 22 Business.................................................................. 24 Management................................................................ 40 Certain Transactions...................................................... 45 Principal Stockholders.................................................... 46 Description of Securities................................................. 48 Shares Eligible for Future Sale........................................... 52 Underwriting.............................................................. 54 Legal Matters............................................................. 55 Experts................................................................... 55 Additional Information.................................................... 56 Glossary of Technical Terms............................................... 57 Index to Financial Statements............................................. F-1
------------------------ UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 1,200,000 UNITS [APOLLO LOGO] --------------------- PROSPECTUS , 1997 --------------------- FIRST UNITED EQUITIES CORPORATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law grants the Company the power to indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful, provided, however, no indemnification shall be made in connection with any proceeding brought by or in the right of the Company where the person involved is adjudged to be liable to the Company, except to the extent approved by a court. Article V of the Company's By-laws provides that the Company shall, to extent legally permitted, indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was, or has agreed to become, a director or officer of the Company, or is or was serving, or has agreed to serve, at the request of the Company, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise. The indemnification provided for in Article V is expressly not exclusive of any other rights to which those seeking indemnification may be entitled under any law, agreement or vote of stockholders or disinterested directors or otherwise, and shall inure to the benefit of the heirs, executors and administrators of such persons. Article V also provides that the Company shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against and incurred by such person in any such capacity. Pursuant to Section 102(b)(7) of the Delaware General Corporation Laws, Articles SEVENTH and NINTH of the Company's Amended and Restated Certificate of Incorporation eliminates a director's personal liability for monetary damages to the Company and its stockholders for breaches of fiduciary duty as a director, except in circumstances involving a breach of a director's duty of loyalty to the Company or its stockholders, acts or omissions not in good faith, intentional misconduct, knowing violations of the law, self-dealing or the unlawful payment of dividends or repurchase of stock. The Company has also entered into Indemnification Agreements with each of its directors whereby the Company has agreed to indemnify them against certain liabilities that they may incur as a result of their services to the Company. II-1 ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses to be borne by the Company in connection with this offering are as follows: SEC registration fee.............................................. $ 5,655 Nasdaq listing fee................................................ $ 7,880 NASD filing fee................................................... $ 2,366 Blue Sky fees and expenses........................................ $ 15,000 Printing and engraving expenses................................... $ 112,000 Accounting fees and expenses...................................... $ 40,000 Legal fees and expenses........................................... $ 200,000 Transfer agent and registrar fees................................. $ 10,000 Managing Underwriter's expenses................................... $ 189,000 Miscellaneous expenses............................................ $ 8,099 --------- Total......................................................... $ 590,000
All of the above figures, except the SEC registration fee and NASD filing fee, are estimates. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES Since July 1992, the Company has issued and sold the following securities, in each case in reliance on an exemption from required registration pursuant to Section 4(2) of the Securities Act: In September 1992, the Company sold an aggregate of 615,000 shares of Common Stock to 14 accredited investors for an aggregate purchase price of $41,000. In order to fund its continuing operations, the Company completed two bridge financings, one in September 1994 (the "1994 Bridge Financing") and one in April 1995 (the "1995 Bridge Financing"). In connection with the 1994 Bridge Financing, the Company issued (i) an aggregate of $135,000 in principal amount of Convertible Promissory Notes (the "1994 Notes") which were due on the earlier of September 19, 1996 or the closing by the Company of a private placement financing yielding gross proceeds of not less than $1,000,000 and (ii) warrants to purchase an aggregate of 135,000 shares of the Company's Common Stock exercisable at $1.00 per share. In connection with the 1995 Bridge Financing, the Company issued (i) an aggregate of $75,000 in principal amount of Convertible Promissory Notes (the "1995 Notes") which were due on the earlier of April 30, 1997 or the closing by the Company of a private placement financing yielding gross proceeds of not less than $1,000,000 and (ii) warrants to purchase an aggregate of 75,000 shares of the Company's Common Stock exercisable at $1.00 per share. In September 1996, the 1994 Notes were converted into 135,000 shares of Common Stock. In May 1995, the Company sold an aggregate of 540,000 shares of Common Stock to 8 accredited investors for an aggregate purchase price of $475,000. In June 1996, the Company sold an aggregate of 214,282 shares of Common Stock to 9 accredited investors for an aggregate purchase price of $500,000. The Managing Underwriter acted as placement agent for this 1996 financing and in consideration thereof received a fee of $25,000. In December 1996, Neuroscience Partners Limited Partnership ("NPLP"), a limited partnership of which MDS Associes--Neuroscience Inc. ("MDS") is the general partner, invested $500,000 in the Company in exchange for 214,287 shares of Common Stock on the same terms as the other purchasers of Common Stock in the Company's most recent private placement financing. Also in December 1996, the Company entered into a Royalty Purchase Agreement with NPLP, pursuant to which NPLP agreed to provide an additional $500,000 (the "NPLP Development Financing") in the Company to fund the continued research and development of the Company's programs related to the use of estrogen in the treatment of certain chronic neurodegenerative diseases, including Alzheimer's disease. In exchange for the NPLP Development Financing, the Company is obligated to pay NPLP II-2 royalties on sales of, and license fees and other revenues received by the Company in connection with, any products developed in these programs, subject to the Company's right to terminate these obligations upon its payment to NPLP of a cash payment buyout. In connection with the NPLP Development Financing, NPLP received (i) warrants to purchase 105,000 shares of Common Stock at an exercise price of $2.33 per share and (ii) warrants to purchase 45,000 shares of Common Stock at an exercise price of $2.92 per share. All or any portion (not less than $150,000) of the aggregate amount of the NPLP Development Financing may be converted at any time at the option of MDS into shares of Common Stock at a conversion price equal to (i) with respect to 50% of the amount of the NPLP Development Financing, the lesser of (a) $2.92 and (b) the price per share of the Common Stock reflected in the Company's most recent financing prior to any conversion and (ii) with respect to the remaining 50% of the amount of the NPLP Development Financing, the lesser of (a) $3.50 and (b) the price per share of the Common Stock reflected in the Company's most recent equity financing prior to any conversion. In the event that NPLP exercises its right to convert the amount of the NPLP Development Financing, the amount of royalties payable under the agreement will be reduced on a pro rata basis. II-3 ITEM 27. EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 1 Form of Underwriting Agreement. To be filed by amendment. 3.1 Amended and Restated Certificate of Incorporation. Filed herewith. 3.2 By-laws of the Company. Filed herewith. 3.3 Registration Rights Agreement, dated December 18, 1996, between the Company and Neuroscience Partners Limited Partnership. Filed herewith. 3.4 Warrant to purchase Common Stock of the Company granted to Neuroscience Partners Limited Partnership dated December 18, 1996. Filed herewith. 4.1 Specimen Common Stock Certificate. To be filed by amendment. 4.2 Specimen Common Stock Purchase Warrant. To be filed by amendment. 5 Opinion of Palmer & Dodge LLP as to the legality of the shares being registered. Filed herewith. 10.1* Amended and Restated 1993 Incentive and Non-Qualified Stock Option Plan. Filed herewith. 10.2* 1996 Director Stock Option Plan. Filed herewith. 10.3 Form of Indemnification Agreement between the Company and its directors. Filed herewith. Such agreements are materially different only as to the signing directors and the dates of execution. 10.4+ Royalty Purchase Agreement dated December 18, 1996 between the Company and Neuroscience Partners Limited Partnership. Filed herewith. 10.5+ Research and Collaboration Agreement, dated as of December 6, 1994, between the Company and Endocon, Inc. To be filed by amendment. 10.6+ Nonexclusive Sublicense Agreement, dated as of November 5, 1996, between the Company and Cephalon, Inc. Filed herewith. 10.7+ License and Collaboration Agreement, dated as of April 16, 1996, between the Company and Athena Neurosciences, Inc. Filed herewith. 10.8+ Neuron Loss Protection Technology License Agreement, dated April 13, 1993, between the Company and the University of Kentucky Research Foundation. Filed herewith. 10.9+ Patent License Agreement with Research Component, dated December 15, 1993, restated October 15, 1996, between the Company and the University of Florida Research Foundation, Inc. Filed herewith. 10.10+ Corporate Research Agreement to Accompany License Agreement, dated December 15, 1993, between the Company and the University of Florida. Filed herewith. 10.11+ Patent License Agreement, dated September 8, 1994, between the Company and the University of Florida Research Foundation, Inc. Filed herewith. 10.12* Employment Agreement effective as of November 1, 1993, between the Company and Dr. Katherine Gordon. Filed herewith. 11 Statement re: Computation of loss per share. Filed herewith. 23.1 Consent of Richard A. Eisner & Company, LLP. Filed herewith. 23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed as Exhibit 5 herewith. 24 Power of attorney. Included on the signature page hereto. 27 Financial Data Schedule. Filed herewith.
- ------------------------ * Indicates a management contract or compensatory plan. + Certain confidential material contained in the document has been omitted and filed separately, with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act. II-4 ITEM 28. UNDERTAKINGS (a) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under "Item 24 - --Indemnification of Directors and Officers" above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) 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. (c) 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. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and it has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cambridge, Commonwealth of Massachusetts, on December 19, 1996. APOLLO BIOPHARMACEUTICS, INC. BY: /S/ KATHERINE GORDON ----------------------------------------- Katherine Gordon PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY We, the undersigned officers and directors of Apollo BioPharmaceutics, Inc., hereby severally constitute and appoint Katherine Gordon, Michael Lytton and Stanley Keller, and each of them singly, our true and lawful attorneys-in-fact, with full power to them in any and all capacities, to sign any amendments to this Registration Statement, and any related Rule 462(b) registration statement or amendment thereto, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact may do or cause to be done by virtue hereof. 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 - ------------------------------ --------------------------- ------------------- President, Chief Executive /s/ KATHERINE GORDON Officer and Director - ------------------------------ (Principal Executive December 19, 1996 Katherine Gordon Officer) Vice President--Finance, Chief Financial Officer /s/ JOHN J. CURRY and Treasurer (Principal - ------------------------------ Financial Officer and December 19, 1996 John J. Curry Principal Accounting Officer) /s/ ROBERT J. LEONARD Vice President--Business - ------------------------------ Development, Director December 19, 1996 Robert J. Leonard /s/ THEODORE GORDON Director - ------------------------------ December 19, 1996 Theodore Gordon /s/ DONALD WEISE Director - ------------------------------ December 19, 1996 Donald Weise /s/ GEORGE MASTERS Director - ------------------------------ December 19, 1996 George Masters II-6 INDEX TO EXHIBITS
EXHIBITS PAGE - ----------- --------- 1 Form of Underwriting Agreement. To be filed by amendment....................................... 3.1 Amended and Restated Certificate of Incorporation. Filed herewith.............................. 3.2 By-laws of the Company. Filed herewith......................................................... 3.3 Registration Rights Agreement, dated December 18, 1996, between the Company and Neuroscience Partners Limited Partnership. Filed herewith................................ 3.4 Warrant to purchase Common Stock of the Company granted to Neuroscience Partners Limited Partnership dated December 18, 1996. Filed herewith.......................................... 4.1 Specimen Common Stock Certificate. To be filed by amendment.................................... 4.2 Specimen Common Stock Purchase Warrant. To be filed by amendment............................... 5 Opinion of Palmer & Dodge LLP as to the legality of the shares being registered. Filed herewith...................................................................................... 10.1* Amended and Restated 1993 Incentive and Non-Qualified Stock Option Plan. Filed herewith................................................................................ 10.2* 1996 Director Stock Option Plan. Filed herewith................................................ 10.3 Form of Indemnification Agreement between the Company and its directors. Filed herewith. Such agreements are materially different only as to the signing directors and the dates of execution.......................................................... 10.4+ Royalty Purchase Agreement dated December 18, 1996 between the Company and Neuroscience Partners Limited Partnership. Filed herewith.......................................................... 10.5+ Research and Collaboration Agreement, dated as of December 6, 1994, between the Company and Endocon, Inc. To be filed by amendment....................................................... 10.6+ Nonexclusive Sublicense Agreement, dated as of November 5, 1996, between the Company and Cephalon, Inc. Filed herewith................................................................ 10.7+ License and Collaboration Agreement, dated as of April 16, 1996, between the Company and Athena Neurosciences, Inc. Filed herewith........................................................... 10.8+ Neuron Loss Protection Technology License Agreement, dated April 13, 1993, between the Company and the University of Kentucky Research Foundation. Filed herewith................................................................................ 10.9+ Patent License Agreement with Research Component, dated December 15, 1993, restated October 15, 1996, between the Company and the University of Florida Research Foundation, Inc. Filed herewith...................................................................................... 10.10+ Corporate Research Agreement to Accompany License Agreement, dated December 15, 1993, between the Company and the University of Florida. Filed herewith.................................... 10.11+ Patent License Agreement, dated September 8, 1994, between the Company and the University of Florida Research Foundation, Inc. Filed herewith....................... 10.12* Employment Agreement effective as of November 1, 1993, between the Company and Dr. Katherine Gordon. Filed herewith..................................................... 11 Statement re: Computation of loss per share. Filed herewith.................................... 23.1 Consent of Richard A. Eisner & Company, LLP. Filed herewith.................................... 23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed as Exhibit 5 herewith............................................................................ 24 Power of attorney. Included on the signature page hereto........................................ 27 Financial Data Schedule. Filed herewith........................................................
- ------------------------ * Indicates a management contract or compensatory plan. + Certain confidential material contained in the document has been omitted and filed separately, with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act. EX-3.1 2 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF APOLLO GENETICS, INC. INCORPORATED PURSUANT TO AN ORIGINAL CERTIFICATE OF INCORPORATION FILED WITH THE SECRETARY OF STATE OF DELAWARE ON JULY 20, 1992 We, the undersigned, for the purpose of amending and restating the Certificate of Incorporation of Apollo Genetics, Inc. (the "Corporation") under the laws of the State of Delaware hereby certify as follows: FIRST. The name of the Corporation is: Apollo BioPharmaceutics, Inc. SECOND. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The nature of the business or purposes to be conducted or promoted by the Corporation is as follows: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 20,000,000 shares of Common Stock, $0.02 par value per share ("Common Stock") and (ii) 1,000,000 shares of Preferred Stock, $0.01 par value per share ("Preferred Stock"). Upon the effectiveness of this Restated Certificate of Incorporation, each three and one-third (3 1/3) issued and outstanding shares of Common Stock of the Corporation shall thereby be combined into one (1) validly issued, fully paid, and nonassessable shares of Common Stock of the Corporation. No scrip or fractional shares will be issued, and each fractional share resulting from such combination shall be redeemed by the Corporation for cash at a price per share equal to the price to the public in the initial public offering of the Corporation's Common Stock. There shall not be any change in the number of shares authorized by reason of such combination. The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation. A. COMMON STOCK. 1. GENERAL. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series. 2. VOTING. The holders of the common stock are entitled to one vote for each share held at all meetings of stockholders (and written actions in lieu of meetings). There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of Delaware. 3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. 4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any equivalent or preferential rights of any then outstanding Preferred Stock. B. PREFERRED STOCK. Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided. Any shares of Preferred Stock which may be redeemed, purchased or otherwise acquired by the Corporation may be reissued except as otherwise provided by law. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided. Authority is hereby expressly granted to the Board of Directors, from time to time, to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including, without limitation thereof, dividend rights, special voting rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or -2- hereafter permitted by the General Corporation Law of Delaware. Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law. Except as otherwise specifically provided in this Amended and Restated Certificate of Incorporation, no vote of the holders of the Preferred Stock or Common Stock shall be a prerequisite to the issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of this Amended and Restated Certificate of Incorporation, the right to have such voting being expressly waived by all present and future holders of the capital stock of the Corporation. FIFTH. In furtherance of and not in limitation of powers conferred by statute, it is further provided: 1. Election of directors need not be by written ballot; and 2. The directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the entire Board permits, with the term of office of one class expiring each year. The initial Class I directors elected by the stockholders of the Corporation shall hold office for a term expiring at the 1997 annual meeting of stockholders; the initial Class II directors elected by the stockholders of the Corporation shall hold office for a term expiring at the 1998 annual meeting of stockholders; and the initial Class III directors elected by the stockholders of the Corporation shall hold office for a term expiring at the 1999 annual meeting of stockholders. At each such annual meeting of stockholders and at each annual meeting thereafter, successors to the class of directors whose term expires at that meeting shall be elected for a term expiring at the third annual meeting following their election and until their successors shall be elected and qualified, subject to prior death, resignation, retirement or removal. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no event will a decrease in the number of directors shorten the term of any incumbent director. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the election, terms of office and other features of such directorships shall be governed by the terms of the vote establishing such series, and such directors so elected shall not be divided into classes pursuant to this Article unless expressly provided by such terms. This Section 2 of Article may not be amended, revised or revoked, in whole or in part, except by the affirmative vote of the holders of 80% of the voting power of the shares of all classes of stock of the Corporation entitled to vote for the election of directors, considered for the purposes of this Article as one class of stock. 3. Each director chosen to fill a vacancy in the Board of Directors shall be elected to complete the term of office of the director who is being succeeded. In the case of any election of a new director to fill a directorship created by an enlargement of the Board, the Board shall in such election assign the class of directors to which such additional director -3- is being elected, and each director so elected shall hold office for the same term as the other members of the class to which the director is assigned. 4. Except as otherwise determined by the Board of Directors in establishing a series of Preferred Stock as to directors elected by holders of such series, at any special meeting of the stockholders called at least in part for the purpose, any director or directors may, by the affirmative vote of the holders of at least a majority of the stock entitled to vote for the election of directors, by removed from office for cause. The provisions of this subsection shall be the exclusive method for the removal of directors. This Section 4 of Article may not be amended, revised or revoked, in whole or in part, except by the affirmative vote of the holders of 80% of the voting power of the shares of all classes of stock of the Corporation entitled to vote for the election of directors, considered for the purposes of this Article as one class of stock. 5. The Board of Directors is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation. SIXTH. Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for the Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholder or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. SEVENTH. Except to the extent that the General Corporation Law of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. -4- EIGHTH: No action required to be taken or that may be taken at any annual or special meeting of stockholders of the Corporation may be taken by written consent without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. This Article may not be amended, revised or revoked, in whole or in part, except by the affirmative vote of the holders of 80% of the voting power of the shares of all classes of stock of the Corporation entitled to vote for the election of directors, considered for the purposes of this Article as one class of stock. NINTH. 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) (each such person being referred to hereinafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and may appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding anything to the contrary in this Article, except as set forth in Section 6 below, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. 2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any Indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a -5- manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability and in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses (including attorneys' fees) which the Court of Chancery of Delaware or such other court shall deem proper. 3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, he shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto. 4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at his own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 4. The Indemnitee shall have the right to employ his own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article. The Corporation shall not be entitled, without the consent of the -6- Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. 5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in the event that the Corporation does not assume the defense pursuant to Section 4 of this Article of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article, any expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter, PROVIDED, HOWEVER, that the payment of such expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all mounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article. Such undertaking may be accepted without reference to the financial ability of such person to make such repayment. 6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such indemnification or advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation or the written request of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the Corporation determines, by clear and convincing evidence, within such 60-day period that the Indemnitee did not meet the applicable standard of conduct set forth in Section 1 or 2, as the case may be. Such determination shall be made in each instance by (a) a majority vote of a quorum of the directors of the Corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question ("disinterested directors"), (b) if not such quorum is obtainable, a majority vote of a committee of two or more disinterested directors, (c) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit or proceeding in question, (d) independent legal counsel (who may be regular legal counsel to the Corporation), or (e) a court of competent jurisdiction. 7. REMEDIES. The right to indemnification or advances as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above in Section 6. Unless otherwise provided by law, the burden of proving that the Indemnitee is not entitled to indemnification or advancement of expenses under this Article shall be on the Corporation. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the -7- action or create a presumption that the Indemnitee has not met the applicable standard of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. 8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this Article or of the relevant provisions of the General Corporation Law of Delaware or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. 9. OTHER RIGHTS. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of the Indemnitee. Nothing contained in this Article shall be deemed to prohibit or limit, and the Corporation is specifically authorized to enter into, agreements with officers and procedures different from those set forth in this Article. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article. 10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement to which the Indemnitee is entitled. 11. INSURANCE. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) against any expense, liability or loss incurred by him in any such capacity,or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of Delaware. -8- 12. MERGER OR CONSOLIDATION. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Article with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation. 13. SAVINGS CLAUSE. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. DEFINITIONS. Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of Delaware shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i). 15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware is amended after adoption of this Article to expand further the indemnification permitted to Indemnities, then the Corporation shall indemnify such persons to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. TENTH. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. ELEVENTH. Section 203 of the General Corporation of Law of Delaware, as it may be amended from time to time, shall apply to the Corporation. EXECUTED in the city of Cambridge, Massachusetts, on the 9th day of December, 1996. /s/ Katherine Gordon --------------------------- Katherine Gordon President ATTESTED: /s/ Michael Lytton - ---------------------------- Secretary EX-3.2 3 EXHIBIT 3.2 BY-LAWS OF APOLLO GENETICS, INC. Adopted by the Board of Directors on November 6, 1996 ARTICLE I STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. All meetings of stockholders shall be held at the principal office of the corporation or at such other place as may be named in the notice. SECTION 2. ANNUAL MEETING. The annual meeting of stockholders for the election of directors and the transaction of such other business as may properly come before the meeting shall be held on such date and at such hour and place as the directors or an officer designated by the directors may determine. If the annual meeting is not held on the date designated therefor, the directors shall cause the meeting to be held as soon thereafter as convenient. SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders may be called at any time by the President or a majority of the Board of Directors. SECTION 4. NOTICE OF MEETINGS. Except where some other notice is required by law, written notice of each meeting of stockholders, stating the place, date and hour thereof and the purposes for which the meeting is called, shall be given by the Secretary under the direction of the Board of Directors or the President, not less than ten nor more than sixty days before the date fixed for such meeting, to each stockholder of record entitled to vote at such meeting. Notice shall be given personally to each stockholder or left at his or her residence or usual place of business or mailed, postage prepaid, and addressed to the stockholder at his or her address as it appears upon the records of the corporation. In case of the death, absence, incapacity or refusal of the Secretary, such notice may be given by a person designated either by the Secretary or by the person or persons calling the meeting or by the Board of Directors. A waiver of such notice in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to such notice. Attendance of a person at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. Except as required by statute, notice of any adjourned meeting of the stockholders shall not be required. SECTION 5. RECORD DATE. The Board of Directors may fix in advance a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action. Such record date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days before any other action to which such record date relates. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held, and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6. NOMINATION OF DIRECTORS. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors at any annual or special meeting of stockholders. Nominations of persons for election as directors may be made only by or at the direction of the Board of Directors, or by any stockholder entitled to vote for the election of directors at the meeting in compliance with the notice procedures set forth in this Section 6. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the President or the Secretary. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 45 days before the meeting; PROVIDED, HOWEVER, that if less than 60 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation that are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or any successor provision thereto; and (b) as to the stockholder giving the notice, (i) the name and record address of such stockholder and (ii) the class and number of shares of capital stock of the corporation that are beneficially owned by such stockholder. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if the chairman should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. -2- SECTION 7. ADVANCE NOTICE OF BUSINESS AT ANNUAL MEETINGS. At any annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be brought properly before an annual meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the President or the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be brought properly before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the President or the Secretary. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 45 days before the meeting; PROVIDED, HOWEVER, that if less than 60 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation that are beneficially owned by the stockholder and (iv) any material interest of the stockholder in such business. Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 7, PROVIDED, HOWEVER, that nothing in this Section 7 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the foregoing procedure, and if the chairman should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 8. VOTING LIST. The officer who has charge of the stock ledger of the corporation shall make or have made, at least 10 days before every meeting of stockholders, a complete list of the stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days before the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote at any meeting of stockholders. -3- SECTION 9. QUORUM OF STOCKHOLDERS. At any meeting of the stockholders, the holders of a majority in interest of all stock issued and outstanding and entitled to vote upon a question to be considered at the meeting, present in person or represented by proxy, shall constitute a quorum for the consideration of such question; but, in the absence of a quorum, a smaller group may adjourn any meeting from time to time. When a quorum is present at any meeting, a majority of the votes properly cast shall, except where a different vote is required by law, by the Certificate of Incorporation or by these by-laws, decide any question brought before such meeting. Any election by stockholders shall be determined by a plurality of the vote cast by the stockholders entitled to vote at the election. SECTION 10. PROXIES AND VOTING. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock held of record by such stockholder, but no proxy shall be voted or acted upon after three years from its date, unless said proxy provides for a longer period. Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held, and persons whose stock is pledged shall be entitled to vote unless in the transfer by the pledgor on the books of the corporation the pledgee shall have been expressly empowered to vote thereon, in which case only the pledgee or the pledgee's proxy may represent said stock and vote thereon. Shares of the capital stock of the corporation belonging to the corporation or to another corporation, a majority of whose shares entitled to vote in the election of directors is owned by the corporation, shall neither be entitled to vote nor be counted for quorum purposes. SECTION 11. CONDUCT OF MEETING. Meetings of the stockholders shall be presided over by one of the following officers in the order specified and if present and acting: the President, a Vice-President (and, in the event there be more than one person in any such office, in the order of their seniority), or, if none of the foregoing is in office and present and acting, a chairman designated by the Board of Directors or, in the absence of such designation, a chairman chosen by the stockholders at the meeting. The Secretary of the corporation, if present, or an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the chairman of the meeting shall appoint a secretary of the meeting. The Board of Directors may adopt such rules, regulations and procedures for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgement of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, (i) the establishment of an agenda or order of business for the meeting, (ii) rules and procedures for maintaining order at the meeting and the safety of those present, (iii) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting -4- shall determine, (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof, and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. ARTICLE II DIRECTORS SECTION 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors, who may exercise all of the powers of the corporation that are not by law required to be exercised by the stockholders. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled. SECTION 2. NUMBER; ELECTION; TENURE AND QUALIFICATION. Subject to any restrictions contained in the Certificate of Incorporation, the number of directors that shall constitute the whole Board shall be fixed by resolution of the Board of Directors but in no event shall be less than one. The directors shall be elected in the manner provided in the Certificate of Incorporation, by such stockholders as have the right to vote thereon. The number of directors may be increased or decreased by action of the Board of Directors. Directors need not be stockholders of the corporation. SECTION 3. ENLARGEMENT OF THE BOARD. Subject to any restrictions contained in the Certificate of Incorporation, the number of the Board of Directors may be increased at any time, such increase to be effective immediately unless otherwise specified in the resolution, by vote of a majority of the directors then in office. SECTION 4. VACANCIES. Unless and until filled by the stockholders and except as otherwise determined by the Board of Directors in establishing a series of Preferred Stock as to directors elected by the holders of such series, any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board and an unfilled vacancy resulting from the removal of any director, may be filled by vote of a majority of the directors then in office although less than a quorum or the full Board, or by the sole remaining director. Each director so chosen to fill a vacancy shall serve for a term determined in the manner provided in the Certificate of Incorporation. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective. If at any time there are no directors in office, then an election of directors may be held in accordance with the General Corporation Law of the State of Delaware. -5- SECTION 5. RESIGNATION. Any director may resign at any time upon written notice to the corporation. Such resignation shall take effect at the time specified therein, or if no time is specified, at the time of its receipt by the President or the Secretary. SECTION 6. REMOVAL. Directors may be removed from office only as provided in the Certificate of Incorporation. The vacancy or vacancies created by the removal of a director may be filled by the stockholders at the meeting held for the purpose of removal or, if not so filled, by the directors in the manner provided in Section 4 of this Article II. SECTION 7. COMMITTEES. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee to replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of any such committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of such absent or disqualified member. The Board of Directors shall have the power to change the members of any such committee at any time, to fill vacancies therein and to discharge any such committee, either with or without cause, at any time. Any such committee, to the extent permitted by law and to the extent provided in a resolution of the Board of Directors or in these by-laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it. A majority of all the members of any such committee may fix its rules of procedure, determine its action and fix the time and place, whether within or without the State of Delaware, of its meetings and specify what notice thereof, if any, shall be given, unless the Board of Directors shall otherwise by resolution provide. Each committee shall keep regular minutes of its meetings and make such reports as the Board of Directors may from time to time request. SECTION 8. MEETINGS OF THE BOARD OF DIRECTORS. Regular meetings of the Board of Directors may be held without call or formal notice at such places either within or without the State of Delaware and at such times as the Board may by vote from time to time determine. A regular meeting of the Board of Directors may be held without call or formal notice immediately after and at the same place as the annual meeting of the stockholders, or any special meeting of the stockholders at which a Board of Directors is elected. Special meetings of the Board of Directors may be held at any place either within or without the State of Delaware at any time when called by the President, the Secretary or two or more directors. Reasonable notice of the time and place of a special meeting shall be given to each director unless such notice is waived by attendance or by written waiver in the manner -6- provided in these by-laws for waiver of notice by stockholders. Notice may be given by, or by a person designated by, the Secretary, the person or persons calling the meeting, or the Board of Directors. No notice of any adjourned meeting of the Board of Directors shall be required. In any case it shall be deemed sufficient notice to a director to send notice by mail at least seventy-two hours, or by telegram or fax at least forty-eight hours, before the meeting, addressed to such director at his or her usual or last known business or home address. Directors or members of any committee may participate in a meeting of the Board of Directors or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting. SECTION 9. QUORUM AND VOTING. A majority of the total number of directors shall constitute a quorum, except that when a vacancy or vacancies exist in the Board, a majority of the directors then in office (but not less than one-third of the total number of the directors) shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting from time to time. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, except where a different vote is required by law, by the Certificate of Incorporation or by these by-laws. SECTION 10. COMPENSATION. The Board of Directors may fix fees for their services and for their membership on committees, and expenses of attendance may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity, as an officer, agent or otherwise, and receiving compensation therefor. SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting and without notice if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or of such committee. ARTICLE III OFFICERS SECTION 1. TITLES. The officers of the corporation shall consist of a President, a Secretary, a Treasurer and such other officers with such other titles as the Board of Directors shall determine, who may include without limitation a Chairman of the Board, a Vice-Chairman of the Board and one or more Vice-Presidents, Assistant Treasurers or Assistant Secretaries. -7- SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation shall be elected annually by the Board of Directors at its first meeting following the annual meeting of the stockholders. Each officer shall hold office until his or her successor is elected and qualified, unless a different term is specified in the vote electing such officer, or until his or her earlier death, resignation or removal. SECTION 3. QUALIFICATION. Unless otherwise provided by resolution of the Board of Directors, no officer, other than the Chairman or Vice-Chairman of the Board, need be a director. No officer need be a stockholder. Any number of offices may be held by the same person, as the directors shall determine. SECTION 4. REMOVAL. Any officer may be removed, with or without cause, at any time, by resolution adopted by the Board of Directors. SECTION 5. RESIGNATION. Any officer may resign by delivering a written resignation to the corporation at its principal office or to the the President or the Secretary. Such resignation shall be effective upon receipt or at such later time as may be specified therein. SECTION 6. VACANCIES. The Board of Directors may at any time fill any vacancy occurring in any office for the unexpired portion of the term and may leave unfilled for such period as it may determine any office other than those of President, Treasurer and Secretary. SECTION 7. POWERS AND DUTIES. The officers of the corporation shall have such powers and perform such duties as are specified herein and as may be conferred upon or assigned to them by the Board of Directors and shall have such additional powers and duties as are incident to their office except to the extent that resolutions of the Board of Directors are inconsistent therewith. SECTION 8. PRESIDENT AND VICE-PRESIDENTS. Except to the extent that such duties are assigned by the Board of Directors to the Chairman of the Board, or in the absence of the Chairman or in the event of his or her inability or refusal to act, the President shall be the chief executive officer of the corporation and shall have general and active management of the business of the corporation and general supervision of its officers, agents and employees, and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall preside at each meeting of the stockholders and the Board of Directors unless a Chairman or Vice-Chairman of the Board is elected by the Board and is assigned the duty of presiding at such meeting. The Board of Directors may assign to any Vice-President the title of Executive Vice-President, Senior Vice-President or any other title selected by the Board of Directors. In the absence of the President or in the event of his or her inability or refusal to act, the duties of the President shall be performed by the Executive Vice-President, if any, Senior Vice President, if any, or Vice President, if any, in that order (and, in the event there be more than -8- one person in any such office, in the order of their seniority), and when so acting, such officer shall have all the powers of and be subject to all the restrictions upon the President. SECTION 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall attend all meetings of the Board of Directors and of the stockholders and record all the proceedings of such meetings in a book to be kept for that purpose, shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, shall maintain a stock ledger and prepare lists of stockholders and their addresses as required and shall have custody of the corporate seal, which the Secretary or any Assistant Secretary shall have authority to affix to any instrument requiring it and attest by any of their signatures. The Board of Directors may give general authority to any other officer to affix and attest the seal of the corporation. Any Assistant Secretary may, in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, perform the duties and exercise the powers of the Secretary. SECTION 10. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall have the custody of the corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by or pursuant to resolution of the Board of Directors. The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors or the President, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings or whenever they may require it, an account of all transactions and of the financial condition of the corporation. Any Assistant Treasurer may, in the absence of the Treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Treasurer. SECTION 11. BONDED OFFICERS. The Board of Directors may require any officer to give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors upon such terms and conditions as the Board of Directors may specify, including without limitation a bond for the faithful performance of the duties of such officer and for the restoration to the corporation of all property in his or her possession or control belonging to the corporation. SECTION 12. SALARIES. Officers of the corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors or any committee thereof appointed for the purpose. -9- ARTICLE IV STOCK SECTION 1. CERTIFICATES OF STOCK. One or more stock certificates, signed by the Chairman or Vice-Chairman of the Board of Directors or by the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, shall be issued to each stockholder certifying the number of shares of the corporation's capital stock owned by the stockholder. Any or all signatures on any such certificate may be facsimiles. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature shall have been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Each certificate for shares of stock that are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the by-laws, applicable securities laws, or any agreement among any number of stockholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction. SECTION 2. TRANSFERS OF SHARES OF STOCK. Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or the authenticity of signature as the corporation or its transfer agent may reasonably require. The corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to that stock, regardless of any transfer, pledge or other disposition of that stock, until the shares have been transferred on the books of the corporation in accordance with the requirements of these by-laws. SECTION 3. LOST CERTIFICATES. A new stock certificate may be issued in the place of any certificate theretofore issued by the corporation and alleged to have been lost, stolen, destroyed or mutilated, upon such terms in conformity with law as the Board of Directors shall prescribe. The directors may, in their discretion, require the owner of the lost, stolen, destroyed or mutilated certificate, or the owner's legal representatives, to give the corporation a bond, in such sum as they may direct, to indemnify the corporation against any claim that may be made against it on account of the alleged loss, theft, destruction or mutilation of any such certificate, or the issuance of any such new certificate. -10- SECTION 4. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be required to, issue fractions of a share. If the corporation does not issue fractions of a share, it shall (i) arrange for the disposition of fractional interests by those entitled thereto, (ii) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (iii) issue scrip or warrants in registered or bearer form, which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions that the Board of Directors may impose. SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor, at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. ARTICLE V INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the extent legally permissible, indemnify each person who may serve or who has served at any time as a director or officer of the corporation or of any of its subsidiaries, or who at the request of the corporation may serve or at any time has served as a director, officer or trustee of, or in a similar capacity with, another organization or an employee benefit plan, against all expenses and liabilities (including counsel fees, judgments, fines, excise taxes, penalties and amounts payable in settlements) reasonably incurred by or imposed upon such person in connection with any threatened, pending or completed action, suit or other proceeding, whether civil, criminal, administrative or investigative, in which he may become involved by reason of his serving or having served in such capacity (other than a proceeding voluntarily initiated by such person unless he is successful on the merits, the proceeding was authorized by the corporation or the proceeding seeks a declaratory judgment regarding his own conduct); provided that no indemnification shall be provided for any such person with respect to any matter as to which he shall have been finally adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation or, to the extent such matter relates to service with respect to any employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan; and provided, further, that as to any matter disposed of by a compromise payment by such person, pursuant to a consent -11- decree or otherwise, the payment and indemnification thereof have been approved by the corporation, which approval shall not unreasonably be withheld, or by a court of competent jurisdiction. Such indemnification shall include payment by the corporation of expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding, upon receipt of an undertaking by the person indemnified to repay such payment if he shall be adjudicated to be not entitled to indemnification under this article, which undertaking may be accepted without regard to the financial ability of such person to make repayment. A person entitled to indemnification hereunder whose duties include service or responsibilities as a fiduciary with respect to a subsidiary or other organization shall be deemed to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation if he acted in good faith in the reasonable belief that his action was in the best interests of such subsidiary or organization or of the participants or beneficiaries of, or other persons with interests in, such subsidiary or organization to whom he had a fiduciary duty. Where indemnification hereunder requires authorization or approval by the corporation, such authorization or approval shall be conclusively deemed to have been obtained, and in any case where a director of the corporation approves the payment of indemnification, such director shall be wholly protected, if: 1. the payment has been approved or ratified (l) by a majority vote of a quorum of the directors consisting of persons who are not at that time parties to the proceeding, (2) by a majority vote of a committee of two or more directors who are not at that time parties to the proceeding and are selected for this purpose by the full board (in which selection directors who are parties may participate), or (3) by a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the proceeding; or 2. the action is taken in reliance upon the opinion of independent legal counsel (who may be counsel to the corporation) appointed for the purpose by vote of the directors or in the manner specified in clauses (l), (2) or (3) of subparagraph (i); or 3. the payment is approved by a court of competent jurisdiction; or 4. the directors have otherwise acted in accordance with the standard of conduct set forth in the Delaware General Corporation Law. Any indemnification or advance of expenses under this article shall be paid promptly, and in any event within 30 days, after the receipt by the corporation of a written request therefor from the person to be indemnified, unless with respect to a claim for indemnification the corporation shall have determined that the person is not entitled to indemnification. If -12- the corporation denies the request or if payment is not made within such 30 day period, the person seeking to be indemnified may at any time thereafter seek to enforce his rights hereunder in a court of competent jurisdiction and, if successful in whole or in part, he shall be entitled also to indemnification for the expenses of prosecuting such action. Unless otherwise provided by law, the burden of proving that the person is not entitled to indemnification shall be on the corporation. The right of indemnification under this article shall be a contract right inuring to the benefit of the directors, officers and other persons entitled to be indemnified hereunder and no amendment or repeal of this article shall adversely affect any right of such director, officer or other person existing at the time of such amendment or repeal. The indemnification provided hereunder shall inure to the benefit of the heirs, executors and administrators of a director, officer or other person entitled to indemnification hereunder. The indemnification provided hereunder may, to the extent authorized by the corporation, apply to the directors, officers and other persons associated with constituent corporations that have been merged into or consolidated with the corporation who would have been entitled to indemnification hereunder had they served in such capacity with or at the request of the corporation. The right of indemnification under this article shall be in addition to and not exclusive of all other rights to which such director or officer or other persons may be entitled. Nothing contained in this article shall affect any rights to indemnification to which corporation employees or agents other than directors and officers and other persons entitled to indemnification hereunder may be entitled by contract or otherwise under law. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, trustee, employee or agent of another corporation, partnership, joint venture, trust, other enterprise or employee benefit plan against any liability asserted against such person and incurred by such person in any such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of the General Corporation Law of the State of Delaware. ARTICLE VI GENERAL PROVISIONS SECTION 1. FISCAL YEAR. Except as otherwise designated from time to time by the Board of Directors, the fiscal year of the corporation shall begin on the first day of January and end on the last day of December. -13- SECTION 2. CORPORATE SEAL. The corporate seal shall be in such form as shall be approved by the Board of Directors. The Secretary shall be the custodian of the seal, and a duplicate seal may be kept and used by each Assistant Secretary and by any other officer the Board of Directors may authorize. SECTION 3. CERTIFICATE OF INCORPORATION. All references in these by-laws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the corporation, as in effect from time to time. SECTION 4. EXECUTION OF INSTRUMENTS. The President, the Treasurer and the Secretary shall have power to execute and deliver on behalf and in the name of the corporation any instrument requiring the signature of an officer of the corporation, including deeds, contracts, mortgages, bonds, notes, debentures, checks, drafts and other orders for the payment of money. In addition, the Board of Directors, the President, the Treasurer and the Secretary may expressly delegate such powers to any other officer or agent of the corporation. SECTION 5. VOTING OF SECURITIES. The President, the Treasurer and the Secretary, and each other person authorized by the Board of Directors, each acting singly, may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact for this corporation (with or without power of substitution) at any meeting of stockholders or owners of other interests of any other corporation or organization the securities of which may be held by this corporation. In addition, the Board of Directors, the President and the Treasurer may expressly delegate such powers to any other officer or agent of the corporation. SECTION 6. EVIDENCE OF AUTHORITY. A certificate by the Secretary, an Assistant Secretary or a temporary secretary as to any action taken by the stockholders, directors, a committee or any officer or representative of the corporation shall, as to all persons who rely on the certificate in good faith, be conclusive evidence of that action. SECTION 7. TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction between the corporation and one or more of the directors or officers, or between the corporation and any other corporation, partnership, association or other organization in which one or more of the directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for that reason or solely because the director or officer is present at or participates in the meeting of the Board of Directors or a committee of the Board of Directors that authorizes the contract or transaction or solely because the vote of any such director is counted for such purpose, if: -14- (1) The material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or such committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair to the corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee of the Board of Directors or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes the contract or transaction. SECTION 8. BOOKS AND RECORDS. The books and records of the corporation shall be kept at such places within or without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE VII AMENDMENTS SECTION 1. BY THE BOARD OF DIRECTORS. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present. SECTION 2. BY THE STOCKHOLDERS. