-----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, QSSOlMCVaBguNCXEcvew0z/m7dXontF5wERdxQk+H/0+FbqALLkWQQm8ai8UiS+Z y/+YaExtzU2fl++tqWQGtw== 0000936392-97-001664.txt : 19971216 0000936392-97-001664.hdr.sgml : 19971216 ACCESSION NUMBER: 0000936392-97-001664 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19971215 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLERGAN SPECIALTY THERAPEUTICS INC CENTRAL INDEX KEY: 0001049711 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 330779207 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-40503 FILM NUMBER: 97738552 BUSINESS ADDRESS: STREET 1: 2525 DUPONT DRIVE CITY: IRVINE STATE: CA ZIP: 92612 BUSINESS PHONE: 7142466912 MAIL ADDRESS: STREET 1: 2525 DUPONT DRIVE CITY: IRVINE STATE: CA ZIP: 92612 S-1/A 1 S-1/A 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1997 REGISTRATION NO. 333-40503 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ ALLERGAN SPECIALTY THERAPEUTICS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 2834 33-0779207 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) ORGANIZATION)
2525 DUPONT DRIVE IRVINE, CA 92612 (714) 752-4500 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) LESTER J. KAPLAN, PH.D. PRESIDENT AND CHIEF EXECUTIVE OFFICER ALLERGAN SPECIALTY THERAPEUTICS, INC. 2525 DUPONT DRIVE IRVINE, CA 92612 (714) 246-6301 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: THOMAS A. COLL, ESQ. FRANCIS R. TUNNEY, JR., ESQ. MICHAEL R. JACOBSON, ESQ. ALLERGAN, INC. JANE K. ADAMS, ESQ. 2525 DUPONT DRIVE COOLEY GODWARD LLP IRVINE, CA 92612 4365 EXECUTIVE DRIVE, SUITE 1100 (714) 752-4500 SAN DIEGO, CA 92121 (619) 550-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE =========================================================================================================== TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM AMOUNT OF OF SECURITIES TO BE TO BE AGGREGATE OFFERING REGISTRATION REGISTERED REGISTERED(1) PRICE(2) FEE - ----------------------------------------------------------------------------------------------------------- Class A Common Stock, $.01 par value........... 3,300,000 shares $200,000,000 $60,607 ===========================================================================================================
(1) Based on an estimate of the maximum number of shares issuable in connection with the distribution described herein. (2) Calculated for the purpose of calculating the registration statement fee pursuant to Rule 457(f)(2) under the Securities Act of 1933 based on the adjusted book value of the Class A Common Stock of the Registrant after giving effect to the distribution described herein. No consideration will be paid by the recipients of the securities. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 LOGO , 1998 Dear Stockholder: I am pleased to send you the attached Prospectus concerning Allergan Specialty Therapeutics, Inc. ("ASTI") and notify you of the special distribution of shares of ASTI Class A Common Stock to the holders of Common Stock of Allergan, Inc. Holders of Allergan Common Stock at the close of business on , 1998, the record date for this distribution, will receive one share of ASTI Class A Common Stock (an "ASTI Share") for each 20 shares of Allergan Common Stock held. The distribution is expected to occur on or about , 1998. The ASTI Shares will be held in "book-entry" form, although stock certificates will be available upon request. First Chicago Trust Company of New York is acting as distribution agent and will be responsible for making book-entry credits to holders of record on the record date and for mailing stock certificates to ASTI stockholders upon request. Application has been made for the ASTI Class A Common Stock to be quoted on the Nasdaq National Market under the symbol "ASTI." ASTI has been formed by Allergan to conduct research and development of potential pharmaceutical products, and to commercialize such products, most likely through licensing to Allergan. In exchange for all of the shares of ASTI Common Stock outstanding prior to the Distribution, Allergan will contribute $200 million to ASTI to be used for the research and development of such potential pharmaceutical products. As the sole holder of ASTI's outstanding Class B Common Stock following the distribution, Allergan will have the option to repurchase all of the outstanding ASTI Shares under specified conditions. In addition, in exchange for technology licenses granted by Allergan and a commitment by Allergan to make specified payments on sales of certain products, Allergan will be paid a technology fee by ASTI and will have the option to independently develop certain compounds funded by ASTI prior to the filing of an Investigational New Drug application ("IND") with respect thereto and/or to license any products and technology developed by ASTI. ASTI's technology and product research and development activities will take place under a research and development agreement with Allergan. It is currently expected that substantially all of ASTI's funds will be directed toward continuing the research and development of products based on retinoid and neuroprotective technologies, including Memantine and other glutamate and ion channel blockers (collectively, "Retinoid and Neuroprotective Technologies"). In addition, ASTI may fund the research and development of pharmaceutical products in therapeutic categories of interest to Allergan that are not based on Retinoid and Neuroprotective Technologies, but that complement Allergan's product pipeline or otherwise are believed to provide a potential commercialization opportunity for Allergan. Allergan is increasing its focus on leading-edge, technology-based pharmaceutical products. Through internal research and development efforts and external research and development collaborations, Allergan seeks to expand its product line with proprietary specialty pharmaceutical products that provide distinctive therapeutic and economic benefit. Efforts to date have yielded many potential product opportunities. Such opportunities involve significantly different risk/reward profiles as compared to Allergan's established specialty pharmaceutical business. To continue the advancement of, and in certain cases accelerate, these projects and programs, Allergan seeks strategic collaborations and ventures, such as the recently concluded Allergan Ligand Retinoid Therapeutics, Inc. ("ALRT") collaboration, to provide complementary financing. Allergan's strategy also involves actively seeking outside product opportunities through joint ventures, licensing, acquisitions and strategic alliances with biotechnology, marketing and geographic partners. i 3 Allergan believes that the retinoid research and development work undertaken by ALRT to date and the research and development work Allergan has undertaken, directly and through collaborators, in the neuroprotective area have yielded results which justify further research and development. A substantial amount of additional research and development effort is required to further develop Allergan's Retinoid and Neuroprotective Technologies through their potential commercialization. By creating ASTI and distributing the ASTI Shares to Allergan stockholders, Allergan will separate the risks associated with discovering, researching and developing these products from those associated with its established specialty pharmaceutical business. Thus, the transaction will provide an opportunity for Allergan's stockholders to decide whether or not to participate in the research and development of the retinoids and other specialty pharmaceutical products by continuing to hold ASTI Shares after the Distribution. We are very enthusiastic about our progress to date in pursuing Allergan's specialty pharmaceutical business, and about the possibility of ASTI helping to expand this business through the research and development of potential products for commercialization by Allergan. The Prospectus contains important information about the distribution and about the proposed business of ASTI. I encourage you to read it carefully. Holders of Allergan Common Stock on the record date for the distribution are not required to take any action to participate in the distribution. Sincerely, -------------------------------------- David E. I. Pyott President and Chief Executive Officer ii 4 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED DECEMBER 15, 1997 PROSPECTUS ALLERGAN SPECIALTY THERAPEUTICS, INC. CLASS A COMMON STOCK Shares of callable Class A Common Stock ("ASTI Shares") of Allergan Specialty Therapeutics, Inc. ("ASTI") will be distributed (the "Distribution") by Allergan, Inc. ("Allergan") to the holders of record (the "Holders") at the close of business on , 1998 (the "Record Date") of Allergan Common Stock. Each Holder will receive one ASTI Share for every 20 shares of Allergan Common Stock held on the Record Date. The Distribution will result in all of the then outstanding ASTI Shares being distributed to the Holders. Assuming that 65,248,462 shares of Allergan Common Stock (the number of shares outstanding on October 31, 1997) are outstanding on the Record Date, approximately 3,262,400 ASTI Shares are expected to be issued in the Distribution to Holders of Allergan Common Stock. After the Distribution, Allergan will hold 1,000 shares of ASTI Class B Common Stock, representing all of the authorized shares of such class. Prior to the Distribution, Allergan will contribute $200 million in cash to ASTI in exchange for all of the shares of ASTI Common Stock outstanding prior to the Distribution. As the sole holder of ASTI's outstanding Class B Common Stock following the Distribution, Allergan will have the option to repurchase all of the outstanding ASTI Shares under specified conditions. Allergan has also granted certain technology licenses and agreed to make specified payments on sales of certain products in exchange for the payment by ASTI of a technology fee and the option to independently develop certain compounds funded by ASTI prior to the filing of an Investigational New Drug application ("IND") with respect thereto and to license any products and technology developed by ASTI. The Distribution is expected to be taxable to the Holders of Allergan Common Stock. See "Federal Income Tax Considerations." The Distribution is expected to take place on or about , 1998, subject to certain conditions specified in the Distribution Agreement between Allergan and ASTI dated as of , 1997. ASTI Shares will be held in "book-entry" form, although stock certificates will be available upon request. First Chicago Trust Company of New York ("FCTC") is acting as distribution agent and will be responsible for making book-entry credits to Holders and for mailing stock certificates to ASTI stockholders upon request. There has been no previous public market for the ASTI Shares. Application has been made for the ASTI Shares to be quoted on the Nasdaq National Market under the symbol "ASTI." Allergan will have the option to purchase all (but not less than all) of the outstanding ASTI Shares at a price determined in accordance with a formula specified in ASTI's Restated Certificate of Incorporation (the "Purchase Option Exercise Price") at any time from and after the Distribution until the date which is the earliest to occur of (i) December 31, 2002 (unless extended in accordance with the terms contained in ASTI's Restated Certificate of Incorporation) and (ii) the 90th day after the date on which Allergan receives notice that the amount of cash and marketable securities held by ASTI is less than $15 million. The Purchase Option Exercise Price may be paid by Allergan in cash, registered Allergan Common Stock or any combination of cash and Allergan Common Stock at Allergan's discretion. See "The Agreements and the Purchase Option -- Purchase Option." Stockholders of Allergan with inquiries regarding the Distribution should contact Allergan, Inc., Investor Relations, 2525 Dupont Drive, Irvine, CA 92612; telephone (714) 246-6301. ------------------------ THE ASTI SHARES DISTRIBUTED HEREUNDER INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 16. ------------------------ NO APPROVAL OF THE DISTRIBUTION BY STOCKHOLDERS OF ALLERGAN IS REQUIRED OR SOUGHT. NO PROXY IS REQUESTED AND NO ACTION IS REQUIRED WITH RESPECT TO THE DISTRIBUTION. ------------------------ 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. THE DATE OF THIS PROSPECTUS IS , 1998. 5 AVAILABLE INFORMATION As a result of the Distribution, ASTI will be required to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, to file annual, quarterly and other reports with the Securities and Exchange Commission ("SEC"). Additionally, ASTI will be subject to the proxy solicitation requirements of the Exchange Act. ASTI intends to provide annual reports containing audited financial statements to its stockholders in connection with its annual meetings of stockholders. ASTI has filed a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act of 1933, as amended, with respect to the securities offered by this Prospectus. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits thereto. Reference is made to the Registration Statement and to the exhibits thereto for further information with respect to ASTI and the Distribution. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference to such exhibit. The Registration Statement, including exhibits and schedules thereto, may be inspected without charge at the Public Reference Room of the SEC, 450 Fifth Street, Washington, D.C. 20549 and at the SEC's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Reports, proxy statements and other information filed electronically by ASTI with the SEC are available at the SEC's World Wide Web site at http://www.sec.gov. Copies of all or any part thereof may be obtained from the SEC at its principal offices in Washington, D.C. after payment of fees prescribed by the SEC. 2 6 SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS OR THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS, INCLUDING IN THE GLOSSARY BEGINNING ON PAGE 13. Some of the statements made in this Prospectus and the accompanying letter to stockholders are forward-looking in nature, including, but not limited to, ASTI's and Allergan's research and development activities and plans, particularly with respect to anticipated ASTI Products and Pre-Selection Products, plans concerning the potential commercialization of products, and other statements that are not historical facts. The occurrence of the events described and the achievement of the intended results are subject to the future occurrence of many events, some or all of which are not predictable or within ASTI's control; therefore, actual results may differ materially from those anticipated in any forward-looking statements. Many risks and uncertainties are inherent in the biotechnology and pharmaceutical industry; others are more specific to ASTI's business or that of Allergan. These risks include the risks associated with product and technology research and development, including clinical development, attempts to obtain regulatory clearance to market products and medical acceptance of products, changes in the health care marketplace, patent and intellectual property matters, regulatory and manufacturing issues, the ability to commercialize products effectively, and risks associated with competition from other companies. Many of the risks are described in "Risk Factors" beginning on page 16 and/or in documents filed by Allergan under the Exchange Act. Distributing Company....... Allergan, Inc., a Delaware corporation, is a leading provider of specialty pharmaceutical products throughout the world with niche products in the movement disorder, dermatological, eye care pharmaceutical, ophthalmic surgical device and over-the-counter contact lens care markets. Distributed Company........ Allergan Specialty Therapeutics, Inc., a Delaware corporation, is a company recently formed by Allergan to conduct research and development of potential human pharmaceutical products, and to commercialize such products, most likely through licensing to Allergan. The Distribution........... Each Holder will receive one ASTI Share for every 20 shares of Allergan Common Stock held on the Record Date. A total of approximately 3,262,400 ASTI Shares are expected to be distributed, assuming 65,248,462 shares of Allergan Common Stock (the number of shares outstanding on October 31, 1997) are outstanding on the Record Date. No Holder will be required to pay any cash or other consideration for the ASTI Shares received in the Distribution (exclusive of applicable taxes), nor will any action be required to be taken by any Holder in order to receive ASTI Shares. The Distribution is expected to be taxable to the Holders. See "Certain Federal Income Tax Considerations." ASTI Shares................ All of the shares of callable Class A Common Stock of ASTI, whether distributed by Allergan in the Distribution or later issued by ASTI, will be subject to the Purchase Option. See "The Agreements and the Purchase Option -- Purchase Option" and "Description of ASTI Capital Stock." Record Date; Distribution Date....................... The Record Date for the Distribution will be the close of business on , 1998. Distribution of the ASTI Shares is expected to take place on or about , 1998 (the "Distribution Date"), subject to certain conditions specified in the Distribution Agreement. 