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of the holders of a majority of votes properly cast at any regular meeting of stockholders, or at any special meeting of stockholders, provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such special meeting. -15- EX-3.3 4 EXHIBIT 3.3 EXHIBIT 3.3 REGISTRATION RIGHTS AGREEMENT This Agreement is made as of the 18th day of December, 1996. B E T W E E N: NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP, a limited partnership constituted under the laws of the Province of Ontario - and - APOLLO GENETICS, INC., a corporation subsisting under the laws of Delaware RECITALS: 1. Apollo and the Fund have entered into a Royalty Purchase Agreement (the "Royalty Agreement") of even date herewith. 2. Pursuant to the Royalty Agreement, the Fund will purchase Apollo Common Shares, warrants to purchase Apollo Common Shares and a right to convert future Royalties into Apollo Common Shares. 3. Pursuant to the Royalty Agreement, Apollo has agreed to enter into this Registration Rights Agreement. IN CONSIDERATION of the premises, the mutual covenants in this agreement and of other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each Party), the Parties agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, terms defined in the Royalty Agreement not otherwise defined herein shall have the respective meanings assigned thereto in the Royalty Agreement. In addition, the following terms shall have the following respective meanings: -2- "ACT" shall mean the SECURITIES ACT of 1933, as amended; "AGREEMENT" means this agreement, the recitals, all attached schedules and any agreement, exhibit or schedule supplementing or amending this agreement. All uses of the words "hereto", "herein," "hereof," "hereby" and "hereunder" and similar expressions refer to this Agreement and not to any particular section or portion of it. References to an Article, Section, Subsection, Exhibit or Schedule refer to the applicable article, section, subsection, exhibit or schedule of this Agreement; "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Act; "COMPANY" shall mean Apollo; "HOLDER" shall mean the Fund holding Registrable Securities and any other Person holding Registrable Securities to whom the rights under this Agreement have been transferred in accordance with Section 10 hereof; "INITIAL PUBLIC OFFERING" shall mean the initial public offering of the Company, a reverse take-over or any other event pursuant to which securities of the Company become listed and posted for trading on any stock exchange or qualified for unlisted trading privileges on any trade reporting and quotation system for over-the-counter trading; "INITIATING HOLDER" shall mean any Holder or Holders who, in the aggregate, hold not less than twenty-five percent (25%) of the outstanding Registrable Securities; "REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a registration statement in compliance with the Act, and the declaration or ordering of the effectiveness of such registration statement; "REGISTRABLE SECURITIES" shall mean the Shares and any Apollo Common Shares or other securities issued or issuable with respect to the Shares upon any stock split, stock dividend, recapitalization, or similar event, or any Apollo Common Shares otherwise issued or issuable with respect to the Shares, provided, however, that Apollo Common Shares or other securities shall only be treated as Registrable securities if and so long as they have not been sold to or through a broker or dealer or underwriter' in a public distribution or a public securities transaction; -3- "REGISTRATION EXPENSES" shall mean all expenses, except Selling Expenses, incurred by the Company in complying with paragraphs 2, 3 and 4 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incidental to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company and the fees and expenses of counsel for the Holders); "RESTRICTED SECURITIES" shall mean the securities of Apollo that are restricted securities under the SECURITIES ACT and applicable state securities laws; "SELLING EXPENSES" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holder and fees and expenses of counsel for the Holder; "SHARES" shall mean: (i) the Apollo Common Shares issued to the Fund pursuant to the Subscription Agreement; (ii) the Apollo Common Shares issuable upon exercise of the Warrants; and (iii) the Apollo Common Shares issuable upon exercise of the Conversion Right; "SUBSCRIPTION AGREEMENT" shall mean the Subscription Agreement between Apollo and the Fund dated of even date herewith; and "WARRANTS" shall mean the $.70 warrants and the $.875 Warrants, collectively. 2. COMPANY REGISTRATION. (a) NOTICE OF REGISTRATION. If at any time or from time to time after the completion date of the Company's Initial Public Offering, the Company shall determine to register any of its securities, either for its own account or the account of a securityholder or holders (other than pursuant to Section 3 of this Agreement), other than (i) a registration relating solely to employee benefit plans, or (ii) a registration relating solely to a Commission Rule 145 transaction, the Company will: (i) promptly give to any Holder written notice thereof; and -4- (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 20 days after receipt of such written notice from the Company, by any Holder. (b) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise any Holder as a part of the written notice given pursuant to Section 2(a)(i). In such event the right of any Holder to registration pursuant to this paragraph 2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 2, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit the number of Registrable Securities and other securities to be included in such registration or exclude them entirely. The Company shall advise any Holder distributing its securities through such underwriting of the managing underwriter's limitation and the number of Shares of Registrable Securities and other securities that may be included in the underwriting (the "Other Shares"). The Other Shares shall be allocated among the Holders of Registrable Securities and the holders of other securities, if more than one, in proportion, as nearly as practicable, to the respective amounts of Registrable Securities and other securities held by such Holders and holders at the time of filing the registration statement. To facilitate the allocation of securities in accordance with the above provisions, the Company may round the number of securities allocated to any Holder or holder to the nearest 100 shares. If any Holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to 90 days after the effective date of the registration statement relating to the -5- underwriting, or such other shorter period of time as the underwriters may require. (c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2 prior to the effectiveness of such registration whether or not any Holder has elected to include Registrable Securities in such registration. 3. REQUESTED REGISTRATION. (a) REQUEST FOR REGISTRATION. In case the Company shall receive from any Initiating Holders a written request that the Company effect a registration: (i) at any time 13 months after the completion date of the Company's Initial Public Offering, with respect to a maximum of 714,429 Registrable Securities; and (ii) at any time 25 months after the completion of the Company's Initial Public Offering, with respect to all of the Registrable Securities, the Company will as soon as practicable, use its best efforts to effect such registration (including, without limitation, appropriate qualification under applicable blue sky or other state or provincial securities laws and appropriate compliance with applicable regulations issued under the Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request. The Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 3: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act, it being acknowledged and agreed that the Company is not restricted from effecting a registration in California, Illinois, Massachusetts, Minnesota and New York by virtue of this Section 3(a)(ii); (ii) after the Company has initiated two such registrations pursuant to this Section 3 (counting for these purposes only registrations which have been declared or ordered effective and pursuant to which securities have been sold and registrations which have been withdrawn by the Holders as to which the -6- Holders have not elected to bear the Registration Expenses pursuant to Section 5 hereof and would, absent such election, have been required to bear such expenses); (iii) during the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a Company-initiated registration; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; and (iv) if the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 4 hereof. Subject to the foregoing clauses (i) to (iv), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request of any Holder and in any event within one hundred twenty (120) days after receipt of such request; provided, however, that if (i) in the good faith judgment of the Board of Directors of the Company, such registration would be seriously detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is essential to defer the filing of such registration statement at such time, and (ii) the Company shall furnish to Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company for such registration statement to be filed in the near future and it is, therefore, essential to defer the filing of such registration statement, then the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders, and, provided further, that the Company shall not defer its obligation in this manner more than once in any twelve-month period. (b) UNDERWRITING. In the event that a registration pursuant to this Section 3 is for a registered public offering involving an underwriting, the Company shall so advise the Holder. In such event, the right of any Holder to such registration shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 3, and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested shall be limited to the extent provided herein. -7- The Company shall (together with any Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 3, if the managing underwriter advises the Holder in writing that marketing factors require a limitation of the number of shares to be underwritten, then the number of Registrable Securities that may be included in the registration and underwriting shall be equal to the number specified by the underwriter, provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If the Holder of Registrable Securities disapproves of the terms of the underwriting, the Holder may elect to withdraw therefrom by written notice to the Company and the managing underwriter. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to 90 days after the effective date of such registration, or such other shorter period of time as the underwriters may require. 4. REGISTRATION ON FORM S-3. If any Holder requests that the Company file a registration statement on Form S-3 (or any successor form to Form S-3) for a public offering of shares of the Registrable Securities the reasonably anticipated aggregate price to the public of which, net of underwriting discounts and commissions, would exceed $500,000, and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering, the Company shall use its best efforts to cause such Registrable Securities to be registered for the offering on such form and to cause such Registrable Securities to be qualified in such jurisdictions as any Holder may reasonably request. Provided, however, that the Company shall not be required to effect more than one registration pursuant to this Section 4 in any calendar year. The substantive provisions of Section 3(b) shall be applicable to each registration under this Section 4. 5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with all registrations pursuant to this Agreement shall be borne by the Company; provided, however, that if the Holders bear the Registration -8- Expenses for any registration proceeding begun pursuant to Section 3 and subsequently withdrawn by the Holders registering shares therein, such registration proceeding shall not be counted as a requested registration pursuant to Section 3 hereof; and provided further, however, that: (i) if at the time of such withdrawal, the Holders have learned of a material adverse event with respect to the condition, business or prospects of the Company not known to the Holders at the time of their request; or (ii) such withdrawal is made after a deferral of such registration by the Company pursuant to Section 3(a), then the Holders shall not be required to pay any of such expenses and such registration proceeding shall not be counted as a requested registration pursuant to Section 3 hereof. All Selling Expenses relating to securities so registered shall be borne by the Holders of such securities pro rata on the basis of the number of shares of securities so registered on their behalf, as shall any other expenses in connection with the registration required to be borne by the Holders of such securities. 6. REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Agreement, the Company will keep any Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense, the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least sixty (60) days or until the distribution described in the Registration Statement has been completed. (b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to any Holder such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by him. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by any Holder. -9- (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Any Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify any Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Agreement, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Agreement: (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to any Holder requesting registration of Registrable Securities; and (ii) a letter, dated such date, from the independent accountants of the Company, in form and substance as is customarily given by independent accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to any Holder requesting registration of Registrable Securities. 7. INDEMNIFICATION. (a) The Company will indemnify any Holder, each of its respective officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Act, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, -10- offering circular or other document, or any amendment or supplement thereto, incidental to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of any federal, state, provincial or common law rule or regulation applicable to the Company in connection with any such registration, qualification or compliance, and the company will reimburse each such Holder, each of their respective officers and directors, and each person controlling such Holder, each such underwriter and each person who controls each such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expanse arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document -11- in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein. Notwithstanding the foregoing, the liability of each Holder under this subsection (b) shall be limited in an amount equal to the public offering price of the shares sold by such Holder, unless such liability arises out of or is based on willful misconduct by such Holder. (c) Each party entitled to indemnification under this Section 7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, provided, however, that the Indemnifying Party shall bear the expense of independent counsel for the Indemnified Party if the Indemnified Party reasonably determines that representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 8. INFORMATION BY HOLDER. Any Holder of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder, the Registrable Securities held by him and the distribution proposed by such Holder as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. -12- 9. RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to Use its best efforts to: (a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Act, at all times after the effective date that the Company becomes subject to the reporting requirements of the Act or the SECURITIES EXCHANGE ACT of 1934, as amended. (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Act and the SECURITIES EXCHANGE ACT of 1934, as amended (at any time after it has become subject to such reporting requirements); (c) so long as any Holder owns any Restricted Securities, to furnish to any Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Act and the SECURITIES EXCHANGE ACT of 1934 (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as any Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 10. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted under Sections 2, 3 and 4 may be assigned to a transferee or assignee in connection with any transfer or assignment of the Warrants, the Conversion Right or Registrable Securities by a Holder, provided that such transfer may otherwise be effected in accordance with applicable securities laws and such transferee or assignee assumes in writing the obligations of such Holder under this Agreement. 11. STANDOFF AGREEMENT. Each Holder agrees, so long as such Holder holds Registrable Securities that, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Apollo Common Shares (other than those included -13- in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the underwriters, provided that the officers and directors of the Company enter into similar agreements. 12. TERMINATION OF REGISTRATION RIGHTS. All rights of the Holders under this Agreement shall terminate 5 years from the completion date of the Company's Initial Public Offering. 13. AMENDMENT OF REGISTRATION RIGHTS. Any provision of the Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and any Holders. Any amendment or waiver effected in accordance with this Section shall be binding upon each Holder of any Registrable Securities then outstanding, each future holder of such Registrable Securities, and the Company. 14. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. The Company shall not, without the prior written consent of any Holder, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder to include such securities in any registration filed under this Agreement, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of any Holders which is included 15. ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement among the Parties with regard to the subject matter hereof. Nothing in this Agreement, express or implied, is intended to confer upon any person or entity, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided herein. 16. GOVERNING LAW. This Agreement shall be governed by and interpreted and enforced in accordance with the laws in force in the Commonwealth of Massachusetts. The Parties irrevocably submit to the non-exclusive jurisdiction of the courts of the Commonwealth of Massachusetts with respect to any matter arising hereunder or related thereto. -14- 17. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 18. NOTICES, ETC. All notices and other communications required or permitted hereunder shall be given or made in accordance with the provisions for notice set out in Section 10.13 of the Royalty Agreement. 19. SEVERABILITY. Any invalidity, illegality or limitation in the enforceability of the Agreement or any part thereof, by any Holder whether arising by reason of the law of the respective Holder's domicile or otherwise, shall in no way affect or impair the validity, legality or enforceability of this Agreement with respect to any other Holder. If any provision of this Agreement shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 20. TITLES AND SUBTITLES. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 21 NUMBER AND GENDER. In this Agreement, words in the singular include the plural and vice versa and words in one gender include all genders. 22. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 23. DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power or remedy accruing to the Holders, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy, nor shall be construed to be a waiver of any such breach or default, or any acquiescence therein, or of any similar breach or default hereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It is further agreed that any Holder, permit, consent or approval of any kind or character by a Holder of any breach or default under this Agreement, or any waiver a Holder of any provisions or conditions of this Agreement must be in writing and shall. be effective only to the extent specifically set forth in writing and that all remedies, either under this agreement, or by law or otherwise afforded to a Holder, shall be cumulative and not alternative. -15- 24. ATTORNEY FEES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to its reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first written above. NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP by its General Partner MDS ASSOCIES-NEUROSCIENCE INC. Per: /s/ Michael J. Callaghan, Vice-President _____________________________________ Michael J. Callaghan, Vice-President Per: /s/ Keith Dorrington, Vice-President _____________________________________ Keith Dorrington, Vice-President APOLLO GENETICS, INC. Per: ______________________________________ EX-3.4 5 EXHIBIT 3.4 EXHIBIT 3.4 WARRANT TO PURCHASE COMMON STOCK OF APOLLO GENETICS, INC. For valuable consideration, the receipt and sufficiency of which is hereby acknowledged, APOLLO GENETICS, INC. (the "Company") hereby grants unto NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP (the "holder"), subject to the terms and conditions set forth herein, warrants (the "Warrants") to subscribe for and to have issued to it, subject to adjustment as provided for herein, 150,000 shares of $.02 par value common stock ("Common Shares") in the capital of the Company, as the same may be reorganized or reclassified pursuant to any of the events set out herein, as fully paid and non-assessable, for an exercise price of $131,250 or $.875 per Common Share, (the "Exercise Price"). The Warrants may be exercised at any time in whole or from time to time in part, in accordance with and subject to the provisions hereof up to 5:00 p.m. (Boston time) on December 17, 2003 (the "Time of Expiry"). If any of the Warrants have not been exercised by the Time of Expiry all rights under any unexercised Warrants shall wholly cease and terminate and such Warrants shall be void and of no value or effect. The Warrants are being granted pursuant to a Royalty Purchase Agreement between the Company and the holder dated the date hereof (the "Purchase Agreement"). In the event of any conflict or inconsistency between the provisions of the Warrants and the provisions of the Purchase Agreement, the Purchase Agreement shall govern. 1. EXERCISE OF WARRANTS (a) EXERCISE The Warrants may be exercised by the holder in accordance with the provisions hereof by surrendering to the Company at its principal office, in the City of Cambridge, Massachusetts, or at such other address in the United States as the holder may be notified in writing by the Company, at any time after the date hereof up to the Time of Expiry this certificate, together with a Subscription Form, substantially in the form attached hereto as Schedule 1, duly completed and executed, and cash or a certified cheque, money order or bank draft payable to or to the order of the Company for the amount equal to the Exercise Price per Common Share multiplied by the number of Common Shares subscribed for. (b) PARTIAL EXERCISE The holder may subscribe for and have issued to it a number of Common Shares less than the total number the holder is entitled to pursuant to this warrant certificate. In the event of any such subscription prior to the Expiry Time, the holder shall be entitled to receive, without charge, a new warrant certificate (containing the same terms and conditions as this certificate) in respect of the balance of the Common Shares for which holder was entitled to subscribe pursuant to this warrant certificate and which were then not subscribed for. (c) NET EXERCISE Provided that the Common Shares are: (i) listed and posted for trading on a national securities exchange; or (ii) qualified for unlisted trading privileges on a trade reporting and quotation system for over-the-counter trading, the holder shall have the right to require the Company to exchange the Warrants (the "Exchange Option"), in whole or in part at any time or from time to time prior to the Expiry Time, for Common Shares as provided for in this Section. Upon exercise of the Exchange Option, the Company shall deliver to the holder (without payment by the holder of any kind) the number of Common Shares calculated as follows: Y(A-B) X = -------- A where: X = the number of Common Shares to be issued to the holder upon the exercise of the Exchange Option. Y = the maximum number of Common Shares issuable pursuant to the Warrants immediately prior to the exercise of the Exchange Option, provided that if the holder requests exchange with respect only to part of the Warrants, this number shall be that number of Warrants for which exchange has been requested. A = the Current Market Price on the day immediately preceding the receipt of the Warrant Certificate and Subscription Form specifying that the holder is exercising the Exchange Option. B = the Exercise Price in effect immediately prior to the exercise of the Exchange Option. For the purposes of the Exchange Option, "Current Market Price" at any date, means the weighted average of the closing prices per Common Share for the 30 trading days immediately prior to such date at which the Common Shares have traded on: (i) the principal national securities exchange on which the Common Shares are listed and posted for trading; or (ii) if the Common Shares are not listed and posted for trading on a national securities exchange, on the trade reporting and quotation system for over-the-counter trading on which the Common Shares are qualified for unlisted trading privileges. The Exchange Option may be exercised by the holder, in whole or in part at any time or from time to time, by surrending or delivering to the Company prior to the Expiry Time at the address specified in Section 1(a) hereof with the Subscription Form, duly completed and executed, specifying that the holder is exercising the Exchange Option to acquire the number of Common Shares then issuable upon such exchange pursuant to this Section. 2 (d) SHARE CERTIFICATES Within 15 days after the date on which the Company receives a duly completed and executed Subscription Form (the "Exercise Date"), the Company shall (without payment by the holder of any kind, other than as provided in Section 1(a) above) issue and deliver to the address specified by the holder, registered in such name or names as the holder may direct or if no such direction has been given, in the name of the holder, a certificate or certificates for the number of Common Shares issuable hereunder as a result of the delivery of the Subscription Form. Such exercise shall be deemed to have been effected as of the close of business on the Exercise Date and at such time the rights of the holder with respect to the Warrants which have been exercised as such shall cease, and the person or persons in whose name or names any certificate or certificates for Common Shares shall then be issuable upon such exercise or deemed exercise shall be deemed to have become the holder or holders of record of the Common Shares represented thereby. (e) FRACTIONAL SHARES No fractional shares shall be issued upon exercise of the Warrants. (f) CORPORATE CHANGES If the Company shall be a party to any reorganization, merger, amalgamation, dissolution or sale of all or substantially all of its assets (an "Event"), whether or not the Company is the surviving entity, the number of Warrants shall be adjusted so as to apply to the number of securities to which the holder of that number of Common Shares subject to the unexercised Warrants immediately prior to the Event would have been entitled by reason of such Event. If the number of securities to which the holder is entitled following an Event is greater than the number of unexercised Warrants immediately prior to the Event, then the Exercise Price per share in effect immediately prior to such Event shall be reduced by the reciprocal of the multiple required to be used to arrive at the new number of securities. If the number of securities to which the holder is entitled following an Event is less than the number of unexercied Warrants immediately prior to the Event, then the Exercise Price per share in effect immediately prior to such Event shall be increased by the reciprocal of the fraction required to be used to arrive at the new number of securities. (g) SUBDIVISION OR CONSOLIDATION OF SHARES In the event the Company shall subdivide its outstanding Common Shares into a greater number of Common Shares, the number of Common Shares that the holder shall thereafter be entitled to subscribe for and have issued to it hereunder shall be proportionately increased and the Exercise Price per share in effect immediately prior to such subdivision shall be reduced by the reciprocal of the multiple used to arrive at the new number of Common Shares. Conversely, in the event the Company shall consolidate its outstanding Common Shares into a lesser number of Common Shares, the number of Common Shares that the holder shall thereafter be entitled to subscribe for and have issued to it hereunder shall be 3 proportionately decreased and the Exercise Price per share in effect immediately prior to such consolidation shall be increased by the reciprocal of the fraction used to arrive at the new number of Common Shares. (h) STOCK DIVIDENDS OR DISTRIBUTIONS In the event the Company: (i) issues Common Shares or securities exchangeable for or convertible into Common Shares to all or substantially all the holders of the Common Shares as a stock dividend; or (ii) makes a distribution on its outstanding Common Shares payable in Common Shares or securities exchangeable for or convertible into Common Shares, the number of Common Shares that the holder shall thereafter be entitled to subscribe for and have issued to it hereunder shall be increased in proportion to the increase in the number of outstanding Common Shares (on a fully diluted basis) as a result of the stock dividend or distribution and the Exercise Price per share in effect immediately prior to such stock dividend or distribution shall be reduced by the reciprocal of the multiple used to arrive at the new number of Common Shares. (i) OTHER DISTRIBUTIONS In the event the Company makes a distribution (a "Distribution") on its outstanding Common Shares payable in: (i) shares of the Company of any class other than Common Shares; (ii) rights, options or warrants to acquire shares or securities exchangeable for or convertible into shares or property or other assets of the Company; (iii) evidence of indebtedness; or (iv) any property or other assets of the Company, the Exercise Price per share in effect immediately prior to such Distribution shall be reduced by a fraction that is equal to the ratio of the aggregate fair market value of the Company immediately following the Distribution to the fair market value immediately prior to the Distribution. (j) CHANGE OR RECLASSIFICATION OF SHARES In the event the Company shall change or reclassify its outstanding Common Shares into a different class of securities, the Warrants shall be adjusted so as to apply to the number of the successor class of securities to which the holder of that number of Common Shares subject to the unexercised Warrants immediately prior to the change or reclassification would have been entitled to by reason of such change or reclassification. If the number of securities to which the holder is entitled to subscribe for and have issued to it hereunder following a change or reclassification is greater than the number of unexercised Warrants immediately prior to the change or reclassification, then the Exercise Price per share in effect immediately prior to such change or reclassification shall be reduced by the reciprocal of the multiple required to be used to arrive at the new number of securities. If the number of securities to which the holder is entitled to subscribe for and have issued to it hereunder following a change or reclassification is less than the number of unexercised Warrants immediately prior to the change or reclassification, then the Exercise Price per share in effect immediately prior to such change or reclassification shall be increased by the reciprocal of the fraction required to be used to arrive at the new number of securities. 4 (k) ADDITIONAL SUBSCRIPTIONS If at any time the Company grants to its shareholders the right to subscribe for and purchase pro rata additional securities of the Company or of any other corporation or entity, the Company shall grant to the holder the right to subscribe for and purchase the same securities on the same terms and conditions as being granted to its shareholders pro rata as if the holder was the shareholder of that number of Common Shares subject to the unexercised Warrants. (l) NOTICE OF ADJUSTMENT Upon any adjustment of the number of Common Shares and the Exercise Price per share subject to these Warrants then and in each case the Company shall give written notice thereof to the holder, which notice shall state the number of Common Shares or other securities subject to the unexercised Warrants and the Exercise Price per share resulting from such adjustment, and shall upon receipt of the written request of the holder set forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (m) ADJUSTMENTS CUMULATIVE The adjustments provided for herein are cumulative and will: (i) in the case of adjustments to the Exercise Price, be computed to the nearest one-tenth of one percent; (ii) in the case of adjustments to the number of Common Shares which may be subscribed for and purchased hereunder, be computed to two decimal places and rounded up or down, as appropriate, to the nearest whole number; and (iii) be made successively whenever an event referred to herein occurs. For certainty, no adjustment in the Exercise Price is required to be made unless such adjustment would result in a change of at least one percent (1%) in the prevailing Exercise Price; provided, however, that any adjustments which, except for the provisions of this Subsection, would otherwise have been required to be made, will be carried forward and taken into account in any subsequent adjustments. (n) SHARES TO BE RESERVED The Company will at all times keep available, and reserve out of its authorized Common Shares, solely for the purpose of issue upon the exercise of the Warrants, such number of Common Shares as shall then be issuable upon the exercise or deemed exercise of the Warrants. The Company covenants and agrees that all Common Shares which shall be so issuable will, upon issuance, be duly authorized and issued as fully paid and non-assessable. The Company will take all such actions as may be possible to ensure that all such Common Shares may be so issued without violation of any applicable requirements of any stock exchange upon which the Common Shares may be listed or in respect of which the Common Shares are qualified for unlisted trading privileges and without violation of any applicable law. The Company acknowledges that the Common Shares issuable upon due exercise of the warrants are subject to the Registration Rights Agreement between the parties of even date herewith. 5 2. REPLACEMENT Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this warrant certificate, the Company will issue to the holder a replacement certificate (containing the same terms and conditions as this certificate). 3. EXPIRY DATE The Warrants shall expire and all rights to subscribe for Common Shares hereunder shall cease and become null and void at the Time of Expiry. 4. SATURDAYS, SUNDAYS AND HOLIDAYS If any action is required to be taken pursuant hereto on or by a specified date which is a Saturday, Sunday or a civic or statutory holiday in Boston, Massachusetts or Toronto, Ontario, then such action shall be valid if taken on or by the next succeeding day that is not a Saturday, Sunday or a civic or statutory holiday in Boston, Massachusetts or Toronto, Ontario. 5. GOVERNING LAW This Agreement shall be governed by, and interpreted and enforced in accordance with, the laws in force in the Commonwealth of Massachusetts. The Parties irrevocably submit to the non-exclusive jurisdiction of the courts of the Commonwealth of Massachusetts with respect to any matter arising hereunder or related hereto. 6. AMENDMENT These Warrants and the terms hereof may be amended or supplemented only by a written agreement signed by the Company and the holder. 7. SUCCESSORS Subject to the terms hereof, these Warrants and the terms hereof shall enure to the benefit of and be binding upon the holder and the Company and their respective successors and assigns. 6 IN WITNESS WHEREOF the Company has caused this certificate to be signed by its duly authorized officers. DATED December 18, 1996. APOLLO GENETICS, INC. /s/ Katherine Gordon --------------------------------------- Name: Katherine Gordon Title: President 7 SCHEDULE 1 Subscription Form TO: APOLLO GENETICS, INC. (the "Company") RE: Warrants to purchase 150,000 shares of $.02 par value common stock in the capital of the Company dated December 17, 1996 (the "Warrants"). The undersigned holder hereby irrevocably elects to exercise ____ of the Warrants and hereby subscribes for ____ shares (or other property or securities contemplated in the Warrants) and herewith: X / / encloses cash or a certified cheque, money order or bank draft payable to the order of the Company in payment of the Exercise Price therefor on the terms and conditions set out in the certificate representing the Warrants (the "Warrant Certificate"); or X / / elects, pursuant to Section 1(c) of the Warrant Certificate, to exchange the Warrants for the Common Shares and, subject to the issuance to the holder of a certificate for the warrants not being exchanged pursuant hereto, surrenders the Warrant Certificate to the Company and all right, title and interest to the Warrants being exchanged hereby. If any Warrants represented by this certificate are not being exercised or exchanged, a new warrant certificate is to be issued and delivered to the holder. Terms not otherwise defined herein shall have the meanings assigned thereto in the Warrant Certificate. DATED this ____ day of _______________, _____. [THE HOLDER] By: ____________________________________ Name: Title: DIRECTION AS TO REGISTRATION Name of Registered Holder: _______________________________________________ Address of Registered Holder: _______________________________________________ _______________________________________________ DIRECTIONS AS TO DELIVERY Address of Delivery _______________________________________________ _______________________________________________ Attention: _______________________________________________ EX-5 6 EXHIBIT 5 Exhibit 5 [LETTERHEAD] December 23, 1996 Apollo BioPharmeceutics, Inc. One Kendall Square Building 200, Suite 2200 Cambridge, Massachusetts 02139 We are rendering this opinion in connection with the Registration Statement on Form SB-2 (the "Registration Statement") filed by Apollo BioPharmeceutics, Inc. (the "Company") with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on or about the date hereof. The Registration Statement relates to up to 1,380,000 units (each "Unit" and collectively, the "Units"), each Unit consisting of one share of the Company's Common Stock, $0.02 par value (the "Common Stock"), and a warrant to purchase one share of Common Stock (each, a "Warrant"). We understand that the Units are to be offered and sold in the manner described in the Registration Statement. We have acted as your counsel in connection with the preparation of the Registration Statement. We are familiar with the proceedings of the Board of Directors on November 6, 1996 in connection with the authorization, issuance and sale of the Units (the "Resolutions"). We have examined such other documents as we consider necessary to render this opinion. Based upon the foregoing, we are of the opinion that the shares of Common Stock (the "Shares") and the warrants which comprise the units and the shares of Common Stock issuable upon exercise of the warrants (the "Warrant Shares") have been duly authorized and, the Shares, when issued and delivered by the Company against payment therefor at the price to be determined pursuant to the Resolutions and the Warrant Shares, when issued and delivered by the Company upon exercise of the warrants and the payment of the exercise price thereafter, will be validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as a part of the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the Prospectus filed as part thereof. Very truly yours, /s/ Palmer & Dodge LLP EX-10.1 7 EXHIBIT 10.1 [SUBJECT TO STOCKHOLDER APPROVAL] APOLLO GENETICS, INC. AMENDED AND RESTATED 1993 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN 1. PURPOSE The purpose of this Amended and Restated 1993 Incentive and Non-Qualified Option Plan (the "Plan") is to encourage and enable selected management, other key employees, directors (whether or not employees), and consultants of Apollo Genetics, Inc. (the "Company") or a parent or subsidiary of the Company to acquire a proprietary interest in the Company through the ownership of common stock, par value $.02 per share (the "Common Stock"), of the Company. Such ownership will provide such employees, directors, and consultants with a more direct stake in the future welfare of the Company, and encourage them to remain with the Company or a parent or subsidiary of the Company. It is also expected that the Plan will encourage qualified persons to seek and accept employment with, or become associated with, the Company or a parent or subsidiary of the Company. Pursuant to the Plan, such persons may be offered the opportunity to acquire Common Stock through the grant of incentive stock options and "non-qualified" stock options. As used herein, the term "parent" or "subsidiary" shall mean any present or future corporation which is or would be a "parent corporation" or "subsidiary corporation" of the Company as the term is defined in Section 425 of the Internal Revenue Code of 1986, as amended (the "Code") (determined as if the Company were the employer corporation). 2. ADMINISTRATION OF PLAN The Plan shall be administered by a Compensation Committee (the "Committee") as appointed from time to time by the Board of Directors of the Company, which committee shall consist of not less than two members of the Board of Directors and each member of which shall be a "Non-Employee Director," within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor rule or regulation ("Rule 16b-3"). Except as otherwise specifically provided herein, no person, other than members of the Committee, shall have any discretion as to decisions regarding the Plan. In administering the Plan, the Committee may adopt rules and regulations for carrying out the Plan. The interpretation and decision made by the Committee with regard to any question arising under the Plan shall be final and conclusive on all persons participating or eligible to participate in the Plan. Subject to the provisions of the Plan, the Committee shall determine the terms of all options granted pursuant to the Plan, including, but not limited to, the persons to whom, and the time or times at which, grants shall be made, the number of options to be included in the grants, the number of options which shall be treated as incentive stock options, and the exercise price. 3. SHARES OF STOCK SUBJECT TO THE PLAN Except as provided in subparagraphs 6(h) and 6(i) and paragraph 7, the number of shares that may be issued or transferred pursuant to the exercise of options granted under the Plan shall not exceed 600,000 shares of Common Stock. Such shares may be authorized and unissued shares or previously issued shares acquired or to be acquired by the Company and held in treasury. Any shares subject to an option which for any reason expires or is terminated unexercised as to such shares may again be subject to an option right under the Plan. The aggregate Fair Market Value (determined at the time the option is granted) of the stock with respect to which incentive stock options are exercisable for the first time by an optionee during any calendar year (under the Plan and all plans of the Company and any parent and subsidiary of the Company) shall not exceed $100,000. 4. ELIGIBILITY Incentive stock options may be granted only to management and other key employees who are employed by the Company or a parent or subsidiary of the Company. An incentive stock option may be granted to a director of the Company or a parent or subsidiary of the Company, provided that the director is also an officer or key employee. Directors who are not officers or key employees, and consultants, may only be granted non-qualified stock options. 5. GRANTING OF OPTIONS No options pursuant to this Plan may be granted after the expiration of business on the tenth anniversary of the effective date of the Plan. The date of the grant of any option shall be the date on which the Committee authorizes the grant of such option. 6. OPTIONS Options shall be evidenced by stock option certificates or agreements in such form, not inconsistent with this Plan, as the Committee shall approve from time to time, which agreements need not be identical, and shall be subject to the following terms and conditions: (a) EXERCISE PRICE. The exercise price under each incentive stock option shall be not less than 100% of the Fair Market Value of the Common Stock at the time the option is granted and not less than par value of such Common Stock. In the case of an incentive stock option granted to an employee owning more than 10% of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary of the Company (a "10% Stockholder") actually or constructively under Section 425(d) of the Code, the exercise price shall not be less than 110% of the Fair Market Value of the Common Stock subject to the option at the time of its grant. The purchase price under each non-qualified stock option shall be specified by the Committee, but shall in no case be less than the greater of 50% of the Fair Market Value of the Common Stock at the time the option is granted and the par value of such Common Stock. (b) MEDIUM AND TIME OF PAYMENT. Stock purchased pursuant to the exercise of an option shall at the time of purchase be paid for in full in cash, or, upon conditions established by the Committee, by delivery of shares of Common Stock owned by the recipient. If payment is made by the delivery of shares, the value of the shares delivered shall be the Fair Market Value of such shares on the date of exercise of the respective option. Upon receipt of payment and such documentation as the Company may deem necessary to establish compliance with the Securities Act of 1933, as amended (the "Securities Act"), the Company shall, without stock transfer tax to the optionee or other person entitled to exercise the option, deliver to the person exercising the option a certificate or certificates for such shares. It shall be a condition to the performance of the Company's obligation to issue or transfer Common Stock upon exercise of an option or options that the optionee pay, or make provision satisfactory to the Company for the payment of, any taxes (other than stock transfer taxes) which the Company is obligated to collect with respect to the issue or transfer of Common Stock upon such exercise, including any federal, state, or local withholding taxes. (c) WAITING PERIOD. The waiting period and time for exercising an option shall be prescribed by the Committee in each particular case; provided, however, that no option may be exercised after ten years from the date it is granted. In the case of an incentive stock option granted to a 10% Stockholder, such option, by its terms, shall be exercisable only within five years from the date of grant. (d) RIGHTS AS A STOCKHOLDER. A recipient of options shall have no rights as a stockholder with respect to any shares issuable or transferable upon exercise thereof until the date a stock certificate is issued to him for such shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. (e) NON-ASSIGNABILITY OF OPTIONS. No option shall be assignable or transferable by 4$ s the recipient except by will or by the laws of descent and distribution. During the lifetime of a recipient, options shall be exercisable only by him. (f) EFFECT OF TERMINATION OF EMPLOYMENT. If a recipient's employment (or service as an officer, director or consultant) shall terminate for any reason, other than death or Retirement, the right of the recipient to exercise any option otherwise exercisable on the date of such termination shall expire unless such right is exercised within a period of three months after the date of such termination. The term "Retirement" shall mean the voluntary termination of employment (or service as an officer, director or consultant) by a recipient who has attained the age of 55 and who has at least five years service with the Company. If a recipient's employment (or service as an officer, director or consultant) shall terminate because of death or Retirement, the right of the recipient to exercise any option otherwise exercisable on the date of such termination shall be unaffected by such termination and shall continue until the normal expiration of such option. Notwithstanding the foregoing, the tax treatment available pursuant to Section 422 of the Code upon the exercise of an incentive stock option will not be available to a recipient who exercises any incentive stock option more than (i) 12 months after the date of termination of employment due to death or (ii) three months after the date of termination of employment due to Retirement. Option rights shall not be affected by any change of employment as long as the recipient continues to be employed by either the Company or a parent or subsidiary of the Company. In no event, however, shall an option be exercisable after the expiration of its original term as determined by the Committee pursuant to subparagraph 6(c) above. The Committee may, if it determines that to do so would be in the Company's best interests, provide in a specific case or cases for the exercise of options which would otherwise terminate upon termination of employment with the Company for any reason, upon such terms and conditions as the Committee determines to be appropriate, nothing in the Plan or in any option agreement shall confer any right to continue in the employ of the Company or any parent or subsidiary of the Company or interfere in any way with the right of the Company or any parent or subsidiary of the Company to terminate the employment of a recipient at any time. (g) LEAVE OF ABSENCE. In the case of a recipient on an approved leave of absence, the Committee may, if it determines that to do so would be in the best interests of the Company, provide in a specific case for continuation of options during such leave of absence, such continuation to be on such terms and conditions as the Committee determines to be appropriate, except that in no event shall an option be exercisable after 10 years from the date it is granted. (h) RECAPITALIZATION. In the event the Committee in its discretion determines that any stock dividends, extraordinary cash dividends, creation of a class of equity securities, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price substantially below fair market value, or other similar transaction affects the Common Stock such that an adjustment is required in order to preserve the benefits or potential benefits intended to be made available under the Plan, then the Committee (subject, in the case of Incentive Stock Options, to any limitation required under the Code) shall equitably adjust any or all of (i) the number of shares available under the Plan, (ii) the number of shares deliverable upon the exercise of any outstanding options granted under the Plan and (ii) the net exercise price with respect to any outstanding options. (i) SALE OR REORGANIZATION. In case the Company is merged or consolidated with another corporation, or in case the property of stock of the Company is acquired by another corporation, or in case of a separation, reorganization, or liquidation of the Company, the Board of Directors of the Company, or the board of directors of any corporation assuming the obligations of the Company hereunder, shall either (i) make appropriate provisions for the Protection of any outstanding options by the-substitution on an equitable basis of appropriate stock of the Company, or appropriate stock of the merged, consolidated, or otherwise reorganized corporation, provided only that such substitution of options shall, with respect to incentive stock options, comply with the requirements of Section 425 of the Code, or (ii) give written notice to optionees that their options must be exercised within 30 days of the date of such notice or they will be terminated, and in connection with such notice, the Committee may in its discretion accelerate or waive any waiting period. (j) GENERAL RESTRICTIONS. Each option granted under the Plan shall be subject to the requirement that, if at any time the Board of Directors shall determine, in its discretion, that the listing, registration, or qualification of the shares issuable or transferable upon exercise thereof upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the granting of such option or the issue, transfer, or purchase of shares thereunder, such option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. The Company shall not be obligated to sell or issue any shares of Common Stock in any -manner in contravention of the Securities Act or any state securities law. The Board of Directors may, in connection with the granting of each option, require the individual to whom the option is to be granted to enter into an agreement with the Company stating that as a condition precedent to each exercise of the option, in whole or in part, he shall, if then required by the Company, represent to the Company in writing that such exercise is for investment only and not with a view to distribution, and also setting forth such other terms and conditions as the Committee may prescribe. Such agreements may also, in the discretion of the Committee, contain provisions requiring the forfeiture of any options granted and/or Common Stock held, in the event of the termination of employment or association, as the case may be, of the optionee with the Company. Upon any forfeiture of Common Stock pursuant to any agreement authorized by the preceding sentence, the Company shall pay consideration for such Common Stock to the optionee, pursuant to any such agreement, without interest thereon. "The Fair Market Value" for all purposes under the Plan shall mean the closing price of shares of Common Stock, as reported in the Wall Street Journal, by the Nasdaq Stock Market or similar successor consolidated transactions reports (or a similar consolidated transactions report for the exchange on which the shares of Common Stock are then trading) for the relevant date, or if no sales of shares of Common Stock were made on such date, the average of the high and low prices of shares as reported in such composite transaction report for the preceding day on which sales of shares were made. If the shares are not listed on a national securities exchange or by the Nasdaq Stock Market at the time Fair Market Value is to be determined, then Fair Market Value shall be determined by the Committee in good faith pursuant to such method as the Committee deems appropriate and equitable. Under no circumstances shall the Fair Market Value of a share of Common Stock be less than its par value. 7. TERMINATION AND AMENDMENT OF THE PLAN The Board of Directors shall have the right to amend, suspend, or terminate the Plan at any time: provided, however, that no such action shall affect or in any way impair the rights of a recipient under any option right theretofore granted under the Plan; and, provided, further, that unless first duly approved by the stockholders of the Company entitled to vote thereon at a meeting (which may be the annual meeting) duly called and held for such purpose, except as provided in subparagraphs 6(h) and 6(i), no amendment or change shall be made in the Plan: (a) increasing the total number of shares which may be issued or transferred under the Plan; (b) extending the period during which options may be granted or exercised under the Plan; or (c) changing the designation of persons eligible to receive options under the Plan. 8. NOTICE OF SALE OF SHARES REQUIRED The optionee agrees to notify the Company in writing within thirty (30) days of the disposition of one or more shares of stock which were transferred to such optionee pursuant to the exercise of an incentive stock option granted under this Plan if such disposition occurs within two years of the date of grant of the option or within one year after the exercise of the option. 9. EFFECTIVE DATE OF THE PLAN This Plan shall become effective December 17, 1993, subject, however, to approval by the stockholders of the Company within 12 months next following adoption by the Board of Directors; and if such approval is not obtained, the Plan shall terminate and any and all options granted during such interim period shall also terminate and be of no further force or effect. The Plan shall, in all events, terminate on the tenth anniversary of the effective date of the Plan, or on such earlier date as the Board of Directors of the Company may determine. Any option outstanding at the termination date shall remain outstanding until it has either expired or has been exercised. 10. COMPLIANCE WITH RULE 16b-3 With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors. To the extent any provision of the Plan or action by the Committee (or any other person on behalf of the Committee or the Company) fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. EX-10.2 8 EXHIBIT 10.2 [SUBJECT TO STOCKHOLDER APPROVAL] APOLLO GENETICS, INC. 1996 DIRECTOR STOCK OPTION PLAN The purpose of this 1996 Director Stock Option Plan (the "Plan") of Apollo Genetics, Inc. (the "Company") is to attract and retain highly qualified non-employee directors of the Company and to encourage ownership of stock of the Company by such Directors so as to provide additional incentives to promote the success of the Company. 1. ADMINISTRATION OF THE PLAN. Grants of stock options under the Plan shall be automatic as provided in Section 6. However, all questions of interpretation with respect to the Plan and options granted under it shall be determined by the Board of Directors of the Company (the "Board") or by a committee consisting of one or more directors appointed by the Board and such determination shall be final and binding upon all persons having an interest in the Plan. 2. PERSONS ELIGIBLE TO PARTICIPATE IN THE PLAN. All directors of the Company who are not employees of the Company or of any subsidiary of the Company shall be eligible to participate in the Plan, unless such director irrevocably elects not to participate. 3. SHARES SUBJECT TO THE PLAN. (a) The aggregate number of shares of the Company's Common Stock which may be subject to options under this Plan is 90,000 shares. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. (b) In the event of a stock dividend, split-up, combination or reclassification of shares, recapitalization or other similar capital change relating to the Company's Common Stock, the maximum aggregate number and kind of shares or securities of the Company as to which options may be granted under this Plan and as to which options then outstanding shall be exercisable, and the exercise price of such options shall be appropriately adjusted so that the proportionate number of shares or other securities as to which options may be granted and the proportionate interest of holders of outstanding options shall be maintained as before the occurrence of such event. (c) In the event of a consolidation or merger of the Company with another corporation where the Company's stockholders do not own a majority in interest of the surviving or resulting corporation, or the sale or exchange of all or substantially all of the assets of the Company, or a reorganization or liquidation of the Company, any deferred exercise period shall be automatically accelerated and each holder of an outstanding option shall be entitled to receive, upon exercise and payment in accordance with the terms of the option, the same shares, securities or property as he would have been entitled to receive upon the occurrence of such event if he had been, immediately prior to such event, the holder of the number of shares of Common Stock purchasable under his or her option; provided, however, that in lieu of the foregoing the Board may, upon written notice to each holder of an outstanding option or right under the Plan, provide that such option or right shall terminate on a date not less than 20 days after the date of such notice unless theretofore exercised. (d) Whenever options under this Plan lapse or terminate or otherwise become unexercisable, the shares of Common Stock which were subject to such options may again be subject to options under this Plan. The Company shall, at all times while this Plan is in force, reserve such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Plan. 4. NON-STATUTORY STOCK OPTIONS. All options granted under this Plan shall be non-statutory options, not entitled to special tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 5. FORM OF OPTIONS. Options granted hereunder shall be evidenced by certificates in substantially the form of the attached EXHIBIT A, or in such other form as the Board or any committee appointed pursuant to Section 1 above may from time to time determine. 