3 7 Trading Market............. Application has been made for quotation of the ASTI Shares on the Nasdaq National Market under the symbol "ASTI." Contribution by Allergan... Prior to the Distribution, Allergan will contribute $200 million in cash to ASTI in exchange for all of the shares of ASTI Common Stock outstanding prior to the Distribution. Allergan expects to borrow all or a portion of such funds from third parties. As the sole holder of ASTI's outstanding Class B Common Stock following the Distribution, Allergan will have the option to repurchase all of the outstanding ASTI Shares under specified conditions. Allergan has also granted certain technology licenses and agreed to make specified payments on sales of certain products in exchange for the payment of a technology fee by ASTI and the option to independently develop certain compounds funded by ASTI prior to the filing of an IND with respect thereto and to license any products and technology developed by ASTI. The retinoid technology being licensed by Allergan to ASTI includes technology acquired by Allergan upon exercise of its option to acquire a one-half undivided interest in the assets of Allergan Ligand Retinoid Therapeutics, Inc. ("ALRT"). In September 1997, Ligand Pharmaceuticals Incorporated ("Ligand") and Allergan exercised their respective options to purchase the outstanding ALRT Callable Common Stock and a one-half undivided interest in ALRT's assets. The initial agreements between Allergan and Ligand provided for a joint research and development and joint commercialization arrangement following exercise of the buyout option. Allergan and Ligand have amended and restated their existing agreements, effective as of the option exercise closing date, so that among other things, existing ALRT compounds and research and development programs will be divided among Allergan and Ligand, and each party will receive exclusive rights to the ALRT technology for use with their respective compounds and programs. See "Reasons For the Distribution and Effects on Allergan, Inc." ASTI Products.............. ASTI Products generally are expected to be based on retinoid and neuroprotective technologies, including Memantine and other glutamate and ion channel blockers (collectively, "Retinoid and Neuroprotective Technologies"). In addition, ASTI may fund the research and development of products licensed from third parties that complement the products to be developed by ASTI or otherwise may provide a significant commercialization opportunity for Allergan. It is anticipated that ASTI will initially develop four selected products. In addition, ASTI may pursue the research and development of other products to which it has been granted rights pursuant to the Technology License Agreement as substitutes for, or in addition to, such products (any such products together with the four initial products being the "ASTI Products"). The four initial ASTI Products, which are described more fully in the section entitled "The Business of ASTI -- The ASTI Products" below, are: - Tazarotene (oral), an RAR beta gamma-selective agonist being developed in oral form for the treatment of cancer, acne and psoriasis worldwide; - Memantine, a glutamate blocker being developed as a potential treatment to be used to halt the progression of optic nerve damage that 4 8 leads to blindness in glaucoma patients and for other ocular indications in the United States; - AGN 4310, an RAR antagonist/inverse agonist, being developed as a topical antidote to systemic retinoid-induced mucocutaneous toxicity and for the topical treatment of psoriasis worldwide; and - A compound to be selected from the RAR alpha-selective agonist class of retinoid compounds for the treatment of various cancers worldwide. Pursuant to the Research and Development Agreement, ASTI will fund the research and development of the ASTI Products from the date on which ALRT ceased funding (October 23, 1997) until March 31, 1998. Continuation of the research and development of any ASTI Product after March 31, 1998 will depend upon whether Allergan proposes and ASTI's independent Board of Directors accepts additional work plans and cost estimates for such ASTI Product. It is anticipated that if ASTI were to fund the continued research and development of the four initial ASTI Products through U.S. Food and Drug Administration ("FDA") review for marketing clearance, the funding of these activities, together with the Pre-Selection Work expected to be undertaken by Allergan and funded by ASTI, would require substantially all of the Available Funds. See "The Agreements and the Purchase Option -- Research and Development Agreement." ASTI Board of Directors.... Lester J. Kaplan, Ph.D., is currently serving as the interim President and Chief Executive Officer and a Director of ASTI. Prior to the commencement of the Distribution, Dr. Kaplan will resign as interim President and Chief Executive Officer and an individual who is not an employee or Director of Allergan will be appointed Director, President and Chief Executive Officer of ASTI. It is expected that this individual will appoint three additional Directors of ASTI, each of whom will not be an employee or Director of Allergan. Dr. Kaplan will remain a Director of ASTI following the Distribution in accordance with the rights of Allergan under ASTI's Restated Certificate of Incorporation as the sole holder of the outstanding shares of ASTI Class B Common Stock. No Fractional Shares....... No fractional ASTI Shares will be distributed. Fractional ASTI Shares will be aggregated and sold as whole ASTI Shares by ASTI's transfer agent and distribution agent for the Distribution, FCTC (the "Distribution Agent"), to provide cash to Holders in lieu of such fractional ASTI Shares. Reasons for the Distribution............... Allergan is increasing its focus on leading-edge, technology-based pharmaceutical products. Through internal research and development efforts and external research and development collaborations, Allergan seeks to expand its product line with proprietary specialty pharmaceutical products that provide distinctive therapeutic and economic benefit. Allergan believes that the retinoid research and development work undertaken by ALRT to date and the research and development work it has undertaken, directly and through collaborators, in the neuroprotective area have yielded results which justify further research and development. However, a substantial amount of additional research and development effort is required to further develop Allergan's Retinoid and Neuroprotective Technologies through to their potential commercialization. Such oppor- 5 9 tunities involve significantly different risk/reward profiles as compared to Allergan's established specialty pharmaceutical business. Allergan believes that the arrangements with ASTI will significantly benefit Allergan stockholders by: - separating the risks associated with researching and developing pharmaceutical products based on Retinoid and Neuroprotective Technologies from those associated with Allergan's established specialty pharmaceutical business; - allowing individual stockholders of Allergan to increase or decrease their level of participation in the business of researching and developing pharmaceutical products based on Retinoid and Neuroprotective Technologies for commercialization by Allergan by varying their level of investment in ASTI; - obtaining for Allergan the exclusive right to commercialize, in the United States with respect to Memantine and worldwide with respect to any other ASTI Products, any successfully developed ASTI Product, assuming Allergan's exercise of the License Option with respect to such product or exercise of the Purchase Option, thereby making it possible for Allergan to capture a potentially greater return on the products developed with ASTI than would otherwise be possible from products developed for commercialization in conjunction with other third parties; and - allowing Allergan's near-term financial results to continue to reflect principally its established specialty pharmaceutical business, by providing Allergan with research and development revenues from ASTI to reimburse Allergan for Research and Development Costs incurred by Allergan. Research and Development Agreement................ ASTI and Allergan will enter into the Research and Development Agreement under which Allergan will perform research and development on products recommended by Allergan and accepted by ASTI as ASTI Products. Such recommendation and acceptance may be made on a "field of use" basis. Such new product recommendation must be made no later than the date of filing of an IND with the FDA for such product. It is anticipated that ASTI will initially develop four selected products which will be the initial ASTI Products. Unless ASTI agrees otherwise, all ASTI Products will be owned by ASTI or, in the case of a product or a therapeutic agent licensed from a third party, exclusively licensed to ASTI, in each case subject to the License Option. A portion of the Available Funds is expected to be used to identify potential new products within the portfolio of product candidates licensed to ASTI under the Technology License Agreement for possible research and development as ASTI Products by ASTI under the Research and Development Agreement. Compounds evaluated under this process, other than those which become ASTI Products, will be Pre-Selection Products. To the extent any Pre-Selection Product is approved for commercial sale, Allergan will make payments to ASTI based on such sales, as described below. ASTI is required to spend all of the Available Funds under the Research and Development Agreement. ASTI is expected to utilize substantially 6 10 all of the Available Funds to reimburse Allergan for its Research and Development Costs. Research and Development Costs will be charged in a manner consistent with industry practices, and reimbursement for all reasonable, fully-burdened costs will be recognized by Allergan as contract research and development revenue. Under the Research and Development Agreement, ASTI also may use Available Funds for licensing technology, products or therapeutic agents from third parties and for the research and development of ASTI Products with third parties; provided, however, that Allergan's consent will be required if such activities involve Allergan Technology or could affect Allergan's rights under the Allergan/ASTI Agreements. Subject to the foregoing, the amount and nature of work to be performed by third parties will be determined by ASTI. It is not anticipated that ASTI will undertake research and development without contracting with a third party, as ASTI is not expected to have the staffing or facilities to do so. Pursuant to the Research and Development Agreement, ASTI will fund the research and development of the initial four ASTI Products beginning as of October 23, 1997 and continuing through March 31, 1998. Research and Development Costs are expected to total between $7 million and $8 million for all of the four initial ASTI Products and for Pre- Selection Work conducted during such period. Continuation of the research and development of any ASTI Product after March 31, 1998 will depend upon whether Allergan proposes, and ASTI's Board of Directors accepts, additional work plans and cost estimates for such ASTI Product. It is anticipated that if ASTI were to fund the continued research and development of the initial four ASTI Products through FDA review for marketing clearance, the funding of these activities, together with the Pre-Selection Work expected to be undertaken by Allergan and funded by ASTI, would require substantially all of the Available Funds. It is anticipated that ASTI will spend the Available Funds under the Research and Development Agreement over a period of approximately four to five years. ASTI's use of Available Funds is subject to the terms of ASTI's Restated Certificate of Incorporation and the Allergan/ASTI Agreements. All technology developed or otherwise obtained pursuant to the Research and Development Agreement ("Developed Technology") will be owned by Allergan, subject to ASTI's right to use Developed Technology in ASTI Products. Allergan will pay ASTI royalties with respect to products, other than ASTI Products, that use any patented Developed Technology, as described below. The Research and Development Agreement will terminate upon the exercise or expiration of the Purchase Option, which will expire on the earlier of December 31, 2002 or 90 days after ASTI provides Allergan with notification that there are less than $15 million of Available Funds. However, Allergan's obligation under the Research and Development Agreement to make payments to ASTI with respect to Developed Technology Products and Pre-Selection Products will continue if the Purchase Option expires unexercised. See "The Agreements and the Purchase Option -- Research and Development Agreement." Technology License Agreement.................. Pursuant to the Technology License Agreement, Allergan has granted to ASTI a license to use Allergan Technology solely to conduct research and development with respect to ASTI Products, and to commercialize 7 11 such products, in the United States with respect to Memantine and worldwide with respect to other ASTI Products. Until a product candidate becomes an ASTI Product, Allergan will have full rights to exploit such product, subject only to its obligations to pay Developed Technology Royalties and Pre-Selection Product Payments. In exchange for the license to use existing Allergan Technology relating to the ASTI Products and Allergan's commitment to make certain payments specified under the Technology License Agreement, ASTI will pay a fee (the "Technology Fee") to Allergan and has granted Allergan the License Option and the option to independently develop Pre-Selection Products. The Technology Fee will be payable monthly over a period of four years and will be $833,333 for each of the 12 months following the Distribution, $558,333 per month for the following 12 months, $275,000 per month for the following 12 months and $166,667 per month for the following 12 months; provided that the Technology Fee will no longer be payable at such time as fewer than two ASTI Products are being researched or developed by ASTI and/or have been licensed by Allergan pursuant to Allergan's exercise of the License Option. License Option............. In exchange for Allergan's license grants pursuant to the Technology License Agreement and Allergan's commitment to make specified payments thereunder, ASTI has granted Allergan an option to acquire a license to each ASTI Product (the "License Option"), in addition to the option to independently develop Pre-Selection Products and ASTI's commitment to pay the Technology Fee. Upon exercise of the License Option, Allergan will make Product Payments to ASTI with respect to each Licensed Product. The License Option for each ASTI Product is exercisable on a country-by-country basis at any time until (i) with respect to the United States, 30 days after clearance by the FDA to commercially market such ASTI Product in the United States and (ii) with respect to any other country, 90 days after the earlier of (a) clearance by the appropriate regulatory agency to commercially market the ASTI Product in such country and (b) clearance by the FDA to market the ASTI Product in the United States. The License Option will expire, to the extent not previously exercised, 30 days after the expiration of the Purchase Option. If and to the extent the License Option is exercised as to any ASTI Product (a "Licensed Product"), Allergan will acquire a perpetual, exclusive license (with the right to sublicense) to research, develop, make, have made and use the Licensed Product and to sell and have sold the Licensed Product in the country or countries as to which the License Option is exercised, subject to the obligation to make Product Payments. Product Payments........... Allergan will make Product Payments to ASTI with respect to each Licensed Product as follows: (a) if the Licensed Product is sold by Allergan, royalties of up to a maximum of 6% of Net Sales (as defined in the Glossary) of the Licensed Product determined as follows: (i) 1% of such Net Sales, plus (ii) an additional 0.1% of such Net Sales for each full $1 million of Research and Development Costs of the Licensed Product that have been paid by ASTI; and (b) if the Licensed Product is sold by a third party, sublicensing fees of up to a maximum of 50% of Sublicensing Revenues (as defined in the 8 12 Glossary) with respect to such Licensed Product determined as follows: (i) 10% of such Sublicensing Revenues, plus (ii) an additional 1% of such Sublicensing Revenues for each full $1 million of Research and Development Costs of the Licensed Product paid by ASTI. Because the marketing expenses associated with newly introduced products during the first few years after launch are generally significantly higher than those for established products, the License Option provides that the Product Payments described above will be capped at 3% of Net Sales, on a quarterly basis, for the first twelve calendar quarters during which the Licensed Product is commercially sold in the first Major Market Country. Subject to Allergan's Product Payment buy-out option described below, Product Payments will be payable, with respect to all countries for which the License Option has been exercised, until 10 years after the first commercial sale of the Licensed Product in the first Major Market Country in which such product is commercially sold. To the extent Allergan does not exercise the License Option with respect to any ASTI Product, ASTI will retain the rights to research, develop and commercialize such ASTI Product. Developed Technology Royalties................ Allergan will pay ASTI Developed Technology Royalties, on a country-by-country basis, equal to the sum of (i) 1% of Net Sales in the relevant country plus (ii) 10% of any Sublicensing Revenues with respect to any product that, in each case, is not an ASTI Product and is (a) covered at the time of sale in a country by one or more unexpired patents issued in such country that are included in Developed Technology and (b) with respect to which Allergan receives any consideration (a "Developed Technology Product"). Developed Technology Royalties will be payable with respect to a Developed Technology Product in any country until expiration of the last to expire of the relevant patent or patents. Pre-Selection Product Payments................. Allergan will make Pre-Selection Product Payments to ASTI equal to the sum of (i) 1% of Net Sales and (ii) 10% of any Sublicensing Revenues with respect to each Pre-Selection Product. Pre-Selection Product Payments will be payable until seven years after such Pre-Selection Product is commercially sold in the first Major Market Country, subject to Allergan's payment buy-out option. A product may be both a Pre-Selection Product and a Developed Technology Product; however, in such a case the payment due for any period for such product will be limited to the sum of (i) 1% of Net Sales and (ii) 10% of any Sublicensing Revenues with respect to such product. Product Payment Buy-Out Options.................. Allergan has the option to buy out ASTI's right to receive Product Payments for any Licensed Product, Developed Technology Royalties for any Developed Technology Product, and Pre-Selection Product Payments for any Pre-Selection Product, in each case, on a country-by-country or global basis. A country-by-country buy-out option may be exercised for any Licensed Product, Developed Technology Product or Pre-Selection Product in any country at any time after the end of the twelfth calendar quarter during which the product was commercially sold in such country. The buy-out price will be 15 times the payments made by or due from Allergan to ASTI with respect to sales of such product in 9 13 such country for the four calendar quarters immediately preceding the quarter in which the buy-out option is exercised (plus, in the case of a Licensed Product, 15 times such additional Product Payments as would have been made for such period but for the 3% limits described above). The global buyout option may be exercised for any Licensed Product, Developed Technology Product or Pre-Selection Product at any time after the end of the twelfth calendar quarter during which the product was commercially sold in either the United States or two other Major Market Countries. The global buy-out price will be (i) 20 times (a) the payments made by or due from Allergan to ASTI for the relevant product, plus (b) such payments as would have been made by or due from Allergan to ASTI if Allergan had not exercised any country- specific buy-out option with respect to such product, plus (c) such additional Product Payments, in the case of a Licensed Product, as would have been made but for the 3% limits described above, in each case for the four calendar quarters immediately preceding the quarter in which the global buy-out option is exercised, less (ii) any amounts previously paid as the result of the exercise of any country-specific buy-out option with respect to such product. The global buy-out option with respect to any Licensed Product may be exercised only with respect to countries as to which Allergan has exercised the License Option. Purchase Option............ Pursuant to ASTI's Restated Certificate of Incorporation and Allergan's rights as the sole holder of the ASTI Class B Common Stock outstanding after the Distribution, Allergan has the right to purchase all (but not less than all) of the outstanding ASTI Shares (the "Purchase Option"). The Purchase Option will be exercisable by written notice to ASTI at any time during the period beginning immediately after the Distribution and ending on December 31, 2002; provided that such date will be extended for successive six month periods if, as of any June 30 or December 31 beginning with June 30, 2001, ASTI has not paid or accrued expenses for at least 95% of all Available Funds pursuant to the Research and Development Agreement. The Purchase Option will in any case terminate on the 90th day after the date (the "Statement Date") on which Allergan receives notice that the amount of cash and marketable securities held by ASTI is less than $15 million. If the Purchase Option is exercised, the exercise price (the "Purchase Option Exercise Price") will be the greatest of: (a) (i) 25 times the aggregate of (a) all worldwide payments made by and all worldwide payments due to be made by Allergan to ASTI with respect to all Licensed Products, Developed Technology Products and Pre-Selection Products for the four calendar quarters immediately preceding the quarter in which the Purchase Option is exercised (the "Base Period") and (b) all payments that would have been made and all payments due to be made by Allergan to ASTI during the Base Period if Allergan had not previously exercised its payment buy-out option with respect to any product; provided, however, that for the purposes of the foregoing calculation, for any product which has not been commercially sold during each of the four calendar quarters in the Base Period, Allergan will be deemed to have made Product Payments, Developed Technology Royalties and Pre-Selection Product Payments to ASTI for each such quarter equal to the average of the payments made during each 10 14 of such calendar quarters during which such product was commercially sold less (ii) any amounts previously paid to exercise any payment buy-out option for any product; (b) the fair market value of 500,000 shares of Allergan Common Stock; (c) $250 million less the aggregate amount of all Technology Fee payments and Research and Development Costs paid or incurred by ASTI as of the date the Purchase Option is exercised; and (d) $60 million. In each case, the amount payable as the Purchase Option Exercise Price will be reduced to the extent, if any, that ASTI's liabilities at the time of exercise (other than liabilities under the Research and Development Agreement, the Services Agreement and the Technology License Agreement) exceed ASTI's cash and cash equivalents, and short-term and long-term investments (excluding the amount of Available Funds remaining at such time). Allergan may pay the Purchase Option Exercise Price in cash, in Allergan Common Stock or in any combination of cash and Allergan Common Stock. Under ASTI's Restated Certificate of Incorporation, ASTI is prohibited from taking or permitting any action inconsistent with, or which would in any way alter, Allergan's rights under the Purchase Option. In addition, until the expiration of the Purchase Option, ASTI may not, without the consent of Allergan as the sole holder of the ASTI Class B Common Stock, merge, liquidate, sell any substantial assets, or amend its Restated Certificate of Incorporation to alter the Purchase Option, ASTI's authorized capitalization, or certain provisions of the Restated Certificate of Incorporation governing ASTI's Board of Directors. Federal Income Tax Considerations........... It is expected that the Distribution will be taxable to each Holder in the amount of the fair market value of the ASTI Shares distributed to such Holder. No later than February 2, 1999, Allergan will issue to each Holder an IRS Form 1099-DIV reflecting the fair market value of the ASTI Shares distributed to such Holder; the Holder's basis (for income tax purposes) in the distributed ASTI Shares will be such fair market value. If Allergan were to exercise the Purchase Option, a Holder would have a taxable gain or loss equal to the difference between the value of the consideration received from Allergan in such exercise and the Holder's basis in the ASTI Shares, unless Allergan were to exercise the Purchase Option solely for shares of Allergan Common Stock and certain other conditions were satisfied, in which case receipt of the Allergan Common Stock should be tax-free to the Holder under current federal income tax laws. The Distribution, any subsequent sale of ASTI Shares, and the exercise or expiration of the Purchase Option may have other federal income tax consequences to Holders. See "Certain Federal Income Tax Considerations." HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS. Risk Factors............... Ownership of ASTI Shares involves a high degree of investment risk. The risk factors listed below should be considered carefully in evaluating the ownership of ASTI Shares. See "Risk Factors." - ASTI is a newly formed company. - There can be no assurance of the successful research, development, manufacturing or marketing of ASTI Products. 11 15 - There can be no assurance that ASTI will have sufficient funds to complete the research and development of any or all of the ASTI Products. - ASTI and Allergan will face competition from others with greater resources and experience. The fundamental technology underlying retinoids licensed to ASTI is also cross-licensed to Ligand and therefore competition from similar activities by Ligand and its collaborators in retinoids is likely. - There can be no assurance that necessary regulatory approvals and clearances, including pricing approvals, will be obtained. - There can be no assurance of the exercise of the Purchase Option or the License Option for any ASTI Product. - There can be no assurance that ASTI or Allergan will effectively commercialize any ASTI Products for which regulatory clearance is obtained. - There can be no assurance that Allergan's personnel and facilities will be adequate for the performance of its duties to ASTI under the Research and Development Agreement. - There can be no assurance that therapeutic agents, technologies, patents or products can be licensed by ASTI or Allergan, if such licenses are necessary. - There can be no assurance of patent protection for ASTI Products or that such products will not infringe the patents or proprietary rights of third parties. - The Allergan/ASTI Agreements and Allergan's rights as holder of the ASTI Class B Common Stock may restrain ASTI from taking certain actions, including actions with third parties, and may limit the ability of ASTI to raise additional capital. - The terms of the Allergan/ASTI Agreements were not negotiated at arm's length. - There may be conflicts of interest between ASTI and Allergan, including competition from Allergan. - The members of the ASTI Board of Directors after the Distribution, other than Lester J. Kaplan, Ph.D., have not been identified and will not be selected by the holders of the ASTI Shares. - There can be no assurance of a trading market for, or of the trading value of, the ASTI Shares. Principal Offices.......... ASTI's principal offices are located at 2525 Dupont Drive, Irvine, CA 92612, telephone (714) 246-6301. Reasons for Furnishing this Prospectus............... This Prospectus is being furnished solely to provide information for Holders, each of whom will receive ASTI Shares in the Distribution. It is not to be construed as an inducement or encouragement to buy or sell any securities of ASTI or Allergan. The information contained herein is provided as of the date of this Prospectus unless otherwise indicated. ASTI will not update the information contained in this Prospectus except in the normal course of its public disclosure practices. 12 16 GLOSSARY Allergan/ASTI Agreements... The Distribution Agreement, the Research and Development Agreement, the Technology License Agreement, the License Option Agreement, the Services Agreement and the Purchase Option, collectively. Allergan Technology........ All proprietary technology, whether patented or unpatented, owned by, licensed to or controlled by Allergan and related to the Retinoid and Neuroprotective Technologies, which Allergan has the right to license or sublicense, including technology and data relating to the ASTI Products and Developed Technology, and any additional technology which Allergan chooses to designate as Allergan Technology. Allergan Technology excludes, and ASTI will have no rights with respect to, any topical formulation of Tazarotene. Allergan is currently marketing a topical formulation of Tazarotene for the treatment of psoriasis and acne in the United States under the brand name "Tazorac" and outside of the United States under the brand name "Zorac." Allergan Technology also excludes, and ASTI will have no rights with respect to, proprietary technology related to the research, development, manufacture, sale and other use of Memantine outside of the United States. These rights will be retained by an overseas affiliate of Allergan. ALRT....................... Allergan Ligand Retinoid Therapeutics, Inc., a Delaware corporation. ASTI Product............... Any dosage form of a compound which is the subject of research and development as a potential human pharmaceutical product which has been recommended by Allergan and accepted by ASTI's independent Board of Directors for such research and development as such under the Research and Development Agreement. Such recommendations may be made on a Field of Use basis. Research to identify and select product candidates may be performed by ASTI or Allergan. Such potential product candidates will be Pre-Selection Products until and unless they become ASTI Products. Available Funds............ All of the funds contributed to ASTI by Allergan, plus any investment income earned thereon, less (i) Research and Development Costs, (ii) ASTI's administrative expenses and (iii) the Technology Fee payments. Developed Technology....... Any technology developed or otherwise obtained by ASTI pursuant to the Research and Development Agreement. Developed Technology Product.................... Any product, other than an ASTI Product, (i) covered at the time of sale in a country by one or more unexpired patents issued in such country that are included in Developed Technology and (ii) with respect to which Allergan receives any consideration. Developed Technology Royalties................ The payments made by Allergan to ASTI with respect to Net Sales of Developed Technology Products. Distribution............... Allergan's distribution of all of the outstanding ASTI Shares to the Holders. Distribution Date.......... , 1998, the date of commencement of the Distribution. Distribution Agreement..... The agreement between Allergan and ASTI relating to the terms and conditions of the Distribution. 13 17 Field of Use............... A particular disease state or set of related disease states (e.g., "cancer," "diabetes," "non-insulin dependent diabetes"). A license or an ASTI Product may be limited to a particular field of use. Holders.................... The holders of record, on the Record Date, of Allergan Common Stock. License Option............. The option granted by ASTI to Allergan to acquire a license to each ASTI Product, exercisable on a product-by-product and country-by-country basis. License Option Agreement... The agreement between Allergan and ASTI granting the License Option. Licensed Product........... An ASTI Product as to which the License Option has been exercised by Allergan. Major Market Country....... Any one of the following countries: the United States, France, Germany, Italy, Japan or the United Kingdom. Net Sales.................. The total amount invoiced on sales of a Licensed Product, Developed Technology Product or Pre-Selection Product by Allergan (or its affiliates) to unrelated third parties such as wholesalers, hospitals and others, in bona fide arm's-length transactions, less allowances as customarily determined under Allergan's accounting policies. Pre-Selection Work......... Research and pre-clinical development work undertaken in order to determine the suitability of lead compounds and product candidates for research and development. Any such compounds or product candidates recommended by Allergan and accepted by ASTI for research and development will become ASTI Products. Such recommendation must be made no later than the date of filing of an IND with the FDA with respect to such compounds or product candidates. Pre-Selection Product...... A product, other than one which becomes an ASTI Product, for which ASTI funds Pre-Selection Work. Pre-Selection Product Payments................. The payments to be made by Allergan to ASTI with respect to worldwide Net Sales of Pre-Selection Products. Product Payment Buy-Out Options.................. Allergan's option to buy out ASTI's right to receive Product Payments for any Licensed Product, Developed Technology Royalties for any Developed Technology Product and Pre-Selection Product Payments for any Pre-Selection Product, in each case, on a country-by-country or global basis. Product Payments........... Payments to be made by Allergan to ASTI with respect to Net Sales of Licensed Products and Sublicensing Revenues with respect to Licensed Products. Purchase Option............ The option of Allergan to purchase all (but not less than all) of the outstanding ASTI Shares. Purchase Option Exercise Price.................... The amount payable by Allergan to exercise the Purchase Option. Record Date................ , 1998, the date as of which holders of record of Allergan Common Stock will be eligible to receive ASTI Shares in the Distribution. 14 18 Research and Development Agreement................ The agreement between Allergan and ASTI providing for the research and development of potential human pharmaceutical products and conducting related activities. Research and Development Costs.................... The fully-burdened cost of activities undertaken pursuant to the Research and Development Agreement. Services Agreement......... The agreement between Allergan and ASTI pursuant to which Allergan has agreed to provide ASTI with administrative services on a fully-burdened cost reimbursement basis. Specialty Royalty Payments................... Front-end distribution fees, prepaid royalties or similar one-time, infrequent or special payments from a sublicensee to Allergan with respect to a Licensed Product, a Developed Technology Product or a Pre-Selection Product. Sublicensing Revenues...... Percentage-of-sales payments and Special Royalty Payments received by Allergan from sublicensees with respect to a Licensed Product, a Developed Technology Product or a Pre-Selection Product. Technology Fee............. The payments to be made by ASTI to Allergan which, together with the License Option and Allergan's option to independently develop Pre-Selection Products, are made in exchange for Allergan granting ASTI a license to use existing Allergan Technology relating to ASTI Products and Allergan's commitment to make specified payments on sales of certain products. Technology License Agreement.................. The agreement between Allergan and ASTI pursuant to which Allergan has granted to ASTI a license to use Allergan Technology solely to conduct research and development and related activities with respect to ASTI Products, and to commercialize ASTI Products, in the United States with respect to Memantine and worldwide with respect to any other ASTI Product, together with the commitment to make specified payments on sales of certain products, in exchange for the Technology Fee, the License Option and the option to independently develop Pre-Selection Products. 15 19 RISK FACTORS The following factors, in addition to the other information set forth in this Prospectus, should be considered carefully in evaluating ownership of ASTI Shares. NEW COMPANY ASTI is a newly formed company and is subject to the risks inherent in the establishment of a new business enterprise in the biotechnology industry. ASTI will incur substantial losses for several years due to the long-term nature of the research and development of pharmaceutical products through clinical testing and the regulatory process, which losses may never be recovered. See "Business of ASTI." NO ASSURANCE OF CONTINUED RESEARCH OR DEVELOPMENT OF ASTI PRODUCTS There can be no assurance that the independent ASTI Board of Directors will approve the continued funding of the research and development of the four initial ASTI Products, or that any ASTI Products can be successfully researched, developed and/or commercialized within the anticipated cost estimates or time frames, if at all. Certain of the ASTI Products are at critical stages of research and development, and technical and clinical outcomes are impossible to predict. Because of the long-range nature of any pharmaceutical product research and development plan, research and development of a particular product or products could accelerate, slow down or be discontinued, and other unforeseen events could occur, all of which would significantly affect the timing and amount of ASTI's expenditures on a particular product, or in total. As a result, estimates of costs and timing of research and development programs and for the use of Available Funds may not be accurate. There can be no assurance that Allergan will recommend, or that ASTI will approve, additional products for research and development as ASTI Products beyond the four initial ASTI Products. Although ASTI has received from Allergan a license to use Allergan Technology for the purpose of researching, developing and commercializing ASTI Products, some or all of the ASTI Products may require new technologies or enhancements or modifications to existing Allergan Technology, and there can be no assurance that such technology can or will be successfully developed or acquired. Even if appropriate technology is available or developed, there can be no assurance that such ASTI Products will be successfully researched or developed (or be researched or developed in a timely fashion) or be proven to be safe and efficacious in clinical trials. NEED FOR REGULATORY CLEARANCE All ASTI Products, Developed Technology Products and Pre-Selection Products will require FDA clearance before such products may be lawfully marketed in the United States. Applications for FDA clearance must be based on costly and extensive clinical trials designed to demonstrate safety and efficacy. Clearance to market such products will also be required from corresponding regulatory authorities in foreign countries before such products may be marketed in those countries. Such clearance often involves pricing and reimbursement approvals in addition to clearance based on safety and efficacy. Delay in obtaining FDA and/or foreign regulatory clearance or pricing or reimbursement approvals for any such product may have a material adverse effect on the commercial success of such product. There can be no assurance that the necessary regulatory clearances and approvals will be obtained in a timely fashion or, if obtained, that such clearances and approvals will not be revoked or withdrawn. NO ASSURANCE OF SUFFICIENCY OF FUNDS OR AVAILABILITY OF ADDITIONAL FUNDS Prior to the Distribution, Allergan will contribute $200 million in cash to ASTI in exchange for all of the shares of ASTI Common Stock outstanding prior to the Distribution. Allergan has no obligation to contribute additional funds to ASTI, and has no present intention to do so. It is anticipated that if ASTI were to fund the continued research and development of the initial four ASTI Products through FDA review for marketing clearance, the funding of these activities, together with any Pre-Selection Work