6. GRANT OF OPTIONS AND OPTION TERMS. (a) AUTOMATIC GRANT OF OPTIONS. (i) On the date of the annual meeting of the stockholders in every third year (a "Grant Year"), beginning with the 1996 annual meeting, each eligible director continuing in office after such meeting shall automatically be granted options under the Plan to purchase 9,000 shares of Common Stock. (ii) Upon the initial election of an eligible director other than at an annual meeting of the stockholders in a Grant Year (whether by the Board or the stockholders and whether to fill a vacancy or otherwise), such director shall automatically be granted options to purchase 3,000 shares of Common Stock under the Plan for each year, or portion thereof, between the date of such election and the date of the next annual meeting in a Grant Year. (iii) No options shall be granted hereunder after ten years from the date on which this Plan was initially approved and adopted by the Board. (b) DATE OF GRANT. The "Date of Grant" for options granted under this Plan shall be the date of the annual meeting of stockholders in a Grant Year, the date of the annual meeting of stockholders (if not in a Grant Year) at which the option holder is first elected, or the date on which the option holder is elected by the Board to fill a vacancy, as the case may be. (c) EXERCISE PRICE. The per share exercise price for each option granted under this Plan shall be the current fair market value of a share of Common Stock of the Company as determined (i) prior to date on which the Company becomes subject to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), by the Board in good faith or in the manner established by the Board from time to time, and (ii) on or after the date on which the Company is subject to the Exchange Act, by the last sale price for the Company's Common Stock as reported by the Nasdaq Stock Market for the business day immediately preceding the Date of Grant. (d) TERM OF OPTION. The term of each option granted under this Plan shall be ten years from the Date of Grant. (e) EXERCISABILITY OF OPTIONS. Options granted under this Plan shall become exercisable with respect to 3,000 shares on the Date of Grant and on each annual meeting of stockholders of the Company following the Date of Grant, if and only if the option holder is a member of the Board at the opening of business on that date (e.g., options to purchase 9,000 shares of Common Stock granted at the 1996 annual meeting will become exercisable with respect to 3,000 shares at each of the 1996, 1997 and 1998 annual meetings). (f) GENERAL EXERCISE TERMS. Directors holding exercisable options under this Plan who cease to serve as members of the Board may, during their lifetime, exercise the rights they had under such options at the time they ceased being a director for the full unexpired term of such option. Any rights that have not yet become exercisable shall terminate upon cessation of membership on the Board. Upon the death of a director, those entitled to do so shall have the right, at any time within twelve months after the date of death, to exercise, in whole or in part, any rights which were available to the director at the time of his or her death. The rights of the option holder may be exercised by the holder's guardian or legal representative in the case of disability and by the beneficiary designated by the holder in writing delivered to the Company or, if none has been designated, by the holder's estate or his or her transferee on death in accordance with this Plan, in the case of death. Options granted under the Plan shall terminate, and no rights thereunder may be exercised, after the expiration of the applicable exercise period. Notwithstanding the foregoing provisions of this section, no rights under any options may be exercised after the expiration of ten years from their Date of Grant. (g) METHOD OF EXERCISE AND PAYMENT. Options may be exercised only by written notice to the Company at its head office accompanied by payment of the full exercise price for the shares of Common Stock as to which they are exercised. The exercise price shall be paid in cash or by check or in shares of Common Stock of the Company, or in any combination thereof. Shares of Common Stock surrendered in payment of the exercise price shall have been held by the person exercising the option for at least six months, unless otherwise permitted by the Board or any committee appointed pursuant to Section 1 above. The value of shares delivered in payment of the exercise price shall be their fair market value, as determined in accordance with Section 6(c) above, as of the date of exercise. Upon receipt of such notice and payment, the Company shall promptly issue and deliver to the optionee (or other person entitled to exercise the option) a certificate or certificates for the number of shares as to which the exercise is made. (h) NON-TRANSFERABILITY. Options granted under this Plan shall not be transferable by the holder thereof otherwise than by will or the laws of descent and distribution or as permitted by the Board or any committee appointed pursuant to Section 1 above. 7. LIMITATION OF RIGHTS. (a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the granting of an option or any other action taken pursuant to the Plan, shall constitute an agreement or understanding, express or implied, that the Company will retain an option holder as a director for any period of time or at any particular rate of compensation. (b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. A director shall have no rights as a stockholder with respect to the shares covered by options until the date the director exercises such options and pays the exercise price to the Company, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such option is exercised and paid for. 8. AMENDMENT OR TERMINATION. The Board may amend or terminate this Plan at any time, provided that, to the extent necessary to comply with Rule 16b-3 under the Securities Exchange Act of 1934, this Plan shall not be amended more than once every six months, other than to comport with changes in the Code, ERISA or the rules thereunder. 9. STOCKHOLDER APPROVAL. This Plan is subject to approval by the stockholders of the Company by the affirmative vote of the holders of a majority of the shares of Common Stock of the Company present, or represented and entitled to vote, at a meeting duly held in accordance with the laws of the State of Delaware. In the event such approval is not obtained, all options granted under this Plan shall be void and without effect. 10. GOVERNING LAW. This Plan shall be governed by and interpreted in accordance with the laws of the State of Delaware. EX-10.3 9 EXHIBIT 10.3 INDEMNIFICATION AGREEMENT [NAME OF DIRECTOR] This Agreement dated _______________ is between Apollo Genetics, Inc. (the "Company"), a Delaware corporation, and [NAME OF DIRECTOR] (the "Director"), who is a director of the Company. Its purpose is to provide the maximum protection for the Indemnitee (as defined below) against personal liability arising out of Director's service to the Company so as to encourage the continuation of such service and the effective exercise of the director's business judgment. The parties hereto agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings hereafter assigned to them: (a) "Change in Control" shall mean that the following has occurred: (i) there has been a change in control of the Company, not approved by a resolution of the Company's Board of Directors, of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any successor provision thereof, including in any event the acquisition by any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) of beneficial ownership, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities, (ii) followed within a period of not more than two years by a change in the identity of a majority of the members of the Company's Board of Directors otherwise than through death, disability or retirement in accordance with the Company's normal retirement policies. (b) "Claim" shall mean any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation, whether conducted by the Company or any other party, that the Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. (c) "Expenses" shall include attorneys' fees and all other costs, expenses and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any Claim relating to any Indemnifiable Event. (d) "Indemnifiable Event" shall mean any event or occurrence related to the fact that the Director is or was a director, officer, employee, agent or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by the Director in any such capacity. (e) "Indemnitee" shall mean Director and any partnership, corporation, trust or other entity of which Director is or was a partner, a partner of the general partner of, shareholder, trustee, director, officer, member, employee or agent and any other entity or person that may be subject to a Claim by reason of (or arising in part out of) an Indemnifiable Event, and the references to Indemnitee in this Indemnification Agreement shall be understood to refer severally to each Indemnitee. (f) "Potential Change in Control" shall mean that any of the following have occurred: (i) any person publicly announces an intention to take or to consider taking actions which if consummated might result in a Change in Control, (ii) any "person" (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) acquires beneficial ownership, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities, or (iii) the Company's Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (g) "Reviewing Party" shall mean the person or body appointed by the Company's Board of Directors pursuant to Section 2(b) hereof, which shall not be or include a person who is a party to the particular Claim for which the Indemnitee is seeking indemnification. 2. BASIC INDEMNIFICATION ARRANGEMENT. (a) In the event that the Indemnitee was or is a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify the Indemnitee to the fullest extent permitted by law as soon as practicable but in any event no later than thirty days after written demand is presented to the Company, against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of such Claim. If so requested by the Indemnitee, the Company shall advance (within two business days of such request) all Expenses to the Indemnitee (an "Expense Advance"). Notwithstanding anything in this Agreement to the contrary, prior to a Change in Control, the Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Claim initiated by the Indemnitee against the Company or any director or officer of the Company (otherwise than to enforce his rights under this Agreement) unless the Company has consented to the initiation of such Claim. -2- (b) In the event of any demand by the Indemnitee for indemnification hereunder or under the Company's Amended and Restated Certificate of Incorporation or By-laws, the Board of Directors of the Company shall designate a Reviewing Party, who shall, if there has been a Change of Control of the Company, be the special independent counsel referred to in Section 3 hereof. The obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the special independent counsel referred to in Section 3 hereof is involved) that the Indemnitee is not permitted to be indemnified under applicable law, and the obligation of the Company to make an Expense Advance pursuant to Section 2(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that the Indemnitee is not permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by the Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid. If the Indemnitee has commenced legal proceedings in a court of competent jurisdiction to secure a determination that the Indemnitee may be indemnified under applicable law, any determination made by the Reviewing Party that the Indemnitee is not permitted to be indemnified under applicable law shall not be binding, and the Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect hereto (as to which all rights of appeal therefrom have been exhausted or lapsed). If there has been no determination by the Reviewing Party or if the Reviewing Party determines that the Indemnitee is not permitted to be indemnified in whole or in part under applicable law, the Indemnitee shall have the right to commence litigation in any court in the State of Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and the Indemnitee. 3. CHANGE IN CONTROL. The Company agrees that if there is a Change in Control of the Company, then with respect to all matters thereafter arising concerning the rights of the Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or under the Company's Amended and Restated Certificate of Incorporation or By-laws now or hereafter in effect relating to Claims for Indemnifiable Events, the Company shall seek legal advice only from special independent counsel selected by the Indemnitee and approved by the Company (which approval shall not be unreasonably withheld) who has not otherwise performed services for the Company within the last ten years (other than in connection with such matters) or for the Indemnitee. Such counsel among other things, shall render its written opinion to the Company and the Indemnitee as to whether and to what extent the Indemnitee is permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the special independent counsel and to indemnify such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages relating to this Agreement or its engagement pursuant hereto. -3- 4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in Control, the Company may create a Trust for the benefit of the Indemnitee (either alone or together with one or more other indemnitees) and from time to time fund such Trust in such amounts as the Company's Board of Directors may determine to satisfy Expenses reasonably anticipated to be incurred in connection with investigating, preparing for and defending any Claim relating to an Indemnifiable Event, and all judgments, fines, penalties and settlement amounts of all Claims relating to an Indemnifiable Event from time to time paid or claimed, reasonably anticipated or proposed to be paid. The terms of any Trust established pursuant hereto shall provide that upon a Change in Control (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee, (ii) the Trustee shall advance, within two business days of a request by the Indemnitee, all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the circumstances under which the Indemnitee would be required to reimburse the Company under Section 2(b) of this Agreement), (iii) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (iv) all unexpended funds in such Trust shall revert to the Company upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be a person or entity satisfactory to the Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its obligations under this Agreement. 5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify the Indemnitee against all expenses (including attorneys' fees) and, if requested by the Indemnitee, shall (within two business days of such request) advance such expenses to the Indemnitee, which are incurred by the Indemnitee in connection with any claim asserted against or action brought by the Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or Company By-law or provision of the Company's Amended and Restated Certificate of Incorporation now or hereafter in effect relating to Claims for Indemnifiable Events or (ii) recovery under any directors' and officers' liability insurance policies maintained by the Company, regardless of whether the Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. 6. PARTIAL INDEMNITY, ETC. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim but not for the total amount thereof, the Company shall indemnify the Indemnitee for the portion thereof to which the Indemnitee is entitled. Notwithstanding any other provision of this Agreement, to the extent that the Indemnitee has been successful on the merits or otherwise in defense of Claims relating to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, the Indemnitee shall be indemnified against all Expenses incurred in connection therewith. In connection with any determination by the Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that the Indemnitee is not so entitled. -4- 7. NO PRESUMPTION. For purposes of this Agreement, the termination of any claim, action, suit or proceeding by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that the Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 8. NON-EXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be in addition to any other rights the Indemnitee may have under the Company's Amended and Restated Certificate of Incorporation and By-laws or the Delaware General Corporation Law or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company's Amended and Restated Certificate of Incorporation and By- laws and this Agreement, it is the intent of the parties hereto that the Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. 9. LIABILITY INSURANCE. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, the Director shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent to the coverage available for any Company director or officer. 10. AMENDMENTS, ETC. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 11. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all such papers and do all such things as may be necessary or desirable to secure such rights. 12. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any claim made against the Indemnitee to the extent the Indemnitee has otherwise received payment (under any insurance policy, the Company's Amended and Restated Certificate of Incorporation, or the Company's By-laws or otherwise) of the amounts otherwise indemnifiable hereunder. 13. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company, spouses, heirs, and personal and legal representatives. This Agreement shall continue in effect regardless of whether the Director continues to serve as an officer or director of the Company or of any other enterprise at the Company's request. -5- 14. SEVERABILITY. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. 15. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of law. IN WITNESS WHEREOF, the undersigned have executed this Indemnification Agreement as of the date first above written. APOLLO GENETICS, INC. By:_________________________________ Title: _________________________________ [NAME OF DIRECTOR] -6- EX-10.4 10 EX 10.4 EXECUTION COPY ROYALTY PURCHASE AGREEMENT BETWEEN NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP BY ITS GENERAL PARTNER, MDS ASSOCIES-NEUROSCIENCE INC. - AND - APOLLO GENETICS, INC. DECEMBER 18, 1996 TABLE OF CONTENTS PAGE NO. ARTICLE 1 DEFINITIONS AND SCHEDULES....................................1 1.1 Definitions..................................................1 1.2 Schedules....................................................9 ARTICLE 2 PURCHASED RIGHTS.............................................9 2.1 Sale of Purchased Rights to the Fund.........................9 2.2 Payment of Royalties.........................................9 2.3 Maximum Royalties............................................9 2.4 Cash Payment Buyout..........................................10 2.5 Liabilities Not Assumed......................................11 ARTICLE 3 REPRESENTATIONS AND WARRANTIES...............................11 3.1 Representations and Warranties of Apollo.....................11 3.1.1 Corporate Matters..................................11 3.1.2 The Financial Statements...........................12 3.1.3 Undisclosed Liabilities............................12 3.1.4 Absence of Changes.................................12 3.1.5 Material Contracts.................................13 3.1.6 Absence of Conflicting Agreements..................14 3.1.7 Consents, Approvals, Etc...........................14 3.1.8 Compliance with Applicable Law.....................15 3.1.9 Litigation.........................................15 3.1.10 Purchased Rights...................................15 3.1.11 No Options.........................................15 3.1.12 Product Rights.....................................15 3.1.13 Non-Arm's Length Transactions......................17 3.1.14 Tax Returns........................................17 3.1.15 Authorized and Issued Share Capital................17 3.1.16 Disclosure.........................................18 3.2 Representations and Warranties of the Fund...................18 3.2.1 Corporate Matters..................................19 3.2.2 Absence of Conflicting Agreements..................19 3.2.3 Consents, Approvals, Etc...........................20 3.2.4 Investment.........................................20 3.2.5 Agreement For Sale.................................20 3.2.6 Investment Experience..............................20 3.2.7 Restricted Securities..............................20 3.2.8 Further Limitations on Disposition.................21 3.2.9 Legends............................................21 3.2.10 Laws of Funds Jurisdiction.........................22 3.3 Commission...................................................22 3.4 Non-Waiver...................................................22 ii 3.5 Survival of Representations and Warranties...................22 ARTICLE 4 COVENANTS....................................................22 4.1 Covenants....................................................22 4.2 Non-Waiver and Audit.........................................28 ARTICLE 5 CONVERSION RIGHT.............................................29 5.1 Conversion Right.............................................29 5.2 Terms and Conditions Governing the Conversion Right..........29 5.3 Pro rata Reduction of Royalties..............................29 5.4 Paramountcy..................................................30 ARTICLE 6 DEFAULT......................................................30 6.1 Events of Default............................................30 6.2 Remedies.....................................................31 ARTICLE 7 INDEMNIFICATION..............................................32 7.1 Mutual Indemnifications for Breaches of Warranty, etc........32 7.2 Third Party Claims...........................................32 ARTICLE 8 CONFIDENTIALITY..............................................33 8.1 Confidential Information.....................................33 8.2 Non-Disclosure...............................................33 ARTICLE 9 DELIVERIES.ON.EXECUTION......................................34 9.1 Deliveries upon Execution of this Agreement..................34 ARTICLE 10 GENERAL......................................................35 10.1 Headings.....................................................35 10.2 Number and Gender............................................35 10.3 Entire Agreement.............................................35 10.4 Amendment....................................................35 10.5 Waiver of Rights.............................................35 10.6 Applicable Law...............................................36 10.7 Currency.....................................................36 10.8 Tender ......................................................36 10.9 Performance on Holidays......................................36 10.10 Financial Reporting Standards................................36 10.11 Expenses.....................................................36 10.12 Time.........................................................37 10.13 Notices......................................................37 10.14 Assignment...................................................38 10.15 Further Assurances...........................................39 10.16 Independent Parties..........................................39 10.17 Public Announcements.........................................39 iii 10.18 Severability.................................................39 10.19 Counterparts.................................................40 10.20 Facsimile Execution..........................................40 SCHEDULE A FORM OF WARRANTS SCHEDULE B PATENT RIGHTS SCHEDULE C INSTRUMENTS, CONTRACTS, LEASES, LICENCES, RIGHTS OR OTHER AGREEMENTS RELATING TO THE TECHNOLOGY, THE PRODUCT RIGHTS, THE PRODUCTS OR THE PURCHASED RIGHTS SCHEDULE D TERMS AND CONDITIONS GOVERNING THE CONVERSION RIGHT SCHEDULE E FORM OF SUBSCRIPTION AGREEMENT SCHEDULE F FORM OF REGISTRATION RIGHTS AGREEMENT SCHEDULE G FINANCIAL STATEMENTS SCHEDULE H GRANTS AND OPTIONS THIS AGREEMENT IS MADE AS OF THE 18TH DAY OF DECEMBER, 1996 B E T W E E N: NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP, a limited partnership constituted under the laws of the Province of Ontario - and - APOLLO GENETICS, INC., a corporation subsisting under the laws of Delaware RECITALS: 1. Apollo is the licensee or proprietor of know-how, intellectual property rights and materials relating to the use of estrogen in the treatment of Chronic Neurodegenerative Diseases. 2. Apollo has agreed to sell and the Fund has agreed to purchase a portion of the revenues generated from such know-how, intellectual property rights and materials, on the terms provided in this Agreement. IN CONSIDERATION of the premises, the mutual covenants in this Agreement and of other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each Party), the Parties agree as follows: ARTICLE 1 DEFINITIONS AND SCHEDULES 1.1 DEFINITIONS In this Agreement: "$.70 WARRANTS" means warrants to acquire 350,000 Apollo Common Shares for a price of US$ .70 per Apollo Common Share for a period of 7 years from the date of execution of this Agreement in the form and on the terms and conditions attached hereto as Schedule A to be issued and delivered by Apollo to the Fund on execution of this Agreement; 2 "$.875 WARRANTS" means warrants to acquire 150,000 Apollo Common Shares for a price of US$ .875 per common share for a period of 7 years from the date of execution of this Agreement in the form and on the terms and conditions attached hereto as Schedule A to be issued and delivered by Apollo to the Fund on execution of this Agreement; "AFFILIATE" means a Person which, directly or indirectly, controls, is controlled by or is under common control with another, it being understood and agreed that Athena Neurosciences, Inc. and Endocon, Inc. (including its successor pursuant to the merger transaction referred to at page 33 of the Private Placement Memorandum) are not Affiliates of Apollo hereunder; "AGGREGATE ROYALTIES" means, at any time, the aggregate dollar amounts paid by Apollo to the Fund pursuant to item (i) and (ii) of the Purchased Rights; "AGREEMENT" means this agreement, the recitals, all attached schedules and any agreement, exhibit or schedule supplementing or amending this agreement. All uses of the words "hereto", "herein," "hereof," "hereby" and "hereunder" and similar expressions refer to this Agreement and not to any particular section or portion of it. References to an Article, Section, Subsection, Exhibit or Schedule refer to the applicable article, section, subsection, exhibit or schedule of this Agreement; "APOLLO COMMON SHARES" means the shares of common stock, $.02 par value per share, of Apollo as such shares are constituted on the date hereof, as the same may be reorganized, reclassified or changed pursuant to a capital reorganization or otherwise; "APOLLO" means Apollo Genetics, Inc., its existing and future Affiliates, and any successors of Apollo Genetics Inc. or such Affiliates (including any successor by reason of amalgamation, merger or statutory arrangement of Apollo Genetics Inc. and/or such Affiliates); "APPLICABLE LAW" means, in respect of any Person, property, transaction or event, any statute, law, ordinance, rule, regulation, regulatory policy, by-law, order, judgment, decree or restriction of any kind whatever applicable to that Person, property, transaction or event; "ATHENA AGREEMENT" means the Licence and Collaboration Agreement dated April 16, 1996 between Apollo and Athena Neurosciences, Inc.; "BOARD" means the board of directors of Apollo; 3 "BUSINESS DAY" means any day of the week other than a Saturday, Sunday or statutory or civic holiday observed in Toronto, Ontario or Cambridge, Massachusetts; "BUSINESS" means the business of Apollo relating to the Technology as has been carried on by it prior to the date hereof and as may be carried on by it hereafter; "CHRONIC NEURODEGENERATIVE DISEASE" means any chronic neurodegenerative disease or condition in which the anticipated treatment regimen is at least six months; e.g., Alzheimer's disease; "CLAIMS" has the meaning assigned thereto in Article 7; "CLOSING DOCUMENT" means any document, instrument, undertaking or agreement made pursuant to or in connection with this Agreement; "CONFIDENTIAL INFORMATION" means any information that is so designated by the Parties, or deemed to be such under this Agreement and any information that is disclosed by or on behalf of Apollo on the one hand or by or on behalf of the Fund on the other hand (the "disclosing party") to, respectively, the Fund or Apollo (the "receiving party") including all Know-How, except information which, as established by reasonable proof by the receiving party: (i) is already known to the receiving party; (ii) is or becomes part of the public domain by publication or otherwise without any breach of this Agreement; (iii) has been published or is otherwise in the public knowledge or is generally known to the public at the time of its disclosure to the receiving party or that is thereafter obtained from another source acting in good faith without any breach of this Agreement; or (iv) was not obtained from another source and can be demonstrated by the receiving party to have been known or available to or independently developed by the receiving party before disclosure to the receiving party; "CONTROL" (including, with correlative meanings, the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") when used to indicate a relationship with any Person means the possession of the power, in 4 law or in fact, to direct or cause the direction of the management and policies of a Person, whether through legal and beneficial ownership of a majority of voting securities or other equity interests, by agreement or otherwise; "CONVERSION RIGHT" means the right of the Fund to convert all or part of the Royalties into Apollo Common Shares as set out in Article 5 and Schedule D hereof; "DIRECT SALES REVENUE" means the gross amount actually received by Apollo during the Term, determined in accordance with GAAP, from or in respect of the sale by Apollo of Products before any expenses or costs less Sales Taxes and normal returns and allowances for damaged and outdated product but excluding all Fees and Income; "DISTRIBUTION" means the development, marketing, sale, distribution, licensing, sub-licensing or other method of exploiting the Technology including the provision of services in relation thereto and "DISTRIBUTING" and "DISTRIBUTE" shall have corresponding meanings; "ENCUMBRANCE" means any encumbrance of any kind whatsoever, actual or contingent, fixed or floating, including any security interest, mortgage, lien, hypothec, pledge, hypothecation, assignment, charge, trust or deemed trust (whether contractual, statutory or otherwise arising) or any other right or claim of others of any kind whatsoever; "ENDOCON AGREEMENT" means the Research and Collaboration Agreement between Apollo and Endocon, Inc. made as of the 1st day of June, 1994, as amended by a letter agreements dated February 1, 1996 and December 16, 1996; "EVENT OF DEFAULT" has the meaning assigned thereto in Article 6; "FEES AND INCOME" means the gross amount received by Apollo during the Term, determined in accordance with GAAP, derived from or in respect of the Technology other than Direct Sales Revenue including: [*] * Confidential treatment has been requested for marked portion. 5 [*] "FINANCIAL STATEMENTS" means the audited financial statements of Apollo dated December 31, 1995 and the unaudited financial statements for the 9 month period ending September 30, 1996, all as attached hereto as Schedule G; "FINANCING" means the raising of funds by Apollo by issuance of additional Apollo Common Shares or securities convertible into or exchangeable for Apollo Common Shares; "FUND" means Neuroscience Partners Limited Partnership, its existing and future Affiliates, and any successors of Neuroscience Partners Limited Partnership or such Affiliates (including any successors by reason of amalgamation, merger or statutory arrangement of Neuroscience Partners Limited Partnership and/or such Affiliates); "GAAP" means generally accepted accounting principles from time to time approved by the American Institute of Public Chartered Accountants, or any successor institute, applicable as at the date on which any calculation or determination is required to be made in accordance with generally accepted accounting principles, and where the American Institute of Public Chartered Accountants includes a recommendation in its Handbook concerning the treatment of any accounting matter, such recommendation shall be regarded as the only generally accepted accounting principle applicable to the circumstances that it covers; "GOVERNMENTAL AGENCY" means any domestic or foreign government whether federal, provincial or municipal and any governmental agency, governmental authority, governmental tribunal or governmental commission of any kind whatever; "INCLUDING", when used herein or in any Closing Document, means "including without limitation" and shall not be construed to limit any general statement which it follows to the specific or similar items or matters immediately following it; "INDEMNIFIED PARTY" has the meaning assigned thereto in Article 6; * Confidential treatment has been requested for marked portion. 6 "INDEMNIFYING PARTY" has the meaning assigned thereto in Article 6; "INDEMNITY NOTICE" has the meaning assigned thereto in Article 6; "INITIAL PUBLIC OFFERING" shall mean the initial public offering of Apollo, a reverse take-over or any other event pursuant to which securities of Apollo become listed and posted for trading on any stock exchange or qualified for unlisted trading privileges on any trade reporting and quotation system for over-the-counter trading; "KNOW-HOW" means all technical, scientific, medical or other information, trade secrets, know-how, pre-clinical, clinical, pharmacological, Distribution, manufacturing or other data, concepts, ideas, experimental, medical or manufacturing methods and procedures, testing results, assays, formulations, depictions, descriptions, business or scientific plans, marketing studies and plans, customer lists and any other written, printed or electronically stored materials, pharmaceutical compounds and any other natural or man-made pharmaceutical materials and any other intellectual property including the Patent Rights invented, developed, controlled or acquired prior to or during the Term by or on behalf of Apollo related to the Technology; "NOTICE" has the meaning assigned thereto in Section 9.13; "PARTIES" means Apollo and the Fund, collectively, and "PARTY" means any one of them; "PATENT RIGHTS" means all patents and patent applications set forth in Schedule B and all other patents and patent applications applied for, filed by or issued, licensed or assigned to or under the control of, Apollo in which an estrogen issued for the treatment of Chronic Neurodegenerative Diseases and all improvements thereto made by Apollo during the Term or in respect of which Apollo, during the Term, has any right, licence, title or interest including all divisions, continuations, partial continuations, extensions, substitutions, confirmations, registrations, revalidations, additions or reissues of or to any of such patents or patent applications; "PERSON" includes an individual, body corporate, partnership, joint venture, cooperative, trust or unincorporated organization, the Crown or any agency or instrumentality thereof, or any other entity recognized by law; 7 "PRIME RATE" for any day means the rate of interest expressed as a rate per annum that Royal Bank of Canada establishes at its head office in Toronto, Ontario as a reference rate of interest that it will charge on that day for Canadian Dollar demand loans to its corporate customers in Canada and which it at present refers to as its prime rate; "PRIVATE PLACEMENT MEMORANDUM" means the confidential Private Placement Memorandum of Apollo dated June 19, 1996; "PRODUCT RIGHTS" means the Know-How, Patent Rights and Trade Marks; "PRODUCTS" means all forms and dosages of any product, system or service and any enhancements, substitutions or improvements thereof derived from or relating to the Technology and Distributed during the Term and "PRODUCT" means any one of them; "PURCHASED RIGHTS" means: (i) the right to receive [*]% of all Direct Sales Revenue; (ii) the right to receive [*]% of all Fees and Income; (iii) the granting and issuance to the Fund of the $.70 Warrants and the $.875 Warrants; (iv) the Conversion Right; and (v) the registration rights to be granted to the Fund by Apollo pursuant to the Registration Rights Agreement to be entered into pursuant to Section 9.1(e). "PURCHASE PRICE" has the meaning set forth in Section 2.1; "REGISTRATION" with respect to any Product means the obtaining of all approvals and authorizations under Applicable Law to legally manufacture, package, and Distribute the relevant Product to end users for therapeutic purposes and "REGISTERED" shall have a corresponding meaning; "ROYALTIES" means the dollar amounts payable by Apollo to the Fund pursuant to item (i) and (ii) of the Purchased Rights; * Confidential treatment has been requested for marked portion. 8 "SALES TAXES" means all goods and services taxes, sales taxes, excise and value added taxes assessed on sales of the Products under Applicable Law; "TAX RETURNS" means all reports, returns and other documents filed or required to be filed by Apollo in respect of Taxes or in respect of or pursuant to any Applicable Law; "TAXES" means all federal, provincial, state, municipal, foreign, withholding or other taxes, imposts, levies, assessments and government fees, charges or dues, lawfully levied, assessed or imposed under Applicable Law; "TECHNOLOGY" means Patent Rights and Know-How related to the use of estrogen in the treatment and cure of Chronic Neurodegenerative Diseases, including the Patent Rights and Know-How related to the Neurestrol, Neuromidol and estrogen Novel Neurosteroids programs described in the Private Placement Memorandum under the heading, "Research and Development Programs"; "TERM" in respect of each Product and each country in the world, means the period commencing on the date hereof and ending on the day that is the later of: (i) ten (10) years after the day of first commercial sale of the last form/dosage combination of the relevant Product to be Registered in the relevant country by Apollo or by one of its licensees to a Third Party customer in a bona fide arm's length transaction in the country; and (ii) the expiry date of the last relevant Patent Right to expire in the relevant country; "THIRD PARTY" means any Person other than Apollo or the Fund; "TRADE MARKS" means any and all trade marks, service marks or symbols, trade devices, certification marks, trade or business names and applications therefor in respect of or relating to the any Products, the Product Rights or the Technology filed by or issued, licensed or assigned to or under the control of, Apollo including Neurestrol and Neuromidol; and "TRANSMISSION" means any electronic means of sending messages, including facsimile transmission, which produces a paper record. 9 1.2 SCHEDULES The following Schedules form part of this Agreement: SCHEDULE DESCRIPTION OF SCHEDULE A Form of Warrants B Patent Rights C Agreements D Terms and Conditions Governing Conversion Right E Form of Subscription Agreement F Form of Registration Rights Agreement G Financial Statements H Grants and Options ARTICLE 2 PURCHASED RIGHTS 2.1 SALE OF PURCHASED RIGHTS TO THE FUND In consideration of the payment of five hundred thousand United States Dollars by the Fund to Apollo (the "PURCHASE PRICE"), payable without increase or deduction for or on account of any Taxes on execution of this Agreement, Apollo hereby sells, assigns, issues, grants and transfers free and clear of all Encumbrances throughout the Term, the Purchased Rights and agrees to pay to the Fund the Royalties free and clear of all Encumbrances throughout the Term. 2.2 PAYMENT OF ROYALTIES Apollo shall pay the Royalties to the Fund without increase or deduction for or on account of any Taxes thirty (30) days after each March 31, June 30, September 30 and December 31 during the Term based on the Direct Sales Revenue, and Fees and Income in respect of each such immediately preceding quarterly period. 2.3 MAXIMUM ROYALTIES Apollo's obligation to pay Royalties shall terminate effective on the 1st day of the then following calendar year in the event that Aggregate Royalties in respect of the period ending on the last day of any of the calendar years set out below are equal to or greater than the respective amounts set out below. With respect to the years ending after December 31, 2007, the Parties agree to 10 negotiate in good faith appropriate Aggregate Royalties, consistent with this Agreement, which shall set the maximum Royalties due. Notwithstanding any automatic termination pursuant to this Section 2.3, Royalties shall accrue as contemplated hereby until the date that Royalties up to and including the last day of the relevant calendar year have been paid and become Aggregate Royalties. Upon receipt of such Royalties, the obligation of Apollo to pay Royalties shall terminate effective as of the 1st day of the relevant calendar year. [*] 2.4 CASH PAYMENT BUYOUT Subject to Section 5.4, Apollo may terminate its obligation to pay Royalties by notifying the Fund in writing on the first Business Day on or before November 30 in any of the calendar years set out in Section 2.3 above of its intention to do so and paying, on the first date for payment of Royalties in the following calendar year, by cash, certified cheque or bank draft payable to the Fund an amount equal to the difference between the amount set out in Section 2.3 for the relevant calendar year or agreed to for years subsequent to 2007 and the Aggregate Royalties in respect of the period ending on the last day of the relevant calendar year. Notwithstanding any notice of intention to terminate the obligation to pay Royalties pursuant to this Section, Royalties shall accrue as contemplated hereby until the date that the buyout cash payment is made to the Fund in accordance herewith. Upon receipt of such payment, the obligation of Apollo to pay Royalties shall terminate effective as of the 1st day of the relevant calendar year. * Confidential treatment has been requested for marked portion. 11 2.5 LIABILITIES NOT ASSUMED By entering into this Agreement or any Closing Document, the Fund is not assuming and shall not be responsible for any of the liabilities, debts or obligations of Apollo whatsoever, whether present, future, contingent or absolute and whether or not relating to the Technology, the Product Rights, the Products or the Purchased Rights or to any other thing, including any and all product liability and patent infringement claims relating to the Products or Product Rights. ARTICLE 3 REPRESENTATIONS AND WARRANTIES 3.1 REPRESENTATIONS AND WARRANTIES OF APOLLO Apollo represents and warrants to the Fund as follows and acknowledges that the Fund is relying on such representations and warranties in entering into this Agreement: 3.1.1 CORPORATE MATTERS (a) Apollo is a corporation duly incorporated, organized and validly existing under the laws of its jurisdiction of incorporation. No proceedings have been taken or authorized by Apollo or, to the best of Apollo's knowledge, by any other Person, with respect to the bankruptcy, insolvency, liquidation, dissolution or winding up of Apollo. (b) Apollo has all necessary power and capacity to execute and deliver, and to observe and perform its covenants and obligations under, this Agreement and the Closing Documents to which it is a party. Apollo has taken all corporate action necessary to authorize the execution and delivery of, and the observance and performance of its covenants and obligations under, this Agreement and the Closing Documents to which it is a party. (c) This Agreement and each Closing Document to which Apollo is a party has been duly executed and delivered by Apollo, and this Agreement and each Closing Document to which Apollo is a party, constitutes a valid and binding obligation of Apollo enforceable against it in accordance with its terms, provided that enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar 12 laws generally affecting enforceability of creditors' rights and that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought. 3.1.2 THE FINANCIAL STATEMENTS The Financial Statements: (a) have been prepared in accordance with GAAP, applied on a basis consistent with that of the preceding periods, except that, in the case of unaudited financial statements, they may not contain all of the footnotes required by GAAP; (b) are complete and accurate in all material respects; (c) accurately disclose the assets, liabilities and financial position of Apollo and the results of the operations of Apollo as at the dates thereof and for the periods covered thereby; and (d) contain or reflect adequate reserves for all liabilities and obligations of Apollo, as at the date thereof. No information has become available to Apollo that would render the Financial Statements incomplete or inaccurate. 3.1.3 UNDISCLOSED LIABILITIES Apollo has no liabilities of any kind except: (a) liabilities disclosed or provided for in the Financial Statements or the Private Placement Memorandum; and (b) liabilities incurred in the ordinary course of business since September 30, 1996 which are consistent with past practice and are not, in the aggregate, material and adverse to the financial condition or results of operations of Apollo. 3.1.4 ABSENCE OF CHANGES Since September 30, 1996: (a) Apollo has conducted its business in the ordinary course and has not incurred any debt, obligation or liability out of the ordinary course of business; 13 (b) there has not been any change in the financial condition or results of operations of Apollo, other than changes in the ordinary course of business, and such changes: (i) have not, either individually or in the aggregate, been materially adverse; and (ii) have not had or are not reasonably expected to have, either before or after the date hereof, a material adverse effect on the financial condition of Apollo or its future prospects; and (c) there has not been any change in, creation of, termination, amendment or revocation of any contract, lease, licence, patent or other agreement or any damage, destruction, loss, labour dispute or other event, development or condition of any character (whether or not covered by insurance) which has had, or could have, a material adverse affect on Apollo or its future prospects. 3.1.5 MATERIAL CONTRACTS (a) Except for the patents and patent applications disclosed in Schedule B and the instruments, contracts, leases, licences, rights and other agreements disclosed in Schedule C, Apollo is not a party to or bound by any instrument, contract, lease, licence, right, patent or other agreement whatsoever, whether oral or written, which relates to the Technology, the Product Rights, the Products or the Purchased Rights. True, correct and complete copies of all such instruments, contracts, leases, licences, rights patents and other agreements have been delivered to the Fund or its solicitors prior to the date hereof. (b) The instruments, contracts, leases, licenses, rights and other agreements disclosed in Schedule C are all in good standing and in full force and effect with no amendments except as disclosed in Schedule C and are valid and binding obligations of the parties thereto enforceable in accordance with their respective terms provided that enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, restructuring and other similar laws affecting enforceability of creditors' rights and that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought. Each of the parties thereto has complied with all material terms thereof, has paid all amounts due thereunder, has not waived any rights or defaults thereunder and no default or breach exists in respect thereof on the part of any of the parties thereto and no event has occurred which, after the giving of notice or the lapse of time or both, would constitute such a default or breach. 14 3.1.6 ABSENCE OF CONFLICTING AGREEMENTS None of the execution and delivery of, or the observance and performance by Apollo of, any covenant or obligation under this Agreement or any Closing Document to which it is a party, or the consummation of any of the transactions contemplated hereby or thereby: (a) contravenes or results in, or will contravene or result in, a violation of or a default under (with or without the giving of notice or lapse of time, or both) or in the acceleration of any obligation under: (i) any Applicable Law; (ii) the certificate of incorporation, memorandum of association, articles of association, by-laws, directors' or shareholders' resolutions of Apollo; or (iii) any instrument, contract, lease, license, right or other agreement to which Apollo is a party, or by which it is bound or affected; or (b) result in the creation or imposition of any Encumbrance on Apollo or on the Purchased Rights. 3.1.7 CONSENTS, APPROVALS, ETC. No consent, approval, licence, order or authorization, registration, declaration or filing with or of any Governmental Agency or other Person is required by Apollo, in connection with: (a) the execution and delivery by Apollo of this Agreement and the Closing Documents to which it is a party; (b) the observance and performance by it of its obligations under this Agreement and the Closing Documents to which it is a party; or (c) the consummation of any of the transactions contemplated hereby or thereby. 15 3.1.8 COMPLIANCE WITH APPLICABLE LAW Apollo has conducted and is conducting Business in compliance with all Applicable Law in all material respects, and not in breach of any Applicable Law, except for breaches which in the aggregate are not material. 3.1.9 LITIGATION There is no claim, demand, suit, action, cause of action, dispute, proceeding, litigation, investigation, grievance, arbitration, governmental proceeding or other proceeding including appeals and applications for review, in progress against, by or relating to Apollo, nor, to the best of Apollo's knowledge, are any of the same pending or threatened. There is not presently outstanding against Apollo any judgment, decree, injunction, rule, order or award of any court, Governmental Agency or arbitrator that may adversely affect the Technology, the Product Rights, the Products, the Purchased Rights or Apollo in any way. 3.1.10 PURCHASED RIGHTS Apollo is entitled to sell, assign, issue, grant and transfer the Purchased Rights and pay the Royalties to the Fund as herein contemplated. Except as contemplated by this Agreement or as disclosed in Schedule H, there has been no sale, conveyance, assignment or granting of any licences, royalties, options or similar rights to or the creation of any Encumbrance on or in respect of any of the Purchased Rights in favour of any other Person. 3.1.11 NO OPTIONS No Person other than the Fund has any agreement, option, warrant or right, or any right capable of becoming any of the foregoing, for the purchase of all or any of Apollo's right, title or interest in the Technology, the Product Rights, any of the Products or any of the Purchased Rights, except as disclosed in Schedule H. 3.1.12 PRODUCT RIGHTS (a) Schedule B sets forth a true and complete list of all Patent Rights indicating which are owned by, are licensed to or under the control of Apollo. The Product Rights are sufficient to conduct the Business as it is being conducted. To the best of Apollo's knowledge, the conduct of the Business does not infringe upon or otherwise interfere with any patent, trade mark, trade name, industrial design or copyright of any other Person. Apollo is not aware of any infringement of, passing-off related to, or other 16 interference with the Product Rights by any Person or any claim by any Person that any of the Trade Marks are, or may be, invalid or unenforceable or non-distinctive of Apollo. (b) To the best of Apollo's knowledge: (i) all patent applications of Apollo included as part of the Patent Rights are currently pending before the applicable administrative agencies and are being prosecuted by Apollo with reasonable diligence; (ii) each of the issued patents included as part of the Patent Rights and each claim therein is valid and enforceable according to its terms; (iii) the Patent Rights are the only patents issued or pending in any country in respect of the subject matter claimed in the Patent Rights; (iv) there have been no claims by any Third Party of infringing any patent or other right of any kind; (v) the inventions claimed in the Patent Rights are new, useful and not obvious; (vi) there has been no inequitable conduct or abuse of the Patent Rights by or on behalf of Apollo or its predecessors in title, if any, in respect of the Patent Rights; (vii) neither Apollo nor any Third Party has filed any disclaimer or made or permitted any other voluntary reduction in the scope of the Patent Rights; (viii) the inventions claimed in the Patent Rights may be practised without infringing any patent or other right of any kind of any Third Party; and (ix) the Patent Rights and the inventions claimed in them have not been dedicated to the public 17 3.1.13 NON-ARM'S LENGTH TRANSACTIONS With respect to the Business: (a) Apollo has not acquired or had the use of any property from any employee, officer, director or shareholder of Apollo or any of their respective associates (each, an "Insider"); and (b) Apollo has not disposed of any such property to any Insider for proceeds less than the fair market value. 3.1.14 TAX RETURNS (a) Apollo has filed all Tax Returns on time and with the appropriate Governmental Agencies for all fiscal periods ending prior to the date hereof. Each such Tax Return was materially correct and complete. (b) Apollo has paid all Taxes due and payable as reflected on its Tax Returns and has paid all assessments and reassessments it has received in respect of Taxes. The provisions for Taxes reflected in the Financial Statements are sufficient to cover all liabilities for Taxes that have been assessed against Apollo, whether or not disputed, or are accruing and due in respect of the Business, its operations or property during the periods covered by the Financial Statements and all prior periods. Except to the extent provided for in the financial statements, Apollo is not liable for any Taxes at the date hereof or for the payment of any instalment in respect of Taxes due in respect of its current taxation year. (c) No reassessments of Taxes have been issued and are outstanding. To the best of Apollo's knowledge, no Governmental Agency has challenged, disputed or questioned Apollo in respect of Taxes or of any Tax Returns. Apollo is not negotiating any draft assessment or reassessment with any Governmental Agency. 3.1.15 AUTHORIZED AND ISSUED SHARE CAPITAL (a) The authorized capital of Apollo consists of 20,000,000 shares shares of common stock, $.02 par value per share (the "Common Shares") and 4,000,000 shares of preferred stock, $.01 par value per share (the "Preferred Shares") of which 13,267,843 Common Shares (not including the Common Shares to be issued to the 18 Fund pursuant hereto) and no Preferred Shares have been validly issued and are outstanding. (b) Apollo has allotted and reserved, and there shall remain unissued, out of its authorized capital a sufficient number of common shares to satisfy the rights of purchase and issue granted pursuant to the $.70 Warrants, the $.875 Warrants and the Conversion Right. (c) Upon due exercise of the $.70 Warrants, the $.875 Warrants and upon receipt by Apollo of payment in respect of the exercise thereof as provided for therein, and upon due exercise of the Conversion Right, the Apollo Common Shares issued in respect thereof will be duly and validly issued as fully paid and non-assessable shares and will be issued in compliance with all Applicable Laws including any securities law, rule, regulation or regulatory policy applicable thereto. 3.1.16 DISCLOSURE Except as otherwise disclosed herein and that Apollo has been advised that the Endocon, Inc. transaction described at Page 33 of the Private Placement Memorandum will not be completed, no representation or warranty made by Apollo in this Agreement or in any Closing Document and no statement in the Private Placement Memorandum contains any untrue statement of a material fact or omits to state any material fact necessary to make any such representation, warranty or statement not misleading, in light of the circumstances under which it was made. Without limiting the scope of the foregoing, Apollo is not aware of any change, event or occurrence that has taken place or is pending that has, or in the future could have, a material adverse effect on the value or ownership of the Purchased Rights or the Business, including any pending or present change in any Applicable Law or other requirement, including the obtaining or maintenance of permits, licences or approvals, which has not been disclosed in this Agreement or the Private Placement Memorandum. 3.2 REPRESENTATIONS AND WARRANTIES OF THE FUND The Fund represents and warrants to Apollo as follows and acknowledges that Apollo is relying on such representations and warranties in entering into this Agreement: 19 3.2.1 CORPORATE MATTERS (a) The Fund is a limited partnership duly formed under the laws of the Province of Ontario. No proceedings have been taken or authorized by the Fund or, to the best of the Fund's knowledge, by any other Person, with respect to the bankruptcy, insolvency, liquidation, dissolution or winding up of the Fund. (b) The Fund has all necessary power and capacity to execute and deliver, and to observe and perform its covenants and obligations under, this Agreement and the Closing Documents to which it is a party. The Fund has taken all action necessary to authorize the execution and delivery of, and the observance and performance of its covenants and obligations under, this Agreement and the Closing Documents to which it is a party. (c) This Agreement and each Closing Document to which the Fund is a party has been duly executed and delivered by the Fund, and this Agreement and each Closing Document to which the Fund is a party constitutes, a valid and binding obligation enforceable against it, in accordance with its terms; provided that enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws generally affecting enforceability of creditors' rights and that equitable remedies such as specific performance and injunction are in the discretion of the Court from which they are sought. 3.2.2 ABSENCE OF CONFLICTING AGREEMENTS None of the execution and delivery of, or the observance and performance by the Fund of, any covenant or obligation under this Agreement or any Closing Document to which the Fund is a party, or the consummation of the transactions contemplated thereby, contravenes or results in, or will contravene or result in, a violation of or a default under (with or without the giving of notice or lapse of time, or both) or in the acceleration of any obligation under: (a) any Applicable Law; (b) the limited partnership agreement of the Fund; or (c) any instrument, contract, lease, license, right, patent or other agreement to which the Fund is a party, or by which it is bound or affected. 20 3.2.3 CONSENTS, APPROVALS, ETC. No consent, approval, licence, order or authorization, registration, declaration or filing with or of any Governmental Agency or other Person is required by the Fund, in connection with: (a) the execution and delivery by the Fund of this Agreement and the Closing Documents to which it is a party; (b) the observance and performance by the Fund of its obligations under this Agreement and the Closing Documents to which it is a party; or (c) the consummation of any of the transactions contemplated thereby. 3.2.4 INVESTMENT The Fund is acquiring the $0.70 Warrants, the $.875 Warrants and the Apollo Common Shares to be issued to the Fund upon exercise of the $.70 Warrants, the $.875 Warrants and/or exercise of the Conversion Right (collectively, the "Securities") for investment for the Fund's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Fund has no present intention of selling, granting any participation in, or otherwise distributing the same. 3.2.5 AGREEMENT FOR SALE The Fund does not have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant a participation to such Person or to any other Person, with respect to any of the Securities. 3.2.6 INVESTMENT EXPERIENCE The Fund acknowledges that it can bear the economic risk of its investment in Apollo and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. 3.2.7 RESTRICTED SECURITIES The Fund understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from Apollo in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be 21 resold without registration under the SECURITIES ACT of 1933, as amended (the "Act"), only in certain limited circumstances. In this connection, the Fund represents that it is familiar with Rule 144, as presently in effect thereunder, and understands the resale limitations imposed thereby and by the Act. 3.2.8 FURTHER LIMITATIONS ON DISPOSITION The Fund further agrees not to make any disposition of all or any portion of the Securities unless: (a) there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (b) the Fund shall have notified Apollo of the proposed disposition and, if reasonably requested by Apollo within 2 Business Days of delivery of such notice, the Fund shall have furnished Apollo with an opinion of counsel that such disposition will not require registration of such shares under the Act. It is agreed that Apollo will not require opinions of counsel for transactions made pursuant to Rule 144 or Rule 144A, except in unusual circumstances. 