undertaken by Allergan and/ or ASTI and funded by ASTI, would require substantially all of the Available Funds. There can be no 16 20 assurance that ASTI will have sufficient funds to complete the research and development of any or all of the ASTI Products, including the four initial ASTI Products. Allergan's rights under the Allergan/ASTI Agreements may limit ASTI's ability to raise funds, or may prevent ASTI from doing so, if ASTI needs additional funds to continue or complete research and development of any ASTI Product. If ASTI were to attempt to raise funds following the expiration of the Purchase Option, ASTI would have very little cash, few assets and an undeterminable number of products under research and development. Allergan would at that time have the unilateral option to license any or all ASTI Products for such countries for which Allergan's License Option had not previously expired. Third parties might therefore be reluctant to lend money to ASTI, or to invest in ASTI. NO ASSURANCE OF SUCCESSFUL MANUFACTURING OR MARKETING Even if ASTI Products are developed and receive necessary regulatory clearances and approvals, there can be no assurance that the ASTI Products will be successfully manufactured for clinical trials or successfully manufactured or marketed for commercial sale. To be successfully marketed, any ASTI Product must be manufactured in commercial quantities in compliance with regulatory requirements and at an acceptable cost. Any significant delays in the completion of validation and licensing of expanded or new facilities could have a material adverse effect on the ability to continue clinical trials of and ultimately to market ASTI Products on a timely and profitable basis. If Allergan does not exercise its License Option for an ASTI Product (and does not exercise the Purchase Option), ASTI will have to make alternative arrangements for manufacturing that ASTI Product, and there can be no assurance that ASTI will be able to do so. If Allergan exercises its License Option for any ASTI Product, Allergan may need to develop and/or expand its marketing capabilities to commercialize such Licensed Product effectively. If Allergan exercises its License Option for any ASTI Product, and does not at the time the product is to be commercialized have a sales force in the relevant country or countries, Allergan will need to arrange for marketing by third parties outside of the United States and, if the product is not within Allergan's target markets at such time, within the United States. If Allergan does not exercise its License Option for an ASTI Product (and does not exercise the Purchase Option), ASTI will need to find other means to commercialize that ASTI Product not involving Allergan, and there can be no assurance that ASTI will be able to do so. At the present time, ASTI does not have, nor, through the development stage of the ASTI Products, does it expect to develop, any manufacturing or marketing capability. If ASTI decides to manufacture or market one or more ASTI Products itself, ASTI will need substantial additional funds. There is no assurance that additional funds will be available, or will be available on attractive terms, and Allergan has no obligation to supply any additional funds to ASTI. In addition, ASTI may not use Available Funds for this purpose without Allergan's consent. If either Allergan or ASTI seeks a third party to manufacture or market an ASTI Product, there can be no assurance that satisfactory arrangements can be successfully negotiated or that any such arrangements will be on commercial terms acceptable to Allergan or ASTI. In addition, even if ASTI decides to license any ASTI Product to a third party, agreements with that third party, if available, may be on terms less favorable to ASTI than the terms of the Allergan/ASTI Agreements. Even if acceptable manufacturing and marketing resources are available, there can be no assurance that any ASTI Products will be accepted in the marketplace. There can be no assurance that there will be adequate reimbursement by health insurance companies or other third party payors for any ASTI Products that are marketed. NO ASSURANCE OF EXERCISE OF ALLERGAN'S OPTIONS Allergan is not obligated to exercise the License Option for any ASTI Product or to exercise the Purchase Option, and Allergan will exercise any such option only if it is in Allergan's best interest to do so. The timing of the exercise of the Purchase Option is within Allergan's sole discretion, and Allergan may choose to exercise the Purchase Option at a time when the Purchase Option Exercise Price is as low as possible. The 17 21 timing of the exercise of the License Option with respect to any Licensed Product is also within Allergan's sole discretion, and thereafter research, development and funding of any such product will be controlled by Allergan. RELIANCE ON PROPRIETARY TECHNOLOGIES; UNPREDICTABILITY OF PATENT PROTECTION Patent protection generally has been important in the pharmaceutical industry. Therefore, ASTI's financial success may depend in part upon Allergan obtaining strong patent protection for the technologies incorporated in ASTI Products. Allergan will determine which patent applications to pursue, and the expense of obtaining and maintaining patents covering Developed Technology will be shared equally by Allergan and ASTI during the term of the Research and Development Agreement. However, there can be no assurance that patents will be issued covering any products, or that any existing patents or patents issued in the future will be of commercial benefit. In addition, it is impossible to anticipate the breadth or degree of protection that any such patents will afford, and there can be no assurance that any such patents will not be successfully challenged in the future. If Allergan is unsuccessful in obtaining or preserving patent protection, or if any products rely on unpatented proprietary technology, there can be no assurance that others will not commercialize products substantially identical to such products. Patents have been issued to third parties covering various therapeutic agents, products and technologies. There can be no assurance that any ASTI Products, Developed Technology Products or Pre-Selection Products will not infringe patents held by third parties. In such event, licenses from such third parties would be required, or their patents would have to be designed around. There can be no assurance that such licenses would be available or that they would be available on commercially attractive terms, or that any necessary redesign could be successfully completed. Allergan licenses certain intellectual property from third parties which it will sublicense to ASTI pursuant to the Technology License Agreement. Specifically, Allergan has licensed certain rights to its retinoid technology from ALRT and certain rights to the technology underlying Memantine from Children's Medical Center Corporation and Merz + Co. GmbH & Co. ("Merz"). Under the terms of certain of its license agreements, Allergan may be obligated to exercise diligence and make certain royalty and milestone payments as well as incur costs related to filing and prosecuting the underlying patents. Each agreement is terminable by either party upon notice if the other party defaults in its obligations. Should Allergan default under any of its agreements, Allergan and therefore ASTI may lose its right to market and sell products based upon such licensed technology. In addition, there can be no assurance that Allergan's licensors will meet their obligations to Allergan pursuant to such licenses. In such event, ASTI's results of operations and business prospects would be materially and adversely affected. See "The Business of ASTI -- The ASTI Products." COMPETITION ASTI Products, Developed Technology Products and Pre-Selection Products are likely to face competition from other therapies for the same indications. Competitors potentially include any of the world's pharmaceutical and biotechnology companies. Many pharmaceutical companies have greater financial resources, technical staffs and manufacturing and marketing capabilities than Allergan or ASTI. A number of companies have developed and are developing competing technologies and products. To the extent that ASTI Products, Developed Technology Products and Pre-Selection Products incorporate therapeutic agents that are off-patent or therapeutic agents marketed by multiple companies, such products will face more competition than products incorporating proprietary therapeutic agents. The fundamental technology underlying retinoids licensed to ASTI is also cross-licensed to Ligand and therefore competition from similar activities by Ligand and its collaborators in retinoids is likely. In addition, pursuant to the agreement between Allergan and Ligand, each party has been granted non-exclusive rights to use the ALRT technology with respect to any unsynthesized compounds, provided that such license will become exclusive with respect to any compound with respect to which an IND is filed with and accepted by the FDA. Accordingly, no assurance can be given that Ligand will not be the first party to file an IND with 18 22 respect to any retinoid compound under research by ASTI, thereby preventing ASTI and Allergan from undertaking any further research, development or commercialization with respect to such compound. Allergan may develop products (including Developed Technology Products and Pre-Selection Products) for its own account, independent of ASTI, that compete directly with ASTI Products. In addition, ASTI Products, Developed Technology Products and Pre-Selection Products may compete with one another. Allergan Technology excludes, and ASTI will have no rights with respect to, any topical formulation of Tazarotene. Allergan is currently marketing a topical formulation of Tazarotene for the treatment of psoriasis and acne in the United States under the brand name "Tazorac" and outside of the United States under the brand name "Zorac." DEPENDENCE ON ALLERGAN FOR PERSONNEL AND FACILITIES ASTI will depend substantially on Allergan for research and development activities to be performed under the Research and Development Agreement. Although ASTI may perform directly, or engage other third parties to perform on its behalf, some of these activities, it is likely that Allergan will be responsible for executing substantially all of ASTI's research and development activities. While Allergan believes that its current and planned personnel and facilities will be adequate for the performance of its duties under the Research and Development Agreement, such personnel will perform services in the same facilities for Allergan itself. Subject to Allergan's obligation to use diligent efforts under the Research and Development Agreement, Allergan may allocate its personnel and facilities as it deems appropriate. Allergan's own research and development activities may restrict the resources that otherwise would be available for performing Allergan's duties under the Research and Development Agreement. See "The Agreements and the Purchase Option -- Research and Development Agreement." RELATIONSHIP BETWEEN ASTI AND ALLERGAN MAY LIMIT ASTI'S ACTIVITIES AND MARKET VALUE The terms of the Allergan/ASTI Agreements and ASTI's Restated Certificate of Incorporation were not determined on an arm's-length basis and certain terms may limit ASTI's activities and its market value. ASTI's Restated Certificate of Incorporation prohibits ASTI from taking or permitting any action that might impair Allergan's rights under the Purchase Option. Prior to the expiration of the Purchase Option, ASTI may not, without the consent of Allergan as the sole holder of ASTI Class B Common Stock, merge or liquidate, or sell, lease, exchange, transfer or dispose of any substantial assets, or amend its Restated Certificate of Incorporation to alter the Purchase Option, ASTI's authorized capitalization, or the provisions of the Restated Certificate of Incorporation governing ASTI's Board of Directors. The provisions of ASTI's Restated Certificate of Incorporation granting special rights to the holder or holders of the ASTI Class B Common Stock and eliminating the right of ASTI stockholders to call special meetings of stockholders may prevent a change in control of ASTI. The special rights accorded to the holder or holders of the ASTI Class B Common Stock will expire upon expiration of the Purchase Option. See "The Agreements and The Purchase Option--Purchase Option" and "Description of ASTI Capital Stock." So long as the Purchase Option is exercisable, the market value of the ASTI Shares will be limited by the Purchase Option Exercise Price. The Purchase Option Exercise Price was determined by Allergan, giving consideration to the structure of the Distribution, ASTI's planned business, the Allergan/ASTI Agreements, advice given by Merrill Lynch, and such other factors as Allergan deemed appropriate. The Purchase Option Exercise Price was not determined on an arm's-length basis. The existence of the Purchase Option and Allergan's rights as holder of the ASTI Class B Common Stock may inhibit ASTI's ability to raise capital. Additional capital raised by ASTI, if any, would most likely reduce the per share proceeds available to holders of ASTI Shares if the Purchase Option were exercised. The existence of the Purchase Option and Allergan's rights as the holder of the ASTI Class B Common Stock may inhibit a change of control and may make an investment in ASTI Shares less attractive to certain potential stockholders, which could adversely affect the liquidity and market value of ASTI Shares. 19 23 If Allergan exercises its License Option for any ASTI Product, Allergan will have the right to commercialize the product with third parties on such terms as Allergan deems appropriate. In such event, payments from Allergan to ASTI with respect to the ASTI Product will be based solely on Sublicensing Revenues received from such third parties. DIRECTORS NOT INITIALLY ELECTED BY STOCKHOLDERS Lester J. Kaplan, Ph.D., is currently serving as the interim President and Chief Executive Officer and a Director of ASTI. Prior to the Distribution, Dr. Kaplan will resign as interim President and Chief Executive Officer and a Director, President and Chief Executive Officer of ASTI who is not an employee or Director of Allergan will be appointed. It is expected that this individual will appoint three additional Directors of ASTI, each of whom will not be an employee or Director of Allergan. Dr. Kaplan will remain a Director of ASTI following the Distribution in accordance with the rights of Allergan under ASTI's Restated Certificate of Incorporation as the sole holder of the outstanding shares of ASTI Class B Common Stock. Therefore, at present, the Directors expected to be appointed shortly after the Distribution are unknown. In addition, such Directors will not be elected by the stockholders, and the holders of the ASTI Shares will not have the opportunity to elect any members of the full Board of Directors until the first annual meeting of stockholders following the Distribution. LIMITATION ON ASTI'S ABILITY TO LICENSE PRODUCTS TO THIRD PARTIES ASTI has granted Allergan the License Option, which is exercisable on a product-by-product and country-by-country basis. During the term of the License Option for each ASTI Product, ASTI will not be able to license such ASTI Product to any party other than Allergan. Furthermore, ASTI may perform research with respect to product candidates which become ASTI Products only if recommended by Allergan and accepted by ASTI. In particular, it is expected that Allergan will perform Pre-Selection Work with respect to various product candidates. If such product candidates do not become ASTI Products, ASTI will have no rights with respect thereto except the right to receive limited royalties from Allergan on commercial sales of such products, if any. NO ASSURANCE OF TRADING VALUE OR MARKET FOR ASTI SHARES There can be no assurance there will be an active trading market for the ASTI Shares. POSSIBLE DILUTION; REDUCTION OF PER SHARE PURCHASE OPTION EXERCISE PRICE All ASTI Shares issued by ASTI after the Distribution will be subject to the Purchase Option, and the Purchase Option Exercise Price will not increase as a result of any such issuance. Accordingly, if additional ASTI Shares were to be issued, the percentage of the Purchase Option Exercise Price payable with respect to each ASTI Share in the event Allergan exercises the Purchase Option would be reduced. Liabilities, including any debt issued by ASTI, but excluding any accounts payable to Allergan, will reduce the Purchase Option Exercise Price to the extent that such liabilities exceed ASTI's cash, cash equivalents, and short-term and long-term investments (excluding Available Funds), unless repaid or discharged by ASTI prior to exercise of the Purchase Option. NO DIVIDENDS ASTI's Restated Certificate of Incorporation prohibits the payment of dividends from Available Funds. 20 24 THE DISTRIBUTION The Board of Directors of Allergan has declared a distribution, payable to Holders, of one ASTI Share for every 20 shares of Allergan Common Stock owned by such Holder on the Record Date. As a result of the Distribution, all of the then outstanding ASTI Shares will be distributed to the Holders. After the Distribution, Allergan will hold all of the authorized shares of ASTI Class B Common Stock. See "Description of ASTI Capital Stock." Subject to certain conditions set forth in the Distribution Agreement, Allergan will effect the Distribution (expected to be on or about , 1998) by delivering all of the ASTI Shares to the Distribution Agent. Commencing on or about the Distribution Date, the Distribution Agent will begin mailing account statements reflecting ownership of ASTI Shares to the Holders. ASTI stockholders may request stock certificates from the Distribution Agent. No fractional shares will be issued as part of the Distribution. The Distribution Agent will aggregate undistributed fractional shares and sell such shares at the earliest practicable date at the then-prevailing market price. Each person who would be otherwise entitled to receive a fractional share will instead receive a cash payment equal to such person's proportionate share of the net proceeds of the sale of such aggregated shares. No Holder will be required to pay any cash or other consideration for the ASTI Shares to receive shares in the Distribution. However, income taxes are likely to be payable. See "Certain Federal Income Tax Considerations." The general terms and conditions of the Distribution and the arrangements between Allergan and ASTI are set forth in the Allergan/ASTI Agreements. See "The Agreements and the Purchase Option." The Distribution Agreement conditions the Distribution on, among other things, the absence of material adverse changes to Allergan or ASTI. Stockholders of Allergan with inquiries regarding the Distribution should contact Allergan, Inc., Corporate and Investor Relations, 2525 Dupont Drive, Irvine, California 92612; telephone (714) 246-6301. 21 25 ASTI CAPITALIZATION The following table sets forth the capitalization and certain other balance sheet data of ASTI as of November 18, 1997, as adjusted to give effect to the contribution by Allergan of $200 million to ASTI, the filing of the Restated Certificate of Incorporation of ASTI and the issuance to Allergan of ASTI Shares prior to the Distribution. The data set forth below should be read in conjunction with the Financial Statements and related Notes included elsewhere in this Prospectus.