3.2.9 LEGENDS It is understood that the certificates evidencing the Apollo Common Shares to be issued to the Fund may bear one or all of the following legends: (a) "The shares represented by this certificate have not been registered under the Act, or any state securities law and may not be transferred except (i) pursuant to an effective registration statement under the Act or (ii) upon first furnishing to the Company an opinion of counsel that such transfer is not in violation of the registration requirements of the Act or any state securities law." (b) Any legend required by the securities laws of the Commonwealth of Massachusetts or by any other securities laws of other states with which the Company and the Fund must comply in order to distribute the Apollo Common Shares pursuant to this Agreement. 22 3.2.10 LAWS OF FUNDS JURISDICTION The Fund has satisfied itself as to the full observance of the laws of such its jurisdiction in connection with any invitation to subscribe for the Securities or any use of this Agreement, including: (i) the legal requirements of such jurisdiction for the purchase of the Securities; (ii) any foreign exchange restrictions applicable to such purchase; (iii) any governmental or other consents that may need to be obtained; and (iv) the income tax and other tax consequences, if any, which may be relevant to the purchase, holding, redemption, sale, or transfer of the Securities. 3.3 COMMISSION Each Party represents and warrants to the other that the other Party will not be liable for any brokerage commission, finder's fee or other like payment in connection with the transactions contemplated hereby because of any action taken by, or agreement or understanding reached by, that Party. 3.4 NON-WAIVER No investigations made by or on behalf of the Fund at any time shall waive, diminish the scope of or otherwise affect any representation or warranty made by Apollo herein or pursuant hereto. 3.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES All representations and warranties made in Sections 3.1.1 to 3.1.9, inclusive, Sections 3.1.13 to 3.1.16, inclusive and Sections 3.2.1 to 3.2.3, inclusive of this Agreement or in any Closing Document shall survive for three years after the date of execution of this Agreement. The representations and warranties made by Apollo in Sections 3.1.10 to 3.1.12, inclusive, shall survive until one year after the expiration of the Term. After such period, neither Party shall have any further liability hereunder with respect to such representations and warranties except with respect to claims properly made within such period. ARTICLE 4 COVENANTS 4.1 COVENANTS During the Term, Apollo shall, at its own expense, act as follows: (a) NON-ARM'S LENGTH TRANSACTIONS - In the event that any Affiliate becomes entitled to receive any revenue or payments of 23 the type defined by Direct Sales Revenue or Fees and Income (as such definitions are modified to be applicable to such Affiliate), then Apollo shall cause such Affiliate to execute an agreement in form and substance reasonably satisfactory to the Fund obligating such Affiliate to be bound by all obligations of this Agreement and, without any payment by the Fund to Apollo or the Affiliate, Apollo shall cause such Affiliate to perform such obligations and Apollo shall indemnify the Fund in respect thereof (including the obligation to pay the Fund the Royalties) whether or not any such agreement is entered into; (b) REPORTING - Apollo shall: (i) provide the Fund, concurrent with the delivery of each quarterly payment of Royalties referred to in Section 2.2, with a report detailing: (1) the Direct Sales Revenue and Fees and Income for the relevant quarterly period; and (2) each agreement and licence relating to the Technology, the Product Rights or the Products entered into, amended, modified or terminated in such quarterly period by Apollo, with the names of the parties thereto and a summary of the financial terms thereof together with a certificate of a senior officer of Apollo certifying the accuracy of such information. The Fund agrees to enter into any non-disclosure agreements that Apollo may reasonably request to carry out its obligations under this clause 4.1(b)(i)(2); (ii) provide the Fund with (1) quarterly unaudited financial statements no later than forty-five (45) days after the end of each fiscal quarter; and (2) the annual audited financial statements and such other financial information and management reports, including budgets, business development, marketing and strategic plans relating to the Technology, the Products or the Product Rights as are provided to the Board, at the same time that such information is provided to the Board. It is agreed by the Parties that Apollo's obligations under this Section 4.1(b)(ii) following the Initial Public Offering shall be fulfilled by the delivery to the Fund of all documents required by Applicable Law to be sent to shareholders at the same time that those documents are sent to shareholders; and 24 (iii) prepare all such financial statements in accordance with GAAP. The information contained in the above reports shall be deemed to be Confidential Information hereunder. (c) MANAGEMENT MEETINGS - If so requested by the Fund and provided that no nominee of the Fund is a member of the Board, senior officers of Apollo shall, up to four times annually, meet with representatives of the Fund at a mutually convenient time and place to discuss the clinical development plans, business plans, budgets, expansion activities, financial results and projections, sales and marketing results, projections, activities and prospects in an open and frank manner as they relate to the Technology, the Product Rights and the Products and shall, at such meetings, provide the Fund with the information conveyed by any licensees of Apollo as part of their reporting obligations to Apollo, provided disclosure of such information is not precluded by confidentiality obligations contained in the Agreements with such other licensees. Information disclosed pursuant to this Subsection shall be deemed to be Confidential Information hereunder. (d) NO SALE - Apollo shall not sell, assign, transfer or otherwise dispose of or create any Encumbrance on any of its right, title or interest in any of the Technology, the Product Rights or the Products or amend any existing instrument, contract, lease, licence, sub-licence, right or other agreement pertaining thereto without: (i) giving the Fund at least 2 Business Days written notice of the commencement of serious discussions setting forth the proposed terms and proposed purchaser; (ii) giving the Fund at least 10 Business Days detailed written notice of the proposed terms and proposed purchaser; and (iii) obtaining the Fund's prior written consent which will not be unreasonably withheld or delayed, provided the Fund is satisfied with the credit worthiness of the purchaser, the consideration is payable in cash only prior to the end of the Term, it being acknowledged and agreed that the Fund has consented to the Athena Agreement and the Endocon Agreement. (e) TRANSACTIONS WITH AFFILIATES - In the event that any Affiliate of Apollo becomes entitled to Distribute the Product Rights or Products, then Apollo shall cause such Affiliate to execute and deliver an agreement in form and substance satisfactory to the Fund obligating such Affiliate to be bound by all of the 25 obligations of Apollo pursuant to this Agreement, with respect to the relevant Product Right or Product. Apollo unconditionally guarantees to the Fund the due and timely payment and performance of all such obligations, including the obligation to pay the Fund the Royalties, whether or not any such agreement is entered into. (f) INSURANCE - During the term of this Agreement and for thirty (36) months thereafter, Apollo shall: (i) maintain at its expense all insurance types that are common and applicable to its business, including but not limited to general liability, workers compensation and Directors and Officers insurance as well as keyman life insurance for its chief executive officer. In addition, Apollo shall use its best efforts to purchase product liability insurance during the period covering any clinical trials on reasonably commercial terms and shall purchase or obtain product liability insurance coverage during the period covering any Distribution of Products or Product Rights and any manufacture by Apollo of Products directly or through contractors or subcontractors. Apollo shall cause the Fund to be named as an additional insured on all such product liability insurance and shall supply to the Fund all documents related to insurance reasonably requested from time to time by the Fund, including evidence of Apollo's compliance with the foregoing, copies of policies, suitable certificates from Apollo's insurers to the effect that such insurance coverage designates the Fund as an additional insured and proof of premium payments. Furthermore, Apollo shall, on a periodic basis update the Fund as to the status of all insurance as described above; (ii) obtain an undertaking from its product liability insurers to the effect that all insurance coverage herein above described shall not be permitted to lapse by default to pay premiums without having first given a minimum of sixty (60) days written notice to the Fund of such default. The Fund reserves the right to pay such premiums to keep such insurance coverage in full force and effect and, in the event of so doing, Apollo shall reimburse the Fund for all such premium payments and interest thereon at the Prime Rate plus one percent (1%) annually, payable monthly and calculated from (and including) the date 26 payment is due to the date of payment by Apollo and both before and after judgment. If: (i) Apollo fails to furnish proof of such insurance as required above; or (ii) at any time during the term of this Agreement and for thirty-six (36) months thereafter, the Fund is notified of the change, cancellation or lapse of such insurance, which change, cancellation or lapse is not rectified by Apollo within ten (10) days of the insurance status change, then the Fund, in addition to all other remedies available to it hereunder, may at its option obtain such insurance coverage and Apollo shall reimburse the Fund for the premium cost therefor. Apollo shall remit such premium cost to the Fund within ten (10) days of receipt of notice from the Fund of the amount of such premium cost. Notwithstanding the provision of insurance hereunder by Apollo, Apollo agrees to indemnify and save harmless the Fund from and against any Claims arising out of the death of or injury to any Person or out of any damage to property resulting from the Distribution, use, consumption or advertisement of the Technology, Product Rights or Products. (g) COMPLIANCE WITH LAWS - Apollo shall comply with all Applicable Laws with respect to the Technology, the Product Rights, the Products, the issuance of any Apollo Common Shares to the Fund pursuant to the $.70 Warrants, $.875 Warrants or the Conversion Right and the operation of the Business and its business generally. (h) MAXIMIZE RETURNS - Apollo shall use its best business judgement, consistent with reasonable business practices, to maximize the Royalties by diligently seeking to obtain Registration for the Products and by diligently Distributing the Products. (i) BOOKS AND RECORDS - Apollo shall maintain at its usual place of business up-to-date records, reports, accounts, books and files which shall accurately reflect all particulars pertaining to the Product Rights, the Products and the calculation of Royalties. 27 (j) BOARD OBSERVER STATUS - Unless the Fund has a duly elected representative as a member of the Board, the Fund shall be entitled, and Apollo shall permit the Fund, to have a nominee participate in all Board meetings as an observer. The Fund may, from time to time by written notice given to Apollo, designate a nominee to be an observer at Board meetings. Until otherwise notified in writing, the Fund's nominee shall be Michael Callaghan. Apollo shall: (i) notify the Fund of all Apollo Board meetings at the same time and in the same manner that the directors of Apollo are so notified. The Board shall meet a minimum of 4 times annually; and (ii) provide the Fund with a copy of all material and other communication (including Board minutes and resolutions) given to the directors of Apollo at the same time and in the same manner that the directors are given such material or other communication. (k) ADDITIONAL FINANCINGS - Apollo shall provide the Fund with at least 30 days prior notice of any proposed new Financing. Except for the Initial Public Offering, the Fund will be entitled at its sole option to participate in any Financing on the most favorable terms and conditions offered to any other potential investor, pro rata, in the proportion that the number of Apollo Common Shares it holds or may acquire pursuant to the $.70 Warrants, the $.875 Warrants and the Conversion Right is to the number of issued Apollo Common Shares. The Fund shall advise Apollo within 10 Business Days of the receipt of notice of a new Financing from Apollo of its intention with respect to participating in the relevant Financing, failing which it will be deemed to have elected not to have participated in the relevant Financing. (l) NO NON-MONETARY CONSIDERATION - Apollo shall not, without the prior written consent of the Fund not to be unreasonably withheld, accept or solicit any non-monetary consideration in respect of the sale, licensing or Distribution of any of the Technology, the Product Rights or the Products. (m) NOTIFICATION - Apollo shall promptly notify the Fund in writing of any material adverse change in the business or affairs of Apollo, any event or act or omission of Apollo which constitutes an Event of Default, any transaction which will result in an 28 acquisition of control of Apollo, the commencement of any litigation against it in an amount in excess of $50,000 or relating to the Technology, the Product Rights or the Products or other occurrence out of the ordinary course of business, and each such notification shall contain full particulars of the event or events described therein. (n) INTEREST - Apollo shall pay interest on all overdue amounts at the Prime Rate plus 2% from the date that payment should have been made pursuant to this Agreement to the date that the payment is actually made. 4.2 NON-WAIVER AND AUDIT The acceptance by the Fund of any payment in respect of the Purchased Rights shall be deemed not to be a waiver of any of its rights hereunder. The Fund's authorized agents, employees and representatives shall have the right to inspect and audit at all reasonable times during business hours, but in any event not more than once each calendar year of the Term, the books, records, documentation, sales reports, statements of profit and loss and Tax Returns and other documents of Apollo relating to the Business, the Technology, the Product Rights, the Products, the Direct Sales Revenue and Fees and Income. The information contained in the documents, etc. which are inspected shall be deemed to be Confidential Information hereunder. In the event that any such audit shall disclose an understatement of such Direct Sales Revenue, Fees and Income or Royalties as reported to the Fund by Apollo, then Apollo shall pay the Fund within 15 days after receipt of notice from the Fund an amount equal to the amount the Royalties have been underpaid in any such year of the Term, together with interest thereon at the Prime Rate plus 5% calculated from the date such amount should have been paid to the date of actual payment. Further, in the event that the underpayment shall be 5% or more for any calendar year, Apollo shall reimburse the Fund for the cost of such inspection and/or audit. 29 ARTICLE 5 CONVERSION RIGHT 5.1 CONVERSION RIGHT The Fund may at any time and from time to time up to 3 times during the Term convert all or part of Apollo's future obligation to pay Royalties hereunder as follows: (a) Up to 50% of the Purchase Price in the aggregate may be converted into Apollo Common Shares at a conversion rate per share equal to the lower of: (i) US$ .875; and (ii) the price per share at which Apollo Common Shares were issued pursuant to the Financing immediately preceding the date on which the Fund exercises the Conversion Right; and (b) Up to 50% of the Purchase Price in the aggregate may be converted into Apollo Common Shares at a conversion rate per share equal to the lower of: (i) US$ 1.05; and (ii) the price per share at which Apollo Common Shares were issued pursuant to the Financing immediately preceding the date on which the Fund exercises the Conversion Right. 5.2 TERMS AND CONDITIONS GOVERNING THE CONVERSION RIGHT Any conversion of all or part of the Purchased Rights by the Fund into Apollo Common Shares pursuant to the Conversion Right shall take place and be completed on the terms and conditions set out in Schedule D. 5.3 PRO RATA REDUCTION OF ROYALTIES Effective upon receipt of a certificate representing the relevant Apollo Common Shares pursuant to any conversion of all or part of the future Royalties by the Fund into Apollo Common Shares, but without any waiver by the Fund of the payment of any Royalties accruing prior to the date thereof, the percentage rates set out in items (i) and (ii) of the Purchased Rights and the amounts set out in Sections 2.3 and 2.4 shall be reduced by the same proportion that the portion of the Purchase Price converted bears to the total Purchase Price so that, on an aggregate basis, if, for instance, half of the Purchase Price has been converted pursuant to one or more conversions by the Fund, the amount set out in item (i) of the Purchased Rights would be equal to [*]%, the amount set out in (ii) of the Purchased Rights would be equal to [*]% and the amounts set out in sections 2.3 and 2.4 would be equal to: * Confidential treatment has been requested for marked portion 30 [*] 5.4 PARAMOUNTCY If the Fund gives written notice to Apollo of its intention to exercise the Conversion Right in accordance with this Agreement and Schedule D after receipt from Apollo of written notice under Section 2.4 but prior to receipt by the Fund of any payment pursuant to Section 2.4, the Fund's Conversion Right shall be paramount and shall govern. ARTICLE 6 DEFAULT 6.1 EVENTS OF DEFAULT Each of the following events shall constitute an event of default (an "EVENT OF DEFAULT") under this Agreement: (a) if Apollo fails to make any payment of Royalties when due and does not remedy such failure within thirty (30) days after receiving notice from the Fund specifying the failure and requiring that it be remedied; (b) if Apollo commits a breach of or fails to observe or perform any other agreement, covenant or provision in this Agreement or in any Closing Document and does not remedy such breach or failure within thirty (30) days after receiving notice from the Fund specifying the breach or failure and requiring that it be remedied (or, if incapable of remedy within thirty (30) days, then such longer period, not to exceed ninety (90) days, as may be reasonable to remedy such breach or failure provided Apollo uses its best efforts throughout such period to remedy the same) or if any representation or warranty contained herein or in any Closing Document shall prove to be false or incorrect in any material respect; * Confidential treatment has been requested for marked portion 31 (c) if Apollo does not pay its debts as they become due, admits in writing its inability to pay its debts generally, makes an assignment for the benefit of creditors or commits an act of bankruptcy within the meaning of Applicable Law; (d) any proceeding, voluntary or involuntary, is commenced respecting Apollo pursuant to any statute relating to bankruptcy, insolvency, reorganization of debts, liquidation, winding up or dissolution; (e) any receiver, manager, receiver manager, trustee, sequestor, custodian or liquidator or Person with similar powers is appointed udicially or extra judicially for Apollo or for any of its property; (f) Apollo defaults under any agreement with respect to any indebtedness or other obligation to any Person exceeding [*], if such default has resulted in, or may result, with notice or lapse of time or both, in, the acceleration of any such indebtedness or obligation or the right of such Person to realize upon any security; and (g) Apollo passes any resolution for its liquidation, winding up or dissolution. 6.2 REMEDIES Upon the occurrence of any one or more Events of Default which are continuing and not waived by the Fund in writing, then, in the case of an Event of Default under subsections 6.1 (a) or (b), on the expiration of the notice period therein specified; and in the case of an Event of Default under subsection 6.1(c) to (g), inclusive, immediately upon such Event of Default occurring, or immediately upon the occurrence of an acquisition of control of Apollo, the Fund may, in addition to any other rights and remedies available hereunder at law or in equity, terminate this Agreement or, in the case of an Event of Default under Section 6.1(a) or (b) with respect to less than all of the Products, terminate this Agreement with respect to the relevant Products only. * Confidential treatment has been requested for marked portion 32 ARTICLE 7 INDEMNIFICATION 7.1 MUTUAL INDEMNIFICATIONS FOR BREACHES OF WARRANTY, ETC. Apollo agrees with the Fund and the Fund agrees with Apollo (the Party agreeing to indemnify another Party being called the "INDEMNIFYING PARTY" and the Party to be indemnified being called the "INDEMNIFIED PARTY") to indemnify and save harmless the Indemnified Party, effective as and from the date hereof, from and against any claims, demands, actions, causes of action, damage, loss, cost, liability or expense ("CLAIMS") which may be made or brought against the Indemnified Party or which it may suffer or incur as a result of, in respect of, or arising out of any non-fulfillment of any covenant or agreement on the part of the Indemnifying Party under this Agreement or any Closing Document or any incorrectness in or breach of any representation or warranty of the Indemnifying Party contained herein or in any Closing Document. Any amount which an Indemnifying Party is liable to pay to an Indemnified Party pursuant to this Section shall bear interest at a rate per annum equal to the Prime Rate, calculated and payable monthly, both before and after judgment, with interest on overdue interest at the same rate, from the date the Indemnified Party disbursed funds, suffered damages or losses or incurred a loss, liability or expense in respect of a Claim, to the date of payment by the Indemnifying Party to the Indemnified Party. Any amount which an Indemnifying Party is required to pay to an Indemnified Party pursuant to this Section or pursuant to Section 7.2 (including interest thereon) is called an "Indemnified Loss". The foregoing obligation of indemnification in respect of such Claims shall be subject to the limitation set forth in Section 3.5 hereof respecting the survival of the representations and warranties of the Parties. 7.2 THIRD PARTY CLAIMS If a Claim is made against an Indemnified Party by a Third Party for which the Indemnified Party may be entitled to indemnification under Section 7.1, the Indemnified Party shall give notice (the "INDEMNITY NOTICE") to the Indemnifying Party specifying the particulars of such claim within 30 days after it receives notification of the Claim. Failure to give such notice within such time period shall not prejudice the rights of an Indemnified Party except to the extent that the failure to give such notice materially adversely affects the ability of the Indemnifying Party to defend the Claim or to cure the breach or incorrectness of the representation, warranty, covenant or agreement giving rise to the Claim. The Indemnifying Party shall have the right to participate in any negotiations or proceedings with respect to such Claim at its own expense. The Indemnified Party shall not settle or compromise any such Claim without the prior written consent of the Indemnifying Party, unless 33 the Indemnifying Party has not, within 7 Business Days after the giving of the Indemnity Notice, given notice to the Indemnified Party that it wishes to dispute such Claim. If the Indemnifying Party does give such a notice, it shall have the right at its own cost and expense to assume the defence of such Claim and to defend such Claim in the name of the Indemnified Party. The Indemnified Party shall provide to the Indemnifying Party all files, books, records and other information in its possession or control which may be relevant to the defence of such Claim. The Indemnified Party shall co-operate in all reasonable respects in the defence of such Claim but at the expense of the Indemnifying Party. If the Indemnifying Party fails, after the giving of such notice, diligently and reasonably to defend such Claim throughout the period that such Claim exists, its right to defend the Claim shall terminate and the Indemnified Party may assume the defence of such Claim at the sole expense of the Indemnifying Party. In such event, the Indemnified Party may compromise or settle such Claim, without the consent of the Indemnifying Party. ARTICLE 8 CONFIDENTIALITY 8.1 CONFIDENTIAL INFORMATION Confidential Information and all copies thereof made by the receiving party including translations, compilations and partial copies shall remain the property of the disclosing party and shall be returned to the disclosing party upon request or termination of this Agreement, provided that each Party shall be entitled to keep one (1) copy of such information with its legal counsel, for the purposes of determining its rights and obligations hereunder. The receiving party shall use the Confidential Information solely for the purposes described in this Agreement. 8.2 NON-DISCLOSURE. The receiving party shall hold in confidence, during and after the termination or expiration of this Agreement, and not disclose, provide, or otherwise make available, in whole or in part the Confidential Information to any Third Party without the prior written consent of the disclosing party. The receiving party shall ensure that only its employees and agents with a need to know the Confidential Information shall have access to it. The receiving party shall exercise a standard of care under this Section that is not less than the standard of care it exercises under its own corporate policy for confidentiality and use restrictions for its own Confidential Information. If and when the receiving party is required at any time to disclose Confidential Information by Applicable Law or by any Governmental Agency having 34 jurisdiction, the receiving party must notify the disclosing party and use reasonable efforts to have the Governmental Agency retain the Confidential Information in confidence. Upon making such reasonable efforts, the receiving party shall not be in breach of this Section. ARTICLE 9 DELIVERIES ON EXECUTION 9.1 DELIVERIES UPON EXECUTION OF THIS AGREEMENT. Upon execution of this Agreement: (a) Apollo shall deliver to the Fund and the Fund shall deliver to Apollo proof satisfactory to the Party receiving the same, acting reasonably, that each of them has taken all necessary corporate and other steps necessary to authorize and effect the completion of the matters herein contemplated; (b) the Fund shall pay the Purchase Price to Apollo by certified cheque, bank draft or in such other manner as Apollo may reasonably direct in writing; (c) Apollo shall issue and deliver to the Fund certificates in favour of the Fund representing the $.70 Warrants and the $.875 Warrants duly executed under seal; (d) the Fund and Apollo shall enter into a Subscription Agreement in the form attached hereto as Schedule E, the Fund shall pay the subscription price to Apollo by certified cheque, bank draft or in such other manner as Apollo may reasonably direct in writing and Apollo shall issue and deliver to the Fund a share certificate representing the Apollo Common Shares purchased pursuant to the Subscription Agreement registered in the name of the Fund or as the Fund may in writing direct; (e) the Fund and Apollo shall enter into a Registration Rights Agreement in the form attached hereto as Schedule F; (f) Evidence that Michael Callaghan has been duly and effectively appointed as a director of Apollo satisfactory to the Fund shall be delivered by Apollo; and 35 (g) the Fund shall receive an opinion from Messrs. Palmer & Dodge LLP dated the date hereof in form and substance satisfactory to the Fund and its counsel, acting reasonably. ARTICLE 10 GENERAL 10.1 HEADINGS The division of this Agreement into Articles, Sections, Subsections, Exhibits and Schedules and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The Article, Section, Subsection, Exhibit and Schedule headings in this Agreement are not intended to be full or precise descriptions of the text to which they refer and are not to be considered part of this Agreement. 10.2 NUMBER AND GENDER In this Agreement, words in the singular include the plural and vice-versa and words in one gender include all genders. 10.3 ENTIRE AGREEMENT This Agreement, together with the Closing Documents, constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, negotiations, discussions and understandings, written or oral. There are no representations, warranties, conditions, other agreements or acknowledgements, whether direct or collateral, or express or implied, that form part of or affect this Agreement, or which induced any Party to enter into this Agreement or on which reliance is placed by any Party, except as specifically set forth in this Agreement or in the Closing Documents. 10.4 AMENDMENT This Agreement may be amended or supplemented only by a written agreement signed by each Party. 10.5 WAIVER OF RIGHTS Any waiver of, or consent to depart from, the requirements of any provision of this Agreement shall be effective only if it is in writing and signed by the Party giving it, and only in the specific instance and for the specific purpose for which it has been given. No failure on the part of any Party to exercise, 36 and no delay in exercising, any right under this Agreement shall operate as a waiver of such right. No single or partial exercise of any such right shall preclude any other or further exercise of such right or the exercise of any other right. 10.6 APPLICABLE LAW This Agreement shall be governed by, and interpreted and enforced in accordance with, the laws in force in the Commonwealth of Massachusetts. The Parties irrevocably submit to the non-exclusive jurisdiction of the courts of Commonwealth of Massachusetts with respect to any matter arising hereunder or related hereto. 10.7 CURRENCY Unless specified otherwise, all statements of or references to monetary amounts in this Agreement are to United States Dollars. 10.8 TENDER Any tender of documents or money hereunder may be made upon the Parties or their respective counsel and money shall be tendered by certified cheque or bank draft. 10.9 PERFORMANCE ON HOLIDAYS If any action is required to be taken pursuant to this Agreement on or by a specified date which is not a Business Day, then such action shall be valid if taken on or by the next succeeding Business Day. 10.10 FINANCIAL REPORTING STANDARDS All accounting and financial terms used herein and the treatment of any accounting matter contemplated herein, unless specifically provided to the contrary, shall be interpreted and applied in accordance with GAAP. 10.11 EXPENSES Except that Apollo shall reimburse the Fund an amount up to US$ 15,000 in respect of the legal fees which it incurs in preparing this Agreement and completing the transaction contemplated therein, each Party shall pay all expenses it incurs in authorizing, preparing, executing and performing this Agreement and the transactions contemplated hereunder, whether or not the Closing occurs, including all fees and expenses of its legal counsel, bankers, 37 investment bankers, brokers, accountants or other representatives or consultants. 10.12 TIME Time is of the essence of this Agreement and each of its provisions. 10.13 NOTICES Any notice, demand or other communication (in this Section, a "NOTICE") required or permitted to be given or made hereunder shall be in writing and shall be sufficiently given or made if: (a) delivered in person during normal business hours of the recipient on a Business Day and left with a receptionist or other responsible employee of the recipient at the relevant address set forth below; (b) except during any period of actual or imminent interruption of postal services due to strike, lockout or other cause, sent by registered mail; or (c) sent by Transmission, charges prepaid and confirmed by registered mail as provided in Subsection (b); in the case of a notice to Apollo at: 1 Kendall Square, Suite 2200 Cambridge, Massachusetts 02139 Attention: President and CEO Fax No.: (617) 621-7156 with a copy to Palmer & Dodge LLP at: One Beacon Street Boston, Massachusetts 02108-3190 Attention: Michael Lytton Fax No.: (617) 227-4420 38 and in the case of a notice to the Fund to its general partner at: Neuroscience Partners Limited Partnership c/o MDS Associ[caad 177]es-Neuroscience Inc. 100 International Boulevard Etobicoke, Ontario M9W 6J6 Attention: Senior Vice-President Fax No.: (416) 213-4232 with a copy to Fasken Campbell Godfrey at: Suite 4200 Toronto Dominion Bank Tower Toronto Dominion Centre Toronto, Ontario M5K 1N6 Attention: Scott D. Conover Fax No. (416) 364-7813 Any notice so given shall be deemed to have been given and to have been received on the day of delivery, if so delivered, on the fifth Business Day (excluding each day during which there exists any interruption of postal services due to strike, lockout or other cause) following the mailing thereof, if so mailed, and on the day following the day notice was sent by Transmission, provided such day is a Business Day and if not, on the first Business Day thereafter. Addresses for notice may be changed by giving notice in accordance with this Section. 10.14 ASSIGNMENT This Agreement and any or all of the rights and obligations hereunder may be assigned by the Fund upon written notice to Apollo. Neither this Agreement, any rights or obligations hereunder the Technology shall be assignable by Apollo without the prior written consent of the Fund not to be unreasonably withheld. Subject thereto, this Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors (including any successor by reason of amalgamation or statutory arrangement of any Party) and permitted assigns. 39 10.15 FURTHER ASSURANCES Each Party shall do such acts and shall execute such further documents, conveyances, deeds, assignments, transfers and the like, and will cause the doing of such acts and will cause the execution of such further documents as are within its power as any other Party may in writing at any time and from time to time reasonably request be done and/or executed, in order to give full effect to the provisions of this Agreement and the Closing Documents. 10.16 INDEPENDENT PARTIES Nothing contained in this Agreement shall in any way or for any purpose constitute any Party a partner or agent or legal representative of any other Party in the conduct of any business or otherwise or a member of a joint venture or joint enterprise or create any fiduciary relationship among them. No Party shall have any authority to act for or to assume any obligation or responsibility on behalf of any other and no Party shall have any authority to bind any other Party to act or to undertake any obligation or responsibility whatsoever. Apollo agrees that it will only have recourse against the assets of the Fund and it shall not have any recourse against the limited partners of the Fund under any circumstances. 10.17 PUBLIC ANNOUNCEMENTS The Parties agree to discuss and coordinate all public announcements concerning the transactions contemplated herein except as may be necessary, in the opinion of counsel to the Party making such disclosure, to comply with the requirements of any Applicable Law. If any such public statement or release is so required, the Party making such disclosure shall consult with the other Party prior to making such statement or release, and the Parties shall use reasonable efforts, acting in good faith, to agree upon a text for such statement or release which is satisfactory to all Parties. 10.18 SEVERABILITY If any covenant, obligation or provision of this Agreement or the application thereof to any Person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or the application of such covenant, obligation or agreement to Persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby and each covenant, obligation and provision of this Agreement shall be separately valid and enforceable to the fullest extent permitted by law. 40 10.19 COUNTERPARTS This Agreement may be executed in any number of counterparts and by facsimile transmission. Each executed counterpart shall be deemed to be an original. All executed counterparts taken together shall constitute one agreement. 10.20 FACSIMILE EXECUTION To evidence the fact that it has executed this Agreement, a Party may send a copy of its executed counterpart to the other Party by facsimile transmission. That Party shall be deemed to have executed this Agreement on the date it sent such facsimile transmission. In such event, such Party shall forthwith deliver to the other Party the counterpart of this Agreement executed by such Party. TO WITNESS THEIR AGREEMENT, the Parties have duly executed this Agreement on the date first set forth above. NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP by its General Partner MDS ASSOCIES-NEUROSCIENCE INC. Per: /s/ Michael J. Callaghan, Vice President ---------------------------------------- Michael J. Callaghan, Vice President Per: /s/ Keith Dorrington, Vice-President ---------------------------------------- Keith Dorrington, Vice-President APOLLO GENETICS, INC. Per: _________________________________________ SCHEDULE A WARRANT TO PURCHASE COMMON STOCK OF APOLLO GENETICS, INC. See Exhibit 3.4 to this Registration Statement SCHEDULE B PATENT RIGHTS [*] _________________ [*] * Confidential treatment has been requested for marked portion - 2 - - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ENDOCON, INC.'S PATENTS RELEVANT TO NEURESTROLs ALL ASSIGNED TO ENDOCON, INC. BY THE INVENTOR, BOB LEONARD, AND NOW OWNED BY ENDOCON, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [*] * Confidential treatment has been requested for marked portion SCHEDULE C INSTRUMENTS, CONTRACTS, LEASES, LICENCES, RIGHTS OR OTHER AGREEMENTS RELATING TO THE TECHNOLOGY, THE PRODUCT RIGHTS, THE PRODUCTS OR THE PURCHASED RIGHTS 1. The Athena Agreement. 2. The Endocon Agreement. 3. Patent License Agreement with Research Component made the 15th day of December, 1993 and revised and restated on the 15th day of October, 1996 between the University of Florida Research Foundation, Inc. and Apollo. 4. Corporate Research Agreement to Accompany License Agreement entered into the 15th day of December, 1993 between Apollo and the University of Florida and Participation Agreements of various dates made pursuant thereto and executed by James W. Simpkins, Marzahan Singh, Jean Bishop and each participant in the Sponsored Activity (as defined therein). SCHEDULE D TERMS AND CONDITIONS GOVERNING THE CONVERSION RIGHT (a) EXERCISE The Conversion Right may be exercised by the Fund at any time in whole or from time to time in part, in accordance with and subject to the provisions hereof up to 5:00 p.m. (Massachusetts time) on the final day of the Term (the "Time of Expiry"). If the Conversion Right has not been exercised by the Time of Expiry, all rights thereunder shall wholly cease and terminate and shall be void and of no value or effect. The Conversion Right may be exercised by surrendering to Apollo at its address for notice, at any time after the date hereof up to the Time of Expiry, a Subscription Form, substantially in the form attached hereto as Schedule 1, duly completed and executed. (b) PARTIAL EXERCISE The Fund may subscribe for and have issued to it a number of Apollo Common Shares less than the total number it is entitled to pursuant to the Conversion Right provided that it subscribes for a minimum of US$ 150,000 of Apollo Common Shares each time. Partial exercises of the Conversion Right shall be recorded by the Fund on the grid attached to the Subscription Form as Appendix 1. the grid shall be initialed by the Parties and form part of the Subscription Form. The grid, as so initialed, shall, in the absence of manifest error, constitute conclusive proof of the dates, amounts, numbers, information and factors set out therein. (c) SHARE CERTIFICATES Within ten (10) Business Days after the delivery of a duly completed and executed Subscription Form by the Fund (the "Exercise Date"), Apollo shall issue and deliver to the Fund's address for notice, registered in such name or names as the Fund may direct or if no such direction has been given, in the name of the Fund, a certificate or certificates representing the number of Apollo Common Shares issuable under the Conversion Right as a result of the delivery of the Subscription Form. Such exercise shall be deemed to have been effected as of the close of business on the Exercise Date and at such time the rights of the Fund with respect to the portion of the Conversion Right which has been exercised as such shall cease, and the person or persons in whose name or names any certificate or certificates for Apollo Common Shares shall then be issuable upon such exercise or deemed exercise shall be deemed to have become the holder or holders of record of the Apollo Common Shares represented thereby. (d) CONVERSION RATE Subject to the aggregate limits set out in Article 5, the Fund may convert any portion of the Purchase Price from time to time. The Fund shall not be bound to first convert all of the portion of the -2- Purchase Price at the conversion rate set out in Section 5.1(a) before it shall be entitled to convert any of the portion at the conversion rate set out in Section 5.1(b), and vice versa. (e) FRACTIONAL SHARES No fractional shares shall be issued upon any whole or partial exercise of the Conversion Right. (f) CORPORATE CHANGES If Apollo shall be a party to any reorganization, merger, amalgamation, dissolution, sale of all or substantially all of its assets, change or reclassification of its outstanding shares (an "Event"), whether or not Apollo is the surviving entity, the Conversion Right shall apply to the securities to which a holder of Apollo Common Shares immediately prior to the Event would have been entitled by reason of such Event. If the number of securities outstanding following an Event is greater than the number of Apollo Common Shares immediately prior to the Event, then the conversion rates per share expressed in United States dollars in Sections 5.1(a)(i) and (b)(i) of the Agreement in effect immediately prior to such Event shall be reduced by the reciprocal of the multiple required to be used to arrive at the new number of securities. If the number of securities outstanding following an Event is less than the number of Apollo Common Shares immediately prior to the Event, then the conversion rate per share expressed in United States dollars in Sections 5.1(a)(i) and (b)(i) of the Agreement in effect immediately prior to such Event shall be increased by the reciprocal of the fraction required to be used to arrive at the new number of securities. (g) SUBDIVISION OR CONSOLIDATION OF SHARES In the event Apollo shall subdivide its outstanding Apollo Common Shares into a greater number of Apollo Common Shares, the conversion rate per share expressed in United States Dollars in Sections 5.1(a)(i) and (b)(i) of the Agreement in effect immediately prior to such subdivision shall be reduced by the reciprocal of the multiple used to arrive at the new number of Apollo Common Shares. Conversely, in the event Apollo shall consolidate its outstanding Apollo Common Shares into a lesser number of Apollo Common Shares, the conversion rate per share expressed in United States dollars in Sections 5.1(a)(i) and (b)(i) of the Agreement in effect immediately prior to such consolidation shall be increased by the reciprocal of the fraction used to arrive at the new number of Apollo Common Shares. (h) STOCK DIVIDENDS OR DISTRIBUTIONS In the event Apollo: (i) issues Apollo Common Shares or securities exchangeable for or convertible into Common Shares to all or substantial of the holders of the Apollo Common Shares as a stock dividend; or (ii) makes a distribution on its outstanding Apollo Common Shares payable in Apollo Common -3- Shares or securities exchangeable for or convertible into Apollo Common Shares, the conversion rate per share expressed in United States dollars in Sections 5.1(a)(i) and (b)(i) of the Agreement in effect immediately prior to such stock dividend or distribution shall be reduced by the reciprocal of the multiple used to arrive at the new number of Apollo Common Shares (on a fully diluted basis). (i) OTHER DISTRIBUTIONS In the event Apollo makes a distribution (a "Distribution") on its outstanding Apollo Common Shares payable in (i) the shares of Apollo of any class other than Apollo Common Shares; (ii) rights, options or warrants to acquire shares or securities exchangeable for or convertible into shares or property or other assets of Apollo; (iii) evidence of indebtedness; or (iv) any property or other assets of Apollo, the conversion rate expressed in United States dollars in Sections 5.1(a)(i) and (b)(i) of the Agreement in effect immediately prior to such Distribution shall be reduced by a fraction that is equal to the ratio of the aggregate fair market value of Apollo immediately following the Distribution to the fair market value immediately prior to the Distribution; (j) NOTICE OF ADJUSTMENT Upon any adjustment of the conversion rate expressed in United States dollars in Section 5.1(a)(i) and (b)(i) of the Agreement then and in each case Apollo shall give written notice thereof to the Fund, which notice shall state the conversion rates resulting from such adjustment, and shall upon receipt of the written request of the Fund set forth in reasonable detail the method of calculation and the facts upon which such calculation in based. (k) ADJUSTMENTS CUMULATIVE The adjustments provided for herein are cumulative and will: (i) be computed to the nearest one-tenth of one cent; and (ii) be made successively whenever an event referred to herein occurs. (l) FINANCINGS In the event Apollo completes a Financing as a result of which Apollo issues securities convertible into or exchangeable for Apollo Common Shares, the price per share at which Apollo Common Shares were issued shall be, for the purposes of Sections 5.1(a)(ii) and (b)(ii) of the Agreement, the lowest of: (i) the imputed price per share on a fully diluted basis; (ii) the unit price less an amount equal to the price per option or warrant of any options or warrants which, together with Apollo Common Shares, form part of the Unit determined by applying the Black Scholes pricing model; and (iii) the lowest exercise price or conversion or exchange rate at which any securities issued by Apollo pursuant to the relevant Financing may be convertible into or exchangeable for Apollo Common Shares. SCHEDULE 1 Subscription Form TO: APOLLO GENETICS, INC. (the "Company") RE: Exercise of Conversion Right pursuant to a Royalty Purchase Agreement dated December 18, 1996 between Neuroscience Partners Limited Partnership and the Company (the "Agreement"). The undersigned hereby irrevocably elects to exercise its Conversion Right with respect to U.S.$_____________________ of the // $.875 // $1.05 [CHECK ONE] Purchase Price portion and hereby subscribes for ______________ Apollo Common Shares (or other property or securities contemplated by the Conversion Right). DATED this day of , . NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP BY ITS GENERAL PARTNER, MDS ASSOCIES-NEUROSCIENCE INC. By:______________________________________ Name: Title: Effective upon receipt of a certificate or certificates representing the number of Apollo Common Shares set out herein in accordance with the registration and delivery instructions set out below (the "Effective Date"), the undersigned hereby automatically waives its right to receive the portion of the future Royalties which accrue from and after the Effective Date set out in the column titled "Portion of Royalties Waived", and acknowledges and agrees that the rates set out in items (i) and (ii) of the Purchased Rights shall, from the Effective Date, be the rates set out in the columns "Future Direct Sales Royalty Rate" and "Future Fees and Income Royalty Rate", respectively. The undersigned further acknowledges and agrees that the amounts set out in Section 2.3 of the Agreement shall, from the Effective Date, be equal to the amount actually set out in the Agreement multiplied by the percentage set out in the column, "Termination Buy-out Amount Factor". Defined terms not otherwise defined herein shall have the meaning assigned thereto in the Agreement. DIRECTION AS TO REGISTRATION (if different from the Fund at its address for notice in the Agreement) Name of Registered Holder: ______________________________________ Address of Registered Holder: ______________________________________ ______________________________________ DIRECTIONS AS TO DELIVERY (if different from the Fund at its address for notice in the Agreement) Address of Delivery ______________________________________ ______________________________________ Attention: __________________________ APPENDIX 1 GRID CUMULATIVE RECORD OF CONVERSIONS UNDER THE CONVERSION RIGHT
____________________________________________________________________________________________________________________________ DATE OF PORTION OF BALANCE OF PORTION OF BALANCE OF BASIS OF NO. OF PORTION OF FUTURE FUTURE TERMINATION/ EXERCISE $.875 $.875 $1.05 $1.05 CONVER- APOLLO ROYALTIES DIRECT FEES AND BUY-OUT OF CON- PURCHASE PURCHASE PURCHASE PURCHASE SION COMMON WAIVED(1) SALES INCOME AMOUNT VERSION PRICE PRICE TO BE PRICE PRICE TO BE SHARES TO ROYALTY ROYALTY FACTOR(4) RIGHT CONVERTED CONVERTED CONVERSION CONVERTED BE ISSUED RATE(2) RATE(3) ____________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________
_____________________ 1 The Portion of Royalties waived is equal to the cumulative percent of the total Purchase Price which has been converted. 2 Future Direct Sales Royalty Rate is equal to the Portion of Royalties Waived multiplied by 2%. 3 Future Fees and Income Royalty Rate is equal to the Portion of Royalties Waived multiplied by 5%. 4 The revised amounts set out in Sections 2.3 and 2.4 for each year are equal to the amount actually set out in the Agreement multiplied by the percentage set out in this column. SCHEDULE E SUBSCRIPTION AGREEMENT TO: APOLLO GENETICS, INC. (the "Corporation") Neuroscience Partners Limited Partnership (the "Subscriber") hereby subscribes for and offers to purchase, subject to the terms and conditions set out herein, 714,290 shares of common stock, US$.02 par value per share (each, a "Common Share", collectively, the "Purchased Shares"). The Purchased Shares are being purchased pursuant to a Royalty Purchase Agreement between the Subscriber and the Corporation dated the date hereof (the "Purchase Agreement"). In the event of any conflict or inconsistency between the provisions of this Agreement and the provisions of the Purchase Agreement, the Purchase Agreement shall govern. 1. SUBSCRIPTION PRICE The aggregate subscription price (the "Subscription Price") for the Purchased Shares is US$500,000 or approximately US$.7 per Common Share. 2. CLOSING The delivery of and payment for the Purchased Shares will be completed (the "Closing") on December 17, 1996, or at such other time or on such other date as the Corporation and the Subscriber may agree (such time and date being herein referred to respectively as the "Time of Closing" and the "Closing Date"). The Subscriber hereby agrees to deliver to the Corporation at the Closing the following documents: (i) a certified cheque, bank draft or wire transfer made payable to "Apollo Genetics, Inc." or such other person as the Corporation may direct representing the Subscription Price; (ii) an executed copy of this subscription agreement; and (iii) such other documents and instruments as the Corporation may reasonably require to give effect to and carry out the transactions contemplated herein. - 2 - The Corporation hereby agrees to deliver to the Subscriber at the Closing the following documents: (i) a single certificate representing the Purchased Shares registered in accordance with the registration instructions set out in section 10; (ii) an executed copy of this subscription agreement; (iii) an opinion of its counsel in a form reasonably satisfactory to the Subscriber; and (iv) such other documents and instruments as the Corporation may reasonably require to give effect to and carry out the transactions contemplated herein. 3. REPRESENTATIONS, WARRANTIES, ETC. OF THE SUBSCRIBER The Subscriber hereby represents and warrants to the Corporation (which representations and warranties shall survive closing and continue in full force and effect for a period of three years from the date hereof) and acknowledges that the representations of the Subscriber made in Section 3.2 of the Purchase Agreement are true and correct as if made pursuant hereto. The Subscriber acknowledges that the Corporation is relying on those representations and warranties in entering into this Subscription Agreement: 4. REPRESENTATIONS, WARRANTIES, ETC. OF THE CORPORATION By its acceptance of this subscription agreement, the Corporation represents and warrants to the Subscriber (which representations and warranties shall survive closing and continue in full force and effect for a period of three years from the date hereof) and acknowledges that the representations of the Corporation made in Section 3.1 of the Purchase Agreement are true and correct as if made pursuant hereto. The Corporation acknowledges that the Subscriber is relying on those representations and warranties in entering into this subscription agreement: 5. GOVERNING LAW This subscription agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. The Corporation and the Subscriber hereby irrevocably attorn to the non-exclusive jurisdiction of the courts of the Commonwealth of Massachusetts with respect to any matters arising out of this subscription agreement. 6. ASSIGNMENT This subscription agreement is not transferable or assignable by the parties hereto. - 3 - 7. ENTIRE AGREEMENT This subscription agreement contains the entire agreement of the parties hereto relating to the subject matter hereof and there are no representations, covenants or other agreements relating to the subject matter hereof except as stated or referred to herein. 8. TIME OF ESSENCE Time shall be of the essence of this subscription agreement. 9. HEADINGS The headings contained herein are for convenience only and shall not affect the meaning or interpretation of this subscription agreement. 10. DETAILS OF REGISTRATION AND DELIVERY A. Name of Subscriber: Neuroscience Partners Limited Partnership Street Address: 100 International Blvd. City and Province: Etobicoke, Ontario Postal Code: M9W 6J6 Contact: Michael Callaghan Phone No.: 416-213-4228 Fax No.: 416-213-4232 B. Registration of the certificate representing the Common Shares, each of the Warrants and the Common Shares issuable on exercise of the Warrants should be made as follows: Name: Neuroscience Partners Limited Partnership Registration Address: 100 International Boulevard City and Province: Etobicoke, Ontario Postal Code: M9W 6J6 - 4 - 11. SIGNATURE OF SUBSCRIBER DATED as of the 18th day of December, 1996. NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP by its General Partner MDS ASSOCIES-NEUROSCIENCE INC. Per: /s/ Michael J. Callaghan, Vice-President ----------------------------------------- Michael J. Callaghan, Vice-President Per: /s/ Keith Dorrington, Vice-President ---------------------------------------- Keith Dorrington, Vice-President 12. CONFIRMATION AND ACCEPTANCE This subscription agreement is confirmed and accepted by the Corporation. DATED as of the 18th day of December, 1996. APOLLO GENETICS, INC. Per: ----------------------------------------- SCHEDULE F REGISTRATION RIGHTS AGREEMENT See Exhibit 3.3 to this Registration Statement Schedule G FINANCIAL STATEMENTS APOLLO GENETICS, INC. (a development stage company) FINANCIAL STATEMENTS DECEMBER 31, 1995 APOLLO GENETICS, INC. (a development stage company) - I N D E X - ------------- PAGE NUMBER ------ REPORT OF INDEPENDENT AUDITORS 1 BALANCE SHEETS 2 STATEMENTS OF OPERATIONS 3 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 4 STATEMENTS OF CASH FLOWS 5 NOTES TO FINANCIAL STATEMENTS 6 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Apollo Genetics, Inc. Cambridge, Massachusetts We have audited the accompanying balance sheet of Apollo Genetics, Inc. (a development stage company) as at December 31, 1995, and the related statements of operations, changes in stockholders' equity and cash flows for each of the years in the two-year period then ended, and for the period from July 9, 1992 (inception) through December 31, 1995. These financial statements are the 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 enumerated above present fairly, in all material respects, the financial position of Apollo Genetics, Inc. at December 31 1995, and the results of its operations and its cash flows for the each of the years in the two-year period then ended, and for the period from July 9, 1992 (inception) through December 31, 1995 in conformity with generally accepted accounting principles. The accompanying condensed balance sheet of Apollo Genetics, Inc. as at September 30, 1996 and the related condensed statements of operations and cash flows for the nine-month periods ended September 30, 1996 and 1995 and the period from July 9, 1992 (inception) through September 30, 1996 were not audited by us and, accordingly, we do not express an opinion on them. /s/ Richard A. Eisner & Company, LLP Cambridge, Massachusetts July 15, 1996 With respect to Notes A and E November 6, 1996 APOLLO GENETICS, INC. (a development stage company) BALANCE SHEETS December 31, September 30, A S S E T S 1995 1996 ----------- ------------ ------------- (Unaudited) Current assets: Cash and cash equivalents . . . . . . . . . $ 246,721 $ 373,645 Stock subscriptions receivable (Note C) . . 112,500 ------------ ------------- Total current assets . . . . . . . . 246,721 486,145 Organization costs, net of accumulated amortization of $3,584 at December 31, 1995 and $4,371 at September 30, 1996 (Note B). . . . . . . . . . . . . . . . . . 1,661 874 Deferred public offering costs . . . . . . . . 5,000 ------------ ------------- T O T A L. . . . . . . . . . . . . . $ 248,382 $ 492,019 ------------ ------------- ------------ ------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ----------------------------- Current liabilities: Accounts payable and accrued expenses . . . $ 161,923 $ 102,981 Notes payable (Note D). . . . . . . . . . . 73,425 ------------ ------------- Total current liabilities. . . . . . 161,923 176,406 ------------ ------------- Notes payable (Note D) . . . . . . . . . . . . 204,400 ------------ Commitments (Note F) Stockholders' equity (deficit) (Note E): Preferred stock - $.01 par value; 4,000,000 shares authorized, none issued Common stock - $.02 par value; 20,000,000 shares authorized, 11,770,000 shares issued at December 31, 1995 and 13,017,843 shares issued at September 30, 1996. . . . . . . . . . . . 235,400 260,357 Additional paid-in capital. . . . . . . . . 994,120 1,625,629 Deficit accumulated during the development stage . . . . . . . . . . . . (1,347,461) (1,570,373) ------------ ------------- Total stockholders' equity (deficit) . . . . . . . . . . . . . (117,941) 315,613 ------------ ------------- T O T A L. . . . . . . . . . . . . . $ 248,382 $ 492,019 ------------ ------------- ------------ ------------- Attention is directed to the foregoing auditor's report and to the accompanying notes to financial statements. - 2 -
APOLLO GENETICS, INC. (a development stage company) STATEMENTS OF OPERATIONS July 9, 1992 July 9, 1992 Year Ended (Inception) Nine Months Ended (Inception) December 31, Through September 30, Through ---------------------- December 31, --------------------- September 30, 1995 1994 1995 1996 1995 1996 ---------- ---------- ------------- ---------- ---------- ------------- (Unaudited) (Unaudited) Revenue: Licensing and option revenue (Note B(2)) . . . . . . . . . . . . $ 170,000 $ 170,000 Interest income . . . . . . . . . . . $ 2,535 $ 3,954 $ 12,071 7,301 19,372 ---------- ---------- ------------- ---------- ------------- $ 2,535 $ 3,954 $ 12,071 177,301 189,372 ---------- ---------- ------------- ---------- -------- ------------- Expenses: Research and development. . . . . . . 131,842 199,654 466,838 100,716 $ 94,966 567,554 General and administrative. . . . . . 230,592 323,613 857,909 268,819 187,462 1,126,728 Amortization expense. . . . . . . . . 1,049 1,049 3,584 787 787 4,371 Interest expense. . . . . . . . . . . 31,201 2,645 31,201 29,891 22,691 61,092 ---------- ---------- ------------- ---------- ---------- ------------- Total expenses . . . . . . . . 394,684 526,961 1,359,532 400,213 305,906 1,759,745 ---------- ---------- ------------- ---------- ---------- ------------- NET LOSS . . . . . . . . . . . . . . . . $(392,149) $(523,007) $ (1,347,461) $(222,912) $(305,906) $(1,570,373) ---------- ---------- ------------- ---------- ---------- ------------- ---------- ---------- ------------- ---------- ---------- ------------- Attention is directed to the foregoing auditors' report and to the accompanying notes to financial statements.