AS ADJUSTED AS OF NOVEMBER 18, 1997(1) ----------------- Cash................................................................. $ 200,000,000 ============ Stockholders' equity: Class A Common Stock, $.01 par value; 6,000,000 shares authorized; 3,262,400 shares outstanding as adjusted........................ $ 32,624 Class B Common Stock, $1.00 par value; 1,000 shares authorized; 1,000 shares outstanding as adjusted(2)......................... 1,000 Additional paid-in capital......................................... 199,966,376 ------------ Total stockholders' equity................................. $ 200,000,000 ============
- --------------- (1) See notes (a), (b) and (c) to Pro Forma Balance Sheet on Page F-5 for a description of the pro forma adjustments reflected in the adjusted balances. (2) All shares of Class B Common Stock, as adjusted, are held by Allergan. 22 26 REASONS FOR THE DISTRIBUTION AND EFFECTS ON ALLERGAN, INC. Allergan is a leading provider of specialty pharmaceutical products throughout the world with niche products in the movement disorder, dermatological, ophthalmic surgical device, eye care pharmaceutical and the over-the-counter contact lens care markets. Allergan had 1996 net sales of $1.1 billion and net income of $77.1 million. Adjusting for a one-time charge, its 1996 net income was $132.1 million. At September 30, 1997, Allergan's stockholders' equity was $795.5 million. Allergan is increasing its focus on leading-edge, technology-based pharmaceutical products. Through internal research and development efforts and external research and development collaborations, Allergan seeks to expand its product line with proprietary specialty pharmaceutical products that provide distinctive therapeutic and economic benefit. Allergan's research and development efforts to date have yielded many potential product opportunities. Such opportunities involve significantly different risk/reward profiles as compared to Allergan's established specialty pharmaceutical business. To continue the advancement of, and in certain cases accelerate, these projects and programs, Allergan seeks strategic collaborations and ventures, such as the recently concluded ALRT collaboration, to provide complementary financing. In September 1997, Ligand and Allergan exercised their respective options to purchase the outstanding ALRT Callable Common Stock and a one-half undivided interest in ALRT's assets. The initial agreements between Allergan and Ligand provided for a joint research and development and joint commercialization arrangement following exercise of the buyout option. Allergan and Ligand have amended and restated their existing agreements, effective as of the option exercise closing date, so that among other things, existing ALRT compounds and research and development programs will be divided among Allergan and Ligand, and each party will receive exclusive rights to the ALRT technology for use with their respective compounds and programs. Allergan's strategy also involves actively seeking outside product opportunities through joint ventures, licensing, acquisitions and strategic alliances with both technology, marketing and geographic partners. Allergan believes that the retinoid research and development work undertaken by ALRT to date and the research and development work it has undertaken, directly and through collaborations, in the neuroprotective area have yielded results which justify further research and development. However, a substantial amount of additional research and development effort is required to further develop Allergan's Retinoid and Neuroprotective Technologies through to their potential commercialization. Allergan believes that the formation of ASTI to fund the research and development of products for commercialization by Allergan, and the arrangements between Allergan and ASTI, will provide Allergan with the opportunity to continue to pursue and expand, more quickly than would otherwise be possible, its product commercialization business. Allergan believes that the arrangements with ASTI will significantly benefit Allergan stockholders by: - separating the risks associated with researching and developing pharmaceutical products based on Retinoid and Neuroprotective Technologies from those associated with Allergan's established specialty pharmaceutical business; - allowing individual stockholders of Allergan to increase or decrease their level of participation in the business of researching and developing pharmaceutical products based on Retinoid and Neuroprotective Technologies for commercialization by Allergan by varying their level of investment in ASTI; - obtaining for Allergan the exclusive right to commercialize, in the United States with respect to Memantine and worldwide with respect to any other ASTI Products, any successfully developed ASTI Product, assuming Allergan's exercise of the License Option with respect to such product or exercise of the Purchase Option, thereby making it possible for Allergan to capture a potentially greater return on the products researched and developed with ASTI than may otherwise be possible from products researched and developed for commercialization in conjunction with other third parties; and - allowing Allergan's near-term financial results to continue to reflect principally its established specialty pharmaceutical business, by providing Allergan with research and development revenues from ASTI to reimburse Allergan for Research and Development Costs incurred by Allergan. 23 27 After reviewing Allergan's goals and objectives and considering other possible methods of expanding its product line with proprietary specialty pharmaceutical products based on Retinoid and Neuroprotective Technologies that provide distinctive therapeutic and economic benefit, Allergan's management and Board of Directors believe that continuing to pursue the research and development of such products through the formation of ASTI and the Distribution will significantly benefit the Allergan stockholders. The Board of Directors' final approval of this transaction was conditioned upon the advice and the delivery of a written opinion of Merrill Lynch. Merrill Lynch has delivered an opinion dated , 1998, substantially to the effect that, based upon the factors recited in such opinion and the actions described below, (i) from a financial point of view, the Distribution provides a reasonable structure to pursue the financial objectives of Allergan set forth above and (ii) from a financial point of view, the Distribution is fair to Allergan's stockholders. In delivering its opinion, Merrill Lynch has undertaken, among other things, the following actions: (a) a review of the Prospectus and certain other material documents; (b) discussions with members of senior management of Allergan with respect to the businesses and prospects of Allergan and ASTI and the strategic objectives of each; (c) discussions concerning the Distribution with other representatives and advisors of Allergan; (d) a review of financial and other information concerning Allergan (with and without ASTI) that was either publicly available or was furnished to it by Allergan; (e) a review of historical prices and trading volumes of the Allergan Common Stock; (f) a review of the terms and conditions of transactions that are similar to the transactions contemplated in connection with the Distribution; and (g) a review of such other financial studies and analyses as it deemed to be appropriate. The opinion states that Merrill Lynch has relied on the accuracy and completeness of all information supplied or otherwise made available to it, discussed with or reviewed by or for it, or publicly available (including the information contained in this Prospectus), and Merrill Lynch has not assumed any responsibility for independently verifying such information or undertaken an independent evaluation or appraisal of any of the assets or liabilities of Allergan (with or without ASTI) or been furnished with any such evaluation or appraisal. In connection with this opinion, Merrill Lynch has not been asked to, nor has it provided any opinion as to, the valuation or future performance of ASTI as an independent public company following the Distribution. In its opinion, Merrill Lynch does not opine on or give assurances of the price at which the shares of Allergan Common Stock will actually trade after announcement of the Distribution or the price at which the ASTI Shares will actually trade after the Distribution. The opinion notes that such trading following the Distribution may be characterized by a redistribution among existing stockholders and other investors and that accordingly the shares of Allergan Common Stock and the ASTI Shares may trade during such period at prices below those at which they would trade on a fully distributed basis. In addition, the opinion does not address whether the funds invested by Allergan or ASTI will be adequate to accomplish the objective of successfully developing ASTI Products. Allergan will pay Merrill Lynch a fee of $ for its services in connection with the Distribution. The receipt of this fee is contingent upon the consummation of the Distribution. Merrill Lynch will also be reimbursed for up to $ of expenses that it has incurred or will incur in rendering its services. Allergan has agreed to indemnify Merrill Lynch against certain liabilities and expenses in connection with its services as financial advisor. Merrill Lynch has from time to time performed various investment banking and financial advisory services for Allergan. Merrill Lynch may actively trade Allergan Common Stock and may, in the future, trade ASTI Shares for its own account and for accounts of customers and, accordingly, may at any time hold a long or short position in such securities. Merrill Lynch, as part of its investment banking business, engages in the valuation of businesses and securities in connection with mergers, acquisitions, underwritings, sales and distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. Allergan selected Merrill Lynch as its financial advisor because it is a nationally recognized investment banking firm that has substantial experience in transactions similar to the Distribution. Although Merrill Lynch participated in certain of the discussions regarding the Distribution, the terms of the Distribution were determined by Allergan's Board of Directors. 24 28 BUSINESS OF ASTI BACKGROUND ASTI was formed by Allergan in November 1997 to research and develop pharmaceutical products based on Retinoid and Neuroprotective Technologies. ASTI has not conducted any business to date and has no employees other than its President and Chief Executive Officer. ASTI does not intend to perform any research, development or other activities on its own behalf, as it will pay Allergan to perform all such activities pursuant to the terms of the Research and Development Agreement. The ASTI Products initially to be researched and developed under the Research and Development Agreement are (i) Tazarotene (oral), (ii) Memantine (in the United States), (iii) AGN 4310 and (iv) a compound to be selected from the RAR alpha-selective agonist class of compounds. In addition, the Board of Directors of ASTI has the right, with the consent of Allergan, to expand the indications for the ASTI Products and to select additional products for research and development. However, ASTI will have no rights with respect to any topical formulation of Tazarotene. Allergan is currently marketing a topical formulation of Tazarotene for the treatment of psoriasis and acne in the United States under the brand name "Tazorac" and outside of the United States under the brand name "Zorac." ASTI's belief in the potential efficacy of the ASTI Products is based upon preclinical studies performed by Allergan or other third parties. ASTI has not received FDA approval to begin clinical trials on any ASTI Product other than Memantine, and neither ASTI nor Allergan has received FDA approval for the manufacturing and/or marketing of any of the ASTI Products. Consequently, there can be no assurance that the ASTI Products or any other products selected for research and development will receive the necessary FDA approvals, that either ASTI or Allergan will commence manufacturing or marketing of any of the ASTI Products or as to when manufacturing and marketing of the ASTI Products will commence. In order to conduct its business, ASTI will depend substantially on Allergan and Allergan's licensors for rights to use Allergan Technology, for research and development activities, for administrative services and, if Allergan exercises any License Option, for the commercialization of ASTI Products. ASTI may also perform directly, or engage other third parties to perform on its behalf, some of these activities. However, it is likely that Allergan will be responsible for executing substantially all of the operational activities necessary for ASTI's business following the Distribution and continuing through completion of the development stage of the ASTI Products, and that ASTI's funds will be used primarily to fund these activities under the Research and Development Agreement and the Services Agreement and to pay the Technology Fee. ASTI's Board of Directors will be responsible for determining which products will be pursued, and for approving the work plans and cost estimates therefor. ASTI's Chief Executive Officer will supervise and review Allergan's ongoing activities on behalf of ASTI. See "Risk Factors -- Dependence on Allergan for Personnel and Facilities." Prior to the Distribution, Allergan will contribute a total of $200 million in cash to ASTI in exchange for all of the shares of ASTI Common Stock outstanding prior to the Distribution. As the sole holder of ASTI's outstanding Class B Common Stock following the Distribution, Allergan will have the option to repurchase all of the outstanding ASTI Shares under specified conditions. Allergan has also granted certain technology licenses and agreed to make specified payments on sales of certain products in exchange for the payment by ASTI of the Technology Fee and the option to independently develop certain compounds funded by ASTI prior to the filing of an Investigational New Drug application ("IND") with respect thereto and to license any products and technology developed by ASTI. In the early years, ASTI's only revenues are expected to be from investment income. In later years, if Allergan were to exercise its License Option for any ASTI Product, or if an ASTI Product were commercialized by ASTI itself or by a third party on behalf of ASTI, ASTI would derive revenues from sales of the ASTI Product or from fees paid to ASTI by third parties for the rights to commercialize the ASTI Product. ALLERGAN TECHNOLOGY OVERVIEW ASTI will be entitled to use Allergan Technology in connection with research and development relating to the ASTI Products. Allergan Technology includes all technology owned, licensed to or controlled by Allergan relating to Retinoid and Neuroprotective Technologies, excluding topical formulations of Tazarotene and non-U.S. rights to Memantine. The Allergan Technology licensed to ASTI includes existing Allergan 25 29 Technology and will also include new technology developed or licensed by Allergan. The following is a description of certain Allergan Technology that may be incorporated in ASTI Products. OVERVIEW OF RETINOID TECHNOLOGY Retinoids, which include naturally occurring hormones derived from Vitamin A and synthetic analogs, regulate a very broad range of important biological activities including cell proliferation and differentiation, programmed cell death, lipid metabolism and immune function. Retinoids have been shown to be of potential therapeutic benefit in a variety of diseases including psoriasis, acne, cancer, diabetes, emphysema and arthritis. Despite their major therapeutic applications, the use of retinoids in clinical medicine has been limited by unacceptable toxicities that are associated with most of the currently-marketed retinoids. However, recent advances in the understanding of retinoid mechanism of action have provided rational approaches to the design and research and development of new retinoid drugs with superior therapeutic indices. Retinoids elicit their myriad biological effects by regulating gene transcription through multiple, specific nuclear receptors termed retinoid receptors. There are six known retinoid receptors belonging to two families, the Retinoid Acid Receptors ("RARs") and the Retinoid X Receptors ("RXRs"), each with three distinct subtypes (alpha, beta and gamma). These individual receptors appear to have distinct biological functions because of different tissue distribution patterns and target gene specificities. Non-selective retinoid compounds that indiscriminately activate all of the retinoid receptors cause many toxic side effects along with the therapeutic effect in a given disease. Receptor-selective retinoids, on the other hand, would be expected to be of therapeutic benefit in a narrower range of diseases but also to be associated with far fewer side-effects. Thus, a receptor-selective retinoid which will be targeted to specific diseases should have a much better therapeutic index than the current drugs. The fundamental technology underlying retinoids licensed to ASTI is also cross-licensed to Ligand and therefore competition from similar activities by Ligand or its collaborators in retinoids is likely. In addition, pursuant to the agreement between Allergan and Ligand, each party has been granted non-exclusive rights to use the ALRT technology with respect to any unsynthesized compounds, provided that such license will become exclusive with respect to any compound with respect to which an IND is filed with and accepted by the FDA. Accordingly, no assurance can be given that Ligand will not be the first party to file an IND with respect to any retinoid compound under research by ASTI, thereby preventing ASTI and Allergan from undertaking any further research, development or commercialization with respect to such compound. OVERVIEW OF NEUROPROTECTIVE TECHNOLOGY AND GLAUCOMA Vision loss in glaucoma results from damage to retinal ganglion cells, the cells that connect the retina to the brain. Currently, the clinical management of glaucoma is limited to surgical or pharmaceutical reduction of intraocular pressure. In many patients, however, reduction of intraocular pressure does not prevent progression of visual loss associated with glaucoma. Furthermore, a significant fraction of the clinical glaucoma population has intraocular pressure within the normal range. For this reason, efforts to develop more effective glaucoma therapies are focused on the preservation of retinal ganglion cells and, thereby, the prevention of blindness. The prevention of blindness in glaucoma patients would represent a medical breakthrough. With an estimated 6 to 7 million glaucoma patients by the year 2000 worldwide, glaucoma represents a large market opportunity. Allergan has undertaken a rigorous study of the mechanisms which may be responsible for glaucomatous damage to retinal ganglion cells. Allergan is focused on two specific targets, the NMDA-type glutamate receptor and the voltage-gated sodium channel or combination ion channel blockers, which are physiologically well characterized and which, according to existing evidence, may contribute to glaucomatous damage of retinal ganglion cells. Allergan believes that these two mechanisms represent currently the best opportunities for protection of retinal ganglion cells and, accordingly, obtained worldwide exclusive rights to develop products containing Memantine for ophthalmic uses from Merz in February 1997. Memantine is currently in use in Germany for the treatment of other clinical indications and can be expected to reach protective levels in the retina following oral administration. New clinical methods that are more sensitive in reducing vision loss with higher sensitivity are important areas of current clinical investigation. Thus, Memantine may allow a 26 30 rapid path into a clinical efficacy trial using current and novel approaches to document vision sparing in humans. In parallel, Allergan research will be developing new neuroprotection compounds from Allergan research or in collaboration with Cambridge NeuroSciences, Inc. ("CNSI"). THE ASTI PRODUCTS ASTI Products are products recommended by Allergan, and accepted by ASTI, for research and development under the Research and Development Agreement. Four initial ASTI Products are currently under research and development by Allergan. The Research and Development Agreement provides that ASTI will reimburse Allergan for the Research and Development Costs of the four initial ASTI Products from October 23, 1997, the date on which ALRT ceased funding their research and development, through March 31, 1998. Such Research and Development Costs are expected to total between $7 million and $8 million for all of the ASTI Products and Pre-Selection Work undertaken during such period. This arrangement is intended to ensure that research and development of the ASTI Products continues uninterrupted through and beyond the Distribution. To continue research and development of any ASTI Product beyond March 31, 1998, Allergan must propose and ASTI's independent Board of Directors must accept an additional work plan and cost estimate for that ASTI Product. It is expected that Allergan will recommend such additional work plans and cost estimates to ASTI by March 31, 1998. Under the Allergan/ASTI Agreements, ASTI will own the ASTI Products. Continuation of Pre-Selection Work will also require proposal and acceptance of a plan and cost estimate. See "Risk Factors -- No Assurance of Continued Research or Development of ASTI Products." RETINOID PRODUCTS Allergan has already identified many classes of retinoid compounds which are selective for receptor families (for example, RAR vs. RXR) as well as for individual receptor subtypes (for example, RAR alpha selective and RAR beta selective receptor subtypes). As a further advance, Allergan has identified new function-selective compounds such as RAR neutral antagonists and inverse agonists. Allergan has also been successful in combining the structural features separately required for receptor subtype and for function selectivity to produce subtype/function selective compounds such as RAR alpha specific antagonists. As these novel compounds become available, research is initiated in order to identify specific therapeutic applications for the different classes of selective compounds. Allergan evaluates these selective compounds in a variety of pre-clinical models for efficacy in dermatology, oncology and metabolic disease. The scope of the search for potential therapeutic applications is further expanded by collaborations with academic laboratories in which the compounds are evaluated in pre-clinical models in a variety of other areas including ophthalmology (proliferative vitreoretinopathy and age-related macular degeneration), human papilloma virus-related diseases (cervical dysphasia), emphysema and restenosis. Several lead compounds and therapeutic targets have already been identified and these are in various stages of development as detailed below. It is also expected that ongoing research will identify newer classes of retinoid compounds and exciting applications in human disease. Tazarotene (oral). Tazarotene is a potent RAR beta gamma selective agonist which was recently introduced into the market as a topical treatment for psoriasis and acne. Tazarotene is the first retinoid to be approved for the topical treatment of psoriasis, and Allergan is currently marketing topical Tazarotene for the treatment of psoriasis and acne in the United States under the brand name "Tazorac" and outside of the United States under the brand name "Zorac." Allergan Technology excludes, and ASTI will have no rights with respect to, any topical formulation of Tazarotene. An oral formulation of Tazarotene is in late stages of pre-clinical research and development and clinical trials in cancer, acne and psoriasis are expected to start in 1998. Given the clear demonstration of the clinical efficacy of topical Tazarotene in plaque psoriasis, oral Tazarotene may also be effective in the treatment of psoriasis. It is also possible that oral Tazarotene may be an effective agent in severe psoriasis involving extended body areas. If this were the case and depending on its side-effect profile, it is possible that oral Tazarotene may effectively replace acitretin and etretinate as the preferred oral retinoid for psoriasis. It should be noted that acitretin and etretinate are not particularly 27 31 efficacious agents. Thus, if oral Tazarotene is an effective agent which provides prolonged remission, oral Tazarotene may expand the current limited market for oral retinoids in psoriasis. Topical Tazarotene is also effective in treatment of mild to moderate acne, presumably by a keratolytic mechanism similar to other topical retinoids. The systemic retinoid, Accutane, is a very effective agent in severe acne and it is believed to work by a sebosuppressive mechanism. Oral Tazarotene may also be sebosuppressive in humans, which will be evaluated in a phase II study. If effective, oral Tazarotene could be a competitor in the large market of oral retinoids for acne. Oral retinoids have been shown to be of benefit in a variety of human cancers including acute promyeloctyic leukemia and squamous cell carcinomas of the cervix and the head and neck. After phase I/IIA studies to determine a maximum tolerated dose, oral Tazarotene will be investigated in phase IIB studies in several tumors, both as monotherapy and in combination with other modalities. AGN 4310. RAR antagonists/inverse agonists represent a completely novel class of retinoid compounds which have a unique biology distinct from that observed for retinoid agonists. AGN 4310, an optimized compound from this class, is in pre-clinical development with expected IND filings for two indications (topical antidote to systemic retinoid-induced mucocutaneous toxicity and topical treatment of psoriasis) in the fourth quarter of 1998. Mucocutaneous toxicity is an almost universally observed and bothersome side-effect associated with the use of systemic retinoids such as Accutane. As a consequence, an effective agent for the treatment and prevention of this adverse effect is likely to be a well-accepted adjunct to systemic retinoid therapy. It is well-established that mucocutaneous toxicity induced by systemic retinoids results from activation of RARs, particularly RAR gamma. AGN 4310 is a very potent and effective antagonist of retinoid agonist activity at all three RARs. Also, topical AGN 4310 used at very low doses can effectively prevent or treat the skin irritation produced by systemic retinoids in clinically-relevant animal models. Animal models have shown that this blockage of topical irritation can be achieved without compromising the systemic efficacy of retinoid agonist. Thus, AGN 4310 may be effective in human clinical studies as a topical antidote to systemic retinoid-induced mucocutaneous toxicity. It would be the first product introduced for this therapeutic application. In addition to its efficacy as an antagonist of retinoid agonist action, AGN 4310 may have pharmacological actions by itself by acting as an inverse agonist. Inverse agonists are compounds that can actually repress the basal gene transcriptional activity associated with unliganded nuclear receptors. The concept of inverse agonsim in the field of nuclear receptors is a completely novel one and was first introduced by Allergan. Recent studies have shown that RAR inverse agonists such as AGN 4310 function by binding to RAR and increasing interaction between RARs and co-repressor proteins such as NCoR. However, the subsequent molecular events have not been identified and the pharmacology associated with these novel compounds remains largely unexplored. Studies conducted by Allergan scientists have indicated that RAR inverse agonists can suppress psoriasis-associated markers in human keratinocytes induced to differentiate along a psoriasiform pathway. Given the possibility that psoriasis is associated with defective keratinocyte function, these data suggest that an RAR inverse agonists such as AGN 4310 may be an effective agent for the topical treatment of psoriasis. Other studies have suggested that AGN 4310 will function in psoriasis by a mechanism quite distinct from that of a retinoid agonist such as Tazarotene. Since AGN 4310 is also expected to be non-irritating, it is possible that it could be an important product for the topical treatment of psoriasis. It is also possible that ongoing research will identify other therapeutic applications for RAR inverse agonists. Since endogenous retinoid signaling pathways are intimately involved in the control of several fundamental biological processes such as cell differentiation and proliferation, it is likely that there are pathological conditions which are dependent on endogenous retinoids for their maintenance. Such diseases are likely to be appropriate therapeutic targets for an RAR inverse agonists such as AGN 4310. RAR alpha Selective Retinoids. Allergan has also identified several series of RAR alpha subtype-specific agonists, the first known examples of receptor subtype-specific retinoids. Studies in pre-clinical models suggest that RAR alpha- 28 32 specific agonists may be of potential use in breast cancer and leukemia. RAR alpha-specific agonists also inhibit the proliferation of some estrogen receptor (ER)-negative breast cancer cell lines suggesting that they may be effective in treating ER-negative breast cancers as well. This is of particular therapeutic significance since the prognosis for ER-negative breast cancer patients is particularly poor. Studies conducted in various animal models of retinoid toxicity suggest that RAR alpha-specific retinoids agonists are significantly reduced or completely devoid of the mucocutaneous, bone and some other general toxicities associated with non-specific retinoids. However, RAR alpha-specific compounds still retain the hypertriglyceridmic toxicity associated with their non-selective counterparts. This type of data indicate that the RAR alpha-specifics may have a much improved therapeutic index in their target diseases relative to the non-selective retinoids currently in use. Our findings in the RAR alpha area appears to validate our fundamental hypothesis that receptor and function selectivity can lead to compounds of improved therapeutic ratios. Treatment of leukemias and breast cancer is the immediate therapeutic goal in the RAR alpha area and it is anticipated a development candidate will be selected and development activities commence in 1998. However, it is likely that further research in the area and clinical studies with the development candidate will identify other therapeutic applications for RAR alpha agonists. In addition, the relative clean side-effect profile of RAR alpha-specific agonists may make them the compounds of choice as potential chemopreventive agents. It is currently expected that specific RAR alpha product candidates will be selected in 1998. Other Retinoids. RAR beta-specific transactivators. Allergan scientists have also identified several classes of RAR beta-specific transactivators. Research in terms of potential therapeutic applications for RAR beta-specifics is at a relatively early stage. However, several studies have suggested that aberrations in RAR beta mediated gene transcription may be associated with head and neck and lung cancer. Hence, cancer of these types are potential targets for RAR beta-specifics and research investigations are underway with the currently available compounds to identify therapeutic applications. Research programs are also underway to identify better retinoids for the oral treatment of acne and the oral and topical treatment of psoriasis. Allergan scientists have also shown that it is possible to make compounds that do not themselves activate gene transcription through RARs but can antagonize the gene transcriptional effects of other pathogenic nuclear transcription factors such as AP1. Such anti-AP1 function selective retinoids may be effective anti-inflammatory agents and the development of pure anti-AP1 compounds is also being pursued. RXR Agonists. RXRs function in vivo as heterodimeric partners with other nuclear receptors including RARs. Recent research has suggested that RXRs heterodimerized with the Peroxisome-Proliferator Activated Receptor gamma ("PPARg") may be a molecular target in functions of potential benefit in metabolic disease. Thiazolidinediones ("TZDs") are a class of compounds of demonstrated clinical efficacy in the treatment of Type II or non-insulin dependent diabetes mellitus. It has recently been shown that TZDs function by binding to the PPARg half of RXR-PPARg heterodimers and activating these heterodimers. Our research has shown that RXR ligands can also activate RXR-PPARg heterodimers and that they are effective in well-characterized animal models of Type II diabetes. Thus, RXR agonists effectively lower the hyperglycemia and hyperinsulinemia observed in rodent models of diabetes associated with disorders of leptin signaling. Moreover, the RXR agonists, like TZD's, appear to function in these models by restoring insulin sensitivity. Thus, RXR agonists and TZDs may be a new class of anti-diabetic agents that function as insulin sensitizers. Also, the RXR agonists give additive or synergistic effects when used in combination with TZDs and insulin in these animal models. These data suggest that the maximum therapeutic benefits in diabetes can be derived by combination therapies may prevent progression to insulin dependence and may reduce insulin requirement in Type I diabetes. Allergan currently intends to develop RXR agonists with a collaboration partner. It is therefore likely that these products will be licensed by Allergan while still undergoing Pre-Selection Work. MEMANTINE Memantine is a glutamate receptor blocker, which has been shown to protect nerve cells from injury and death in a number of in vitro and in vivo studies. This neuroprotective activity has been shown to be useful 29 33 both for acute injury (ischemia, trauma) and for chronic, neurodegenerative processes (dementia) involving neurons in the central nervous system. Glaucoma is a blinding disease characterized by death of neurons (specifically, retinal ganglion cells) that connect the eye to the brain. This neuronal cell death is the ultimate cause of visual loss associated with the disease. Currently, therapy is directed toward lowering of intraocular pressure ("IOP"), one of the major risk factors for vision loss. Memantine, as a drug directed toward preserving nerves important for vision, would directly target the loss of visual function. As such, the drug represents