- 3 - APOLLO GENETICS, INC. (a development stage company) STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Common Stock $ .92 Per Value Additional ------------------------ Paid-in Shares Amount Capital -------- -------- ---------- Issuance of common stock at $.02 per share from inception through December 31, 1992. . . . . . . . . . . . . . . . . . . . 2,050,000 $ 41,000 Issuance of common stock for services at $.02 per share from inception through December 31, 1992 . . . . . . . . . . . . 200,000 4,000 Net loss for the year ended December 31, 1992. . . . . . . . . . . --------- -------- Balance - December 31, 1992 . . . . . . . . . . . . . . . . . . . 2,250,000 45,000 Additional shares sold at $ .02 per share . . . . . . . . . . . . 4,000,000 80,000 Shares issued for services at $ .02 per share. . . . . . . . . . . 540,000 10,800 State of common stock in connection with private placement of stock at $ .20 per share . . . . . . . . . . . . . . . . . . 3,200,000 64,000 $ 576,000 Costs related to private placement . . . . . . . . . . . . . . . . (36,530) Shares issued for services at $ .20 per share . . . . . . . . . . 30,000 600 5,400 Net loss for the year ended December 31, 1993. . . . . . . . . . . --------- -------- ---------- Balance - December 31, 1993 . . . . . . . . . . . . . . . . . . . 10,020,000 200,400 544,870 Repurchase of common stock by the Company and cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,300) (1,000) Common stock warrants issued in connection with notes payable . . 6,750 Net loss for the year ended December 31, 1994 . . . . . . . . . . ---------- -------- ---------- Balance - December 31, 1994 . . . . . . . . . . . . . . . . . . . 9,970,000 199,400 551,620 Sale of common stock at $ .25 per share. . . . . . . . . . . . . . 1,800,000 36,000 414,000 Costs of raising capital . . . . . . . . . . . . . . . . . . . . (12,250) Purchase (for $8,000) and resale (for $20,000) of 200,000 shares of common stock . . . . . . . . . . . . . . . . . . . . . 12,000 Capital contributed by stockholder . . . . . . . . . . . . . . . . 25,000 Common stock warrants issued in connection with notes payable. . . 3,750 Net loss for the year ended December 31, 1995. . . . . . . . . . . ---------- -------- ---------- Balance - December 31, 1995. . . . . . . . . . . . . . . . . . . . 11,770,000 235,400 994,120 Shares issued for services at $ .30 per share. . . . . . . . . . . 83,552 1,471 23,395 Conversion of debt into common stock . . . . . . . . . . . . . . . 450,003 9,000 122,400 Sale of common stock in connection with private placement of stock at $ .70 per share . . . . . . . . . . . . . . . . . . 714,291 14,286 485,714 Net loss for the nine months ended September 30, 1994. . . . . . . ---------- -------- ---------- BALANCE - SEPTEMBER 30, 1996 (unaudited) . . . . . . . . . . . . . 13,017,843 $ 260,357 $ 1,625,629 ---------- --------- ----------- ---------- --------- ----------- Deficit Accumlated During Developememt Stage Total ------------ --------- Issuance of common stock at $.02 per share from inception through December 31, 1992. . . . . . . . . . . . . . . . . . . . $ 41,000 Issuance of common stock for services at $.02 per share from inception through December 31, 1992 . . . . . . . . . . . . 4,000 Net loss for the year ended December 31, 1992. . . . . . . . . . . $ (77,972) (77,972) ----------- -------- Balance - December 31, 1992 . . . . . . . . . . . . . . . . . . . (77,972) (32,972) Additional shares sold at $ .02 per share . . . . . . . . . . . . 80,000 Shares issued for services at $ .02 per share. . . . . . . . . . . 10,800 State of common stock in connection with private placement of stock at $ .20 per share . . . . . . . . . . . . . . . . . . 640,000 Costs related to private placement . . . . . . . . . . . . . . . . (36,530) Shares issued for services at $ .20 per share . . . . . . . . . . 6,000 Net loss for the year ended December 31, 1993. . . . . . . . . . . (354,333) (354,333) ----------- -------- Balance - December 31, 1993 . . . . . . . . . . . . . . . . . . . (432,305) 312,965 Repurchase of common stock by the Company and cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,000) Common stock warrants issued in connection with notes payable . . 4,750 Net loss for the year ended December 31, 1994 . . . . . . . . . . (523,007) (523,007) ----------- -------- Balance - December 31, 1994 . . . . . . . . . . . . . . . . . . . (955,312) (204,292) Sale of common stock at $ .25 per share. . . . . . . . . . . . . . 450,000 Costs of raising capital . . . . . . . . . . . . . . . . . . . . . (12,250) Purchase (for $8,000) and resale (for $20,000) of 200,000 shares of common stock . . . . . . . . . . . . . . . . . . . . . 12,000 Capital contributed by stockholder . . . . . . . . . . . . . . . . 25,000 Common stock warrants issued in connection with notes payable. . . 3,750 Net loss for the year ended December 31, 1995. . . . . . . . . . . (392,141) (392,149) ----------- -------- Balance - December 31, 1995. . . . . . . . . . . . . . . . . . . . (1,347,461) (117,941) Shares issued for services at $ .30 per share. . . . . . . . . . . 25,066 Conversion of debt into common stock . . . . . . . . . . . . . . . 131,400 Sale of common stock in connection with private placement of stock at $ .70 per share . . . . . . . . . . . . . . . . . . 500,000 Net loss for the nine months ended September 30, 1994. . . . . . . (222,912) (222,912) ----------- -------- BALANCE - SEPTEMBER 30, 1996 (unaudited) . . . . . . . . . . . . . $(1,570,373) $ 315,613 ----------- -------- ----------- --------
Attention is directed to the foregoing auditors' report and to the accompanying notes to financial statements. -4- APOLLO GENETICS, INC. (a development stage company) STATEMENTS OF CASH FLOWS
July 9, 1992 July 9, 1992 Year Ended (Inception) Nine Months Ended (Inception) December 31, Through September 30, Through -------------------- December 31, -------------------- September 30, 1995 1994 1995 1996 1995 1996 --------- --------- --------------- --------- --------- --------------- (Unaudited) (Unaudited) Cash flows from operating activities: Net loss........................................ $(392,149) $(523,007) $ (1,347,467) $(222,912) $(305,906) $ (1,570,373) Adjustments to reconcile net loss to net cash used in operating activities: Amortization.................................. 1,049 1,399 3,934 1,212 786 5,146 Common stock issued for services rendered..... 20,800 25,066 45,866 Organization costs............................ (5,245) (5,245) Changes in operating assets and liabilities: Increase (decrease) in accounts payable and accrued expenses........................... 138,971 56,643 216,473 (58,942) 130,697 157,531 --------- --------- --------------- --------- --------- --------------- Net cash (used in) operating activities... (253,029) (484,965) (1,111,499) (255,576) (174,423) (1,367,075) --------- --------- --------------- --------- --------- --------------- Cash liens from financing activities: Sale of common stock............................ 445,000 1,206,000 387,00 121,000 1,593,500 Stock offering costs............................ (12,250) (48,780) (48,780) Repurchase of common stock...................... (8,000) (1,000) (9,000) (9,000) Proceeds from notes payable (Note C)............ 75,000 135,000 210,000 75,000 210,000 Deferred public offering costs.................. (5,000) (5,000) --------- --------- --------------- --------- --------- --------------- Net cash provided by financing activities............................... 499,750 134,000 1,358,220 382,500 196,000 1,740,729 --------- --------- --------------- --------- --------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................................... 246,721 (330,965) 246,721 126,926 21,577 373,645 Cash and cash equivalents at beginning of period........................................... -0- 330,965 -0- 246,721 -0- -0- --------- --------- --------------- --------- --------- --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $ 246,721 $ -0- $ 246,721 $ 373,845 $ 21,577 $ 373,645 --------- --------- --------------- --------- --------- --------------- --------- --------- --------------- --------- --------- --------------- Supplemental disclosures of cash flow information: Interest paid................................... $ 15,000 $ 15,000 $ 25,00 $ 32,000 Accounts payable converted into stock........... 25,000 25,000 25,000 Capital contributed by forgiveness of debt...... 25,000 25,000 25,000 Notes payable converted to common stock......... 135,000 135,000
Attention is directed to the foregoing auditors' report and as the accompanying notes to financial statements. -5- APOLLO GENETICS, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS (Information as of September 30, 1996 and for the nine months ended September 30, 1996 and 1995 is unaudited) (NOTE A) - THE COMPANY: Apollo Genetics, Inc. (the "Company"), was incorporated on July 9, 1992. The Company's objective is to develop biopharmaceutical products for deterring aspects of human aging. The Company is in the development stage and its efforts through December 31, 1995 have been principally devoted to organizational activities, raising capital and initial research and development activities. It does not expect commercial operations in the foreseeable future. The Company anticipates that it will need substantial additional financing to complete its research and to develop commercial products. The Company is endeavoring to obtain additional financing for the next phase of its research activities; however, there is no assurance that such financing can be obtained or that the Company's research will be successful. On November 6, 1996 the Board of Directors of the Company authorized the filing of a registration statement with the Securities and Exchange Commission for the initial public offering of shares of the Company's common stock. (NOTE B) - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (1) ORGANIZATION COSTS: The Company has capitalized certain costs, primarily legal expenses, related to its organization. These costs are being amortized by the straight-line method over five years. (2) PATENT COSTS: Patent costs will be amortized over the estimated useful lives of the underlying patents commencing with the date when revenue is earned related to the patents. (3) 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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (continued) - 6 - APOLLO GENETICS, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS (Information as of September 30, 1996 and for the nine months ended September 30, 1996 and 1995 is unaudited) (NOTE B) - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued) (4) CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments with a maturity of three months or less, when acquired, to be cash equivalents. (5) INTERIM CONDENSED FINANCIAL STATEMENTS: The condensed financial statements as of September 30, 1996 and for the nine months ended September 30, 1996 and September 30, 1995 are unaudited. In management's opinion, the unaudited financial statements as of September 30, 1996 and for the nine months ended September 30, 1996 and September 30, 1995, include all adjustments necessary for a fair presentation. Such adjustments were of a recurring nature. (NOTE C) - STOCK SUBSCRIPTIONS RECEIVABLE: All stock subscriptions receivable were paid in full in October 1996. (NOTE D) - NOTES PAYABLE: During the 1995 and 1994, the Company issued $210,000 of 10% convertible notes payable. The notes are due in full at the earlier of September 19, 1997 or the closing of the next offering of common stock of the Company with aggregate gross proceeds to the Company of not less than $1,000,000. Interest is payable annually on September 19. The notes may be redeemed at the option of the Company at a price equal to 110% of the principal amount plus any accrued and unpaid interest. The notes may be converted into common stock of the Company at any time prior to the redemption or maturity date. The conversion price is subject to adjustment as defined in the agreement. The principal amount of the notes outstanding is $75,000 and $210,000 at September 30, 1996 and December 31, 1995, respectively. In - 7 - APOLLO GENETICS, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS (Information as of September 30, 1996 and for the nine months ended September 30, 1996 and 1995 is unaudited) (NOTE D) - NOTES PAYABLE: (continued) conjunction with these notes, the Company issued warrants for the purchase of 700,000 shares of its common stock. The value assigned to the warrants, amounting to $10,500, has been accounted for as debt discount and is being amortized over the period of time the notes are expected to be outstanding. The effective interest rate on the notes, including the debt discount, is approximately 12%. The warrants are more fully discussed in Note E(3). Through September 30, 1996 a total of $135,000 of the notes were converted into 450,000 shares of common stock. (NOTE E) - COMMON STOCK, OPTIONS AND WARRANTS: [1] COMMON STOCK: Through December 31, 1995, the Company has been financed primarily through the sale of common stock. Through December 31, 1995, of the 11,770,000 shares issued, 11,000,000 were sold for cash and the remaining 770,000 shares were issued for payment of services rendered to the Company. Through September 30, 1996, of the 13,017,843 shares issued, 12,164,291 were sold for cash and the remaining 853,552 shares were issued for payment of services rendered to the Company. [2] OPTION PLAN: The Company has a stock option plan that provides for the issuance of both incentive and nonqualified stock options. This plan provides for the granting of options to purchase not more than 1,000,000 shares of common stock. The exercise price of the incentive options cannot be less than the fair market value on the date of the grant, while the exercise price for the nonqualified options is determined by the option committee. (continued) - 8 - APOLLO GENETICS, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS (Information as of September 30, 1996 and for the nine months ended September 30, 1996 and 1995 is unaudited) (NOTE E) - COMMON STOCK, OPTIONS AND WARRANTS: (continued) [2] OPTION PLAN: (continued) Option activity through September 30, 1996 has been as follows: Number of Option Price Shares Per Share --------- ------------ Balance - December 31, 1992 -0- $-0- Granted 200,000 $.20 ------- Balance - December 31, 1993 200,000 $.20 Granted 500,000 $.20 - $.30 ------- Balance - December 31, 1994 700,000 $.20 - $.30 Cancelled (300,000) $.20 - $.30 Granted 600,000 $.10 - $.25 ------- Balance - December 31, 1995 and September 30, 1996 1,000,000 $.10 - $.30 At September 30, 1996, options to purchase 650,000 shares were exercisable at an average exercise price of $.26 per share. At September 30, 1996, no options to purchase shares were available for grant under the plan. In November of 1996, the Company's Board of Directors authorized an increase of the number of shares of the Company's common stock issuable under the plan by 1,000,000 shares. Also in November of 1996, the Company's Board of Directors authorized the establishment of the 1996 Directors Stock Option Plan, and reserved 300,000 shares of the Company's common stock for issuance under the Plan (continued) 9 APOLLO GENETICS, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS (Information as of September 30, 1996 and for the nine months ended September 30, 1996 and 1995 is unaudited) (NOTE E) - COMMON STOCK, OPTIONS AND WARRANTS: (continued) [3] WARRANTS: In conjunction with the notes described in Note C, the Company issued warrants for the purchase of 700,000 shares of the Company's common stock. The warrants are exercisable until September 17, 1999 at the lower of $.30 per share or the price per share of the common stock at the closing of the next offering of common stock with aggregate gross proceeds of at least $1,000,000. The number and character of shares which may be purchased upon the exercise of these warrants are subject to adjustment as provided in the warrant agreement. (NOTE F) - COMMITMENTS: [1] LEASE: The Company is currently subleasing its facilities under a tenant-at-will agreement. Rent expense for the year ended December 31, 1995 amounted to $5,850 and the rent paid since inception is $21,100. [2] RESEARCH, LICENSE AND CONSULTING AGREEMENTS: The Company has entered into various research, license and consulting agreements to support its research and development activities. These agreements generally expire over several future years. Amounts charged to operations in connection with these agreements for the year ended December 31, 1995 amounted to approximately $55,000. The Company expects to increase its research and development expenses in future years. Some of the above agreements contain provisions for future royalties to be paid by the Company on the sale of products developed under the agreements. [3] EMPLOYMENT AGREEMENT: The Company has entered into an employment agreement, which expires on October 31, 1997, with its president which provides for a minimum annual salary of $100,000 and twelve months of severance pay. The agreement will automatically extend for a one-year period through October 31, 1998 unless terminated by either party to the agreement. (continued) 10 SCHEDULE H GRANTS AND OPTIONS 1. The Neurestrol License Option granted pursuant to Section 3.3 of the Athena Agreement. EX-10.6 11 EXHIBIT 10.6 NONEXCLUSIVE SUBLICENSE AGREEMENT This Nonexclusive Sublicense Agreement (this "Agreement") is made as of November 5, 1996, by and between Apollo Genetics, Inc., a corporation organized and existing under the laws of Delaware ("Apollo"), and Cephalon, Inc., a corporation organized and existing under the laws of Delaware ("Cephalon"). WHEREAS, pursuant to a certain Neuron Loss Protection Technology License Agreement (the "University Agreement"), dated as of April 13, 1993, between University of Kentucky Research Foundation (the "University") and Apollo, the University granted Apollo the exclusive right and license to make, have made, use, lease, and sell throughout the world (including the right to sublicense worldwide any of the rights, privileges and licenses granted thereunder) certain products, including inter alia, any Products (as defined below); and WHEREAS, Cephalon desires to obtain a nonexclusive, worldwide, royalty bearing sublicense to make, have made, use, sell, offer to sell and import Products (as defined below); NOW, THEREFORE, in consideration of the foregoing and of the mutual undertakings hereinafter set forth, the parties hereto agree as follows: 1. DEFINITIONS. 1.1. "Apollo Patents" shall mean any of the patent applications listed on EXHIBIT A hereto and all-patents issued in connection therewith, and all divisionals, continuations, continuations-in-part, reissues and extensions derived therefrom, as well as any additional foreign counterparts and foreign patents issuing therefrom. 1.2. "Gross Sales" shall mean, during any applicable calculation period, with respect to any Products during any applicable calculation period, the aggregate invoiced amounts for Products shipped by Cephalon or any of its affiliates to nonaffiliated third parties during such period. 1.3. "Net Sales" shall mean, during any applicable calculation period, Gross Sales of all Products during such period, less [ * ] 1.4. "Products" shall mean any and all products made, developed, sold or otherwise distributed by or on behalf of Cephalon or any of its affiliates that are covered by one or more Valid Claims under this Agreement. * Confidential treatment has been requested for marked portion -2- 1.5. "Valid Claims" shall mean the claims included in any of the issued Apollo Patents that have not been challenged with any reasonable evidence of invalidity and are, therefore, presumed valid solely for the purpose of determining royalty obligations hereunder. 2. SUBLICENSE GRANT. 2.1. Subject to the provisions of this Sublicense Agreement, Apollo hereby grants to Cephalon and Cephalon hereby accepts, during the term of this agreement only, the nonexclusive, worldwide right and license to practice under the Valid Claims. 2.2. Cephalon shall have the right to request that Apollo sublicense, on a non-exclusive basis, its rights under Apollo Patents to one or more of Cephalon's then current corporate collaborators. Apollo shall not unreasonably withhold the grant of such sublicenses. Cephalon itself may not grant any sublicenses under this Agreement. 3. ROYALTIES. 3.1. In consideration of the sublicense granted to Cephalon in Section 2, Cephalon agrees to pay royalties to Apollo as follows: (a) on the date hereof and on each six-month anniversary of the date hereof, Cephalon shall pay to Apollo $ [ * ], until such time as an Apollo Patent is issued . (b) Thereafter, on each six month anniversary of the date hereof, beginning with the payment date next following the first issuance of an Apollo Patent, Cephalon shall pay to Apollo $[ * ], until such time as a New Drug Application is filed with the U.S. Federal Drug Administration (the "FDA") or a foreign equivalent thereof is filed with the appropriate authority for any Product (each such filing being referred to herein as an "NDA"); (c) Thereafter, on each six month anniversary of the date hereof, beginning with the payment date next following the first such filing of an NDA, Cephalon shall pay to Apollo $[ * ], until such time as an NDA for any Product is approved by the FDA or the appropriate foreign authority therefor; (d) Thereafter, Cephalon shall pay to Apollo royalties in an amount equal to [ * ] percent ([ * ]%) of any and all Net Sales of Products by Cephalon, any of its affiliates and any third parties acting on behalf of any of the foregoing, subject to the provisions of Section 3.4; and, FURTHER, PROVIDED that in any calendar year * Confidential treatment has been requested for marked portion -3- in which Cephalon must make payments to Apollo pursuant to this Section 3.1(d), Cephalon must pay to Apollo no less than $[ * ] in each such calendar year. (e) All royalty payments owed by Cephalon to Apollo may be offset by any payments made by Cephalon to Apollo pursuant to Sections 3.1(a)-(c); provided; however, that in any calendar year Cephalon's right to offset shall be limited to [ * ]% of the amount of Cephalon's royalty obligation to Apollo pursuant to Section 3.1(d) in the [ * ] year that such payments are owed, [ * ]% in the second year and [ * ]% in all subsequent years. (f) All royalty payments owed by Cephalon to Apollo pursuant to subsections (a) through (d) of Section 3.1 shall be deemed timely if paid within thirty (30) days of the date due therefor. (g) If an additional sublicense is granted by Apollo to a third party (including a Cephalon corporate collaborator) and such sublicense provides for payment to Apollo by such third party of a royalty based on net sales by such third party in an amount less than [*]%, then Apollo hereby agrees to offer Cephalon the right to convert the terms of its sublicense to match those of the subsequently granted sublicense within one calendar quarter of executing such sublicense agreement with such third party. 3.2 If Apollo is properly served with a legal complaint filed with a court of competent jurisdiction, which complaint challenges with reasonable evidence the validity of a claim within an Apollo Patents Cephalon's obligation to pay to Apollo any subsequent royalty payments under Section 3.1(d) that are based on such claim shall be suspended until such time as such complaint is finally adjudicated by a court of competent jurisdiction. Upon such adjudication, all amounts owed by Cephalon to Apollo (plus interest thereon accruing at an annual rate designated by Citibank, N. A. as its base rate on the date that such royalty payments were first suspended) shall be paid by Cephalon to Apollo within thirty (30) days thereof. 3.3. (a) The amount of royalties due under Section 3.1(d) shall be computed quarterly. Within forty-five (45) days after the close of each calendar quarter, Cephalon shall submit to Apollo documentation of the Gross Sales and Net Sales of Products by Cephalon, any of its affiliates and any third parties acting on behalf of any of the foregoing. At such time, Cephalon shall pay to Apollo in cash the royalties owed hereunder with respect to such quarter. Each such payment shall be accompanied by a certificate by an appropriate officer of Cephalon describing in reasonable detail the calculation of the amount of the accompanying royalty payment. (b) Cephalon shall be responsible for monitoring Net Sales of Products by * Confidential treatment has been requested for marked portion -4- itself or by any of its affiliates and any third parties acting on behalf of any of the foregoing. 3.4. If Cephalon is required to enter into any royalty-bearing licensing agreements with any third parties in order to make, use, sell, or import any Product, any royalty payments owed to Apollo by Cephalon, pursuant to Section 3.1(d), with respect to such Product during any applicable period [ * ]. 3.5. All royalty payments owed by Cephalon to Apollo under Section 3.1(d) shall be paid in full in the United States in United States dollars. The amount, if any, of Net Sales invoiced in another currency shall be converted, prior to computing the royalties due with respect to such sales, from the invoice currency into United States dollars at the conversion rate actually received by Cephalon or, in the absence of any actual conversion, at a conversion rate which shall be the mean between Citibank, N.A.'s buying and selling rate for the invoice currency at its principal offices in New York, New York, on the last day of the quarter for which the royalties are being determined. 4. DUE DILIGENCE. Cephalon agrees to use its best efforts to develop and commercialize one or more Products under this Agreement consistent with the prudent exercise of its business judgment. 5. PROSECUTION OF PATENTS. Apollo shall be solely responsible for the preparation, filing, prosecution, issuance and maintenance of all Apollo Patents, and shall bear all of the costs associated therewith. Apollo shall provide Cephalon the right to review and comment on all documents in connection with the prosecution of each Apollo Patent; provided, however, that Cephalon shall have no obligation to review or comment on such documents and, in the event that Cephalon does so comment, Apollo shall have no obligation to incorporate the substance of any such comments into any such documents. 6. INFRINGEMENT ACTIONS. Apollo shall have the sole right (but not the obligation) to bring infringement, unfair competition or other proceedings involving or relating to each Apollo Patent and to defend any governmental action involving or relating to each Apollo Patent. At Apollo's request and expense, Cephalon shall cooperate with Apollo in any such proceedings or actions. Cephalon shall not itself take any action against third parties relating to infringement, unfair competition or other matters involving any Apollo Patent without * Confidential treatment has been requested for marked portion -5- Apollo's prior written approval and shall notify Apollo in writing of any unauthorized use of any Apollo Patent promptly after becoming aware of any such use or action. Should Apollo receive from Cephalon formal written notice (the "Formal Notice"), together with a professional, scientific explanation as to the mechanism(s) of action, regarding an alleging infringement of any Apollo Patent, in lieu of making full payment of any royalty payments owed under Section 3.1(d) with respect to any Apollo Patents to which such alleged infringement relates, Cephalon's obligation to pay Apollo any subsequent royalty payments under Section 3.1(d) shall be reduced to [ * ]%, the remaining [ * ]% owing under Section 3.1(d) to be withheld by Cephalon pending resolution of such alleged infringement.. Cephalon shall place the remaining [ * ]% royalty in an interest-bearing escrow account. If, at the expiration of forty-eight (48) months from the receipt by Apollo of the Formal Notice (the "Expiration Period"), Apollo has not resolved the issue of such alleged infringement either by (1) obtaining a permanent injunction prohibiting the alleged infringing party from continuing such alleged infringement (an "Injunction") and/or (2) by final adjudication from which no further appeal may be taken (including the settling of such alleged infringement by agreement) resulting in (a) cessation of such alleged infringement and/or (b) a determination of non-infringement (other than for reasons of invalidity and/or unenforceability of any of the Apollo Patents) (a "Final Adjudication"), Cephalon shall be entitled to retain the entire amount of the withheld [ * ]%, including any interest thereon, within such escrow account for its use and Apollo shall not be entitled to any monies from such account. If, however, Apollo does resolve such issue by obtaining an Injunction or a Final Injunction prior to the end of the Expiration Period, then Cephalon shall promptly pay to Apollo the entire amount of the withheld [ * ]%, including any interest thereon, within such escrow account and any subsequent payments finder Section 3 1(d) shall resume to [ * ]% at such time. Following the Expiration Period, any subsequent payments under Section 3.1(d) shall continue to be reduced to [ * ]%, but shall resume to [ * ]% at such time as Apollo thereafter obtains an Injunction and/or a Final Adjudication. Notwithstanding anything in this paragraph to the contrary, in the event that Apollo grants a license under Apollo Patents to any such alleged infringer at any time after 180 days of receipt of the Formal Notice (whether or not in connection with a Final Adjudication), Apollo shall not be entitled to any portion of the withheld [ * ]%, including any interest thereon. 7. CONFIDENTIAL INFORMATION; PUBLIC ANNOUNCEMENTS. 7.1. It is contemplated that, during the term of this Agreement, each party (as such, a "Disclosing Party") will disclose to the other party (as such, a "Receiving Party") proprietary or confidential information of the Disclosing Party that is marked or otherwise reasonably identified as such or, if disclosed orally, is followed by written notice within thirty (30) days reasonably identifying it as such (collectively, "Confidential Information"). A Receiving Party shall hold in confidence and shall not, directly or indirectly, at any time during or subsequent to the term of this Agreement, unless otherwise agreed to in writing by the Disclosing Party, * Confidential treatment has been requested for marked portion -6- disclose, publish, transfer or use (other than in accordance with the terms of this Agreement) any Confidential Information of the Disclosing Party; Provided, however, that the foregoing restrictions shall not apply to any Confidential Information that: (a) becomes part of the public domain through no wrongful act of the Receiving Party; (b) is lawfully received by the Receiving Party from a third party without contravention of this Agreement or any similar nondisclosure agreement (whether or not with the Receiving Party); (c) prior to the time of receiving such Confidential Information from the Disclosing Party, is known by the Receiving Party and may lawfully be used by it without restriction; or (d) is independently developed by the Receiving Party, provided that the person or persons developing the same have not had any access to the Confidential Information. Confidential Information specific to the use of certain compounds, methods, conditions or features shall not be deemed to be within the foregoing exceptions merely because such Confidential Information is embraced by general disclosures in the public domain or in the possession of the Receiving Party; in addition, a combination of Confidential Information will not be deemed to fall within the foregoing exceptions, even if all of the components fall within an exception, unless the combination itself and its significance are in the public domain or in the possession of the Receiving Party prior to the disclosure thereof by the Disclosing Party. All Confidential Information received hereunder shall be immediately returned to tile Disclosing Party upon termination of this Agreement, along with any copies, reproductions, digests, abstracts or the like of all or any part thereof in the Receiving Party's possession or under the Receiving Party's control, and upon such return any computer entries or the like relating thereto shall, to the extent legally permissible, be destroyed, and such return and/or destruction shall be certified in writing by an appropriate officer of the Receiving Party. Such return (and destruction) will not affect the Receiving Party's obligations hereunder which shall survive indefinitely. Notwithstanding the foregoing, each party may retain one copy of the Confidential Information received hereunder, solely for archival purposes. 7.2. Except as shall be necessary to comply with applicable laws and regulations, and except as otherwise agreed to by the parties hereto in writing, the parties agree to keep the existence of this Agreement, and the transactions contemplated hereby, strictly confidential. Any public announcements regarding this Agreement or the transactions contemplated herein shall -7- be agreed upon in writing between the parties prior to any release thereof 8. REPRESENTATIONS OF APOLLO. Apollo represents, warrants and covenants as follows: 8.1 It is a corporation duly organized and validly existing under the laws of Delaware with the full power to conduct its affairs as currently conducted and contemplated hereunder. All necessary action has been taken to enable it to execute and deliver this Agreement and perform its obligations hereunder. 8.2. This Agreement is a valid and binding obligation of Apollo enforceable in accordance with its terms. Apollo has the right to enter into this Agreement and to fulfill its duties hereunder. Apollo is not and will not become a party to any agreement in conflict herewith. Accordingly, Apollo has the right to grant the license set forth in Section 2 in accordance with the terms of this Agreement and such grant will not constitute a breach of any existing contractual or other arrangements between Apollo and any affiliated or non-affiliated third party, nor shall it infringe the rights of any affiliated or non-affiliated third party. 8.3 No approval, consent, order, authorization or license by, giving notice to or taking any other action with respect to, any governmental or regulatory authority is required in connection with the execution and delivery of this Agreement by Apollo and the performance by Apollo of its obligations hereunder. 9. REPRESENTATIONS OF CEPHALON. Cephalon represents, warrants and covenants as follows: 9.1. It is a corporation duly organized and validly existing under the laws of Delaware with full power to conduct its affairs as currently conducted and contemplated hereunder. All necessary action has been taken to enable it to execute and deliver this Agreement and perform its obligations hereunder. 9.2. This Agreement is a valid and binding obligation of Cephalon enforceable in accordance with its terms. Cephalon has the right to enter into this Agreement and to fulfill its obligations hereunder. 9.3. No approval, consent, order, authorization or license by, giving notice, to or taking any other action with respect to any governmental or regulatory authority is required in connection with the execution and delivery of this Agreement by Cephalon and the performance by Cephalon of its obligations hereunder. -8- 10. INDEMNIFICATION AND INSURANCE. 10.1 Cephalon shall indemnify, defend and hold harmless Apollo and its directors, officers, employees and affiliates (the "Indemnitees"), against any liability, damage, loss or expense (including reasonable attorneys' fees and expenses of litigation) incurred by or imposed upon the Indemnitees, or any one of them, in connection with any claims, suits, actions, demands or judgments arising out of the production, manufacture, sale, use in commerce, or promotion by Cephalon or by an affiliate or agent of Cephalon, of any product, process or service relating to, or developed pursuant to, this Agreement. 10.2 Cephalon's indemnification under Section 10.1(a) shall apply to any liability, damage, loss or expense whether or not it is attributable to the negligent activities of the Indemnitees. 10.3 At such time as any Product is being used for obtaining regulatory approvals or is being commercially distributed or sold by Cephalon or an affiliate or agent of Cephalon, Cephalon shall, at its sole cost and expense, procure and maintain policies of comprehensive general liability insurance in amounts not less than One Million Dollars ($1,000,000) per person per occurrence. At all times that any Product is being sold commercially, Cephalon shall cause the Indemnitees to be named as additional insureds under such policies. Such comprehensive general liability insurance shall provide (a) product liability coverage; (b) broad form contractual liability coverage for Licensee's indemnification under Sections 10.1 and 10.2 of this Agreement. 10.4 In thee event any such action is commenced or claim made or threatened against Apollo or other Indemnitees as to which Cephalon is obligated to indemnify it (them) or hold it (them) harmless, Apollo or the other Indemnitees shall promptly notify Cephalon of such event and Cephalon shall assume the defense of, and may settle, that part of any such claim or action commenced or made against Apollo (or other Indemnitees) which relates to Cephalon's indemnification and Cephalon may take such other steps as may be necessary to protect itself. Cephalon shall not be liable to Apollo or other Indemnitees on account of any settlement of any such claim or litigation effected without Cephalon's consent. The right of Cephalon to assume the defense of any action shall be limited to that part of the action commenced against Apollo and/or Indemnitees which relates to Cephalon's obligation of indemnification and holding harmless. 11. DISCLAIMER OF WARRANTIES. 11.1 APOLLO MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, -9- WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY TECHNICAL INFORMATION LICENSED OR OTHERWISE PROVIDED TO CEPHALON OR ITS AFFILIATES HEREUNDER AND HEREBY DISCLAIMS THE SAME. 11.2 APOLLO DOES NOT WARRANT THE VALIDITY OF THE TECHNOLOGY LICENSED HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF SUCH TECHNOLOGY OR THAT SUCH TECHNOLOGY MAY BE EXPLOITED BY CEPHALON OR ITS AFFILIATES WITHOUT INFRINGING ANY PATENTS OF ANY THIRD PARTY. 12. TERMINATION OF THE UNIVERSITY AGREEMENT. Apollo shall not knowingly take any action or omit to take any action that would constitute grounds for termination by the University of the University Agreement. 13. ACCOUNTS. Cephalon shall maintain accurate books of account with respect to its Gross Sales and Net Sales of Products. Apollo or its duly authorized representative shall be entitled to inspect such books of account at its own cost and at such times and intervals (but not more than once per calendar year) as Apollo may reasonably request, solely for the purpose of verifying the correctness of Cephalon's payments under Section 3. Within one hundred twenty (120) days after the close of each fiscal year of Cephalon during the term of this Agreement, Cephalon shall furnish to Apollo a copy of Cephalon's Annual Report on Form 10-K. 14. TERM AND TERMINATION. Unless earlier terminated pursuant to this Section 14, this Agreement shall be effective until the last to expire of any issued claims under any Apollo Patent. Notwithstanding the foregoing, this Agreement may be terminated as follows: (a) By Apollo or Cephalon, upon termination of the University Agreement; (b) By Cephalon, for any reason, after providing Apollo written notice to such effect, such termination to occur at least six (6) months after receipt by Apollo of such notice; (c) By either party, after providing written notice to the other party, upon the occurrence of any of the following with respect to the other party: (i) breach of any duty or obligation hereunder not cured within thirty (30) days after receipt of written notice thereof; -10- (ii) institution by of bankruptcy, insolvency, liquidation or receivership proceedings, or proceedings for reorganization under bankruptcy or comparable laws, the effectiveness of which is not stayed or dismissed within sixty (60) days after such institution; and (iii) the making of a general assignment for the benefit of creditors. 15. EFFECTS OF TERMINATION. Cephalon shall not have any claim for lost profits or goodwill relating to the termination of this Agreement in accordance with its terms. Upon the expiration or termination of this Agreement, Cephalon's rights hereunder shall expire immediately. The expiration or termination of this Agreement shall not affect any obligation accruing prior to such expiration or termination. 16. SURVIVAL. The provisions of Sections 6, 7, 10, 11, 13 (for the longer of (i) one year from the expiration or termination of the Agreement and (ii) delivery by Cephalon to Apollo of Cephalon's Annual Report on Form 10-K containing audited financial statements for the latest year in which there are Net Sales of Products) and 15 shall survive the expiration or termination of this Agreement. 17. ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. The rights, interests and obligations of Cephalon under this Agreement may slot be transferred assigned or encumbered, in whole or in part, without Apollo's express prior written consent. The rights and obligations of Apollo under this Agreement malt be transferred or assigned, in whole or in part, at Apollo's sole discretion. 18. SPECIFIC PERFORMANCE. Because a breach by either party of any of its obligations hereunder may irreparably harm the other party, each party agrees that if it breaches or threatens to breach any of its obligations hereunder the other party stall, without limitation of its other rights and remedies, be entitled to seek equitable relief to enforce the breaching party's obligations hereunder. 19. NOTICES. All notices and other communications hereunder shall be in writing or by confirmed facsimile transmission, and shall be deemed to have been given on actual receipt or, if earlier, (a) one (1) day after delivery to a nationally recognized overnight courier-or (b) four (4) days after mailing by registered or certified mail, postage prepaid, addressed in each case, as follows: -11- If to Apollo: Apollo Genetics, Inc. 222 Third Street, Suite 2110 Cambridge, MA 02142 (Fax: 617-492-0084) Attn.: Katherine Gordon, Ph.D., President with a copy to: Roger D. Feldman, Esq. Bingham, Dana & Gould LLP 150 Federal Street Boston, MA 02110 (Fax: 617-951-8736) If to Cephalon: Cephalon, Inc. 145 Brandywine Parkway West Chester, PA 19380 (Fax: 610-344-0065) Attn.: Senior Vice President, Business Development with a copy to: Cephalon, Inc. 145 Brandywine Parkway West Chester, PA 19380 (Fax: 610-344-0065) Attn.: General Counsel Each of the parties shall be entitled to specify a different address by giving notice as provided herein. 20. RELATIONSHIP OF PARTIES. Nothing contained herein shall be deemed to create a joint venture, partnership, agency or similar endeavor between the parties. Each party shall act solely as an independent contractor and neither shall have any power or authority to directly or indirectly bind the other. -12- 21. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts. 22. MISCELLANEOUS. This Agreement supersedes any and all prior oral or written understandings of the parties relating to the subject matter hereof, and constitutes the entire agreement of the parties relating to the subject matter hereof. Apollo and Cephalon may amend or modify this Agreement only by a written document executed by each of them. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. No waiver of any of the provisions of this Agreement shall be deemed a waiver of any other provision hereof, nor shall any such waiver constitute a continuing waiver unless otherwise expressly provided. The headings contained herein are for the convenience of the parties and shall not be deemed a part hereof [Signature page to follow.] -13- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. APOLLO GENETICS, INC. CEPHALON, INC. By: /s/ Katherine Gordon By: /s/ Joseph J. Day, Jr. -------------------- ----------------------- Title: President & CEO Title: Senior Vice President -------------------- ----------------------- Date: November 11, 1996 Date: November 6, 1996 --------------------- ----------------------- EXHIBIT A PATENT APPLICATIONS Application/ Country/Region Serial Number Filings Date Title - -------------- ------------- ------------ ----- [ * ] * Confidential treatment has been requested for marked portion EX-10.7 12 EXHIBIT 10.7 LICENSE AND COLLABORATION AGREEMENT between APOLLO GENETICS, INC. and ATHENA NEUROSCIENCES, INC. Dated as of April 16, 1996 TABLE OF CONTENTS License and Collaboration Agreement TOPIC PAGE NO. - ----- -------- ARTICLE 1. DEFINITIONS 1.1 Acute Formulation 1 1.2 Affiliate 1 1.3 Committee 1 1.4 Compound(s) 2 1.5 Development Funding 2 1.6 Field 2 1.7 First Commercial Sale 2 1.8 Improvements 2 1.9 Licensed Know-How 2 1.10 Licensed Patent Rights 2 1.11 Licensed Technology 2 1.12 Lilly and Lilly Collaboration 3 1.13 Net Products Revenue 3 1.14 Neurestrol-Registered Trademark- 3 1.15 Person 3 1.16 Plan 3 1 17 Product 3 1.18 Royalty Term 3 1.19 Territory 3 1.20 Valid Patent Claim 3 ARTICLE 2. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS 3 2.1 Apollo Representations and Warranties 3 2.2 Athena Representations and Warranties 5 2.3 Disclaimers of Warranties 5 ARTICLE 3. LICENSE GRANT 6 3.1 Licensed Technology 6 3.2 Acute Formulation 6 3.3 Neurestrol-Registered Trademark- License Option 6 ARTICLE 4. CONTROL OF DATA 7 TOPIC PAGE NO. - ----- -------- ARTICLE 5. LICENSE FEES AND ROYALTY PAYMENTS 7 5.1 License Fees 7 5.2 Royalty Rate 7 5.3 Royalty Credits 8 ARTICLE 6. ROYALTY REPORTS AND ACCOUNTING 8 6.1 Reports, Exchange Rates 8 6.2 Access 8 6.3 Sublicenses 8 6.4 Confidential Financial Information 9 ARTICLE 7. PAYMENTS 9 7.1 Payment Terms 9 7.2 Exchange Control 9 7.3 Withholding Taxes 9 ARTICLE 8. RESEARCH AND DEVELOPMENT OBLIGATIONS 9 8.1 Development 9 8.2 Funding and Resources 9 8.3 Committee 9 ARTICLE 9. PATENTS AND INFRINGEMENT ACTIONS 10 9.1 Patent Prosecution and Maintenance 10 9.2 Notification of Infringement 11 9.3 Enforcement of the Licensed Patent Rights 11 9.4 Improvements 11 9.5 Infringement Action by Third Parties 11 ARTICLE 10. CONFIDENTIALITY 12 ARTICLE 11. TERMINATION 12 11.1 Expiration 12 11.2 Termination by Athena 12 11.3 Termination for Cause 13 11.4 Effect of Expiration or Termination 13 TOPIC PAGE NO. - ----- -------- ARTICLE 12. INDEMNIFICATION AND INSURANCE 13 12.1 Indemnification 13 12.2 Procedure 13 12.3 Insurance 13 ARTICLE 13. FORCE MAJEURE 14 ARTICLE 14. MISCELLANEOUS 14 14.1 Notices 14 14.2 Arbitration 14 14.3 Assignment 14 14.4 Amendments 15 14.5 Entire Agreement 15 14.6 Severability 15 14.7 Waiver 15 14.8 Counterparts 15 14.9 No Announcement 15 LICENSE AND COLLABORATION AGREEMENT THIS LICENSE AND COLLABORATION AGREEMENT (the "Agreement"), dated as of April 16, 1996, is entered into between APOLLO GENETICS, INC., a Delaware corporation ("Apollo"), having its principal place of business at 222 Third Street, Suite 2110, Cambridge, Massachusetts 02142, and ATHENA NEUROSCIENCES, INC., a Delaware corporation ("Athena"), having its principal place of business at 800 Gateway Boulevard, South San Francisco, California 94080. RECITALS A. Apollo is the owner or exclusive licensee of certain Licensed Patent Rights (as defined below) and know-how relating to certain estrogen compounds that may have utility in the field of neurodegenerative diseases. B. On April 16, 1996, Athena has exercised its exclusive option to acquire from Apollo a worldwide license to such Licensed Patent Rights and Licensed Know-How (as defined below), upon the terms and conditions hereinafter set forth. C. Apollo and Athena wish to enter into this License and Collaboration Agreement for the development of such compounds; and to establish a steering committee for the management of such development, all on the terms and conditions of this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises herein contained, the parties hereby agree as follows: ARTICLE 1. DEFINITIONS: 1.1 "ACUTE FORMULATION" means any therapeutic product incorporating a Compound for the purpose in whole or in part of treating acute (i.e., anticipated treatment regimen of less than six months) neurodegenerative diseases or conditions, such as stroke or head trauma, in an intramuscular or intravenous formulation. 1.2 "AFFILIATE" shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by, or is under common control with, such Person (including without limitation, as it pertains to Athena, Elan Corporation plc ("Elan") and its Affiliates). 1.3 "COMMITTEE" shall have the meaning given in Section 8.3 below. -1- 1.4 "COMPOUND(S)" shall mean the estrogen compound(s) which are the subject of the Licensed Patent Rights, with the exception of Neurestrol-Registered Trademark-, which is the subject of the option set out in Section 3.3 below. 1.5 "DEVELOPMENT FUNDING" shall mean all funds and resources (including all out-of-pocket costs, plus reasonable amounts for internal resources) expended by either party in the development efforts described herein, net of any amounts received from third parties (such as Eli Lilly and Company) which are used for such expenditures. Such amounts shall include out-of-pocket expenses paid after the date of this Agreement under Sections 9.1 and 9.3 below. "Apollo Development Funding" shall mean Development Funding expended by Apollo. "Athena Development Funding" shall mean Development Funding expended by Athena. 1.6 "FIELD" shall mean the field of chronic neurodegenerative conditions or diseases (i.e., an anticipated treatment regimen of six months or more). 1.7 "FIRST COMMERCIAL SALE" shall mean, with respect to any country in the Territory, the first sale of Products after any required marketing, pricing or other approval has been granted by the governing health authority of such country. 1.8 "IMPROVEMENTS" shall have the meaning given in Section 9.4 below. 1.9 "LICENSED KNOW-HOW" shall mean, with respect to the Field, all information and data which is not generally known including, but not limited to, formulas, procedures for experiments, assay protocols, results of experimentation and testing, data, and specifications which are reasonably necessary or useful for Athena to make, have made, use or sell the Compounds, or to practice the processes and methods, claimed or otherwise disclosed in the Licensed Patent Rights, in which Apollo now or hereafter-has an-ownership or licensable interest, and which is in the possession or control of Apollo during the term of the Agreement. 1.10 "LICENSED PATENT RIGHTS" shall mean (a) all patent applications heretofore or hereafter filed or having legal force in any country within the Territory, now or hereafter owned by or licensed to Apollo or to which Apollo otherwise acquires rights, [ * ] and incorporated by reference, together with any and all patents that have issued or in the future issue therefrom, including without limitation utility, model and design patents and certificates of invention, and (b) all divisionals, continuations, continuations-in-part, reissues, renewals, supplementary protection certificates, extensions or additions to any such patents and patent applications; all to the extent and only to the extent that Apollo has the right to grant licenses, immunities or other rights thereunder as of the date or during the term of the Agreement. 1.11 "LICENSED TECHNOLOGY" shall mean, collectively, the Licensed Patent Rights and the Licensed Know-How. * Confidential treatment has been requested for marked portion -2- 1.12 "LILLY" AND "LILLY COLLABORATION" shall have the meanings given in Section 2.1 (f) below. 1.13 "NET PRODUCTS REVENUE" shall mean, with respect to any Products, actual cash receipts by Athena or its Affiliates from payment of invoices issued to independent customers who are not Affiliates for the sale of such Products in the Territory by Athena or its Affiliates, less [ * ] 1.14 "NEURESTROL-Registered Trademark-" shall mean 17-estradiol within a pellet implant subcutaneous drug delivery vehicle. 1.15 "PERSON" shall mean an individual, corporation, partnership, association, joint venture, unincorporated organization, governmental authority or any other form of entity not specifically listed herein. 1.16 "PLAN" shall have the meaning given in Section 8.3 below. 1.17 "PRODUCT" shall mean any product sold commercially by Athena, its Affiliates or any sublicensee which incorporates a Compound. 1.18 "ROYALTY TERM" shall mean, with respect to each country in the Territory, the period commencing on the First Commercial Sale in such country and ending on the later of (a) ten (10) years from the date of the First Commercial Sale in such country, or (b) the last expiration of any patent issued in such country based upon a Valid Patent Claim. 1.19 "TERRITORY" shall mean the entire world. 1.20 "VALID PATENT CLAIM" shall mean either (a) a claim of an issued and unexpired patent included within the Licensed Patent Rights, which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappeased within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise, or (b) a claim of a pending patent application included within the Licensed Patent Rights, which claim was filed in good faith and has not been abandoned or finally disallowed without the possibility of appeal or refiling of such application. ARTICLE 2. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS: 2.1 APOLLO REPRESENTATIONS AND WARRANTIES. Apollo hereby represents and warrants to Athena as follows: * Confidential treatment has been requested for marked portion -3- (a) Apollo has the full legal right to enter into the Agreement and to perform its obligations hereunder. The Agreement has been duly executed and delivered by Apollo, and constitutes a legal, valid and binding obligation, enforceable against Apollo in accordance with its terms. (b) All necessary notices, consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by Apollo in connection with the Agreement (including without limitation The University of Florida Research Foundation, Inc.) have been timely given or obtained by Apollo. Apollo will take all actions reasonably necessary to maintain any licenses of Licensed Technology to Apollo in full force and effect as they may affect or relate to Athena's rights hereunder. Apollo will not modify, amend or terminate in any material respect any such licenses without Athena's prior written consent, not to be unreasonably withheld. Apollo will promptly notify Athena in writing in the event of any alleged breach, default, expiration or termination under any such license by any party thereto. (c) The execution and delivery of the Agreement and the performance of Apollo's obligations hereunder do not conflict with, or constitute a default under, any contractual or other obligation of Apollo and, to Apollo's best knowledge, do not conflict with or violate any requirement of applicable laws or regulations. (d) Apollo is the sole owner or exclusive licensee of the Licensed Technology, and has not granted to any third party any license, sublicense or other interest of any kind (including any charge, lien or encumbrance) in the Licensed Technology with the exception of Neurestrol-Registered Trademark-. Exhibit A represents a correct and complete list of pending patents, patent applications, continuations-in-part, et al., comprising the Licensed Patent Rights as of the date of this Agreement. (e) Except (a) as to Neurestrol-Registered Trademark-, upon the expiration without exercise of the Neurestrol-Registered Trademark- option in Section 3.3 below, and (b) as to an Acute Formulation, after compliance with Section 3.2 below, during the term of this Agreement, Apollo shall not enter into any agreement with any third party with respect to the development, license, sale, transfer, encumbrance, marketing or distribution of the Licensed Technology. (f) Apollo acknowledges that Athena has a preexisting collaboration with Eli Lilly and Company ("Lilly"), dated May 31, 1995, as amended, in the field of therapeutics for Alzheimer's disease (the "Lilly Collaboration"). The Lilly Collaboration provides that Lilly has an exclusive option to exclusively license worldwide any compound Athena evaluates using technology developed by Lilly and/or Athena which is subject to the Lilly Collaboration. Apollo further acknowledges that Athena will evaluate one or more Compounds using technology developed under the Lilly Collaboration and that Athena will be obligated to offer Lilly an option to license such Compounds under the terms of the Lilly Collaboration. Apollo further acknowledges and agrees that Lilly may, by sublicense, assignment or otherwise, participate in Athena's rights under this Agreement (as defined below). Athena will provide Apollo with copies of any amendments to the Lilly Collaboration which could reasonably be material to Apollo's rights hereunder. -4- (g) To Apollo's best knowledge, the exploitation by Athena of the Licensed Technology will not infringe upon the patent rights of any third party as of the date of this Agreement. 2.2 ATHENA REPRESENTATIONS AND WARRANTIES. Athena hereby represents and warrants to Apollo as follows: (a) Athena has the full legal right to enter into this Agreement and to perform its obligations hereunder. The Agreement has been duly executed and delivered by Athena, and constitutes a legal, valid and binding obligation, enforceable against Athena in accordance with its terms. (b) All necessary notices, consents, approvals and authorizations of all governmental authorities and other persons required to be obtained by Athena in connection with the Agreement (including without limitation Lilly and Elan) have been timely given or obtained by Athena. (c) To Athena's best knowledge, the execution and delivery of the Agreement and the performance of Athena's obligations hereunder do not conflict with or violate any requirement of applicable laws or regulations, and do not conflict, or constitute a default under any contractual or other obligation of Athena. (d) Athena acknowledges that Apollo has a pre-existing relationship with Endocon, Inc. ("Endocon") regarding Neurestrol-Registered Trademark-. Athena further acknowledges that Endocon and, subject to the option granted in Section 3.3 below, Apollo, may sublicense, sell or transfer its rights in Neurestrol-Registered Trademark- to one or more third parties. 2.3 DISCLAIMERS OF WARRANTIES. (a) APOLLO MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY TECHNICAL INFORMATION LICENSED OR OTHERWISE PROVIDED TO ATHENA OR ITS AFFILIATES OR SUBLICENSEES HEREUNDER, AND HEREBY DISCLAIMS THE SAME. (b) APOLLO DOES NOT WARRANT THE SAFETY OR EFFICACY OF THE LICENSED TECHNOLOGY. -5- ARTICLE 3. LICENSE GRANT: 3.1 LICENSED TECHNOLOGY. Apollo hereby grants to Athena an exclusive license under the Licensed Technology, for use only in the Field, to make, have made, use and sell Compounds and Products and to practice processes and methods using the Compounds and Products in the Territory. This license does not include Neurestrol-Registered Trademark-, which is the subject of the Neurestrol-Registered Trademark- license option pursuant to Section 3.3. Athena shall have the right to grant sublicenses with the prior consent of Apollo, which consent shall not be unreasonably withheld. 