a novel therapeutic approach which is applicable to various forms of glaucoma regardless of their etiology. The excitatory neurotransmitter glutamate is normally involved in interneuronal signal transmission, but in excess can be toxic to neurons. This concept of "excitotoxicity" is widely recognized and has served as a basis for the design of a number of novel therapeutic agents. Increased levels of glutamate have been found, in fact, in the vitreous (the material filling the interior of the eye) of glaucoma patients. This has led to the hypothesis that an excessive release of glutamate in the retina is associated with glaucoma, and may contribute significantly to retinal ganglion cell loss. Previous studies have demonstrated that glutamate toxicity is mediated by activation of a subset of glutamate receptors (NMDA) and the subsequent influx of calcium ions into the nerve cells. Memantine has been shown to bind to NMDA receptors and lead to blocking of receptor channel function. Recently, it has been determined that Memantine is able to block NMDA receptors in the presence of increasing levels of glutamate. By this mechanism, Memantine has been shown to protect against glutamate toxicity both in cell culture and in animal models, while having minimal effects on normal synaptic transmission. These studies support the use of Memantine in glaucoma patients, where inhibition of NMDA receptors would be expected to slow or prevent glutamate-induced excitotoxicity and the associated loss of visual function. Memantine has been marketed in Germany by Merz since 1983 and is registered in 14 other countries around the world. Its licensed uses are dementia/organic brain syndrome, Parkinson's disease and cerebral and spinal spasticity. Allergan completed an agreement with Merz in February 1997 to purchase the clinical, toxicological, pharmacokinetic and chemistry data supporting the safety and efficacy of this drug, together with the right to cross-reference Merz's U.S. IND, for Allergan's filing purposes. Allergan filed its own U.S. IND in September 1997. A Phase I/II safety study in glaucoma patients was begun in October 1997. Two Phase III trials are planned for July 1998. One will be carried out in open-angle glaucoma patients, with concurrent IOP-lowering medication. The second study will be done in ocular hypertensive patients not receiving IOP lowering drugs. These studies, directed toward registration of the drug world-wide, are scheduled for completion in 2002. Many NMDA antagonists have been tested in human clinical trials and have been disappointing. Side effects are the principal reason for failure. The unique pharmacological profile and current use in humans suggests Memantine may be different from most NMDA antagonists; however, there can be no assurance of this fact. The use of Memantine in glaucoma is covered by a patent application filed by Children's Hospital, Boston, Massachusetts ("Children's Hospital") in December 1992. Allergan obtained exclusive rights to this technology through a license agreement with Children's Hospital in August 1995. Memantine is currently undergoing clinical trials in the U.S. for AIDS, dementia and neuropathic pain. Allergan, Allergan Pharmaceuticals (Ireland) Ltd., Inc., an affiliate of Allergan ("Allergan-Ireland"), and certain other Allergan affiliates have entered into a cross license agreement (the "Cross License Agreement") whereby rights to commercialize Memantine and any improvements to the Memantine technology in the United States have been exclusively licensed to Allergan, and rights to commercialize Memantine and any improvements to the Memantine technology in the rest of the world other than the United States have been exclusively licensed to Allergan-Ireland. Pursuant to the Technology License Agreement, Allergan has licensed to ASTI its rights under the Cross License Agreement. VOLTAGE-ACTIVATED SODIUM CHANNELS AND NMDA ANTAGONISTS Another class of ion channels that Allergan has targeted for research are voltage-activated sodium channels. These channels are expressed on the axons of retinal ganglion cells. Allergan scientists speculate that 30 34 this is an important site of injury in glaucoma. Drugs which can shut down the operation of sodium channels and/or NMDA channels may prevent or limit the extent of neurodegeneration in animals. In addition, further research by Allergan scientists and universities regarding the molecular biology, structure and function of NMDA and sodium channels may lead to the identification of additional drug discovery targets. These advances may facilitate the development of novel, differentiated neuroprotective drugs. Ion Channel Blockers Research by Allergan scientists has indicated that excessive activation of ion channels other than the NMDA-type in the ischemic retina and optic nerve may lead to cellular calcium overload and neurodegeneration. Allergan has entered into a collaborative relationship with CNSI to discover, develop and commercialize compounds for use in the field of ion channel blockers for the treatment of ophthalmic diseases and disorders. Compounds selected by Allergan from CNSI are at a much earlier phase of the drug discovery/development process than Memantine. CNSI compounds are currently undergoing ocular pharmacology testing. Included in the CNSI technology licensed to Allergan are patent rights covered by 19 granted U.S. patents and numerous U.S. and foreign corresponding pending patent applications. PRE-SELECTION WORK Much of the Allergan Technology consists of product candidates for which substantial additional research must be conducted before a conclusion can be reached as to whether it is worthwhile to attempt to develop the candidate as a therapeutic product. Such research would include such matters as determining the molecular make-up of the candidate, determining whether and how it can be manufactured and determining how strongly it binds to a desired receptor or otherwise exhibits in-vitro and in-vivo effects. ASTI will spend a portion of its funds conducting this type of broad research to identify viable product candidates. ASTI will pay for this research in the same manner as other research and development under the Research and Development Agreement. ASTI will not pay for any research on a product development candidate that is the subject of an IND filing unless Allergan has proposed and the ASTI Board has accepted such product as an ASTI Product. Unless such product has been proposed and accepted as an ASTI Product, Allergan will be free to exploit such product in any way it deems beneficial, including through potential corporate partners and/or sublicensing to third parties, subject only to its obligations to make payments to ASTI as Developed Technology Royalties or Pre-Selection Product Payments. It is currently expected that approximately $7 million to $10 million will be spent on candidate identification, feasibility evaluation and research relating to Pre-Selection Product candidates each year by ASTI. See "Business of ASTI -- Potential Research and Development Expenditures." POTENTIAL RESEARCH AND DEVELOPMENT EXPENDITURES Based on Allergan's experience in other product research and development programs, Available Funds are expected to be expended pursuant to the Research and Development Agreement over a period of approximately four to five years as follows:
1998 1999 2000 2001 2002 -------- -------- -------- -------- -------- (IN MILLIONS) Candidate Identification, Feasibility Evaluation and Research..................... $ 7 - 8 $ 8 - 10 $ 8 - 10 $ 7 - 8 $ 7 - 9 Product Development............ 18 - 22 21 - 25 27 - 33 35 - 42 43 - 52 -------- -------- -------- -------- -------- Total................ $25 - 30 $29 - 35 $35 - 43 $42 - 50 $50 - 61
These estimates will change as ASTI Products are researched and developed. Because of the long-range nature of any pharmaceutical product research and development plan, research and development of a particular product or products could accelerate, slow down or be discontinued, technology or products could be purchased or licensed, and other unforeseen events could occur, all of which would significantly affect the 31 35 timing and amount of expenditures. See "Risk Factors -- No Assurance of Continued Research or Development of ASTI Products." GOVERNMENTAL REGULATION All ASTI Products, Developed Technology Products and Pre-Selection Products will require clearance by the FDA and comparable agencies in other countries before they can be marketed. During the research and development stage and as required, INDs for all new products will be filed with the FDA prior to the commencement of initial (Phase I) clinical testing in human subjects in the United States. In some instances this process could result in substantial delay and expense. No INDs have been filed to date for any of the initial ASTI Products other than Memantine. After Phase I/II testing, which is intended to demonstrate the safety and functional characteristics of a product, extensive efficacy and safety studies in patients must be conducted. After completion of Phase III clinical testing, an NDA is submitted, and its clearance involves an extensive review process. There can be no marketing in the United States of any product for which an NDA has been submitted until that NDA has been accepted for filing and cleared by the FDA. It is impossible to determine the amount of time that will be required to obtain clearance from the FDA to market any product or the cost of obtaining such clearance. Whether or not FDA clearance has been obtained, marketing clearance of a product by the relevant regulatory authorities must be obtained in each foreign country before the product may be marketed in that country. The clearance procedures vary from country to country, and the time required may be longer or shorter than that required for FDA clearance. In many foreign countries, pricing and reimbursement approvals are also required. Although there are certain procedures for unified filing in the European Community, in general each country has its own procedures and requirements. All facilities and manufacturing techniques used for the manufacture of products for clinical use or for sale must conform with "current Good Manufacturing Practices," the FDA regulations governing the production of pharmaceutical products. These regulations govern a range of activities including manufacturing, packaging, quality assurance and recordkeeping. Other FDA regulations govern labeling and advertising materials. From time to time, the FDA and other federal, state and local government agencies may adopt regulations that affect the manufacturing and marketing of pharmaceutical products. Environmental regulations will also affect the manufacture of such products. Pharmaceutical products and their manufacture often use chemicals and materials that may be classified as hazardous or toxic and/or require special handling and disposal. Allergan undertakes to minimize releases into the environment, and exposure of its employees and the public, to such materials. The cost of these activities continues to increase. Some of the therapeutic agents used in ASTI Products, Developed Technology Products and Pre-Selection Products may also be regulated by the United States Drug Enforcement Administration. PATENTS As of November 17, 1997, Allergan owned 1,287 granted patents worldwide and 785 pending patent applications worldwide. It is expected that Allergan will attempt to secure patent coverage for each of the ASTI Products. Allergan believes that its current patents, and patents that may be obtained in the future, are important to its future operations and to ASTI. Patent protection generally has been important in the pharmaceutical industry, and the commercial success of ASTI Products, Pre-Selection Products and Developed Technology Products may depend, in part, upon Allergan's ability to obtain strong patent protection. Although Allergan's existing patents, pending patents, and any patents obtained in the future may be of importance to ASTI, there can be no assurance that any additional patents will be issued or that any patents now or hereafter issued will be of commercial benefit. Although a patent has a statutory presumption of validity in the United States, the issuance of a patent is not conclusive as to such validity or as to the enforceable scope of the claims therein, and the validity and enforceability of a patent after its issuance by the United States Patent Office can be challenged in litigation. If the outcome of such litigation is adverse to the owner of the patent, third parties may then be able to use the invention pertaining to the patent, in some cases without payment. There can be no assurance that patents 32 36 covering ASTI Products, Developed Technology Products or Pre-Selection Products, if and when issued, will not be infringed or successfully avoided through design innovation. It is also possible that third parties will obtain patents or other proprietary rights that might be necessary or useful to Allergan or ASTI. In cases where third parties are the first to invent a particular product or technology, it is possible that those parties will obtain patents that will be sufficiently broad so as to prevent Allergan or ASTI from using certain Developed Technology or other Allergan Technology or from marketing certain products. If licenses from third parties are necessary and cannot be obtained, commercialization of such products could be delayed or prevented. Third parties may claim that ASTI Products infringe their patents; in such event Allergan or ASTI would need to defend against such claims. Defense of such claims could be costly and time consuming. If licenses to the third party's patents are available, the payments required by the third parties could be significant. In addition, ASTI may use substantial unpatented technology. There can be no assurance that others will not develop similar technology. Allergan licenses certain intellectual property from third parties which it will sublicense to ASTI pursuant to the Technology License Agreement. Specifically, Allergan has licensed certain rights to its retinoid technology from ALRT and certain rights to the technology underlying Memantine from Children's Medical Center Corporation and Merz. In addition, Allergan has licensed certain ion channel blocker technology from CNSI. Under the terms of certain of its license agreements, Allergan may be obligated to exercise diligence and make certain royalty and milestone payments as well as incur costs related to filing and prosecuting the underlying patents. Each agreement is terminable by either party upon notice if the other party defaults in its obligations. Should Allergan default under any of its agreements, Allergan and therefore ASTI may lose its right to market and sell products based upon such licensed technology. In addition, there can be no assurance that Allergan's licensors will meet their obligations to Allergan pursuant to such licenses. In such event, ASTI's results of operations and business prospects would be materially and adversely affected. See "The Business of ASTI -- The ASTI Products." See "Risk Factors -- Reliance on Proprietary Technologies; Unpredictability of Patent Protection." FACILITIES AND PERSONNEL ASTI is not expected to hire a significant number of employees or to acquire significant property or assets prior to completion of the development stage of the ASTI Products. However, pursuant to the Research and Development Agreement, Allergan has been engaged by ASTI to research and develop human pharmaceutical products under work plans and cost estimates recommended by Allergan and accepted by ASTI. Decisions as to whether and/or when to hire employees, purchase property or assets, perform administrative functions, engage Allergan to perform administrative services under the Services Agreement, engage others to do so or engage third parties other than or in addition to Allergan to perform research and development activities will be made by ASTI. COMPETITION Any ASTI Product successfully developed under the Research and Development Agreement will face competition from other therapies for the same indications. Competitors potentially include any of the world's pharmaceutical and biotechnology companies. Allergan is also free to develop competitive products for its own account. The fundamental technology underlying retinoids licensed to ASTI is also cross-licensed to Ligand and therefore competition from similar activities by Ligand in retinoids is likely. In addition, pursuant to the agreement between Allergan and Ligand, each party has been granted non-exclusive rights to use the ALRT technology with respect to any unsynthesized compounds, provided that such license will become exclusive with respect to any compound with respect to which an IND is filed with and accepted by the FDA. Accordingly, no assurance can be given that Ligand will not be the first party to file an IND with respect to any retinoid compound under research by ASTI, thereby preventing ASTI and Allergan from undertaking any further research, development or commercialization with respect to such compound. See "Risk Factors -- Competition." 33 37 MANAGEMENT OF ASTI The following table provides information concerning the current officers and Directors of ASTI. Each of the Directors and officers of ASTI is employed by Allergan and has held his or her position with ASTI since its formation.