3.2 ACUTE FORMULATION. Apollo shall have the right to develop one or more Acute Formulations, subject to this Section. Prior to undertaking or agreeing to undertake the development of any Acute Formulation, Apollo shall first submit a written proposal to Athena, which shall specifically identify the Acute Formulation to be developed, and shall include a reasonably detailed three-year scientific and business plan and budget (the "Proposal"). Athena shall have the opportunity to review the Proposal. Within ninety days of receipt of the full Proposal, Athena may decide in its sole discretion whether to fund the Proposal. (a) If Athena declines to fund the Proposal, Apollo shall be free to develop the Acute Formulation identified in the Proposal independently, or with a third party upon terms substantially identical to or materially more favorable to Apollo, with no payment or royalty to Athena. (b) If Athena agrees to fund the Proposal, Apollo shall grant to Athena a license. contingent upon further development requirements as contained in the Proposal, for the Acute Formulation which is the subject of the Proposal. The license shall provide that Apollo shall be entitled to a [ * ] percent ([ * ]) royalty in all Net Products Revenue from that Acute Formulation, and shall contain other terms and conditions substantially similar to this Agreement. The Committee shall administer that Acute Formulation in the same way provided for under Section 8.3, below, for Compounds in the Field. If Athena later determines in its sole discretion not to pursue development and/or funding under the Proposal and the resulting license for the Acute Formulation, Apollo shall be free to develop the Acute Formulation identified in the Proposal independently, or with a third party on terms substantially identical to or materially more favorable to Apollo. Athena shall terminate or sublicense its rights under the Acute Formulation license, as Apollo reasonably requests, and the parties shall negotiate in good faith a royalty to Athena commensurate with its economic and other contributions to the date of termination or sublicense of Athena's rights under that license. Any such license, and any termination or sublicense thereof, shall have no effect on either party's rights under this Agreement. 3.3 NEURESTROL-Registered Trademark- LICENSE OPTION. In return for the consideration described herein, Apollo also hereby grants to Athena an exclusive option, to be exercised in writing no later than January 16, 1997, to obtain an exclusive, worldwide license. under the Licensed Technology, to Apollo's interest in the Neurestrol-Registered Trademark- drug delivery technology and to practice processes and methods using Neurestrol-Registered Trademark- for use in the Field. Prior to that date, Apollo shall provide, at Athena's request, all information within Apollo's possession regarding Neurestrol-Registered Trademark-. The fee for * Confidential treatment has been requested for marked portion -6- exercise of such option shall be $[ * ], payable upon exercise of that option. If that option is exercised, the parties shall then negotiate in good faith and use commercially reasonable efforts to enter into a license agreement upon reasonable economic terms and conditions to be negotiated, and other terms which are reasonably similar to this Agreement, taking into account the nature of the transaction and the parties. ARTICLE 4. CONTROL OF DATA: 4.1 CONTROL OF DATA. Upon termination of this Agreement for any reason, the following principles shall determine control of and ongoing access to data generated as a result of efforts to develop one or more Products under this Agreement: (a) Any data related to [ * ], will remain proprietary to Athena and shall not be released, disclosed or communicated by Apollo either orally or in writing to any other party for any reason, without Athena's prior written consent in its sole discretion. In the event of disclosure which Apollo believes to be legally required, Apollo will give as much advance written notice to Athena as possible of the proposed disclosure, and will cooperate reasonably in any effort by Athena to prevent or limit the necessary disclosure. (b) Any data generated under this Agreement which is not related to [ * ] may be freely published, disclosed or released by Apollo, provided that Apollo (i) gives at least sixty (60) days' advance written notice of each such proposed disclosure, to allow Athena to protect its intellectual property position, and (ii) retracts any information which Athena reasonably requests, as being confidential or proprietary to Athena. (c) Section 9.4 shall continue to apply to Improvements. ARTICLE 5. LICENSE FEES AND ROYALTY PAYMENTS: 5.1 LICENSE FEES. Unless notice of termination has been given by Athena under Article 11 below, Athena shall pay Apollo license fees upon the occurrence of each event described below, in the amounts shown: (a) $ [ * ] and (b) $ [ * ] 5.2 ROYALTY RATE . During the Royalty Term, Athena shall pay to Apollo royalties of [ * ] percent ([ * ]) of the following: (a) all sublicense fees and milestone, royalty or other payments (other than research or development funding) actually received by Athena or any Affiliates from each sublicensee, in consideration for the sublicense of the Licensed Technology * Confidential treatment has been requested for marked portion -7- to commercially develop a Compound; and (b) Net Products Revenue actually received by Athena or any Affiliates from sales of any Product. 5.3 ROYALTY CREDITS. The royalties payable by Athena under Section 5.2 above shall be reduced by the following: (a) a credit for Athena Development Funding through the period covered by the applicable royalty report, less Apollo Development Funding for the same period, up to a maximum net Development Funding credit in that period of [ * ] percent ([ * ]%) of the gross royalty payable by Athena for the period, with any unused amounts carrying forward to subsequent periods; and (b) a credit, during the [ * ], for the license fees paid by Athena under Section 5. I(a) and (b) above, up to a maximum aggregate license fee credit of [ * ] percent ([ * ]%) of such amounts, with any unused amounts carrying forward to subsequent periods. ARTICLE 6. ROYALTY REPORTS AND ACCOUNTING: 6.1 REPORTS, EXCHANGE RATES. Following the First Commercial Sale, Athena shall furnish to Apollo a quarterly written report showing in reasonably specific detail, on a country-by-country basis, (a) the number of Products sold which generated Net Products Revenue to Athena, its Affiliates and its sublicensees in the Territory during the reporting period; (b) the royalties payable in United States dollars, if any, which shall have accrued hereunder for such reporting period; (c) the withholding taxes, if any, required by law to be deducted in respect of such sales; (d) the date of the First Commercial Sale in each country in the Territory during the reporting period; and (e) a calculation of the credits, if any, to which Athena is entitled under Section 5.3 above. Reports shall be due no later than the sixtieth (60th) day following the close of each calendar quarter. Athena shall keep complete and accurate records in sufficient detail to properly reflect all Products sold which generated Net Products Revenue and to enable the royalties payable hereunder to be determined. 6.2 ACCESS. Upon the written request of Apollo and not more than twice in each calendar year, Athena and its Affiliates shall permit Apollo or its representative (which shall not include Athena's independent accountants) to have access during normal business hours to such of their respective records as may be reasonably necessary to verify the accuracy of the royalty reports hereunder for any year ending not more than thirty-six (36) months prior to the date of such request. 6.3 SUBLICENSES. Athena shall use commercially reasonable efforts to include in each permitted sublicense granted by it pursuant to this Agreement a provision requiring the sublicensee to make reports to Athena, to keep and maintain records of sales made pursuant to such sublicense and to grant access to such records by Athena and Apollo to the same extent required of Athena under this Agreement. Upon the expiration of three (3) years following the end of any calendar year, the calculation of royalties payable with respect to such year shall be binding and conclusive upon Apollo and Athena, its Affiliates and sublicensees. * Confidential treatment has been requested for marked portion -8- 6.4 CONFIDENTIAL FINANCIAL INFORMATION. Apollo and its representatives shall treat all information subject to review under this Article 6 or under any sublicense agreement as strictly confidential, and shall not disclose it to any other party for any purpose. ARTICLE 7. PAYMENTS: 7.1 PAYMENT TERMS. Royalties shown to have accrued by each royalty report provided for under Article 6 above shall be due and payable by Athena on the date such royalty report is due. All payments by Athena to Apollo under the Agreement shall be paid in United States dollars calculated at the applicable exchange rate as of the date the payment is made, and shall be made, at Athena's option, either by bank wire transfer or by check to such address or account as Apollo shall designate in writing before such payment is due. 7.2 EXCHANGE CONTROL. If at any time legal restrictions prevent the prompt remittance of part or all royalties with respect to any country in the Territory where the Products are sold, Athena shall have the right, in its sole discretion, to make such payments by depositing the amount thereof in local currency to Apollo's account in a bank or other depository institution in such country. If the royalty rate specified in the Agreement should exceed the permissible rate established in any country, the royalty rate for sales in such country shall be adjusted to the highest legally permissible or government-approved rate. 7.3 WITHHOLDING TAXES. Athena shall be entitled to deduct the amount of any withholding taxes, value-added taxes or other taxes, levies or charges with respect to such amounts, other than United States, state or local income taxes, required to be paid or withheld by Athena, its Affiliates or sublicenses Athena shall promptly deliver to Apollo, upon request, proof of payment or withholding of all such taxes, levies and other charges. ARTICLE 8. RESEARCH AND DEVELOPMENT OBLIGATIONS: 8.1 DEVELOPMENT. Athena shall undertake reasonable efforts to develop, obtain regulatory approvals for and sell a Product (or more than one Product, if Athena so determines in its discretion) for use in the Field in accordance with the Plan, and will provide such information as the Committee may reasonably require in order to plan, monitor and approve such development. 8.2 FUNDING AND RESOURCES. Athena shall provide (either alone, or with partners, sublicensees or other collaborators approved by the Committee) the funding and resources necessary to carry out the development approved by the Committee under the Plan for the Field. Apollo may but is not required to provide any part of such funding. 8.3 COMMITTEE. Subject to the rights of Lilly under the Lilly Collaboration, the progress of the collaboration in the Field shall be monitored by a steering committee (the "Committee"). The Committee shall consist of four individuals, two of whom shall be appointed (and replaced, as necessary) by each party. Meetings of the Committee shall be held periodically -9- (but no less than every six (6) months) at a mutually acceptable location. Each party shall pay the expenses of its Committee members. Reasonably in advance of each meeting of the Committee, each party to this Agreement shall provide to the Committee a confidential written report summarizing its best current estimates of its expenditures and work performed in connection with the collaboration during the period. The Committee shall exercise reasonable business judgment in the pursuit of its activities, and may take action only upon the affirmative vote of at least three of its members. The Committee shall dissolve as of the termination of this Agreement. The duties of the Committee shall include the following: (a) approving and amending, as needed, a development plan and budget for activities in the Field under this Agreement (the "Plan"). The Plan shall include both scientific and business milestones, an internal and external budget and other resources to be devoted to the collaboration; (b) determining how best to obtain the expertise needed to carry out the Plan in the best interests of the parties, with preference being given to Apollo for research efforts in its areas of expertise; and (c) approving and amending, as needed, a Plan for development of an Acute Formulation, if the parties have agreed to pursue such development under the Agreement as provided in Section 3.2(b) above. ARTICLE 9. PATENTS AND INFRINGEMENT ACTIONS: 9.1 PATENT PROSECUTION AND MAINTENANCE. Apollo shall be responsible for and shall control the preparation, filing, prosecution and maintenance of all patents and patent applications in the Territory related to the Licensed Patent Rights and will consult with and consider the reasonable requests of Athena in all such matters. Apollo shall use its best efforts to provide Athena with an opportunity to review and comment on all prosecution documents for each Patent application subject to this Section before the filing of such prosecution document. Apollo shall supply Athena with a copy of each patent application as filed which constitutes a portion of the Licensed Patent Rights, together with notice of its filing date and serial number. Athena shall reasonably assist and cooperate with Apollo, execute all lawful papers and instruments and make all oaths and declarations as may be reasonably necessary in the preparation, prosecution and maintenance of all patents and other filings referred to in this Section. As a part of its Development Funding, Athena shall bear all reasonable legal fees and costs of such patent prosecution and maintenance for the Licensed Patent Rights in the Field while this Agreement remains in effect. Prior to any period during the term of this Agreement in which Apollo intends to pursue independent development of an Acute Formulation under Section 3.2 above, or sublicenses or otherwise exploits the Licensed Patent Rights outside the Field, Apollo and Athena shall discuss in good faith and agree on a reasonable allocation of patent costs for the Licensed Patent Rights within the Field and outside the Field. Such costs within the Field shall continue to be Athena's responsibility as a part of its Development Funding. Apollo shall pay or cause to be paid such costs outside the Field, and such payment is not to be included in Apollo's Development Funding. -10- 9.2 NOTIFICATION OF INFRINGEMENT. Each party shall notify the other party of any infringement of the Licensed Patent Rights in the Territory known to such party and shall provide the other party with the available evidence, if any, of such infringement. 9.3 ENFORCEMENT OF THE LICENSED PATENT RIGHTS. Apollo shall have the right to determine the appropriate course of action to enforce Licensed Patent Rights in the Territory or otherwise abate the infringement thereof, to take (or refrain from taking) appropriate action to enforce Licensed Patent Rights, to control any litigation or other enforcement action (in its own name or, if required by applicable law, jointly with Athena) and to enter into, or permit, the settlement of any such litigation or other enforcement action with respect to Licensed Patent Rights, and shall consider, in good faith, the interests of Athena in so doing. If Apollo does not, within ninety (90) days of receipt of written notice regarding a potential infringement, abate the infringement or file suit to enforce the Licensed Patent Rights against at least one infringing party in the Territory, or otherwise dispose of the matter, Athena shall have the right to take whatever action it deems appropriate to enforce the Licensed Patent Rights; provided, however, that, within thirty (30) days after receipt of notice of Athena's intent to file such suit, Apollo shall have the right to jointly prosecute such suit and in so doing, to fund fifty percent (50%) of the costs of such suit. The party controlling any such enforcement action shall not settle the action or otherwise consent to an adverse judgment in such action that diminishes the rights or interests of the non-controlling party without the prior written consent of that party. All monies recovered upon the final judgment or settlement of any such suit to enforce the Licensed Patent Rights shall be shared, after reimbursement of expenses, by Apollo and Athena PRO RATA according to the respective percentages of costs borne by each in such suit. Notwithstanding the foregoing, Apollo and Athena shall fully cooperate with each other in the planning and execution of any action to enforce the Licensed Patent Rights and execute all such documents as reasonably necessary in connection therewith. If Apollo or Athena is a necessary party to any such litigation or other enforcement action, at the other party's request and expense. such party shall join such litigation or other enforcement action. 9.4 IMPROVEMENTS. If either party's tests, experiments and evaluation under this Agreement result in an invention, discovery, improvement or other technology, whether patentable or not (an "Improvement"), ownership of such Improvement shall be determined according to U.S. patent law. Either party which owns any rights in an Improvement shall cross-license its interest to the other party, without additional cost or royalty, to the extent necessary for the other to practice and use its rights in the Licensed Technology as so improved. Each party shall promptly disclose to the other all such Improvements. 9.5 INFRINGEMENT ACTIONS BY THIRD PARTIES. (a) If either party or any of its Affiliates, sublicensees or customers shall be sued (or suit threatened in writing) by a third party for infringement of a third party's patent in the Territory because of the use of Licensed Technology or sale of Products, such party shall promptly notify the other in writing of the institution of such suit or threat. (b) Before actual suit is brought, and after consulting with and considering in good faith the interests of Apollo, Athena may determine, in its sole discretion, to pay any amount it deems reasonable or necessary to make, use or sell a Product, to obtain a license to do so or to compromise or settle a claim of infringement. (c) If such threat or claim is not -11- settled and suit is brought, and the alleged infringing process, method or composition is claimed under the Licensed Patent Rights, Athena shall have the right, in its sole discretion, to control the defense of such suit at its own expense, in which event Apollo shall have the right to be represented by advisory counsel of its own selection, at its own expense, and shall cooperate fully in the defense of such suit and furnish to Athena all evidence and assistance in its control. If Athena does not elect within sixty (60) days after such notice to so control the defense of such suit, Apollo may undertake such control at its own expense, and Athena shall then have the right to be represented by advisory counsel of its own selection, at its own expense, and Athena shall cooperate fully in the defense of such suit and furnish to Apollo all evidence and assistance in Athena's control. The party controlling the suit shall regularly consult with and consider the interests of the other, and may not settle any part of the suit or otherwise consent to an adverse judgment in such suit that diminishes the rights or interests of the non-controlling party without the express written consent (not to be unreasonably withheld) of the non-controlling party. (d) Any amounts paid by Athena under the provisions of paragraphs (b) or (c) above, or by Apollo under paragraph (c) above, shall be included in such party's Development Funding for the period when actually paid. ARTICLE 10. CONFIDENTIALITY: 10.1 CONFIDENTIAL INFORMATION. Except as necessary to carry out Section 9.4 above, this Agreement and its performance by the parties shall be subject to the confidentiality agreement between Apollo and Athena dated as of February 5, 1995 and a confidentiality agreement between Apollo, Athena and Eli Lilly and Company dated as of February 14, 1996, which both remain in full force and effect and are incorporated by this reference, except that Apollo and Athena hereby agree that any Information other than that which is covered by Section 4.1(a) above, (including without limitation Information exchanged or obtained in the performance of this Agreement) shall be maintained by each of them as confidential for a period of five (5) years from the date of expiration or termination of this Agreement, on the terms described in that February 14, 1996 agreement. ARTICLE 11. TERMINATION: 11.1 EXPIRATION. Unless terminated earlier pursuant to this Article, the Agreement shall expire, with respect to each country within the Territory, on the date which is ten (10) years from the date of this Agreement, unless a patent based on a Valid Patent Claim has been issued having effect in such country, in which case this Agreement shall expire in such country upon the expiration of such patent. Upon expiration of the Agreement with respect to such country pursuant to this Section, Athena shall have a fully-paid, irrevocable license under the Licensed Know-How, with right of sublicense, to make, have made, use and sell Products in such country for use in the Field. 11.2 TERMINATION BY ATHENA. Athena may terminate the Agreement at any time, in its sole discretion, upon ninety (90) days' prior written notice to Apollo. Any such termination will not affect Athena's obligations to pay royalties accrued to the effective date of such termination under Section 5.2 above. -12- 11.3 TERMINATION FOR CAUSE. (a) Apollo may terminate this Agreement after the breach of any material provision by Athena if Athena has not cured such breach within ninety (90) days after written notice thereof by Apollo. (b) Athena may terminate the Agreement after the breach of any material provision by Apollo if Apollo has not either (i) cured such breach within ninety (90) days after written notice thereof by Athena, or (ii) begun good faith remedial action within such ninety (90) day period and accomplished such cure no later than six (6) months after Athena's written notice of breach. Any such termination will not affect Athena's obligations to pay royalties accrued to the effective date of such termination under Section 5.2 above. Athena retains all rights of setoff in such event. 11.4 EFFECT OF EXPIRATION OR TERMINATION. In the event of termination under 11.2 or 11.3(a) above, all rights in the Licensed Technology shall revert to and be owned exclusively by Apollo. In the event of termination by Athena under Section 11.3(b) above, Athena may at its option elect to retain a perpetual, fully-paid license to the Licensed Technology for the Field in the Territory, upon the other terms contained in this Agreement. Expiration or termination of the Agreement shall not relieve either party of any obligation accruing prior to such expiration or termination, and the provisions of Articles 4, 9.4, l0, 11, and 12 shall survive the expiration or termination of the Agreement. ARTICLE 12. INDEMNIFICATION AND INSURANCE: 12.1 INDEMNIFICATION. Each party shall indemnify and hold the other harmless from all losses, liabilities, damages and expenses, including reasonable attorneys' fees and costs (collectively, "Liabilities"), that the other party may suffer as a result of any claims, demands, actions or other proceedings made or instituted by any third party arising out of or relating to the gross negligence or willful misconduct of the indemnifying party, its Affiliates or sublicensees. 12.2 PROCEDURE. A party which intends to claim indemnification under this Article shall promptly notify the other party of any Liability or action in respect of which such party intends to claim such indemnification, and the indemnifying party shall have the right to participate in, and, to the extent so desired, assume the defense thereof; provided, however, that the claiming party shall have the right to retain its own counsel, if representation of the claiming party by the counsel retained by the.indemnifying party would be inappropriate due to actual or potential conflicts of interest. Without the prior written consent of the claiming party, the indemnifying party may not settle or otherwise consent to an adverse judgment in respect to a Liability if doing so would diminish the rights or interests of the claiming party. Each party shall cooperate fully with the other in the investigation of any action, claim or Liability covered by this Article. 12.3 INSURANCE. Athena shall, at its expense (provided such expense is reasonable for additional coverage of this type), cause Apollo to be named as an additional named insured under any policy of products liability insurance which Athena may carry from time to time, and will cause certificates of insurance to be provided to Apollo upon reasonable request. -13- ARTICLE 13. FORCE MAJEURE: 13.1 EXCUSED PERFORMANCE. Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of the Agreement to the extent, and for so long as, such failure or delay is caused by or results from causes beyond the reasonable control of the affected party, including but not limited to fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority. ARTICLE 14. MISCELLANEOUS: 14.1 NOTICES. Any consent, notice or report required or permitted to be given or made under this Agreement shall be in writing, delivered personally, by air mail or courier, or by facsimile promptly confirmed by personal delivery, air mail or courier, postage prepaid, addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and (unless otherwise provided in the Agreement) shall be effective upon receipt by the addressee. If to Apollo: Apollo Genetics, Inc. 222 Third Street, Suite 2110 Cambridge, Massachusetts 02142 Attention: President If to Athena: Athena Neurosciences, Inc. 800 Gateway Boulevard South San Francisco, California 94080 Attention: General Counsel 14.2 ARBITRATION. All disputes arising under the Agreement shall be referred to senior management of the parties for good faith discussion, and if not so resolved, finally settled by arbitration in Boston, Massachusetts, under the applicable rules of the American Arbitration Association. The parties shall agree in their discretion on a single arbitrator or, if no agreement can be reached within fourteen (14) days of the request by one party, each party shall appoint an arbitrator and the two so chosen shall appoint a third. Each party shall pay the expenses of its own counsel and, if applicable, its chosen arbitrator, and shall share equally the expenses of the single or third arbitrator. The arbitration award or judgment shall be final, binding and enforceable, and may include an award of fees and expenses (including reasonable attorneys' fees). The arbitrator(s) shall not have the authority to modify, change or refuse to enforce the terms of this Agreement. 14.3 ASSIGNMENT. Neither party may assign its rights or obligations under the Agreement, in whole or in part, by operation of law or otherwise, without the prior written . consent of the other; provided, however, that either may, without such consent, assign the Agreement and its rights and obligations hereunder to an Affiliate (without diminishing the -14- continuing obligations of the assignor hereunder), or in connection with the transfer or sale of all or substantially all of its business, or in the event of its merger or consolidation. Any purported assignment in violation of this Section 14.3 shall be void. 14.4 AMENDMENTS. No change, modification, extension, termination or waiver of any of the provisions of this Agreement shall be valid unless made in writing and signed by duly authorized representatives of the party or parties to be bound. 14.5 ENTIRE AGREEMENT. The Agreement embodies the entire understanding between the parties respecting the subject matter hereof and supersedes any prior understanding and agreements between them respecting the subject matter hereof. Except for the Confidentiality Agreements described in Section 10.1 above, there are no representations, agreements, arrangements or understandings, oral or written, between the parties hereto relating to the subject matter of the Agreement which are not fully expressed herein. 14.6 SEVERABILITY. Any of the provisions of the Agreement which are determined to be invalid or unenforceable in any jurisdiction shall be ineffective to that extent in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof and without affecting the validity or enforceability of any of the terms of the Agreement in any other jurisdiction. 14.7 WAIVER. The waiver by either party of any right hereunder, or the failure to perform or of a breach by the other party, shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said party, whether of a similar nature or otherwise. 14.8 COUNTERPARTS. The Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14.9 NO ANNOUNCEMENT. Neither party shall make any oral or written statement, press release, publication, publicity or other public communication using the name of the other party or any of its Affiliates, or regarding the fact of or terms of this Agreement, without the prior written consent of the other party in its sole discretion; except for legally required disclosures, as to which consent may not be unreasonably withheld. -15- IN WITNESS WHEREOF, the parties have executed this Agreement as of April 16, 1996. ATHENA NEUROSCIENCES, INC. Date: 10/14/96 By: /s/ Donald R. Joseph -------- --------------------------------------- Name: Donald R. Joseph ------------------------------------- Title: Vice President & General Counsel ------------------------------------ APOLLO GENETICS, INC. Date: 10/10/96 By: /s/ Katherine Gordon -------- --------------------------------------- Name: Katherine Gordon ------------------------------------- Title: President ------------------------------------ -16- License and Collaboration Agreement CONFIDENTIAL April 6, 1996 EXHIBIT A United States and Foreign Patents and/or Applications
Country/Region Patent/Serial Number Filing Date Title Status - -------------- -------------------- ----------- ----- ------- [ * ]
[ * ] * Confidential treatment has been requested for marked portion EX-10.8 13 EXHIBIT 10.8 NEURON LOSS PROTECTION TECHNOLOGY LICENSE AGREEMENT Effective as of the 13th day of April, 1993 (the "Effective Date") between the University of Kentucky Research Foundation, a corporation duly organized and existing under the laws of the Commonwealth of Kentucky, and having its principal place of business at 207 Administration Building, Lexington, Kentucky, 40506 ("UKRF") and Apollo Genetics, Inc., a corporation duly organized and existing under the laws of the State of Delaware, and having its principal place of business at 222 Third Street, Suite 3121, Cambridge, Massachusetts 02142 ("Licensee"), hereby agree as follows: 1. BASIS OF AGREEMENT. UKRF is the owner of Neuron Loss Protection Technology as later defined herein and desires to have such technology utilized to promote the public interest by granting a license thereunder. Licensee has a commitment to facilitate the development of such technology for the public interest. It is the desire and interest of the parties that Licensee obtain a license from UKRF to utilize such technology. The purpose of this Agreement is to set forth the terms and conditions under which UKRF will grant and Licensee will accept said license. 2. DEFINITIONS. 2.1. "NEURON LOSS PROTECTION TECHNOLOGY" shall mean [*] 2.2. "PATENT RIGHTS" shall mean any United States or foreign patent applications or any patents issuing thereon directed to the invention or inventions set forth in University of Kentucky I.P.C. Case [*] owned by, or assignable to, UKRF, together with any division, reissue, continuation, continuation in part, extension, or addition thereof. 2.3. "LICENSED PRODUCT" shall mean any product which is covered in whole or in part by (i) a pending claim contained in a Patent Rights application in the country in which the Licensed Product is made, used, or sold, or (ii) a valid and unexpired claim contained in a Patent Rights patent in the country in which the Licensed Product is made, used or sold. A valid claim is any * Confidential treatment has been requested for marked portion claim that has not been held invalid or unenforceable by a court of competent jurisdiction. 2.4. "LICENSED PROCESS" shall mean any process which is covered in whole or in part by (i) a pending claim contained in a Patent Rights application in the country in which the Licensed Process is, used, or sold, or (ii) a valid and unexpired claim contained in a Patent Rights patent in the country in which the Licensed Process is used or sold. A valid claim is any claim that has not been held invalid or unenforceable by a court of competent jurisdiction. 2.5. "NET SALES" shall mean the gross amount invoiced by Licensee and its Affiliates from the sales of Licensed Products or Licensed Processes to independent third parties less: [ * ] Licensed Products and Licensed Processes shall be considered "sold" when invoiced. 2.6. "SUBLICENSE INCOME" shall mean the net royalties (including advanced royalties or "lump-sum" payments) actually received by Licensee from non-affiliated third party sublicensees under the license herein granted, after the deduction of all reasonable legal costs actually incurred by Licensee in connection with the negotiation and procurement of the pertinent sublicenses. 2.7. "AFFILIATE" shall mean any corporation or other business entity controlled by, controlling, or under common control with Licensee. For this purpose "control" means direct or indirect beneficial ownership of at least fifty percent (50%) interest in the income or stock of such corporation or other business. 3. GRANT. 3.1. UKRF hereby grants to Licensee, subject to all the terms and conditions of this Agreement, the exclusive right and license to make, have made, use, lease and sell the Licensed Products throughout the world. * Confidential treatment has been requested for marked portion 2 3.2. Licensee shall have the right to sublicense worldwide any of the rights, privileges and licenses granted hereunder. 4. DUE DILIGENCE. 4.1. Licensee agrees to work diligently to bring one or more Licensed Products or Licensed Processes to the marketplace through a program of development, production and distribution, including sponsoring of research at UKRF pursuant to the Sponsored Research Agreement between UKRF and Licensee, providing UKRF with a minimum of $[ * ] per year for [ * ], in substantially the form of Exhibit 1 attached hereto. 4.2. Licensee shall provide an annual report on its development efforts to UKRF, which report shall cite specific goals and objectives in commercializing the licensed technology and progress in meeting these goals and objectives. 5. ROYALTIES. 5.1. In consideration of the license granted hereunder by UKRF to Licensee, Licensee shall pay an earned royalty of [ * ] percent ([ * ]%) of Net Sales of Licensed Products and Licensed Processes by Licensee and its sublicensed Affiliates. 5.2. In the event Licensee grants any sublicenses to nonaffiliated third parties during the term of this Agreement, then for each such sublicense, Licensee shall pay UKRF an additional royalty at the rate of [ * ] percent ([ * ]%) of the Sublicense Income collected by Licensee under such sublicense. 6. REPORTS, RECORDS AND ROYALTY PAYMENTS. 6.1. RECORDS. Licensee shall keep adequate and complete records showing all Licensed Products and Licensed Processes sold and Net Royalties received, with respect to which earned royalties and additional royalties are due under this Agreement. Such records shall include all information necessary to verify the total amount and computation of earned royalties and additional royalties due hereunder, and shall be open to inspection on behalf of UKRF upon reasonable notice during reasonable business hours to the extent necessary to verify the amount thereof. Such inspection shall be made not more often than once each calendar year at the expense of UKRF by a Certified Public Account appointed by UKRF and to whom Licensee has no reasonable objection. Licensee shall not be required to retain such records for more than five (5) years after the close of any calendar half year. 6.2. REPORTS. The last day of each February and November throughout the term of this Agreement and upon a final accounting, Licensee shall furnish UKRF with a written report, signed by an authorized representative of Licensee, showing (a) * Confidential treatment has been requested for marked portion 3 the total Net Sales of all Licensed Products and the total Net Sales of all Licensed Processes sold by Licensee and its sublicensed Affiliates in each country during the preceding calendar half-year; (b) the total amount of Sublicense Income received by Licensee and its Affiliates from non-affiliated sublicensees under this license during the preceding calendar half year; (c) the amount of royalties due on Licensed Products and Licensed Processes sold by Licensee and its sublicensed Affiliates during the preceding calendar half year, computed pursuant to the provisions of Section 5.1 hereof; and (d) the amount of UKRF's pro data share of such Sublicense Income received by Licensee and its Affiliates during the preceding calendar half year, computed pursuant to the provisions of Section 5.2 hereof. 6.3. ROYALTY PAYMENTS. With each such half-yearly report, Licensee shall remit to UKRF the total amount of royalties shown thereby to be due, subject to any credits which may be taken by Licensee hereunder. Subject to the provisions of Section 6.4 hereof, payment shall be made in lawful money of the United States. 6.4. CURRENCY CONVERSION. All payments due hereunder from foreign sales of Licensed Products and Licensed Processes from time to time shall be paid in United States funds collectible at par in Boston, Massachusetts. For purposes of computing such payments, the Net Sales shall first be determined in the foreign funds for which such Licensed Products or Licensed Processes are sold (herein called "selling funds") and then converted into its equivalent in United States funds at either: (a) the rate applicable to the transfer of funds arising from royalty payments as established by the exchange control authorities of the country of which selling funds are the national currency, for the last business day of the accounting period for which payment is thus made; or (b) if there is no applicable rate so established, then the selling rate in United States funds as published by leading commercial banks in the major city of the country of which selling funds are the national currency, for the last business day of such accounting period; or (c) if there is no rate so published, then the buying rate for selling funds as published by First National Bank of Boston, N.A., for the last business day of such accounting period. 7. PATENT PROSECUTION AND INFRINGEMENT. 7.1. Licensee shall, in the name of UKRF, apply for, seek prompt issuance of, and maintain during the term of this Agreement any Patent Rights in the United States and in foreign countries. The prosecution, filing and maintenance of all patents shall be the primary responsibility of Licensee, who 4 shall consult with UKRF concerning the foregoing and provide copies of pertinent filings to UKRF. 7.2. Payment of all fees and costs relating to the filing, prosecution and maintenance of all patents shall be the responsibility of Licensee. 7.3.1. If at any time during the term of this Agreement, Licensee furnishes to UKRF reasonably convincing written evidence of an infringement of a patent included in the Patent Rights which adversely and substantially affects the commercial operations of Licensee under the license granted hereunder,and UKRF shall within three (3) months after receipt of such evidence fail to cause such infringement to terminate or to bring a suit or action to compel termination, then payment of royalties under Section 5 hereof shall be waived so long as such infringement continues; provided, however, that such royalties shall not be so waived so long as at least one suit or action is being prosecuted by UKRF for infringement of such patent. 7.3.2. If after said three (3) months, UKRF fails to cause such infringement to terminate or to bring a suit or action to compel termination, Licensee shall have the right, but not the obligation, to bring such suit or action to compel termination and shall have the right for such purpose to join UKRF as a party plaintiff at Licensee's expense. UKRF independently shall have the right to join any such suit or action brought by Licensee and, in such event, shall pay one-half of the cost of such suit or action from the date of joining. No settlement, consent judgment or other voluntary final disposition of the suit may be entered into without the consent of UKRF, which consent shall not unreasonably be withheld. Any damages recovered by such suit or action shall be first used to reimburse each party hereto for the cost of such suit or action (including attorney's fees) actually paid by each party hereto as the case may be, then to reimburse UKRF for any royalties waived under this Section 7.3 and the residue, if any, shall be divided equally between the parties hereto. 7.4. In the event that a declaratory judgment action alleging invalidity or noninfringement of any of the Patent Rights shall be brought against Licensee, UKRF, at its sole option, shall have the right, within thirty (30) days after commencement of such action, to intervene and take over the sole defense of the action at its own expense. 7.5. In any infringement suit as either party may institute to enforce the Patent Rights pursuant to this Agreement, the other party hereto shall, at the request and expense of the party initiating such suit, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples and the like. 5 8. TERM AND TERMINATION. 8.1. Unless earlier terminated as hereinafter provided, this Agreement shall remain in full force and effect until the last to expire of any patent included in the Licensed Products. 8.2. If Licensee shall cease to carry on its business, this Agreement shall terminate upon notice by UKRF. 8.3. Should Licensee fail to pay UKRF such royalties as are due and payable hereunder, UKRF shall have the right to terminate this Agreement on forty-five (45) days written notice, unless Licensee shall pay UKRF within the forty-five day (45) notice period, all such royalties and interest that are due and payable. Upon the expiration of the forty-five (45) day period, if Licensee shall not have paid all such royalties and interest due and payable, UKRF, at its sole option, may immediately terminate this Agreement and all rights, privileges and license hereunder granted. 8.4. Licensee shall have the right to terminate this Agreement at any time upon six (6) months written notice to UKRF, and upon payment of all amounts due UKRF through the effective date of termination. 8.5. Upon any material breach or default of this Agreement by Licensee, other than those delineated in Sections 8.2 and 8.3 which shall always take precedence in that order over any material breach or default referred to in this Section 8.5, UKRF shall have the right to terminate this Agreement and the rights, privileges and license hereunder granted upon ninety (90) days written notice to Licensee. Such termination shall become effective immediately at the conclusion of such notice period unless Licensee shall have cured any such breach or default prior to the expiration of the ninety (90) day period. 8.6. Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. Licensee and its sublicensed Affiliates and any non-affiliated third party sublicensees thereof may, after the effective date of such termination, sell all Licensed Products which are in inventory at the time of termination and Licensed Processes for which inventory was received at the time of termination, and complete and sell Licensed Products which Licensee can clearly demonstrate were in the process of manufacture at the time of such termination, provided that Licensee shall pay to UKRF the royalties thereon as required by Section 5 of this Agreement and shall submit the reports required by Section 5 hereof on the sales of Licensed Products and Licensed Processes. 9. INDEMNIFICATION AND INSURANCE. 6 9.1. Licensee shall indemnify, defend and hold harmless UKRF and its trustees, officers, employees, and affiliates (the "Indemnitees"), against any liability, damage, loss or expense (including reasonable attorneys' fees and expenses of litigation) incurred by or imposed upon the Indemnitees, or any one of them, in connection with any claims, suits, actions, demands or judgments (a) arising out of the production, manufacture, sale, use in commerce, or promotion by Licensee or by a licensee, affiliate or agent of Licensee, or any product, process or service relating to, or developed pursuant to, this Agreement or (b) arising out of any other activities to be carried out pursuant to this Agreement. 9.2. Licensee's indemnification under Section 9.1(a) shall apply to any liability, damage, loss or expense whether or not it is attributable to the negligent activities of the Indemnitees. Licensee's indemnification under Section 9.1(b) shall not apply to any liability, damage, loss or expense to the extent that it is attributable to (i) the negligent activities of the Indemnitees, or (ii) the intentional wrongdoing or intentional misconduct of the Indemnitees. 9.3. At such time as any product, process or service relating to, or developed pursuant to, this Agreement is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by Licensee or by a licensee, affiliate or agent of Licensee, Licensee shall, at its sole cost and expense, procure and maintain policies of comprehensive general liability insurance in amounts not less than One Million Dollars per person per occurrence and naming the Indemnitees as additional insureds. Such comprehensive general liability insurance shall provide (a) product liability coverage; (b) broad form contractual liability coverage for Licensee's indemnification under Sections 9.1 and 9.2 of this Agreement; and, (c) a provision of non-cancellation except upon sixty (60) days written notification to UKRF. 9.4. In the event any such action is commenced or claim made or threatened against UKRF or other Indemnitees as to which Licensee is obligated to indemnify it (them) or hold it (them) harmless, UKRF or the other Indemnitees shall promptly notify Licensee of such event and Licensee shall assume the defense of, and may settle, that part of any such claim or action commenced or made against UKRF (or other Indemnitees) which relates to Licensee's indemnification and Licensee may take such other steps as may he necessary to protect itself. Licensee shall not be liable to UKRF or other Indemnitees on account of any settlement of any such claim or litigation affected without Licensee's consent. The right of Licensee to assume the defense of any action shall be limited to that part of the action commenced against UKRF and/or Indemnitees which relates to Licensee's obligations of indemnification and holding harmless. 7 9.5. This Section 9 shall survive expiration or termination of this Agreement. 10. DISCLAIMER OF WARRANTIES. 10.1. UKRF MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY TECHNICAL INFORMATION LICENSED OR OTHERWISE PROVIDED TO LICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME. 10.2. UKRF DOES NOT WARRANT THE VALIDITY OF THE TECHNOLOGY LICENSED HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF SUCH TECHNOLOGY OR THAT SUCH TECHNOLOGY MAY BE EXPLOITED BY LICENSEE, AFFILIATES OR SUBLICENSEES WITHOUT INFRINGING ANY PATENTS. IF BIOLOGICAL MATERIALS ARE LICENSED HEREUNDER, UKRF MAKES NO REPRESENTATION THAT SUCH MATERIALS OR THE METHODS USED IN MAKING OR USING SUCH MATERIALS ARE FREE FROM LIABILITY FOR PATENT INFRINGEMENT. 11. NOTICES. 11.1. All reports, notices and other communications from Licensee to UKRF as provided hereunder shall be in writing and mailed or delivered to: University of Kentucky Research Foundation 207 Administration Building Lexington, Kentucky 40506 or other individuals or addresses as shall hereafter be furnished by written notice to Licensee. 11.2. All reports, notices and other communications from UKRF to Licensee as provided hereunder shall be in writing and mailed or delivered to: Apollo Genetics, Inc. 222 Third Street, Suite 3121 Cambridge, Massachusetts 02142 with a copy to: Bromberg & Sunstein 10 West Street - 7th Floor Boston, Massachusetts 02111 Attn: Bruce D. Sunstein or other individuals or addresses as shall hereafter be furnished by written notice to UKRF. 12. RESTRICTIONS ON USE OF NAMES. Licensee shall not use the names of UKRF, its related entities and its employees, or any adaptations thereof, in any advertising, promotional or sales literature or in any securities reports required by the Securities and Exchange Commission, without the prior written 8 consent of UKRF in each case; provided, however, that Licensee (a) may offer to publications by employees of UKRF in the scientific literature or (b) may state that a license from UKRF has been granted as herein provided. 13. MISCELLANEOUS. 13.1. For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. neither party shall have authority to make any statements representations or commitments of any kind, or to take any action, that will be binding on the other party. 13.2. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 13.3. This Agreement shall be binding upon the parties, and their successors and assigns. 13.4. This instrument contains the entire Agreement between the parties hereto. No verbal agreement, conversation or representation between any officers, agents, or employees of the parties hereto either before or after the execution of this Agreement shall affect or modify any of the terms or obligations herein contained. 13.5. No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by a duly authorized representative of each party. 13.6. The captions are provided for convenience and are not to be used in construing this Agreement. 13.7. She parties agree that they have participated equally in the formation of this Agreement and that the language herein should not he presumptively construed against either of them. 13.8. This Agreement may be signed in counterparts which collectively shall constitute a single agreement. 13.9. Neither party shall be in breach hereof by reason of its delay z the performance of or failure to perform any of its obligations hereunder, if that delay or failure is caused by strikes, acts of God or the public enemy, riots, incendiaries, interference by civil or military authorities, compliance with governmental priorities for materials, or any fault beyond its control or without its fault or negligence. 9 13.10. The parties each, at any time or from time to time, shall execute and deliver or cause to be delivered such further assurances, instruments or documents as may be reasonably necessary to fulfill the terms and conditions of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. UNIVERSITY OF KENTUCKY RESEARCH FOUNDATION By: /s/ Lee J. Magid --------------------------------------- Name: Lee J. Magid --------------------------------------- Title: Executive Director, U.K.R.F. --------------------------------------- APOLLO GENETICS, INC. /s/ Katherine Gordon --------------------------------------------- Katherine Gordon, Ph.D President 10 Exhibit 1 UNIVERSITY OF KENTUCKY RESEARCH FOUNDATION SPONSORED RESEARCH AGREEMENT This Agreement has Expired 11 EX-10.9 14 EXHIBIT 10.9 PATENT LICENSE AGREEMENT WITH RESEARCH COMPONENT TABLE OF CONTENTS PREAMBLE ARTICLES: I DEFINITIONS II GRANT III DUE DILIGENCE IV ROYALTIES V REPORTS AND RECORDS VI PATENT PROSECUTION VII INFRINGEMENT VIII PRODUCT LIABILITY IX EXPORT CONTROLS X NON-USE OF NAMES XI ASSIGNMENT XII TERM AND TERMINATION XIII PAYMENTS, NOTICES AND OTHER COMMUNICATIONS XIV ARBITRATION XV MISCELLANEOUS PROVISIONS This Agreement is made and entered into this 15th day of December 1993 (the Effective Date), and revised and restated on 15th day of October 1996, by and between THE UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC., a not-for-profit corporation duly organized and existing under the laws of the State of Florida and having its principal office at 223 Grinter Hall, Gainesville, Florida, 32611-2037, U.S.A. (hereinafter referred to UFRFI), and APOLLO GENETICS, INC., a corporation duly organized under the laws of the State of Delaware and having its principal office at 222 Third Street, Suite 2110, Cambridge, Massachusetts 02142 (hereinafter referred to as LICENSEE). WITNESSETH WHEREAS, UFRFI is the owner of certain "Patent Rights" (as later defined herein) by assignment from the University of Florida (hereinafter referred to as University) relating to UFRFI Case No. [ * ], and has the right to grant licenses under said Patent Rights; * Confidential treatment has been requested for marked portion 1 WHEREAS, UFRFI desires to have the Patent Rights utilized in the public interest and is willing to grant a license thereunder, subject only to a royalty-free, non-exclusive license to be granted to the United States government, as required by law; WHEREAS, LICENSEE has represented to UFRFI to induce UFRFI to enter into this Agreement, that LICENSEE is familiar with the development, production, manufacture, marketing and sale of products similar to the "Licensed Product(s)" (as later defined herein) and/or the use of the "Licensed Process(es)" (as later defined herein) and that it shall commit itself to a thorough, vigorous and diligent program of exploiting the Patent Rights commercially so that public utilization and royalty income to UFRFI shall result therefrom; WHEREAS, LICENSEE desires to obtain a license from UFRFI under the Patent Rights upon the terms and conditions hereinafter set forth; and WHEREAS, LICENSEE has certain additional research it desires which the parties agree should be conducted by the University of Florida; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein the parties hereto agree as follows: ARTICLE I - DEFINITIONS For the purposes of this Agreement, the following words and phrases shall have the following meaning: 1.1. "LICENSEE" shall mean all of the following: (a) a related company of LICENSEE, the voting stock of which is directly or indirectly at least fifty percent (50%) owned or controlled by LICENSEE; (b) an organization which directly or indirectly controls more than fifty percent (50%) of the voting stock of LICENSEE; (c) an organization, the majority ownership of which is directly or indirectly common to the ownership of LICENSEE. 1.2. "Patent Rights" shall mean all of the following UFRFI intellectual property: (a) the United States and foreign patents and/or patent applications listed in Exhibit A; (b) United States and foreign patents issued from the 2 applications listed in Exhibit A and from divisionals and continuations of these applications; (c) claims of U.S. continuation-in-part applications and foreign continuation-in-part applications, and of the resulting patents, which are directed to subject matter specifically described in the U.S. and foreign applications listed in Exhibit A; (d) claims of all foreign patent applications, and of the resulting patents, which are directed to subject matter specifically described in the United States patents and/or patent applications described in (a), (b), or (c) above; (e) any reissues of United States patents described in (a), (b), (c), or (d) above. 1.3. A "Licensed Product" shall mean any product or part thereof which: (a) is covered or its use is covered in whole or in part by an issued, unexpired claim or a pending claim contained in the Patent Rights in the country in which any Licensed Product is made, used or sold; (b) is derived from Patent Rights, Know-How (as later defined herein), and/or trade secrets related to or described in Patent Rights; (c) is sold, manufactured or used in any country under this Agreement. 1.4. A "Licensed Process" shall mean any process or part thereof which: (a) is covered in whole or in part by an issued, unexpired claim or a pending claim contained in the Patent Rights in the country in which any Licensed-Process is made, used or sold, (b) is derived from Patent Rights, Know-How, and/or trade secrets related to or described in Patent Rights; (c) is sold, manufactured or used in any country under this Agreement. 1.5. "Net Sales" shall mean LICENSEE's billings, for Licensed Products and Licensed Processes produced hereunder invoiced to independent third parties less the sum of the following: 3 [ * ] [ * ] 1.6. "Know-How" shall mean any and all technical data, information, or knowledge which is developed by Dr. Simpkins and.coworkers as a result of Project Work. 1.7. "Research Agreement" shall mean that agreement attached hereto as Exhibit B with its associated terms and conditions. 1.8. "University Inventions" shall mean individually and collectively all inventions, improvements and/or discoveries patentable or unpatentable, which are conceived and/or made solely by one or more employees of University in performance of the Project Work (as defined in the Research Agreement). For the purposes of this Paragraph, the "making" of inventions shall be governed by U.S. laws of inventorship. 1.9. "Joint Inventions" shall mean individually and collectively all inventions, improvements and/or discoveries patentable or unpatentable, which are conceived and/or made jointly by personnel of University (including faculty and employees) and of LICENSEE in performance of the Project Work (as defined in the Research Agreement). For the purposes of this Paragraph, the "making" of inventions shall be governed by U.S. laws of inventorship. 1.10. "University Patents" shall mean collectively and individually any and all United States and foreign patent applications and any and all issued United States Letters Patent and foreign patents owned by University which pertain to University Inventions derived during Project Work (as defined in the Research Agreement) under this Agreement. 1.11. "Joint Patents" shall mean collectively and individually any and all United States and foreign patent applications and any and all issued United States Letter Patents and * Confidential treatment has been requested for marked portion 4 foreign patents jointly owned by LICENSEE and University which pertain to Joint Inventions derived during Project Work (as defined in the Research Agreement) under this Agreement. 1.12. "Participating Sublicense" shall mean any sublicense whereby LICENSEE and its sublicensee cooperate, through a strategic alliance, in the development, manufacturing and/or commercialization of Licensed Product or Licensed Process; and wherein there is a division or sharing of responsibilities and/or expenses. 1.13. "Non-Participating Sublicense' shall mean any sublicense whereby LICENSEE does not participate in development, manufacturing and/or commercialization of Licensed Product or Licensed Process; and wherein all expenses and responsibilities attendant thereto are borne exclusively by sublicensee. 1.14. "Participating Sublicense Income" shall mean the net proceeds (including advanced royalties or "lump-sum" payments) actually received by LICENSEE for the grant of rights under Participating Sublicenses under the license herein granted. 1.15. "Non-Participating Sublicense Income" shall mean the net proceeds (including advanced royalties or "lump-sum" payments) actually received by LICENSEE for the grant of rights under Non-Participating Sublicenses under the license herein granted, after the deduction of all reasonable legal costs, documented by credible written evidence provided to UFRFI, actually incurred by LICENSEE in connection with the negotiation and procurement of the pertinent sublicenses. ARTICLE II - GRANT 2.1. UFRFI hereby grants to LICENSEE the right and license to make, have made, use, lease and sell the Licensed Products and Licensed Processes and Know-How throughout the world in any and all fields of use to the end of the term for which the Patent Rights are granted unless sooner terminated according to the terms hereof, subject to the non-exclusive licensed granted to the United States Government. 2.2. In order to establish exclusivity for LICENSEE, UFRFI hereby agrees that it shall not grant any other license to make, have made, use, lease and sell Licensed Products or to utilize Licensed Processes throughout the world in any and all fields of use during the period of time commencing with the Effective Date of this Agreement and terminating with the expiration of this Agreement. 5 2.3. UFRFI reserves the right to practice under the Patent Rights for its own noncommercial research purposes. 2.4. LICENSEE shall have the right to enter into sublicensing agreements for the rights, privileges and licenses granted hereunder. However, Licensee shall notify UFRFI in writing of the initiation of license negotiations with all potential sublicenSees. 2.5. LICENSEE hereby agrees that every Non-Participating Sublicense agreement to which it shall be a party and which shall relate to the rights, privileges and license granted hereunder shall contain a statement setting forth the date upon which LICENSEE's exclusive rights, privileges and license hereunder shall terminate. LICENSEE agrees that any sublicense granted hereunder shall provide that the obligations to UFRFI under Article I (Definitions), II (Grants), V (Reports and Records), VII (Infringement), VIII (Product Liability), IX (Export Controls), X (Non-Use of Names), XII (Term and Termination), XIV (Arbitration), and XV (Miscellaneous Provisions) of this Agreement shall be binding on upon the sublicensee as if it were a party to this Agreement. LICENSEE further agrees to attach copies of such Articles to each sublicense agreement. 2.6. LICENSEE hereby agrees that every Participating Sublicense agreement to which it shall be a party and which shall relate to the rights, privileges and license granted hereunder shall not breach any terms of this Agreement. 2.7. LICENSEE agrees to forward to UFRFI a copy of any and all Non-Participating Sublicense agreements within thirty (30) days of the execution of such sublicense agreements and further agrees to forward to UFRFI annually a copy of such reports received by LICENSEE from its sublicensees during the preceding twelve (12) month period under the sublicenses as shall be pertinent to a royalty accounting under said sublicense agreements. 2.8. Should LICENSEE receive from sublicensees anything of value in lieu of cash payments in consideration for any sublicense under this Agreement, LICENSEE and UFRFI shall negotiate in good faith to determine the corresponding monetary value of the non-cash payments, and to arrive at an equitable disposition. 2.9. The license granted hereunder shall not be construed to confer any rights upon LICENSEE by implication, estopped or otherwise as to any technology not specifically set forth herein. 2.10. UFRFI hereby grants to LICENSEE an exclusive option to negotiate for an exclusive license to sublicense, manufacture, use and sell products and processes based on 6 or a under University Inventions, University Patents and the University's component of Joint Inventions arising under Project Work as described and defined in Exhibit B. and UFRFI shall use its best efforts to obtain assignment of any inventions or portions thereof conceived and/or made by students of the University in their performance of the Project Work. This option shall extend for a period of six (6) months after the date of conception and disclosure to LICENSEE of any University Inventions in the area of [ * ] During such option period, University shall not offer these rights to any third party. LICENSEE shall exercise its option to negotiate for an exclusive license by providing to UFRFI written notice of such exercise and the parties hereto shall commence the negotiation, in good faith, of the said terms including, but not limited to royalty, license fee, and due diligence to commercialize products within thirty (30) days of LICENSEE's notice to UFRFI. The parties hereto shall use all reasonable effort to reach agreement relative to said terms within six (6) months of commencement of said negotiation. The following factors shall be considered by the parties: Should LICENSEE request a license to any University Invention or University Patent which is subject to this Agreement after the expiration or the option period granted herein, University, if it has not exclusively licensed such University Invention or University Patent and is not in active negotiations therefore prior to LICENSEE's request, shall negotiate with LICENSEE for a license as provided hereunder. If University has non-exclusively licensed those University Inventions or University Patents prior to LICENSEE's request, University shall grant to LICENSEE, as above, a non-exclusive license under terms and conditions at least as favorable as the previous non-exclusive license. 2.11. Any patent applications made or patents issued from Joint Inventions shall be filed in University's and LICENSEE's names, and the portion and/or claims thereof not made by University personnel shall belong to LICENSEE and shall not be subject to the provisions of this Agreement. In determining royalty rates in licenses to such patent applications or patents resulting from the joint effort of LICENSEE and University, there shall be taken into consideration the relative contributions of the respective joint inventors of the invention. 2.12. Any controversy, dispute or claim arising out of, or relating to, any provisions of this Paragraph 2 which cannot otherwise be resolved by good faith negotiations between the parties shall be resolved by arbitration in accordance with the provisions of Article XIV of this Agreement. 2.13. LICENSEE agrees that for Licensed Products covered by * Confidential treatment has been requested for marked portion 7 Patent Rights that are subject to the non-exclusive royalty-free a license-to the United States government, such Licensed Products will be manufactured substantially in the United States, in accordance with applicable federal law. 2.14. LICENSEE further agrees that it shall abide by all rights and limitations of U.S. Code Title 35, Chapter 38, and implementing regulations thereof, for all patent applications and patents invented in whole or in part with federal money. ARTICLE III - DUE DILIGENCE 3.1. LICENSEE shall use diligent efforts to bring one or more Licensed Products or Licensed Processes to market through a thorough, vigorous and diligent program for exploitation of the Patent Rights to attain maximum commercialization of Licensed Products and Licensed Processes, including sponsoring of research at UFRFI pursuant to the Research Agreement, providing UFRFI with a minimum total of [ * ] Dollars ($[ * ]) over [ * ]. 3.2. LICENSEE's failure to perform in accordance with Paragraph 3.1 above shall be grounds for UFRFI to terminate this Agreement pursuant to Paragraph 12.4 hereof. ARTICLE IV - ROYALTIES 4.1. For the rights, privileges and license granted hereunder, LICENSEE shall pay royalties to UFRFI in the manner hereinafter provided to the end of the term of the Patent Rights or until this Agreement shall be terminated as hereinafter provided: (a) An annual license maintenance fee payable commencing on January 1, 1999 and on January 1 of each year thereafter; provided, however, that such fee shall be waived: (i) for each year that the Research Agreement continues in effect beyond its initial term of three (3) years; or (ii) for each year in which LICENSEE milestones for such year have been achieved. The LICENSEE milestones shall be the subject of mutual agreement and are attached hereto and incorporated herein by reference as Exhibit C. The first License Maintenance Fee shall be the sum of [ * ] Dollars ($[ * ]), and each successive License Maintenance Fee payable hereunder shall be increased by [ * ] Dollars ($[ * ]) until the license maintenance fee is [ * ] Dollars ($[ * ]). Thereafter, the License Maintenance Fee shall be [ * ] Dollars ($[ * ]) per year during the remainder * Confidential treatment has been requested for marked portion 8 of the term of this Agreement. The License Maintenance Fee for a given year shall be creditable against any running royalties subsequently due during said year-under subparagraph 4.1(b) below. (b) Running royalty in an amount equal to [ * ] Percent ([ * ]%) of the Net Sales actually received by LICENSEE of the Licensed Products and Licensed Processes sold by or for LICENSEE [ * ]. 4.2. In the event LICENSEE grants any Non-Participating Sublicenses during the term of this Agreement, then for each such Sublicense, LICENSEE shall pay UFRFI a royalty at the rate of [ * ] percent ([ * ]%) of the Non-Participating Sublicense Income collected by LICENSEE under such sublicense. 4.3. No multiple royalties shall be payable in the event that any Licensed Product or Licensed Process is covered by more than one patent or claim under Patent Rights as herein defined. 4.4. Royalty payments shall be paid in United States dollars in Gainesville, Florida or at such other place as UFRFI may reasonably designate consistent with the laws and regulations of any foreign country. If any currency conversion shall be required in connection with the payment of royalties hereunder, such conversion shall be made by using the exchange rate prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the calendar quarterly reporting period to which such royalty payments relate. 4.5. In the event that any taxes, withholding or otherwise, are levied by any taxing authority in connection with accrual or payment of any royalties payable by LICENSEE under this Agreement, and LICENSEE determines in good faith that it must pay such taxes, LICENSEE shall have the right to pay such taxes to the local tax authorities on behalf of UFRFI and payment of the net amount due after reduction by the amount of such taxes, shall fully satisfy LICENSEE's royalty obligations under this Agreement. LICENSEE shall provide UFRFI with appropriate receipts or other documentation supporting such payment. LICENSEE shall inform UFRFI in writing, within thirty (30) days of notification that taxes will or have been levied by a taxing authority. ARTICLE V - REPORTS AND RECORDS 5.1. LICENSEE shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the amounts payable to UFRFI * Confidential treatment has been requested for marked portion 9 hereunder. Said books of account shall be kept at LICENSEE's principal place of business or the principal place of business of the appropriate division of LICENSEE to which this Agreement relates. Said books and the supporting data shall be open to inspection on behalf of UFRFI, after sales of Licensed Product commence, upon reasonable notice during reasonable business hours to the extent necessary for the purpose of 5 verifying LICENSEE's royalty statement. Such inspection shall be made not more than often than once each calendar year at the expense of UFRFI by a Certified Public Accountant appointed by UFRFI and to whom LICENSEE has no reasonable objection. LICENSEE shall not be required to retain such records for more than five (5) years after the close of any calendar half-year. 5.2. Licensee, within forty-five (45) days after June 30 and December 31, of each year, shall deliver to UFRFI true and accurate reports, giving such particulars of the business conducted by LICENSEE and its sublicensees during the preceding six-month period under this Agreement as shall be pertinent to a royalty accounting hereunder. These shall include at least the following; (a) number of Licensed Products manufactured and sold. (b) total billings for Licensed Products sold. (c) accounting for all Licensed Processes used or sold. (d) deductions applicable as provided in Paragraphs 1.5 and 1.15. (e) total royalty due. (f) names and addresses of all sublicensees of LICENSEE and copies of reports submitted by sublicensees. (g) A progress report on patent filings in each country, including the serial number, name of patent application, name of inventors and status of each patent application covering Licensed Products or Licensed Processes. 5.3. With each such report submitted, LICENSEE shall pay to UFRFI the royalties due and payable under this Agreement. If no royalties shall be due, LICENSEE shall so report. 5.4. The royalty payments and license maintenance fees set forth in this Agreement shall, if overdue, bear interest until payment at the monthly rate of one percent (1%). The payment of such interest shall not preclude UFRFI from exercising any other rights it may have as a consequence of the lateness of any payment. 10 5.5. On or before the sixtieth (60th) day following the close of LICENSEE's fiscal year, LICENSEE shall provide UFRFI with a financial statement for the preceding fiscal year. Such financial statements shall be unaudited until and unless LICENSEE'S stock becomes publicly traded. ARTICLE VI - PATENT PROSECUTION 6.1. LICENSEE shall, in the name of the University of Florida, apply for, seek issuance of, and maintain during the term of this Agreement the Patent Rights in the United States and in foreign countries. The prosecution, filing and maintenance of all Patent Rights patents and applications shall be the primary responsibility of LICENSEE. LICENSEE shall seek patent extension for patents licensed under the Patent Rights in the United States and in such foreign countries as may be designated by LICENSEE, under such applicable laws and regulations throughout such countries, where such patent extension rights are available currently or are available in the future. LICENSEE shall keep University advised as to all developments with respect to the Patent Rights and shall supply to University copies of all correspondence and papers received in connection therewith within ten (10) business days of receipt or filing thereof. As required by law, LICENSEE must provide all correspondence to and advise UFRFI in a timely manner in order to permit UFRFI to comment on all actions before they are taken by LICENSEE's patent counsel. All final decisions with respect to prosecution of the Patent Rights are reserved to UFRFI, as required by law. 6.2. Payment of all fees and costs relating to the filing, prosecution, and maintenance of the Patent Rights shall be the responsibility of LICENSEE. 6.3. If LICENSEE desires that a patent application be filed on University Inventions, LICENSEE shall promptly prepare, file and prosecute a patent application or applications in the University's name, and/or any pertinent continuation, continuation-in-part and/or reissue application(s) thereof in the United States directed to such University Inventions. University shall thereafter assign all such University Inventions to UFRFI. LICENSEE shall bear all expenses incurred in connection with such preparation, filing and prosecution of U.S. and foreign patent application(s) and patents directed to University Inventions. UFRFI shall cooperate with LICENSEE to assure that such application or applications, and any such continuation, continuation-in part and/or reissue application(s) thereof will cover, to the best of LICENSEE's knowledge, all items of commercial interest and importance. UFRFI shall have the right to advise and cooperate with LICENSEE in such prosecution, and such advice shall not be rejected unreasonably. 11 6.4. If LICENSEE elects not to exercise its option(s) pursuant to this Agreement, or decides to discontinue the financial support of the prosecution or maintenance of the protection of the Patent Rights in the United States and in foreign countries, or is grossly negligent in its prosecution or maintenance of the protection thereof, UFRFI shall be free a to file or continue prosecution or maintain any such application(s), and to maintain any protection issuing thereon in the U.S. and in any foreign country at UFRFI's sole expense. ARTICLE VII - INFRINGEMENT 7.1. LICENSEE shall inform UFRFI promptly in writing of any alleged infringement of the Patent Rights by a third party and of any available evidence thereof. 7.2. During the term of this Agreement, LICENSEE and/or sublicensees shall have the primary responsibility to prosecute any alleged infringement of Patent Rights. UFRFI shall have the right, but not the obligation, to share up to [ * ]% of the costs, or [ * ]% if LICENSEE and/or sublicensees choose not to prosecute. Either party may claim the other as co-plaintiff. The total cost of any such infringement action shall be shared appropriately with respect to expenses incurred. No settlement, consent judgment or other voluntary final disposition of the suit may be entered into without the consent of UFRFI, which consent shall not unreasonably be withheld; provided, however, that LICENSEE shall indemnify UFRFI against any order for costs that may be made against UFRFI in such proceedings, in accordance with this Paragraph. 7.3. In the event that LICENSEE shall undertake the enforcement and/or defense of the Patent Rights by litigation, LICENSEE may withhold up to [ * ] percent ([ * ]%) of the royalties otherwise thereafter due UFRFI hereunder and apply the same toward reimbursement of its expenses, including reasonable attorneys' fees, in connection therewith. Said withholding of royalties shall begin no earlier than the date LICENSEE first receives a bill for professional services or expenses associated with the enforcement and/or defense of the Patent Rights. Any recovery of damages by LICENSEE for any such suit shall be applied first in satisfaction of any unreimbursed expenses and legal fees of LICENSEE relating to the suit, and next toward reimbursement of UFRFI for any royalties past due or withheld with interest and applied pursuant to this Article VII. Any additional monies recovered from the settlement of any such suit shall be shared on a pro rata basis between LICENSEE and/or sublicensees and UFRFI according to the respective percentages of costs borne by each in such suit. 7.4. In any infringement suit as either party may institute to * Confidential treatment has been requested for marked portion 12 enforce the Patent Rights pursuant to this Agreement, the other party hereto shall, at the request and expense of the party initiating such suit, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens, and the like. 7.5. In the event that LICENSEE or any of its sublicensees are sued (or such suit is threatened in writing) for infringement of a third party's patent because of the use of a Licensed Product or Licensed Process, LICENSEE shall promptly notify UFRFI and LICENSEE and/or its sublicensees shall have the sole right, in its discretion, to control the defense of such suit at its own expense. UFRFI shall have the right to be represented by its own counsel at its own expense. If LICENSEE and/or its sublicensees do not elect within sixty (60) days of receiving notice to control the defense of such suit, UFRFI may undertake such control at its own expense and LICENSEE and/or its sublicensees shall have the right to be represented by its own counsel at its own expense. The parties shall cooperate fully in the defense of such suit. The party financing the suit shall consult with and consider the interests of the other, and may not settle any part of the suit or otherwise consent to an adverse judgment in such suit that diminishes the rights or interests of the non-financing party, including any interpretation of Patent Rights, without the express written consent of the non-financing party. ARTICLE VIII - PRODUCT LIABILITY 8.1. LICENSEE shall at all times during the term of this Agreement and thereafter, indemnify, defend and hold UFRFI and the University, their trustees, officers, employees and affiliates, harmless against all claims and expenses, including legal expenses and reasonable attorneys' fees whether arising from a third party claim or resulting from UFRFI's enforcing this indemnification clause against LICENSEE, or arising out of the death of or injury to any person or persons or out of any damage to property and against any other claim, proceeding, demand, expense and liability of any kind whatsoever resulting from the production, manufacture, sale, use, lease, consumption or advertisement of the Licensed Product(s) or Licensed Process(es) or arising from any obligation of LICENSEE hereunder. LICENSEE's indemnification under this Paragraph 8.1 shall not apply to any liability, damage, loss or expense to the extent that it is attributable to the intentional wrongdoing or intentional misconduct of UFRFI and the University, their trustees, officers, employees and affiliates. 8.2. In the event any such action is commenced or claim made or threatened against UFRFI or other indemnitees whom 13 LICENSEE is obligated to indemnify or hold harmless, UFRFI or the other indemnitees shall promptly notify LICENSEE of such event. LICENSEE shall have the right to participate in the defense of that part of any such claim or action commenced or made against UFRFI (or other indemnitees) which relates to LICENSEE's indemnification, and LICENSEE shall not be liable to UFRFI or other indemnitees in account of any settlement of any such claim or litigation affected without a LICENSEE's consent, which consent shall not be unreasonably withheld or delayed. 8.3. As of the first commercial sale of a Licensed Product or first commercial use of a Licensed Product, LICENSEE and/or sublicensees shall obtain, and carry in full force and effect, liability insurance which shall protect LICENSEE and UFRFI in regard to events covered by Paragraph 8.1 above. 8.4. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, UFRFI MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING. ARTICLE IX - EXPORT CONTROLS LICENSEE hereby agrees that it shall not sell, transfer, export or re-export any Licensed Products or Licensed Processes 13 or related information in any form, or any direct products of such information, except in compliance with all applicable laws, including the export laws of any U.S. government agency and any regulations thereunder, and will not sell, transfer, export or re-export any such Licensed Products or Licensed Processes or information to any persons or any entities with regard to which there exist grounds to suspect or believe that they are violating such laws. LICENSEE shall be solely responsible for obtaining all licenses, permits or authorizations required from the U.S. and any other government for any such export or re-export. To the extent not inconsistent with this Agreement, UFRFI agrees to provide LICENSEE with such assistance as it may reasonably request in obtaining such licenses, permits or authorization. ARTICLE X - NON-USE OF NAMES LICENSEE and UFRFI shall not use each others names nor the names of any of either institution's employees, nor any adaptation thereof, in any advertising, promotional or sales literature without prior written consent obtained from the other party in each case, except that LICENSEE and UFRFI may state that such license is in effect. ARTICLE XI - ASSIGNMENT This Agreement is not assignable and any attempt to do so 14 shall be void except in the case of a transfer of substantially all of the assets of one of the parties hereto. This Agreement shall bind the parties, their successors resulting from merger, and their permitted assigns. ARTICLE XII - TERM AND TERMINATION 12.1. Unless earlier terminated as hereinafter provided, this Agreement shales remain-in full force and effect until the last to expire of any patent claim included in the Licensed Products. 12.2. If LICENSEE shall cease to carry on its business, this Agreement shall terminate upon notice by UFRFI. 12.3. Should LICENSEE fail to pay UFRFI royalties due and payable hereunder, UFRFI shall have the right to terminate this Agreement on thirty (30) days' notice, unless LICENSEE shall pay UFRFI within the thirty (30) day period, all such royalties and interest due and payable. Upon the expiration of the thirty (30) day period, if LICENSEE shall not have paid all such royalties and interest due and payable, the rights, privileges and license granted hereunder shall terminate. 12.4. Upon any material breach or default of this Agreement by LICENSEE, other than those occurrences set out in Paragraphs 12.2 and 12.3 above, which shall always take precedence in that order over any material breach or default referred to 14 in this Paragraph 12.4, UFRFI shall have the right to terminate this Agreement and the rights, privileges and license granted hereunder by ninety (90) days notice to LICENSEE. Such termination shall become effective unless LICENSEE shall have cured or commenced good faith remedial action acceptable to UFRFI any such breach or default prior to the expiration of the ninety (90) day period. If UFRFI terminates this Agreement pursuant to the terms hereof, the Research Agreement shall concurrently terminate on the effective date of termination of this Agreement, and the Research Agreement shall be terminated in accordance with Paragraph 4.2 and Article X of the Research Agreement. 12.5. LICENSEE shall have the right to terminate this Agreement at any time on six (6) months' written notice to UFRFI, and upon payment of all amounts due UFRFI through the effective date of the termination. 12.6. UFRFI may terminate this Agreement upon the occurrence of the third separate default by LICENSEE within any consecutive three (3) year period for failure to pay royalties when due. 12.7. Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any 15 obligation that matured prior to the effective date of such termination. LICENSEE and any sublicensee thereof may, however, after the effective date of such termination, sell all Licensed Products, and complete Licensed Products in the process of manufacture at the time of such termination and sell the same, provided that LICENSEE shall pay to UFRFI the royalties thereon as required by Article IV of this Agreement and shall submit the reports required by Article V hereof on the sales of Licensed Products. 12.8. Upon termination of this Agreement, any sublicensee not then in default or in threat of default as documented by reports as per Section 5.2 shall have the right to seek a license from UFRFI. 12.9. BANKRUPTCY. (a) Notice of Assumption of Rejection. (i) In the event that either party files or has filed against it a petition under the Federal Bankruptcy Code (11 U.S.C. Sections 1, ET SEQ.) (the "Bankruptcy Code"), is adjudged bankrupt, or files or has filed against it a petition for reorganization or arrangement under any law relating to bankruptcy or similar laws for the protection of debtors, whether under the laws of the United States and its political subdivisions or otherwise, such party shall (1) notify the other party thereof within ten (10) days after the filing of such petition or such adjudication, and (2), within thirty (30) days after the filing of such petition, shall notify the other party of the party's assumption or rejection of this Agreement, and shall file a petition with the appropriate court for approval of all other action as may be necessary to obtain the approval of such petition and of such assumption of rejection. (ii) If such party does not: (1) within thirty (30) days after the occurrence of any of the foregoing events, notify the other party of its assumption or rejection of this Agreement or file the petition, or (2) thereafter diligently take all other action necessary for the approval of the foregoing petition or of such assumption or rejection, such party shall be deemed to have rejected this Agreement. Each party acknowledges that, for purposes of Section 365 of the Bankruptcy Code and similar provisions of any other or future similar laws relating to any party's assumption or rejection of any executory contract, a period of thirty (30) days after the date of any filing or adjudication described above shall constitute a reasonable time in which such party shall assume or reject this Agreement and a party shall be deemed to have not diligently taken all action necessary for the approval of the foregoing petition or of such 16 assumption or rejection if such petition, assumption or rejection is not approved by the-appropriate court within sixty (60) days after the filing of the petition for such assumption or rejection. (b) Conditions to Assumption. No election by any party, or any successor-in-interest to such party, to assume this Agreement as contemplated by paragraph (a) above shall be effective unless each of the following conditions, each of which each party acknowledges is commercially reasonable in the context of a bankruptcy or similar proceeding, has been satisfied by such party and each of the other parties has acknowledged such satisfaction in writing: (1) CURE. Such party has cured, or has provided the other party adequate assurances that: (A) Monetary Defaults. Within ten (10) days from the date of such assumption such party will cure all monetary defaults under this Agreement; and (B) Non-Monetary Defaults. Within thirty (30) days from the date of such assumption such party will cure all non-monetary defaults under this Agreement. (2) PECUNIARY LOSS. Such party has compensated or has provided to the other party adequate assurances that within ten (10) days from the date of assumption the other party will be compensated for any pecuniary loss incurred by the party arising from any default of such party under this Agreement prior to the assumption. (3) FUTURE PERFORMANCE. Such party has provided the other party with adequate assurances of the future performance of such party's obligations under this Agreement. (c) Termination. This Agreement shall terminate upon the rejection of this Agreement as contemplated by this Paragraph by any party or successor-in-interest thereto. 17 (d) No Transfer. Neither any party's interest in this Agreement nor any portion thereof shall pass to any trustee, receiver, or assignee for the benefit of creditors, or any other person or entity or otherwise by operation of law under the Bankruptcy Code or the insolvency laws of any state having jurisdiction of the person or property of such party unless the other party shall consent to such transfer in writing. ARTICLE XIII - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS Any payment, notice or other communication pursuant to this Agreement shall be sufficiently made or given on the date of mailing if sent to such party by certified first class mail, postage prepaid, or facsimile with confirmation, addressed to it at its address below or as it shall designate by written notice given to the other party: In the case of UFRFI: President University of Florida Research Foundation, Inc. 223 Grinter Hall Gainesville, Florida 32611 Facsimile: (352) 392-9605 With a copy to: Director Office of Technology Licensing 186 Grinter Hall Gainesville, Florida 32611 Facsimile: (352) 392-6600 All payments to: Business Office University of Florida Research Foundation, Inc. 109 Grinter Hall Gainesville, Florida 32611 PLEASE MAKE ALL CHECKS PAYABLE TO: UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC. 18 In the case of LICENSEE: President Apollo Genetics, Inc. 222 Third Street Cambridge, Massachusetts 02142 Facsimile: (617) 492-0084 With a copy to: Bromberg & Sunstein 125 Summer Street Boston, MA 02110-1618 Facsimile: (617) 433-0004 ARTICLE XIV - ARBITRATION 14.1. Any controversy or claim arising out of, or relating to, any provisions of this Agreement or the breach thereof which cannot otherwise be resolved by good faith negotiations between the parties shall be resolved by final and binding arbitration under the rules of the American Arbitration Association, or the Patent Arbitration Rules if applicable, then obtaining. 14.2. Notwithstanding the foregoing, nothing in this Article XIV shall be construed to waive any rights or timely performance of any obligations existing under this Agreement. ARTICLE XV - MISCELLANEOUS PROVISIONS 15.1. The parties hereto acknowledge that this Agreement sets forth the entire Agreement and understanding of the parties hereto as to the subject matter hereof, and shall not be subject to any change of modification except by the execution of a written instrument subscribed to by the parties hereto. 15.2. The provisions of this Agreement are severable, and in the event that any provisions of this Agreement shall be determined to be invalid or unenforceable under any controlling body of the law, such invalidity or unenforceability shall not in any way affect the validity or enforceability of the remaining provisions hereof. 15.3. LICENSEE agrees to mark the Licensed Products sold in the United States with all applicable United States patent numbers. All Licensed Products shipped to or sold in other countries shall be marked in such a manner as to conform with the patent laws and practice of the country of manufacture or sale. 15.4. The failure of either party to assert a right hereunder or 19 to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other party. 15.5. The parties adopt and incorporate Article VII, the confidentiality section of the attached Research Agreement, as though incorporated herein. 15.6. For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party. 15.7. This Agreement may be signed in counterparts which collectively shall constitute a single agreement. 15.8. Neither party shall be in breach hereof by reason of its delay in the performance of or failure to perform any of its obligations hereunder, if that delay or failure is caused by strikes, acts of God or the public enemy, riots, incendiaries, interference by civil or military authorities, compliance with governmental priorities for materials, or any fault beyond its control or without its fault or negligence. 15.9. The parties each, at any time or from time to time, shall execute and deliver or cause to be delivered such further assurances, instruments or documents as may be reasonably necessary to fulfill the terms and conditions of this Agreement. 20 IN WITNESS WHEREOF, the parties have hereunto set their hands and seals and duly executed this Agreement the day and year set forth below. UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC. By /s/ Ronald M. Kudla -------------------------------- Name: Ronald M. Kudla Title: Director of Licensing Date: 10/15/96 APOLLO GENETICS, INC. By /s/ Katherine Gordon -------------------------------- Name Katherine Gordon, PhD Title President Date 10/15/96 21 Exhibit A UNITED STATES AND FOREIGN PATENTS AND/OR APPLICATIONS
Application/ Country/region Serial Number Filing Date Title Status - -------------- ------------- ----------- ----- ------ [ * ]
[ * ] * Confidential treatment has been requested for marked portion EXHIBIT B CORPORATE RESEARCH AGREEMENT TO ACCOMPANY LICENSE AGREEMENT See Exhibit 10.10 to the Registration Statement EX-10.10 15 EXHIBIT 10.10 CORPORATE RESEARCH AGREEMENT TO ACCOMPANY LICENSE AGREEMENT This AGREEMENT entered into this 15th day of December, 1993 (the "Effective Date"), by and between APOLLO GENETICS, INC., a corporation duly organized under the laws of the State of Delaware and having its principal office at 222 Third Street, Suite 3121, Cambridge, Massachusetts 02142 (hereinafter referred to as "Sponsor") and the UNIVERSITY OF FLORIDA, a non-profit educational institution of the State of Florida located in Gainesville, Florida (hereinafter referred to as the "University"). W I T N E S S E T H: WHEREAS, Sponsor desires the research assistance of certain technically qualified persons having access to certain facilities and equipment; WHEREAS, Sponsor desires to fund said research entitled [ * ] attached hereto as Appendix 1; WHEREAS, Sponsor has entered into a License Agreement with the University of Florida Research Foundation, Inc. ("UFRFI") dated December 15, 1993 for all fields of use. UFRFI and University have agreed that the research described herein shall be funded through and conducted by University; WHEREAS, University is willing to cooperate with and assist Sponsor by furnishing such personnel, and facilities as may be required; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agrees as follows: I. DEFINITIONS: As used herein, the following terms shall have the following meanings: 1.1 "Project Description" shall mean the description of the project as described in Appendix 1 hereof. 1.2 "Project Work" shall mean the research work as described in Appendix 1 hereof to be performed by University and its Principal Investigator, [ * ], under this Agreement. * Confidential treatment has been requested for marked portion 1 1.3 "Contract Period" is for a period of three (3) years, commencing from the Effective Date, during which the University shall perform the Project Work. 1.4 "Principal Investigator" shall mean the individual designated by University to implement and oversee all aspects and components of the Project Work and to serve as University's liaison with Sponsor's designated representative. 1.5 "Researcher(s)" shall mean individually and collectively the Principal Investigator, graduate students, other professional personnel and/or other employees of University participating in the actual performance of the Project Work. 1.6 "Sponsor" shall mean the LICENSEE defined and described in the License Agreement between LICENSEE and UFRFI. 1.7 "License Agreement" shall mean that certain License Agreement dated December 15, 1993 to which this Research Agreement is attached. II. RESEARCH WORK 2.1 University shall commence the performance of the Project Work promptly after the Effective Date of this Agreement, and shall use its diligent efforts to complete such Project Work substantially in accordance with the terms and conditions of this Agreement. Anything in this Agreement to the contrary notwithstanding, Sponsor and University may at any time enter into written agreements to make changes to and amend the Project Description provided, however, that such changes or amendments do not change the nature of the project; are approved by UFRFI; and, further provided that budgetary allocations set forth in Appendix 1 hereof covering the Project Work to be performed hereunder shall be augmented as necessary to cover any additional costs to University resulting from such changes or amendments. 2.2 Sponsor's designated representative shall be Katherine Gordon, Ph.D. or such other representative as Sponsor may from time to time designate. University's Principal Investigator shall be [ * ] Ph.D. or such other representative as University may designate with the prior written approval of Sponsor. III. REPORTS AND CONFERENCES 3.1 University's Principal Investigator shall make up to four (4) oral reports each year as requested by Sponsor and shall submit written progress/program reports on a yearly basis and as specific phases of work are completed. A final report shall be submitted by University within forty five (45) days of the conclusion of the Contract Period, or early termination of this Agreement. 3.2 If necessary, during the term of this Agreement, representatives of the University will meet the representatives of Sponsor at times and places mutually agreed upon to discuss the * Confidential treatment has been requested for marked portion 2 progress and results, as well as ongoing plans, or changes therein, of the Project Work to be performed hereunder. IV. COSTS, BILLINGS AND OTHER SUPPORT 4.1 It is agreed to and understood by the parties hereto that, subject to Section 2, total costs to Sponsor hereunder shall not exceed the sum of [ * ] Dollars ($[ * ]). These costs shall be allocated as set forth in Appendix 1 attached hereto for use in the Project Work. 4.2 Anything herein to the contrary notwithstanding, should this Agreement be subject to early termination pursuant to Section 10 hereof, Sponsor shall pay all costs accrued by University as of the date of termination, provided, however, that Sponsor shall reimburse University for non-cancelable obligations, which shall include all non-cancelable contracts and postdoctoral associate appointments called for in the Project Description, Appendix 1 incurred prior to the effective date of termination. After termination, any obligation of Sponsor for postdoctoral associates shall end no later that the end of the University's fiscal year following termination. V. PUBLICITY 5.1 Sponsor will not use the name of the University, nor of any member of the University's technical staff, in any publicity, advertising or news release without the prior written approval of an authorized representative of the University; provided, however, that Sponsor may (a) refer to publications by employees of University in scientific literature, or (b) state that Sponsor is sponsoring research at University. The University will not use the name of Sponsor, nor any employee of Sponsor, in any publicity without the prior written approval of Sponsor. VI. PUBLICATIONS 6.1 Sponsor recognizes that under University academic policy, the results of a University research project must be publishable and agrees that Researchers engaged in the Project Work shall be permitted to prevent at symposia, national or regional professional meetings and to publish in journals, theses or dissertations, or otherwise of their own choosing, methods and results of Project Work, provided, however, that Sponsor shall have been furnished copies of any proposed publication or presentation at least sixty (60) days in advance of the submission of such proposed publication or presentation to a journal, editor or other third party. Sponsor shall have thirty (30) days, after receipt of said copies, to object to such proposed presentation or proposed publication either because there is patentable subject matter which needs protection and/or there is Confidential Information (as later defined herein) of Sponsor contained in the proposed publication or presentation. In the event that Sponsor makes such objection, the said Researcher(s) shall refrain from making such publication or presentation for a maximum of three (3) months in order for Sponsor 3 * Confidential treatment has been requested for marked portion to file patent application(s) with the United States Patent and Trademark Office and/or foreign patent office(s) directed to the patentable subject matter contained in the proposed publication or presentation. VII. CONFIDENTIALITY 7.1 Anything in this Agreement to the contrary notwithstanding, any and all knowledge, know-how, practices, process or other information of any kind and in any form (hereinafter referred to as "Confidential Information") disclosed or submitted, either orally, in writing or in other tangible or intangible form which is designated as Confidential Information, to either party by the other shall be received and maintained by the receiving party in strict confidence and shall not be disclosed to any third party. Furthermore, neither party shall use the said Confidential Information for any purpose other than those purposes specified in this Agreement. The parties may disclose Confidential Information to the minimum number of its employees reasonably requiring access thereto for the purposes of this Agreement provided, however, that prior to making any such disclosures each such employee shall be apprised of the duty and obligation to maintain Confidential Information in confidence and not to use such information for any purpose other than in accordance with the terms and conditions of this Agreement. The University warrants that any and all Researchers conducting research under and supported by this Agreement shall sign a participation agreement substantially similar in content to the form attached hereto and incorporated herein by reference as Appendix 2. 7.2 Nothing contained herein will in any way restrict or impair either parties right to use, disclose, or otherwise deal with any Confidential Information which at the time of its receipt: 7.2.1 Is generally available in the public domain, or thereafter becomes available to the public through no act of the receiving party; or 7.2.2 Was independently known prior to receipt thereof, or made available to such receiving party as a matter of lawful right by a third party. VIII. INVENTIONS, IMPROVEMENTS AND DISCOVERIES 8.1 University will promptly notify Sponsor of any University Inventions conceived and/or made during the Contract Period under Project Work funded by Sponsor or such shorter time if there is an early termination. 8.2 All rights and title to University Inventions arising under the Project Work shall belong to University and shall be subject to the terms and conditions of this Agreement and the License Agreement. 4 8.3 All rights and title to Joint Inventions arising under the Project Work shall belong jointly to Sponsor and University and shall be subject to the terms and conditions of this Agreement and the License Agreement. 8.4 Rights to inventions, improvements and/or discoveries, whether patentable or not, relating to Project Work made solely by employees of Sponsor shall belong to Sponsor, and such invention, improvements and/or discoveries shall not be subject to the terms and conditions of this Agreement, but shall be subject to the terms and conditions of the License Agreement. IX. PATENTS AND PATENT APPLICATIONS 9.1 All rights to University Inventions will be assigned by University to UFRFI. X. TERM AND TERMINATION 10.1 This Agreement shall become effective upon the date first hereinabove written and shall continue in effect for the full duration of the Contract Period unless sooner terminated in accordance with the provisions of this Section 10. The parties hereto may, however, pursuant to Section 2.1, extend the term of this Agreement for additional periods as desired under mutually agreeable terms and conditions which the parties reduce to writing and sign. 10.2 In the event that either party hereto shall commit any breach of or default in any of the terms or conditions of this Agreement, and also shall fail to remedy such default or breach within sixty (60) days after receipt of written notice thereof from the other party hereto, the party giving notice may, at its option and in addition to any other remedies which it may have at law or in equity, terminate this Agreement by sending notice of termination in writing to the other party to such effect, and such termination shall be effective as of the date of the receipt of such notice. 10.3 Termination of this Agreement by either party for any reason shall not affect the rights and obligations of the parties accrued prior to the effective date of termination of this Agreement including, but not limited to, any license or sublicense rights under the License Agreement. No termination of this Agreement, however effectuated, shall release the parties hereto from their rights and obligations under Section III, IV, V, VI, VII and VIII. XI. MISCELLANEOUS 11.1 The parties recognize that inventions, copyrightable works and other proprietary information may arise from research sponsored in whole or in part by agencies of the federal government. The parties hereto agree that any such developments 5 shall be governed by the provisions of Public Law 96-517, or as amended, during the term of this Agreement. 11.2 In the performance of all services hereunder: 11.2.1 University shall be deemed to be and shall be an independent contractor and as such University shall not be entitled to any benefits applicable to employees of Sponsor; 11.2.2 University shall comply with all governmental laws and regulations, such as EPA, OSHA and like regulations, which are applicable to the University and its performance of the Project Work hereunder; 11.2.3 Neither party is authorized or empowered to act as agent or the other for any purpose and shall not on behalf of the other enter into any contract, warranty or representation as to any matter. Neither shall be bound by the acts or conduct of the other. XII. INDEMNITY/INSURANCE 12.1 University warrants and represents that, as part of the State of Florida, University is self-funded for liability insurance under Chapter 284, FLORIDA STATUTES, such protection being applicable to officers, employees and agents while acting within the scope of their employment by University and University has no liability insurance policy as such that can extend protection to any other person. 12.2 Each party hereby assumes any and all risks of personal injury and property damage attributable to the negligent acts or omissions of that party and the officers, employees and agents thereof. 12.3 The parties further agree that nothing contained herein shall be construed or interpreted as denying to either party any remedy or defense available to such party under the laws of the State of Florida; the consent of the State of Florida or its agents and agencies to be sued by reason hereon; or as a waiver of sovereign immunity of the State of Florida beyond the waiver provided in Section 768.28, FLORIDA STATUTES (1991). XIII. GOVERNING LAW This agreement shall be governed and interpreted in accordance with the internal law of the State of Florida without regard to its conflict of laws. XIV. ASSIGNMENT This Agreement is not assignable and any attempt to do so shall be void except in the case of a transfer of substantially all of the assets of one of the parties hereto. This Agreement shall 6 bind the parties, their successors resulting from merger, and their permitted assigns. XV. AGREEMENT MODIFICATION Any agreement changing the terms of this Agreement in any way shall be void only if the change is made in writing and approved by authorized representatives of the parties hereto. XVI. NOTICES Notices, invoices, communications and payments hereunder shall be deemed made if given by registered or certified mail, postage prepaid, and addressed to the party to receive such notice, invoice or communication at the address given below, or such other address as may hereafter be designated by notice in writing: If to Sponsor: Katherine Gordon, Ph.D. President Apollo Genetics, Inc. 222 Third Street Cambridge, MA 02142 If to University: Karen A. Holbrook, Ph.D. Vice President for Research Dean, Graduate School University of Florida Office of Research and Graduate Education 223 Grinter Hall Gainesville, FL 32611-2037 Technical Matter: [*] Payments shall be made in United States dollars to the University of Florida at the address first indicated hereinabove. The date of giving any notice, invoice or other communication, and the date of making any such payment, provided that such payment is received, shall be the date on which such envelope is deposited with the appropriate U.S. Post Office. The postal service receipt showing the date of such deposit shall be PRIMA FACIE evidence of these facts. * Confidential treatment has been requested for marked portion 7 XVII. INDEPENDENT CONTRACTORS For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party. XVIII. FORCE MAJEURE Neither party shall be in breach hereof by reason of its delay in the performance of or failure to perform any of its obligations hereunder, if that delay or failure is caused by strikes, acts of God or the public enemy, riots, incendiaries, interference by civil or military authorities, compliance with governmental priorities for materials, or any fault beyond its control or without its fault or negligence. XIX. ENTIRE AGREEMENT This Agreement represents the entire understanding between the parties, and supersedes and merges all understanding between the parties, and supersedes and merges all other agreements, express or implied, discussions or understandings between the parties with respect to the subject matter hereof. It shall be interpreted in conjunction and consistent with the License Agreement to which this is an Exhibit. 8 IN WITNESS WHEREOF, the parties have caused these presents to be executed in duplicate as of the day and year first above written. APOLLO GENETICS, INC. UNIVERSITY OF FLORIDA /s/ Katherine Gordon /s/ Karen A. Holbrook - -------------------------- ----------------------- By: Katherine Gordon, Ph.D By: Title: President Title: /s/ Niles Sutphin /s/ Marilyn A. Ritter - -------------------------- ----------------------- Witness Witness 9 Appendix 1 PROJECT WORK AND BUDGET SPONSORED PROJECT TITLE: [ * ] OVERALL PROGRAM OBJECTIVE: [ * ] SPECIFIC AIMS: [ * ] PROGRAM DESCRIPTION: [ * ] * Confidential treatment has been requested for marked portion Appendix 1 PROJECT WORK AND BUDGET (con't) Year 1 [ * ]FTE Technician. . . . . . . . . . . . . . . . . . . . $[ * ] Supplies for the evaluation of 6 steroids (culture media, plastic ware, stains, cells, antibiotics, disinfectants, etc.. . . . . . . . . . . . $ [ * ] ------- Total Year 1 budget (direct). . . . . . . . . . . . . . . $ [ * ] Overhead. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ] TOTAL (Direct and indirect) . . . . . . . . . . . . . . . $ [ * ] Year 2 [ * ]FTE Technician . . . . . . . . . . . . . . . . . . . $ [ * ] Supplies. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ] ------- Total Year 2 budge (direct) . . . . . . . . . . . . . . . $ [ * ] Overhead. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ] TOTAL (Direct and indirect) . . . . . . . . . . . . . . . $ [ * ] Year 3 [ * ]FTE Technician . . . . . . . . . . . . . . . . . . . $ [ * ] Supplies. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ] Animal purchase and maintenance . . . . . . . . . . . . . $ [ * ] ------- Total Year 3 budget (direct). . . . . . . . . . . . . . . $ [ * ] Overhead. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ] TOTAL (Direct and indirect) . . . . . . . . . . . . . . . $ [ * ] * Confidential treatment has been requested for marked portion Appendix 2 PARTICIPATION AGREEMENT The University of Florida ("University") and Apollo Genetics, Inc. ("Sponsor") have entered into a corporate research agreement ("Research Agreement") in which Sponsor granted to University and University accepted, a research grant to support certain investigations (the "Sponsored Activity"). University agrees to certain obligations to Sponsor with respect to rights in inventions, copyrightable subject-matter and other developments of a proprietary nature that arise in connection with the Sponsored Activity. As a condition of my participating in the Sponsored Activity and in consideration therewith, and to enable University to fulfill its obligations to the Sponsor, I hereby agree as follows: 1. The Sponsor shall have all rights with respect to any and all [DEVELOPMENTS] of a proprietary nature which may accrue to me by virtue of my participation in the Sponsored Activity and income derived therefrom to which it is entitled under the terms of the Research Agreement, including such rights in any invention, improvements, discovery or innovation, whether or not patentable, conceived or first actually reduced to practice by me, solely or jointly with others, in the course of, in connection with or as a result of the Sponsored Activity. I will execute all documents and do all acts, but without expense to me, necessary or proper to effectuate such rights or determinations of the Sponsor, and I will not claim or assert rights inconsistent with Sponsor's rights. 2. Any and all knowledge, know-how, practices, process or other information of any kind and in any form (hereinafter referred to as "Confidential Information") disclosed or submitted, either orally, in writing or in other tangible or intangible form which is designated as Confidential Information, to me by the Sponsor shall be received and maintained by me in strict confidence and shall not be disclosed to any third party. Furthermore, I shall not use the Confidential Information for any purpose other than those purposes specified in the Sponsored Activity. 3. The principal investigator of the Sponsored Activity shall insure that each participant signs a participation agreement in the form of this one. Signed: [ * ] * Confidential treatment has been requested for marked portion Appendix 2 PARTICIPATION AGREEMENT The University of Florida ("University") and Apollo Genetics, Inc. ("Sponsor") have entered into a corporate research agreement ("Research Agreement") in which Sponsor granted to University and University accepted, a research grant to support certain investigations (the "Sponsored Activity"). University agrees to certain obligations to Sponsor with respect to rights in inventions, copyrightable subject-matter and other developments of a proprietary nature that arise in connection with the Sponsored Activity. As a condition of my participating in the Sponsored Activity and in consideration therewith, and to enable University to fulfill its obligations to the Sponsor, I hereby agree as follows: 1. The Sponsor shall have all rights with respect to any and all [DEVELOPMENTS] of a proprietary nature which may accrue to me by virtue of my participation in the Sponsored Activity and income derived therefrom to which it is entitled under the terms of the Research Agreement, including such rights in any invention, improvements, discovery or innovation, whether or not patentable, conceived or first actually reduced to practice by me, solely or jointly with others, in the course of, in connection with or as a result of the Sponsored Activity. I will execute all documents and do all acts, but without expense to me, necessary or proper to effectuate such rights or determinations of the Sponsor, and I will not claim or assert rights inconsistent with Sponsor's rights. 2. Any and all knowledge, know-how, practices, process or other information of any kind and in any form (hereinafter referred to as "Confidential Information") disclosed or submitted, either orally, in writing or in other tangible or intangible form which is designated as Confidential Information, to me by the Sponsor shall be received and maintained by me in strict confidence and shall not be disclosed to any third party. Furthermore, I shall not use the Confidential Information for any purpose other than those purposes specified in the Sponsored Activity. 3. The principal investigator of the Sponsored Activity shall insure that each participant signs a participation agreement in the form of this one. Signed: [ * ] * Confidential treatment has been requested for marked portion EX-10.11 16 EXHIBIT 10.11 PATENT LICENSE AGREEMENT TABLE OF CONTENTS PREAMBLE ARTICLES: I DEFINITION I GRANT III DUE DILIGENCE IV ROYALTIES V REPORTS AND RECORDS VI PATENT PROSECUTION VII INFRINGEMENT VIII PRODUCT LIABILITY IX EXPORT CONTROLS X NON-USE OF NAMES XI ASSIGNMENT XII TERM AND TERMINATION XIII PAYMENTS, NOTICES AND OTHER COMMUNICATIONS XIV ARBITRATION XV MISCELLANEOUS PROVISIONS This Agreement is made and entered into this 8th day of September, 1994, (the Effective Date) by and between THE UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC., a not-for-profit corporation duly organized and existing under the laws off the State of Florida; and having its principal of five at 223 Grinter Hall, Gainesville, Florida, 32611-2037, U.S.A. (hereinafter referred to UFRFI), and APOLLO GENETICS, INC., a corporation duly organized under the laws of the State of Delaware and having its principal office at 222 Third Street, Suite 3121, Cambridge, Massachusetts 02142 (hereinafter referred to as LICENSEE). WITNESSETH WHEREAS, UFRFI is the owner of certain "Patent Rights" (as later defined herein) by assignment from the University of Florida (hereinafter referred to as University) relating to UFRFI Case No. 1229 entitled "ESTROGEN RESPONSIVENESS DIAGNOSTIC," invented by [ * ] filed in the United States Patent and Trademark Office on September 8, 1994, and has the right to grant licenses under said Patent Rights; * Confidential treatment has been requested for marked portion WHEREAS, UFRFI desires to have the Patent Rights utilized in the public interest and is willing to grant a license thereunder, subject only to a royalty-free, non-exclusive license to be granted to the United States government, as required by law; WHEREAS, LICENSEE has represented to UFRFI to induce UFRFI to enter into this Agreement, that LICENSEE is familiar with the development, production, manufacture, marketing and sale of products similar to the "Licensed Product(s)" (as later defined herein) and/or the use of the "Licensed Process(es)" (as later defined herein) and that it shall commit itself to a thorough, vigorous and diligent program of exploiting the Patent Rights commercially so that public utilization and royalty income to UFRFI shall result therefrom; WHEREAS, LICENSEE desires to obtain a license from UFRFI under the Patent Rights upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein the parties hereto agree as follows: ARTICLE I - DEFINITIONS For the purposes of this Agreement, the following words and phrases shall have the following meaning: 1.1 "LICENSEE" shall mean all of the following: (a) a related company of LICENSEE, the voting stock of which is directly or indirectly at least fifty percent (50%) owned or controlled by LICENSEE; (b) an organization which directly or indirectly controls more than fifty percent (50%) of the voting stock of LICENSEE; (c) an organization, the majority ownership of which is directly or indirectly common to the ownership of LICENSEE. 1.2 "Patent Rights" shall mean all of the following UFRFI intellectual property: (a) the United States and foreign patents and/or patent applications listed in Exhibit A; (b) United States and foreign patents issued from the applications listed in Exhibit A and from divisionals and continuations of these applications; (c) U.S. continuation-in-part applications and foreign continuation-in-part applications, and the resulting patents, based on the U.S. and foreign applications listed in Exhibit A; (d) claims of all foreign patent applications, and of the resulting patents, which are directed to subject matter specifically described in the United 2 States patents and/or patent applications described in (a), (b), or (c) above; (e) any reissues of United States patents described in (a), (b), (c), or (d) above. 1.3 A "Licensed Product" shall mean any product or part thereof which: (a) is covered in whole or in part by an issued, unexpired claim or a pending claim contained in the Patent Rights in the country in which any Licensed Products is made, used or sold; (b) is manufactured by using a process which is covered in whole or in part by an issued, unexpired claim or a pending claim contained in the Patent Rights in the country in which any Licensed Process is used in which such product or part thereof is used or sold; (c) is derived from Patent Rights, Know-How (as later defined herein), and/or trade secrets related to or described in Patent Rights; (d) is sold, manufactured or used in any country under this Agreement. 1.4 A "Licensed Process" shall mean: (a) any process which is covered in whole or in part by an issued, unexpired claim or a pending claim contained in the Patent Rights; (b) is derived from Patent Rights, Know-How, and/or trade secrets related to or described in Patent Rights; (c) is sold, manufactured or used in any country under this Agreement. 1.5 "Net Sales" shall mean LICENSEE's billings, for Licensed Products and Licensed Processes produced hereunder invoiced to independent third parties less the sum of the following: [ * ] Licensed Products shall be considered "sold" when payment is received by LICENSEE. [ * ] * Confidential treatment has been requested for marked portion 3 1.6 "Know-How" shall mean any and all technical data, information, or knowledge which relate to the Licensed Product, the Licensed Process or the manufacture, marketing, registration, purity, quality, potency, safety, and efficacy of the Licensed Product or Licensed Process. 1.7 "University Inventions" shall mean individually and collectively all inventions, improvements and/or discoveries patentable or unpatentable, which are conceived and/or made by one or more employees of University. For the purposes of this Paragraph, the "making" of inventions shall be governed by U.S. laws of inventorship. 1.8 "Joint Inventions" shall mean individually and collectively all inventions, improvements and/or discoveries patentable or unpatentable, which are conceived and/or made jointly by personnel of University (including faculty and employees) and of LICENSEE. For the purposes of this Paragraph, the "making" of inventions shall be governed by U.S. laws of inventorship. 1.9 "University Patents" shall mean collectively and individually any and all United States and foreign patent applications and any and all issued United States Letters Patents and foreign patents owned by University which pertain to University Inventions under this Agreement. 1.10 "Joint Patents" shall mean collectively and individually any and all United States and foreign patent applications and any and all issued United States Letter Patents and foreign patents jointly owned by LICENSEE and University under this Agreement. 1.11 "Non-Affiliated Third Party Sublicensee" shall mean any sublicensee company or organization not related to or controlled by LICENSEE. 1.12 "Sublicense Income" shall mean the net royalties (including advanced royalties or "lump-sum" payments) actually received by LICENSEE from Non Affiliated Third Party Sublicensee under the license herein granted, after the deduction of all reasonable legal costs, documented by credible written evidence provided to UFRFI, actually incurred by LICENSEE in connection with the negotiation and procurement of the pertinent sublicenses. ARTICLE II- GRANT 2.1 UFRFI hereby grants to LICENSEE the right and license to make, have made, use, lease and sell the Licensed Products, and to practice the Licensed Processes throughout the world in any and all fields of use to the end of the term for which the Patent Rights are granted unless sooner terminated according to the terms 4 hereof, subject to the non-exclusive licensed granted to the United States Government. 2.2 In order to establish exclusivity for LICENSEE, UFRFI hereby agrees that it shall not grant any other license to make, have made, use, lease and sell Licensed Products or to utilize Licensed Processes throughout the world in any and all fields of use during the period of time commencing with the Effective Date of this Agreement and terminating with the expiration of this Agreement. 2.3 UFRFI reserves the right to practice under the Patent Rights for its own noncommercial research purposes. 2.4 LICENSEE shall have the right to enter into sublicensing agreements for the rights, privileges and licenses granted hereunder. However, Licensee shall notify UFRFI in writing of the initiation of license negotiations with all potential Non-Affiliated Third Party Sublicensees. 2.5 LICENSEE hereby agrees that every Non-Affiliated Third Party Sublicensee agreement to which it shall be a party and which shall relate to the rights, privileges and license granted hereunder shall contain a statement setting forth the date upon which LICENSEE's exclusive rights, privileges and license hereunder shall terminate. LICENSEE agrees that any sublicense granted hereunder shall provide that the obligations to UFRFI under Article I (Definitions), II (Grants), V (Reports and Records), VII (Infringement), VIII (Product Liability), IX (Export Controls), X (Non-Use of Names), XII (Term and Termination), XIV (Arbitration), and XV (Miscellaneous Provisions) of this Agreement shall be binding on upon the sublicensee as if it were a party to this Agreement. LICENSEE further agrees to attach copies of such Articles to each sublicense agreement. 2.6 LICENSEE agrees to forward to UFRFI a copy of any and all Non-Affiliated Third Party Sublicensee agreements within thirty (30) days of the execution of such sublicensee agreements and further agrees to forward to UFRFI annually a copy of such reports received by LICENSEE from its sublicensees during the preceding twelve (12) month period under the sublicenses as shall be pertinent to a royalty accounting under said sublicense agreements. 2.7 LICENSEE shall not receive from sublicensees anything of value in lieu of cash payments in consideration for any sublicense under this Agreement, without the express prior written permission of UFRFI. 2.8 The license granted hereunder shall not be construed to confer any rights upon LICENSEE by implication, estoppel or otherwise as to any technology not specifically set forth herein; provided, however, that LICENSEE shall have the exclusive right to negotiate with any Non-Affiliated Third Party Sublicensee in connection with Know-How resulting from any Licensed Product sublicensed by LICENSEE hereunder. 5 2.10 Any patent applications made or patents issued from Joint Inventions shall be filed in University's and LICENSEE's names, and the portion thereof not made by University personnel shall belong to LICENSEE and shall not be subject to the provisions of this Agreement. In determining royalty rates in licenses to such patent applications or patents resulting from the joint effort of LICENSEE and University, there shall be taken into consideration the relative contributions of the respective joint inventors of the invention. 2.11 Any controversy, dispute or claim arising out of, or relating to, any provisions of this Paragraph 2 which cannot otherwise be resolved by good faith negotiations between the parties shall be resolved by arbitration in accordance with the provisions of Article XIV of this Agreement. 2.12 LICENSEE agrees that for Licensed Products covered by Patent Rights that are subject to the non-exclusive royalty-free license to the United States government, such Licensed Products will be manufactured substantially in the United States, in accordance with applicable federal law. 2.13 LICENSEE further agrees that it shall abide by all rights and limitations of U.S. Code Title 35, Chapter 38, and implementing regulations thereof, for all patent applications and patents invented in whole or in part with federal money. ARTICLE III - DUE DILIGENCE 3.1 LICENSEE shall use diligent efforts to bring one or more Licensed Products or Licensed Processes to market through a thorough, vigorous and diligent program for exploitation of the Patent Rights to attain maximum commercialization of Licensed Products and Licensed Processes. 3.2 LICENSEE's failure to perform in accordance with Paragraph 3.1 above shall be grounds for UFRFI to terminate this Agreement pursuant to Paragraph 12.4 hereof. ARTICLE IV - ROYALTIES 4.1 For the rights, privileges and license granted hereunder, LICENSEE shall pay royalties to UFRFI in the manner hereinafter provided to the end of the term of the Patent Rights or until this Agreement shall be terminated as hereinafter provided: (a) An annual License Maintenance Fee payable commencing on January 1, 1999 and on January 1 of each year thereafter; provided, however, that such fee shall be waived for each year in which LICENSEE milestones for such year have been achieved. The LICENSEE milestones shall be the subject of mutual agreement and are attached hereto and incorporated herein by reference as Exhibit B. The first License Maintenance Fee shall be the sum of [ * ] Dollars ($[ * ]), and each successive License Maintenance Fee payable hereunder shall be increased by [ * * Confidential treatment has been requested for marked portion 6 * ] Dollars ($[ * ]) until the License Maintenance Fee is [ * ] Dollars ($[ * ]). Thereafter, the License Maintenance Fee shall be [ * ] Dollars ($[ * ]) per year during the remainder of the term of this Agreement. The License Maintenance Fee for a given year shall be creditable against any Running Royalties subsequently due during said year under subparagraph 4.1(b) below. (b) Running Royalty in an amount equal to [ * ] ([ * ]%) of the Net Sales of the Licensed Products of Licensed Processes used, leased or sold by or for LICENSEE. 4.2 In the event LICENSEE grants any sublicenses to Non-Affiliated Third Party Sublicensees during the term of this Agreement, then for each such sublicense, LICENSEE shall pay UFRFI an additional royalty at the rate of [ * ] percent ([ * ]%) of the Sublicense Income collected by LICENSEE under such sublicense. 4.3 No multiple royalties shall be payable because any Licensed Product, its manufacture, use, lease or sale are or shall be covered by more than one Patent Rights patent application or Patent Rights patent licensed under this Agreement. 4.4 Royalty payments shall be paid in United States dollars in Gainesville, Florida or at such other place as UFRFI may reasonably designate consistent with the laws and regulations controlling in any foreign country. If any currency conversion shall be required in connection with the payment of royalties hereunder, such conversion shall be made by using the exchange rate prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the calendar quarterly reporting period to which such royalty payments relate. 4.5 In the event the royalties set forth herein are higher than the maximum royalties permitted by the law or regulations of a particular country, the royalty payable for sales in such country shall equal to the maximum permitted royalty under such law or regulations. Notice of said event shall be provided to UFRFI. An authorized representative of LICENSEE shall notify UFRFI, in writing, within thirty (30) days of discovering that such royalties are approaching or have reached the maximum amount, and shall provide UFRFI with written documentation regarding the laws or regulations establishing such maximum. 4.6 In the event that any taxes, withholding or otherwise, are levied by any taxing authority in connection with accrual or payment of any royalties payable by LICENSEE under this Agreement, and LICENSEE determines in good faith that it must pay such taxes, LICENSEE shall have the right to pay such taxes to the local tax authorities on behalf of UFRFI and payment of the net amount due after reduction by the amount of such taxes, shall fully satisfy LICENSEE's royalty obligations under this Agreement. LICENSEE shall provide UFRFI with appropriate receipts or other documentation supporting such payment. LICENSEE * Confidential treatment has been requested for marked portion 7 shall inform UFRFI in writing, within thirty (30) days of notification that taxes will or have been levied by a taxing authority. ARTICLE V - REPORTS AND RECORDS 5.1 LICENSEE shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the amounts payable to UFRFI hereunder. Said books of account shall be kept at LICENSEE's principal place of business or the principal place of business of the appropriate division of LICENSEE to which this Agreement relates. Said books and the supporting data shall be open to inspection on behalf of UFRFI upon reasonable notice during reasonable business hours to the extent necessary for the purpose of verifying LICENSEE's royalty statement or compliance in other respects with this Agreement. Such inspection shall be made not more than often than once each calendar year at the expense of UFRFI by a Certified Public Accountant appointed by UFRFI and to whom LICENSEE has no reasonable objection. LICENSEE shall not be required to retain such records for more than five (5) years after the close of any calendar half-year. 5.2 LICENSEE, within forty-five (45) days after June 30 and December 31, of each year, shall deliver to UFRFI true and accurate reports, giving such particulars of the business conducted by LICENSEE and its sublicensees during the preceding six-month period under this Agreement as shall be pertinent to a royalty accounting hereunder. These shall include at least the following; (a) number of Licensed Products manufactured and sold. (b) total billings for Licensed Products sold. (c) accounting for all Licensed Processes used or sold. (d) deductions applicable as provided in Paragraphs 1.5 and 1.13. (e) total royalty due. (f) names and addresses of all sublicensees of LICENSEE. (g) A progress report on patent filings in each country, including the serial number, name of patent application, name of inventors and status of each patent application covering Licensed Products or Licensed Processes. 5.3 With each such report submitted, LICENSEE shall pay to UFRFI the royalties due and payable under this Agreement. If no royalties shall be due, LICENSEE shall so report. 5.4 The royalty payments, license fees, and reimbursement for patent-related expenses set forth in this Agreement shall, if overdue, bear interest until payment at the 8 monthly rate of one percent (1%). The payment of such interest shall not foreclose UFRFI from exercising any other rights it may have as a consequence of the lateness of any payment. 5.5 On or before the sixtieth (60th) day following the close of LICENSEE's fiscal year, LICENSEE shall provide UFRFI with an audited financial statement for the preceding fiscal year. ARTICLE VI - PATENT PROSECUTION 6.1 LICENSEE shall, in the name of the University of Florida, apply for, seek issuance of, and maintain during the term of this Agreement the Patent Rights in the United States and in foreign countries. The prosecution, filing and maintenance of all Patent Rights patents and applications shall be the primary responsibility of LICENSEE. LICENSEE shall seek patent extension for patents licensed under the Patent Rights in the United States and in such foreign countries as may be designated by LICENSEE, under such applicable laws and regulations throughout such countries, where such patent extension rights are available currently or are available in the future. LICENSEE shall keep University advised as to all developments with respect to the Patent Rights and shall supply to University copies of all correspondence and papers received in connection therewith within ten (10) business days of receipt or filing thereof. As required by law, LICENSEE must provide all correspondence to and advise UFRFI in a timely manner in order to permit UFRFI to comment on all actions before they are taken by LICENSEE's patent counsel. All final decisions with respect to prosecution of the Patent Rights are reserved to UFRFI, as required by law. 6.2 Payment of all fees and costs relating to the filing, prosecution, and maintenance of the Patent Rights shall be the responsibility of LICENSEE. 6.3 If LICENSEE directs that a patent application be filed on University Inventions, LICENSEE shall promptly prepare, file and prosecute a patent application or applications in the University's name, and/or any pertinent continuation, continuation-in-part and/or reissue application(s) thereof in the United States directed to such University Inventions. University shall thereafter assign all such University Inventions to UFRFI. LICENSEE shall bear all expenses incurred in connection with such preparation, filing and prosecution of U.S. and foreign patent application(s) and patents directed to University Inventions. UFRFI shall cooperate with LICENSEE to assure that such application or applications, and any such continuation, continuation-in-part and/or reissue application(s) thereof will cover, to the best of UFRFI's knowledge, all items of commercial interest and importance. LICENSEE shall keep UFRFI advised as to all developments with respect to such application or applications, and/or continuation, continuation-in-part and reissue application(s) and shall supply to UFRFI copies of all papers received within ten (10) business days of receipt and in sufficient time for UFRFI to comment thereon. UFRFI shall have the right to advise and 9 cooperate with LICENSEE in such prosecution, and such advice shall not be rejected unreasonably. All final decisions with respect to prosecution of said application(s), and said continuation, continuation-in-part and reissue applications, and selection of patent counsel are reserved to UFRFI. 6.4 If LICENSEE elects not to exercise its option(s) pursuant to this Agreement, or decides to discontinue the financial support of the prosecution or maintenance of the protection of the Patent Rights in the United States and in foreign countries, or is grossly negligent in its prosecution or maintenance of the protection thereof, UFRFI shall be free to file or continue prosecution or maintain any such application(s), and to maintain any protection issuing thereon in the U.S. and in any foreign country at UFRFI's sole expense. ARTICLE VII - INFRINGEMENT 7.1 LICENSEE shall inform UFRFI promptly in writing of any alleged infringement of the Patent Rights by a third party and of any available evidence thereof. 7.2 During the term of this Agreement, UFRFI shall have the right, but shall not be obligated, to prosecute at its own expense any such infringements of Patent Rights. If UFRFI prosecutes any such infringement, LICENSEE agrees that UFRFI may include LICENSEE as a co-plaintiff in any such suit, without expense to LICENSEE. The total cost of any such infringement action commenced or defended solely by UFRFI shall be borne by UFRFI and UFRFI shall keep any recovery or damages for past infringement derived therefrom. 7.3 If within three (3) months after having been notified of any alleged infringement or such shorter time proscribed by law, UFRFI shall have been unsuccessful in persuading the alleged infringer to desist and shall not have brought and shall not be diligently prosecuting an infringement action, or if UFRFI shall notify LICENSEE at any time prior thereto of its intention not to bring suit against any alleged infringer, then, and in those events only, LICENSEE shall have the right, but shall not be obligated, to prosecute at its own expense any infringement of the Patent Rights, and LICENSEE may, for such purposes, use the name of UFRFI as party plaintiff; provided, however, that such right to bring an infringement action shall remain in effect only for so long as the license granted herein remains exclusive. No settlement, consent judgment or other voluntary final disposition of the suit may be entered into without the consent of UFRFI, which consent shall not unreasonably be withheld; provided, however, that LICENSEE shall indemnify UFRFI against any order for costs that may be made against UFRFI in such proceedings, in accordance with this Paragraph. 7.4 In the event that LICENSEE shall undertake the enforcement and/or defense of the Patent Rights by litigation, LICENSEE may withhold up to fifty percent (50%) of the royalties otherwise thereafter due UFRFI hereunder and apply the same toward reimbursement of its expenses, including reasonable attorneys' fees, in connection therewith. Said withholding of royalties shall begin no earlier than 10 the date LICENSEE first receives a bill for professional services or expenses associated with the enforcement and/or defense of the Patent Rights. Any recovery of damages by LICENSEE for any such suit shall be applied first in satisfaction of any unreimbursed expenses and legal fees of LICENSEE relating to the suit, and next toward reimbursement of UFRFI for any royalties past due or withheld with interest and applied pursuant to this Article VII. 7.5 In the event that a declaratory judgment action alleging invalidity or noninfringement of any of the Patent Rights shall be brought against LICENSEE, UFRFI, at its option, shall have the right, within thirty (30) days after commencement of such action, to intervene and take over the sole defense of the action at its own expense. 7.6 In any infringement suit as either party may institute to enforce the Patent Rights pursuant to this Agreement, the other party hereto shall, at the request and expense of the party initiating such suit, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens, and the like. ARTICLE VIII - PRODUCT LIABILITY 8.1 LICENSEE shall at all times during the term of this Agreement and thereafter, indemnify, defend and hold UFRFI and the University, their trustees, officers, employees and affiliates, harmless against all claims and expenses, including legal expenses and reasonable attorneys' fees whether arising from a third party claim or resulting from UFRFI's enforcing this indemnification clause against LICENSEE, or arising out of the death of or injury to any person or persons or out of any damage to property and against any other claim, proceeding, demand, expense and liability of any kind whatsoever resulting from the production, manufacture, sale, use, lease, consumption or advertisement of the Licensed Product(s) and/or Licensed Process(es) or arising from any obligation of LICENSEE hereunder. LICENSEE's indemnification under this Paragraph 8.2 shall not apply to any liability, damage, loss or expense to the extent that it is attributable to the intentional wrongdoing or intentional misconduct of UFRFI and the University, their trustees, officers, employees and affiliates. 8.2 In the event any such action is commenced or claim made or threatened against UFRFI or other indemnitees whom LICENSEE is obligated to indemnify or hold harmless, UFRFI or the other indemnitees shall promptly notify LICENSEE of such event. LICENSEE shall have the right to participate in the defense of that part of any such claim or action commenced or made against UFRFI (or other indemnitees) which relates to LICENSEE's indemnification, and LICENSEE shall not be liable to UFRFI or other indemnitees in account of any settlement of any such claim or litigation affected without LICENSEE's consent, which consent shall not be unreasonably withheld or delayed. 11 8.3 LICENSEE shall obtain and carry in full force and effect liability insurance which shall protect LICENSEE and UFRFI in regard to events covered by Paragraph 8.1 above. 8.4 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, UFRFI MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING. ARTICLE IX - EXPORT CONTROLS LICENSEE hereby agrees that it shall not sell, transfer, export or reexport any Licensed Products or Licensed Processes or related information in any form, or any direct products of such information, except in compliance with all applicable laws, including the export laws of any U.S. government agency and any regulations thereunder, and will not sell, transfer, export or reexport any such Licensed Products or Licensed Processes or information to any persons or any entities with regard to which there exist grounds to suspect or believe that they are violating such laws. LICENSEE shall be solely responsible for obtaining all licenses, permits or authorizations required from the U.S. and any other government for any such export or reexport. To the extent not inconsistent with this Agreement, UFRFI agrees to provide LICENSEE with such assistance as it may reasonably request in obtaining such licenses, permits or authorization. ARTICLE X - NON-USE OF NAMES LICENSEE shall not use the names of the University of Florida or University of Florida Research Foundation, Inc. nor of any of either institution's employees, nor any q M adaptation thereof, in any advertising, promotional or sales literature without prior written consent obtained from UFRFI in each case, except that LICENSEE may state that it is licensed by UFRFI under one or more of the patents and/or applications comprising the Patent Rights. ARTICLE XI- ASSIGNMENT This Agreement is not assignable and any attempt to do so shall be void except in the case of a transfer of substantially all of the assets of one of the parties hereto. This Agreement shall bind the parties, their successors resulting from merger, and their permitted assigns. ARTICLE XII - TERM AND TERMINATION 12.1 Unless earlier terminated as hereinafter provided, this Agreement shall remain in full force and effect until the last to expire of any patent claim included in the Licensed Products. 12.2 If LICENSEE shall cease to carry on its business, this Agreement shall terminate upon notice by UFRFI. 12 12.3 Should LICENSEE fail to pay UFRFI royalties due and payable hereunder, UFRFI shall have the right to terminate this Agreement on thirty (30) days' notice, unless LICENSEE shall pay UFRFI within the thirty (30) day period, all such royalties and interest due and payable. Upon the expiration of the thirty (30) days period, if LICENSEE shall not have paid all such royalties and interest due and payable, the rights, privileges and license granted hereunder shall terminate. 12.4 Upon any material breach or default of this Agreement by LICENSEE, other than those occurrences set out in Paragraphs 12.2 and 12.3 hereinabove, which shall always take precedence in that order over any material breach or default referred to in this Paragraph 12.4, UFRFI shall have the right to terminate this Agreement and the rights, privileges and license granted hereunder by ninety (90) days' notice to LICENSEE. Such termination shall become effective unless LICENSEE shall have cured any such breach or default prior to the expiration of the ninety (90) day period. If UFRFI terminates this Agreement pursuant to the terms hereof, the Research Agreement shall concurrently terminate on the effective date of termination of this Agreement, and the Research Agreement shall be terminated in accordance with Paragraph 4.2 and Article X of the Research-Agreement. 12.5 LICENSEE shall have the right to terminate this Agreement at any time on six (6) months' written notice to UFRFI, and upon payment of all amounts due UFRFI through the effective date of the termination. 12.6 UFRFI may terminate this Agreement upon the occurrence of the third separate default by LICENSEE within any consecutive three (3) year period for failure to pay royalties when due. 12.7 Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. LICENSEE and any sublicensee thereof may, however, after the effective date of such termination, sell all Licensed Products, and complete Licensed Products in the process of manufacture at the time of such termination and sell the same, provided that LICENSEE shall pay to UFRFI the royalties thereon as required by Article IV of this Agreement and shall submit the reports required by Article V hereof on the sales of Licensed Products. 12.8 Upon termination of this Agreement for any reason, any sublicensee not then in default shall have the right to seek a license from UFRFI. 12.9 BANKRUPTCY. (a) Notice of Assumption of Rejection. (i) In the event that either party files or has filed against it a petition under the Federal Bankruptcy Code (11 U.S.C. Sections 1, et seq.) (the "Bankruptcy Code"), is adjudged bankrupt, or files or has filed 13 against it a petition for reorganization or arrangement under any law relating to bankruptcy or similar laws for the protection of debtors, whether under the laws of the United States and its political subdivisions or otherwise, such party shall (1) notify the other party thereof within ten (10) days after the filing of such petition or such adjudication, and (2), within thirty (30) days after the filing of such petition, shall notify the other party of the party's assumption or rejection of this Agreement, and shall file a petition with the appropriate court for approval of all other action as may be necessary to obtain the approval of such petition and of such assumption of rejection. (ii) If such party does not: (1) within thirty (30) days after the occurrence of any of the foregoing events, notify the other party of its assumption or rejection of this Agreement or file the petition, or (2) thereafter diligently take all other action necessary for the approval of the foregoing petition or of such assumption or rejection, such party shall be deemed to have rejected this Agreement. Each party acknowledges that, for purposes of Section 365 of the Bankruptcy Code and similar provisions of any other or future similar laws relating to any party's assumption or rejection of any executory contract, a period of thirty (30) days after the date of any filing or adjudication described above shall constitute a reasonable time in which such party shall assume or reject this Agreement and a party shall be deemed to have not diligently taken all action necessary for the approval of the foregoing petition or of such assumption or rejection if such petition, assumption or rejection is not approved by the appropriate court within sixty (60) days after the filing of the petition for such assumption or rejection. (b) Conditions to Assumption. No election by any party, or any successor-in-interest to such party, to assume this Agreement as contemplated by paragraph (a) above shall be effective unless each of the following conditions, each of which each party acknowledges is commercially reasonable in the context of a bankruptcy or similar proceeding, has been satisfied by such party and each of the other parties has acknowledged such satisfaction in writing: (1) CURE. Such party has cured, or has provided the other party adequate assurances that: (A) Monetary Defaults. Within ten (10) days from the date of such assumption such party will cure all monetary defaults under this Agreement; and 14 (B) Non-Monetary Defaults. Within thirty (30) days from the date of such assumption such party will cure all non-monetary defaults under this Agreement. (2) PECUNIARY LOSS. Such party has compensated or has provided to the other party adequate assurances that within ten (10) days from the date of assumption the other party will be compensated for any pecuniary loss incurred by the party arising from any default of such party under this Agreement prior to the assumption. (3) FUTURE PERFORMANCE. Such party has provided the other party with adequate assurances of the future performance of such party's obligations under this Agreement. (c) Termination. This Agreement shall terminate upon the rejection of this Agreement as contemplated by this Paragraph by any party or successor-in-interest thereto. (d) No Transfer. Neither any party's interest in this Agreement nor any portion thereof shall pass to any trustee, receiver, or assignee for the benefit of creditors, or any other person or entity or otherwise by operation of law under the Bankruptcy Code or the insolvency laws of any state having jurisdiction of the person or property of such party unless the other party shall consent to such transfer in writing. ARTICLE XIII - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS Any payment, notice or other communication pursuant to this Agreement shall be sufficiently made or given on the date of mailing if sent to such party by certified first class mail, postage prepaid, addressed to it at its address below or as it shall designate by written notice given to the other party: In the case of UFRFI: President University of Florida Research Foundation, Inc. 223 Grinter Hall Gainesville, Florida 32611 With copy to: 15 Director Office of Patent, Copyright and Technology Licensing 186 Grinter Hall Gainesville, Florida 32611 16 All payments to: Director Office of Patent, Copyright and Technology Licensing 186 Grinter Hall Gainesville, Florida 32611 PLEASE MAKE ALL CHECKS PAYABLE TO: UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC. In the case of LICENSEE: President Apollo Genetics, Inc. 222 Third Street Cambridge, Massachusetts 02142 With copy to: Bromberg & Sunstein 10 West Street Boston, Massachusetts 02111 ARTICLE XIV - ARBITRATION 14.1 Any controversy or claim arising out of, or relating to, any provisions of this Agreement or the breach thereof which cannot otherwise be resolved by good faith negotiations between the parties shall be resolved by final and binding arbitration under the rules of the American Arbitration Association, or the Patent Arbitration Rules if applicable, then obtaining. 14.2 Notwithstanding the foregoing, nothing in this Article XIV shall be construed to waive any rights or timely performance of any obligations existing under this Agreement. ARTICLE XV - MISCELLANEOUS PROVISIONS 15.1 The parties hereto acknowledge that this Agreement sets forth the entire Agreement and understanding of the parties hereto as to the subject matter hereof, and shall not be subject to any change of modification except by the execution of a written instrument subscribed to by the parties hereto. 15.2 The provisions of this Agreement are severable, and in the event that any provisions of this Agreement shall be determined to be invalid or unenforceable 17 under any controlling body of the law, such invalidity or unenforceability shall not in any way affect the validity or enforceability of the remaining provisions hereof. 15.3 LICENSEE agrees to mark the Licensed Products sold in the United States with all applicable United States patent numbers. All Licensed Products shipped to or sold in other countries shall be marked in such a manner as to conform with the patent laws and practice of the country of manufacture or sale. 15.4 The failure of either party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other party. 15.5 The parties adopt and incorporate Article VII, the confidentiality section of the attached Research Agreement, as though incorporated herein. 15.6 For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party. 15.7 This Agreement may be signed in counterparts which collectively shall constitute a single agreement. 15.8 Neither party shall be in breach hereof by reason of its delay in the performance of or failure to perform any of its obligations hereunder, if that delay or failure is caused by strikes, acts of God or the public enemy, riots, incendiaries, interference by civil or military authorities, compliance with governmental priorities for materials, or any fault beyond its control or without its fault or negligence. 15.9 The parties each, at any time or from time to time, shall execute and deliver or cause to be delivered such further assurances, instruments or documents as may be reasonably necessary to fulfill the terms and conditions of this Agreement. 18 IN WITNESS WHEREOF, the parties have hereunto set their hands and seals and duly executed this Agreement the day and year set forth below. UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC. By /s/ Karen A. Holbrook --------------------------- Name Karen A. Holbrook, Ph.D ------------------------- Title President ------------------------ Date 9/14/94 ------------------------ APOLLO GENETICS, INC. By /s/ Katherine Gordon --------------------------- Name Katherine Gordon. PhD ------------------------- Title President ------------------------ Date 9/8/94 ------------------------- 19 Exhibit A UNITED STATES AND FOREIGN PATENTS AND/OR APPLICATIONS [ * ] * Confidential treatment has been requested for marked portion 20 Exhibit B LICENSEE MILESTONES Year [ * ] * Confidential treatment has been requested for marked portion 21 EX-10.12 17 EXHIBIT 10.12 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT ("Agreement") made and entered into by and between Apollo Genetics, Incorporated (the "Company"), a Delaware corporation with its principal place of business at 222 Third Street, Suite 3121, Cambridge, Massachusetts, and Katherine Gordon (the "Executive"), who resides at 395 Broadway Street, Cambridge, Massachusetts, effective as of the 1st day of November, 1993 (the "Effective Date"). WHEREAS, the operations of the Company and its Affiliates are a complex matter requiring direction and leadership in a variety of arenas, including financial, strategic planning, regulatory, community relations and others; WHEREAS, the Executive is possessed of certain experience and expertise that qualify her to provide the direction and leadership required by the Company and its Affiliates; and WHEREAS, subject to the terms and conditions hereinafter set forth, the Company therefore wishes to employ the Executive as its President and Chief Executive Officer and the Executive wishes to accept such employment; NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms, provisions and conditions set forth in this Agreement, the parties hereby agree: 1. EMPLOYMENT. Subject to the terms and conditions set forth in this Agreement, the Company hereby offers and the Executive hereby accepts employment. 2. TERM. Subject to earlier termination as hereafter provided, this Agreement shall have an original term of three (3) years commencing on the effective date hereof and shall be automatically extended thereafter for successive terms of two (2) years each, unless either party provides notice to the other at least ninety (90) days prior to the expiration of the original or any extension term that the Agreement is not to be extended. The term of this Agreement, as from time to time extended or renewed, is hereafter referred to as "the term of this Agreement" or "the term hereof". 3. CAPACITY AND PERFORMANCE. a. During the term hereof, the Executive shall serve the Company as its President, Chief Executive Officer and a Director 1 of the corporation. b. During the term hereof, the Executive shall be employed by the Company on a full-time basis and shall have all powers and duties consistent with such positions, subject to the direction of the Board. c. During the term hereof, the Executive shall devote her full business time and her best efforts, business judgment, skill and knowledge exclusively to the advancement of the business and interests of the Company and its Affiliates and to the discharge of her duties and responsibilities hereunder. 4. COMPENSATION AND BENEFITS. a. BASE SALARY. During the term hereof, the Company shall pay the Executive a base salary at the annual rate of $100,000 plus such other amounts, if any, as the Board of Directors of the Company, in its sole discretion, may from time to time determine. The Executive's base salary shall be reviewed annually; provided, however, that in no event shall Executive's base salary be reduced below an annual rate of $100,000. Executive's salary shall be payable in bi-weekly installments or at such other frequency as the Company may from time to time determine for its senior executive officers as a group. b. BONUS COMPENSATION. In addition to her base salary, the Executive shall receive a cash bonus to be awarded at the discretion of the Board of Directors. Issuance of the bonus shall be evaluated by the Board of Directors at least on an annual basis. c. STOCK OPTIONS. Executive shall be eligible to receive stock options as the Board of Directors shall determine at its sole discretion. d. BUSINESS EXPENSES. The Company shall pay or reimburse the Executive for all reasonable business expenses incurred or paid by the Executive in the performance of her duties and responsibilities hereunder, subject to any maximum annual limit and other restrictions on such expenses set by the Board and to such reasonable substantiation and documentation as may be specified by the Company from time to time. e. INSURANCE. The Company shall provide the Executive with, and pay the cost of, health, dental, life, and disability insurance as is generally made available to employees at levels similar to Executive's. f. VACATIONS. During the term hereof, the Executive shall be entitled to four (4) weeks of vacation per annum, to be taken at such times and intervals as shall be determined by the Executive, subject to the reasonable business needs of the Company. One week of non-utilized vacation time may be carried 2 over into the next year. The Executive shall be entitled to cash compensation for one week of vacation time not taken during a given year. g. OTHER BENEFITS. All other benefits offered to employees of the Company, including but not excluded to, paid vacations at designated holidays, shall be provided to the Executive. 5. TERMINATION. Notwithstanding the provisions of Section 2 hereof, the Executive's employment hereunder shall terminate prior to the expiration of the term under the following circumstances: a. DEATH. In the event of the Executive's death during the term hereof, the Executive's employment hereunder shall immediately and automatically terminate. In the event of the Executive's death during the term hereof, the Company shall pay to the Executive's designated beneficiary any earned and unpaid Base Salary, pro-rated through the date of her death. b. DISABILITY. i. The Company may terminate the Executive's employment hereunder through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of her duties and responsibilities hereunder for ninety (90) consecutive days during any period of three hundred and sixty-five (365) calendar days. Severance provisions of Section 5.d shall apply. ii. The Board may designate another employee to act in the Executive's place during any period of the Executive's disability. Notwithstanding any such designation, the Executive shall continue to receive the Base Salary in accordance with Section 4.a and benefits in accordance with Section 4.b - 4.g, to the extent permitted by the then-current terms of the applicable benefit plans, until the Executive becomes eligible for disability income benefits under the Company's disability income plan or until the termination of her employment, whichever shall first occur. iii. While receiving disability income payments under the Company's disability income plan, the Executive shall not be entitled to receive any Base Salary under Section 4.a hereof, but shall continue to participate in Company benefit plans in accordance with Section 4.b - 4.g and the terms of such plans, until the termination of her employment. iv. While receiving disability income payments under the Company's disability income plan and for as long as the Executive remains employed by the Company, the Company shall pay to the Executive the difference between 60% of her Base Salary at the time the disability is incurred and the disability income 3 benefits. This shall continue for the duration of the disability payments or until such time as employment is terminated. c. BY THE COMPANY FOR CAUSE. The Company may terminate the Executive's employment hereunder for Cause at any time upon notice to the Executive setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination: i. Willful failure to perform, or gross negligence in the performance of, the Executive's duties and responsibilities to the Company and its Affiliates; ii. Fraud, embezzlement or other material dishonesty with respect to the Company or any of its Affiliates; iii. Conviction of, or plea or nolo contendere to, a felony or other crime involving moral turpitude. Upon the giving of notice of termination of the Executive's employment hereunder for Cause, the Company shall have no further obligation of liability to the Executive, other than for Based Salary and other benefits under this Agreement earned and unpaid at the date of termination. d. BY THE COMPANY OTHER THAN FOR CAUSE. The Company may terminate the Executive's employment hereunder other than for Cause at any time upon notice to the Executive. In the event of such termination, the Company shall continue to pay the Executive the Base Salary at the rate in effect on the date of termination for a period of one year and shall continue to contribute to the cost of the Executive's participation in the Company's health, dental, life and disability insurance plans, provided that the Executive is entitled to continue such participation under applicable law and plan terms. Notice by the Company that the Agreement is not to be extended as per Section 2 shall constitute termination by the Company other than for cause. e. BY THE EXECUTIVE FOR GOOD REASON. The Executive may terminate her employment hereunder for Good Reason, upon notice to the Company setting forth in reasonable detail the nature of such Good Reason. The following shall constitute Good Reason for termination by the Executive: i. Failure of the Company to continue the Executive in the position of President and Chief Executive Officer; ii. Material diminution in the nature or scope of the Executive's responsibilities, duties or authority; iii. Material failure of the Company to provide the Executive the Based Salary and benefits in accordance with the terms of Section 4 hereof. 4 In the event of termination in accordance with this Section 5.e, the Company shall continue to pay the Executive the Base Salary at the rate in effect of the date of termination for a period of one year and shall continue to contribute to the cost of the Executive's participation in the Company's health, dental, life and disability insurance plans, provided that the Executive is entitled to continue such participation under applicable law and plan terms. g. UPON CHANGE OF CONTROL. iv. If a Change of Control occurs (as defined in Section 5.g.ii) and, within two years following such Change of Control, the Company terminates the Executive's employment other than for Cause, or the Executive terminates her employment for Good Reason, then, in lieu of any payments to or on behalf of the Executive under Section 5.d or 5.e hereof, the Company (A) shall pay the Executive, within ten business days of such termination, a lump sum payment equal to two and a half (2.5) times the sum of the Base Salary in effect at the date of such termination; and (B) shall pay the full cost of the Executive's continued participation in the Company's health, dental, life, and disability insurance plans for two and a half (2.5) years so long as the Executive remains entitled to continue such participation under applicable law. v. A change of control ("Change of Control") shall be deemed to take place if hereafter (A) any Person or "group", other than the Company or any of its Affiliates, becomes a beneficial owner, directly or indirectly, of securities representing fifty percent (50%) or more of the total number of votes that may be cast for the election of directors of the Company; or (B) any merger or consolidation takes place involving the Company or any sale of all or substantially all of the assets of the Company or any combination of the foregoing in which the Company is not the surviving entity. vi. The Company shall promptly reimburse the Executive for the amount of all reasonable attorneys' fees and expenses incurred by the Executive in seeking to obtain or enforce any right or benefit provided the Executive under this Section 5.g. 6. CONFIDENTIALITY . a. Beginning on the Effective Date, and at any time hereafter, the Executive shall treat as confidential any proprietary, confidential or secret information relating to the business or interests of the Company or any Affiliate of the Company, including, without limitation, the organizational structure, operations, business plans or technical projects of the Company or any subsidiary or Affiliate of the Company, and any research data or result, invention, trade secret, customer list, process or other work product developed by or for the 5 Company or any subsidiary or Affiliate of the Company, whether on the premises of the Company or elsewhere ("Confidential Information"). Beginning on the Effective Date, and at any time hereafter, the Executive shall not disclose, utilize or make accessible in any manner or in any form any Confidential Information other than in connection with performing the services required of her under this Agreement, without the prior written consent of the Company. Notwithstanding the foregoing, the provisions of this Section 6.a shall not apply to any proprietary, confidential or secret information or other research data or result, invention, trade secret, customer list or work product which is, at the commencement of this Agreement or at some later date, publically known under circumstances involving no breach of this Agreement or is lawfully and in good faith made available to Executive by a third party under no obligation of confidentiality with respect thereto. b. All documents, records, apparatus, equipment and other physical property furnished to Executive by the Company or produced by Executive or others in connection with her employment shall be and remain the sole property of the Company. Executive shall return and deliver such property to the Company as and when requested by the Company. c. Executive agrees that the provisions of this Section 6 shall survive the termination of this employment and of this Agreement. 7. ASSIGNMENT OF RIGHTS TO INTELLECTUAL PROPERTY. Executive hereby agrees that any and all information, inventions and discoveries, whether or not patentable, that she conceives and/or creates using the term hereof and any extensions thereof, and which are a direct or indirect result of work performed hereunder, shall be the sole and exclusive property of the Company. Executive hereby assigns to the Company any and all right, title and interest which she has or may acquire in the same. Executive further agrees that she will promptly execute any and all applications, assignments or other instruments which any officer of the Company or the Board of Directors of the Company shall deem necessary or useful in order to apply for and obtain Letters Patent in the United States and all foreign countries for said information, inventions and discoveries and in order to assign and convey to the Company the sole and exclusive right, title, and interest in and to said information, inventions, discoveries, patent applications and patents thereon. The Company shall bear the cost of preparation of all such patent applications and assignments, and the cost of prosecution of all such patent applications in the United States patent office and in the patent offices of foreign countries. 8. NON-COMPETITION. 6 a. Executive agrees that, during the period she is employed by the Company or any Affiliate of the Company, under this Agreement or otherwise, she will not engage in, or otherwise directly or indirectly be employed by, or act as a consultant, advisor or lender to, or be a director, officer, employee, stockholder, owner or partner of, any other business or organization, whether or not such business or organization now is or shall then be competing with the Company or Affiliate of the Company; provided, however, that Executive shall not be prohibited either from managing her own personal investments on her own personal time or from serving on up to two (2) outside boards of directors or advisory boards, so long as such activities do not (i) involve a business or organization which competes with the Company or any Affiliate of the Company, (ii) interfere or conflict with the performance of her duties as an employee of the Company or any subsidiary or Affiliate of the Company, (iii) otherwise result in a breach of any of the provisions of this Agreement, or (iv) in the case of serving as a director or advisory board member of other-companies, such activities for all such companies do not require, in the aggregate, more than ten (10) days per year, including travel time. Executive further agrees that if her employment with the Company is terminated by the Company pursuant to Section 5 hereof, or resigns or otherwise fails or refuses to perform the services required of her under this Agreement other than as a result of a breach of this Agreement by the Company (which breach is not cured within thirty (30) days after receiving notice thereof), then during the two-year period commencing on the date she ceases to be employed by the Company or any Affiliate of the Company, under this Agreement or otherwise, Executive shall not directly or indirectly compete with or be engaged in the same business as the Company its Affiliates, or be employed by, or act as consultant, advisor or lender to, or be a director, officer, employee, stockholder, owner or partner of, any business or organization which, at the time of such cessation, directly or indirectly competes with or is engaged in the same business as the Company or any subsidiary or Affiliate of the Company; PROVIDED, HOWEVER, that if Executive's employment with the Company is terminated pursuant to Section 5 hereof, Executive's obligations pursuant to this sentence shall continue only so long as the Company pays Executive compensation at the same rate compensation was being paid to her pursuant to Section 4.a of this Agreement at the time of such termination. b. Executive agrees that for a period of three years from the termination of this Agreement she will not, directly or indirectly, employ or solicit the employment or engagement by others of any employees of, or consultants hired by, the Company, or any subsidiary or Affiliate of the Company, without the prior written consent of the Company, unless such person ceased to be employed or engaged by the Company or its subsidiary or Affiliate at least four (4) months prior to the solicitation. 7 9. REPRESENTATIONS AND WARRANTIES. Executive represents and warrants to the Company that (i) Executive is under no contractual or other restriction or obligation which is inconsistent with the execution of this Agreement, the performance of her duties hereunder or the other rights of the Company and any subsidiary or Affiliate of the Company hereunder, and (ii) Executive is under no physical or mental disability that would hinder the performance by her of her duties under this Agreement. 10. ASSIGNMENT. Neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other; provided, however, that the Company may assign its rights and obligations under this Agreement without the consent of the Executive Clothe event that the Company shall hereafter affect a reorganization, consolidate with, or merge into, any other Person or transfer all or substantially all of its properties or assets to any other Person. This Agreement shall inure to the benefit of and be binding upon the Company and the administrators, heirs and permitted assigns. 11. SEVERABILITY. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 12. WAIVER. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 13. NOTICES. Any and all notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, registered or certified, and addressed to the Executive at her last known address on the books of the Company or, in the case of the s Company, at its principal place of business, or to such other address as either party may specify by notice to the other. 8 14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties and supersedes all prior communications, agreements and understandings, written or oral, with respect to the terms and conditions of the Executive's employment. 15. AMENDMENT. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a expressly authorized representative of the Company. 16. HEADINGS. The headings and captions in-this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement. 17. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 18. GOVERNING LAW. This is a Massachusetts contract and shall be construed and enforced under and be governed in all respects by the laws of the Commonwealth of Massachusetts, without regard to the conflict of laws principles thereof. 9 IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Executive, as of the date first above written. THE EXECUTIVE: THE COMPANY: /s/ Katherine Gordon By: /S/ Alan Gelband - -------------------------- -------------------------------- Title: Chief Financial Officer -------------------------------- 10 EX-11 18 EXHIBIT 11 EXHIBIT 11 APOLLO BIOPHARMACEUTICS, INC. STATEMENT RE: COMPUTATION OF LOSS PER SHARE Year ended Nine months ended December 31, September 30, ---------------- ----------------- 1995 1994 1996 1995 ---- ---- ---- ---- (unaudited) Net loss ................... $(392,149) $(523,007) $(222,912) $(305,906) --------- --------- --------- --------- --------- --------- --------- --------- Weighted average common shares outstanding......... 3,130,068 3,005,959 3,531,000 2,994,941 "Cheap" stock issued November 30, 1995 to December 20, 1996.......... 654,555 654,555 654,555 654,555 --------- --------- --------- --------- 3,784,623 3,660,514 4,185,555 3,649,496 --------- --------- --------- --------- --------- --------- --------- --------- Net loss per share.......... $(.10) $(.14) $(.05) $(.08) ------ ------ ------ ----- ------ ------ ------ ----- EX-23.1 19 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to inclusion in this Registration Statement on Form SB-2 of our report dated July 15, 1996 (with respect to Note A December 20, 1996). We also consent to the reference to our firm under the caption "Experts" in the Prospectus. RICHARD A. EISNER & COMPANY, LLP Cambridge, Massachusetts December 20, 1996 EX-27 20 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S AUDITED FINANCIAL STATEMENTS AND NOTES THERETO, DATED DECEMBER 20, 1996 WITH RESPECT TO NOTE A, AND DATED JULY 15, 1996 OTHERWISE, FOR THE FISCAL YEAR ENDING DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR 9-MOS DEC-31-1995 DEC-31-1996 JAN-01-1995 JAN-01-1996 DEC-31-1995 SEP-30-1996 247 374 0 0 0 0 0 0 0 0 247 486 0 0 0 0 248 492 162 176 204 0 0 0 0 0 1,229 1,886 (1,347) (1,570) 248 492 0 0 3 0 0 0 364 370 1 1 0 0 31 30 (392) (223) 0 0 0 0 0 0 0 0 0 0 (392) (223) (.10) (.05) (.10) (.05)
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