AGE ON NAME POSITION WITH ASTI 9/30/97 ---- ------------------ ------- Lester J. Kaplan, Ph.D.................. President, Chief Executive Officer and Director 47 Dwight J. Yoder......................... Chief Financial Officer 52 Susan J. Glass.......................... Secretary and General Counsel 54
LESTER J. KAPLAN, PH.D. has been the President and Chief Executive Officer of ASTI, as well as its sole Director, since its formation in November 1997. He has also been the Corporate Vice President, Science and Technology of Allergan since July 1996 and had been Corporate Vice President, Research and Development since 1992. Dr. Kaplan is an Advisory Board Member to the Pediatric Cancer Research Foundation and Healthcare Ventures. He first joined Allergan in 1983 and was elected to its Board of Directors in 1994. DWIGHT J. YODER has been the Chief Financial Officer of ASTI since its formation in November 1997. He has also been the Senior Vice President and Controller of Allergan since July 1996 and had been Vice President and Controller since joining Allergan in 1990. Mr. Yoder is the Chief Financial Officer of ALRT, a position he has held since July 1995. SUSAN J. GLASS has been the Secretary and General Counsel of ASTI since its formation in November 1997. She has also been the Associate General Counsel and Assistant Secretary of Allergan since December 1995 and had been the Assistant General Counsel and Assistant Secretary since 1989. Ms. Glass joined Allergan in 1987. She is also a member of the Board of Directors of Pacific Chorale. Prior to commencement of the Distribution, Dr. Kaplan will resign as interim President and Chief Executive Officer of ASTI and a person who is not an employee or Director of Allergan will be appointed Director, President and Chief Executive Officer of ASTI. It is expected that this individual will appoint three additional directors of ASTI, each of whom will not be an employee or Director of Allergan. Dr. Kaplan will remain a Director of ASTI following the Distribution in accordance with the rights of Allergan under ASTI's Restated Certificate of Incorporation as the sole holder of the outstanding shares of ASTI Class B Common Stock. SECURITY OWNERSHIP OF ASTI Immediately prior to the Distribution, all of the outstanding ASTI Shares will be held by Allergan. The following tables set forth the projected beneficial ownership of ASTI Shares following the Distribution by each Director and executive officer of ASTI and all Directors and officers of ASTI as a group, as well as by any person that owns beneficially more than 5% of the outstanding shares of Allergan Common Stock. BY MANAGEMENT
ASTI SHARES PROJECTED TO BE BENEFICIALLY OWNED ---------------------------------- NAME NUMBER(1)(2) PERCENT OF CLASS ---- -------------- ----------------- Lester J. Kaplan, Ph.D........................... 711 * Dwight J. Yoder.................................. 289 * Susan J. Glass................................... 267 * All Directors and executive officers as a group (3 persons).................................... 1,267 *
- --------------- * Less than 1% (1) Except as otherwise noted, reflects, in each case, the number of shares of Allergan Common Stock beneficially owned as of September 30, 1997, divided by 20. In addition to shares held in the individual's sole name, this column includes shares held by the spouse and other members of the named person's immediate household who share that household with the named person, and shares held in family trusts. 34 38 This column also includes, for employees, shares held in trust for the benefit of the named party or group in Allergan's Savings and Investment Plan and the Employee Stock Ownership Plan as of September 30, 1997. (2) In calculating the number of ASTI shares projected to be owned by the individuals listed above, the calculation has been accomplished by treating each category of ownership, direct, book entry, street name and trust account separately and dividing each by 20, eliminating each set of fractional shares. BY OTHERS Management of ASTI knows of no person, except as set forth below, who would be the beneficial owner of more than 5% of the projected to be issued.
NAME AND ADDRESS OF SHARES PERCENT BENEFICIAL OWNERS BENEFICIALLY OWNED OF CLASS ------------------- ------------------ -------- Swiss Bank Corporation and Brinson Partners, Inc............................................ 287,382(1) 8.8% 209 South LaSalle Street Chicago, Illinois 60604-1295 State Farm Mutual Automobile Insurance Company... 214,145(2) 6.5% One State Farm Plaza Bloomington, Illinois 61710 Mellon Bank Corporation.......................... 199,664(3) 6.1% One Mellon Bank Center Pittsburgh, PA 15258-0001 Certain Fidelity funds........................... 198,794(4) 6.1% 82 Devonshire Street Boston, MA 02109-3614
- --------------- (1) Based on a Schedule 13G, dated February 12, 1997, relating to its holdings of Allergan common stock, filed with the Securities and Exchange Commission by the named beneficial owner on behalf of itself and related entities. (2) Based on a Schedule 13G, dated January 17, 1997, relating to its holdings of Allergan common stock, filed with the Securities and Exchange Commission by the named beneficial owner on behalf of itself and related entities. (3) Based on a Schedule 13G, dated February 1, 1997, relating to its holdings of Allergan common stock, filed with the Securities and Exchange Commission by the named beneficial owner on behalf of itself and related entities. Includes shares held as trustee for certain of the Company's employee benefit plans. (4) Based on a Schedule 13G, dated February 14, 1997, relating to its holdings of Allergan common stock, filed with the Securities and Exchange Commission by FMR Corp. on behalf of itself and related entities. 35 39 SELECTED FINANCIAL DATA OF ASTI Balance Sheet Data:
AS OF NOVEMBER 17, 1997(1) ------------ Cash............................................................................ $1,000 Stockholders' equity............................................................ $1,000
- --------------- (1) ASTI was incorporated in November 1997. Allergan contributed $1,000 in November 1997 in exchange for 100 shares of Common Stock. ASTI had no operations through November 17, 1997. 36 40 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES ASTI was formed in November 1997. Prior to the Distribution, in exchange for all of the shares of ASTI Common Stock outstanding prior to the Distribution, Allergan will contribute a total of $200 million in cash to ASTI. ASTI's funds are expected to be used primarily to fund activities to be conducted under the Research and Development Agreement with Allergan and to reimburse Allergan for the Research and Development Costs relating to the ASTI Products and Pre-Selection Work from October 23, 1997, the date on which ALRT ceased funding, until March 31, 1998 (expected to be between $7 million and $8 million). Allergan's contribution, together with any investment interest earned thereon, is expected to fund such activities for approximately four to five years. ASTI is not expected to require facilities or capital equipment of its own during the term of the Research and Development Agreement. There can be no assurance, particularly given the existence of the Allergan/ASTI Agreements, that ASTI will be able to raise any additional capital. Such additional capital, if raised, would most likely reduce the per share proceeds available to holders of ASTI Shares if the Purchase Option were to be exercised. See "The Agreements and the Purchase Option -- Purchase Option." OPERATIONS Prior to the Distribution, ASTI will not have conducted any operations. After the Distribution and continuing through completion of the development stage of the ASTI Products, ASTI's operations will be conducted largely pursuant to the Allergan/ASTI Agreements. See "The Agreements and the Purchase Option." In its early years, ASTI's revenues are expected to consist solely of investment income (which will become part of the Available Funds). In later years, ASTI could receive revenues through the commercialization of ASTI Products either from Allergan in the form of Product Payments if Allergan were to exercise its License Option for any ASTI Product, or otherwise if Allergan's License Option for any ASTI Product were to expire unexercised and ASTI were to commercialize the product alone or with a third party. ASTI also could receive revenues from Allergan in the form of Developed Technology Royalties or Pre-Selection Product Payments. However, ASTI is not expected to earn substantial revenues unless or until ASTI Products or, to a lesser extent, Pre-Selection Products or Developed Technology Products are successfully commercialized. ASTI's expenses largely will be incurred under the Allergan/ASTI Agreements. ASTI will have research and development expenses as a result of (i) the payment of Research and Development Costs under the Research and Development Agreement, most likely through reimbursements to Allergan, and (ii) payment of the Technology Fee to Allergan under the Technology License Agreement. The Research and Development Agreement provides that, in addition to funding ongoing Research and Development Costs, ASTI will reimburse Allergan for the Research and Development Costs of the ASTI Products and Pre-Selection Work after October 23, 1997, the date on which ALRT ceased funding, until March 31, 1998. Such reimbursements are expected to total between $7 million and $8 million for such period. ASTI also will incur administrative expenses, which will be paid to Allergan under the Services Agreement to the extent that ASTI engages Allergan to perform administrative services on its behalf. ASTI's future cash flow obligations will derive largely from the Allergan/ASTI Agreements. ASTI is required to expend all of the Available Funds under the Research and Development Agreement and to pay the Technology Fee. ASTI is expected to utilize substantially all of the Available Funds to reimburse Allergan for its Research and Development Costs and Pre-Selection Work. However, the rate at which Available Funds are expended will derive from work plans and cost estimates approved by ASTI. 37 41 THE AGREEMENTS AND THE PURCHASE OPTION TECHNOLOGY LICENSE AGREEMENT ASTI and Allergan have entered into a Technology License Agreement pursuant to which Allergan has granted to ASTI an exclusive (subject to certain pre-existing rights), perpetual license, with certain rights to sublicense, to use Allergan Technology solely to conduct research and development with respect to ASTI Products and to conduct related activities, and to commercialize such products, in the U.S. with respect to Memantine and worldwide with respect to other ASTI Products. Until a product candidate becomes an ASTI Product, Allergan will have full rights to exploit such product, subject only to its obligations to pay Developed Technology Royalties and Pre-Selection Product Payments. ASTI has agreed to enter into license arrangements to document such rights, as necessary. In exchange for the license to use the existing Allergan Technology relating to the ASTI Products and Allergan's commitment to make specified payments on sales of certain products, ASTI will pay the Technology Fee to Allergan and has granted Allergan the License Option and the option to independently develop Pre-Selection Products. The Technology Fee will be payable monthly over a period of four years and will be $833,333 per month for the first 12 months following the Distribution, $558,333 per month for the following 12 months, $275,000 per month for the following 12 months and $166,667 per month for the following 12 months; provided that the Technology Fee will no longer be payable at such time as fewer than two of the ASTI Products are being developed by ASTI and/or have been licensed by Allergan pursuant to Allergan's exercise of the License Option. Either Allergan or ASTI may terminate the Technology License Agreement upon the occurrence of a material breach of the Technology License Agreement or the License Option Agreement by the other party which continues for 60 days after written notice. The Technology License Agreement will automatically terminate (a) upon termination by ASTI of the Research and Development Agreement other than due to a breach thereof by Allergan or (b) upon termination by Allergan of the Research and Development Agreement due to a breach thereof by ASTI. Pursuant to the Technology License Agreement, Allergan has licensed to ASTI rights to research and develop Memantine for commercialization in the United States only. Commercialization rights to Memantine for the rest of the world other than the United States have been licensed to Allergan-Ireland. Allergan-Ireland and ASTI have entered into a cross-license agreement whereby each has exclusively licensed to the other rights to commercialize in each party's respective territory any improvements to the Memantine technology developed by the licensing party. Allergan Technology excludes, and ASTI will have no rights with respect to, any topical formulation of Tazarotene. Allergan is currently marketing a topical formulation of Tazarotene for the treatment of psoriasis and acne in the United States under the brand name "Tazorac" and outside of the United States under the brand name "Zorac." RESEARCH AND DEVELOPMENT AGREEMENT Under the Research and Development Agreement, Allergan will agree to perform diligently all work necessary to conduct the activities agreed upon by Allergan and ASTI. Allergan is not required to devote any specific amount of time or resources to research and development activities under the Research and Development Agreement, and Allergan expects to devote a substantial amount of its time and resources to activities for its own account. Activities under the Research and Development Agreement will be undertaken pursuant to work plans and cost estimates proposed by Allergan and accepted by ASTI. ASTI may approve all or any portion of a proposed work plan and cost estimate or may determine not to approve any proposed work plan and cost estimate. ASTI is not obligated to fund research and development of ASTI Products or Pre-Selection Work in excess of amounts reflected in approved work plans and cost estimates. Allergan is not required to undertake activities that would result in Research and Development Costs exceeding those in approved work plans and cost estimates. Under the Research and Development Agreement, ASTI is expected to utilize substantially all of the Available Funds to reimburse Allergan for its Research and Development Costs and Pre-Selection Work. 38 42 Research and Development Costs will be determined on the same basis as charged by Allergan to its pharmaceutical company clients, and Allergan will recognize reimbursement of such amounts as research and development revenue. The corresponding research and development expenses of Allergan will offset this revenue. Under the Research and Development Agreement, ASTI also may use Available Funds for licensing technology, products or therapeutic agents from third parties and for the research and development of ASTI Products with third parties; provided, however, that Allergan's consent will be required if such activities involve Allergan Technology or could affect Allergan's rights under any of the Allergan/ASTI Agreements or Allergan's rights as a holder of the ASTI Class B Common Stock. Any agreements between ASTI and third parties relating to ASTI Products or Developed Technology must include appropriate provisions for the protection of Allergan Technology and Developed Technology and Allergan's rights under the Allergan/ASTI Agreements. Subject to the foregoing, the amount and nature of the work to be performed by third parties will be determined by ASTI. Pursuant to the Research and Development Agreement, ASTI will fund the research and development of the ASTI Products and Pre-Selection Work as of October 23, 1997 through March 31, 1998. Continuation of the research and development of any ASTI Product and Pre-Selection Work after that time will depend upon whether Allergan proposes, and ASTI's independent Board of Directors accepts, additional work plans and cost estimates for such ASTI Product and Pre-Selection Work. It is anticipated that if ASTI were to fund the continued research and development of the initial four ASTI Products through FDA review for marketing clearance, the funding of these activities, together with Pre-Selection Work undertaken by Allergan and funded by ASTI, would require substantially all of the Available Funds. ASTI has agreed to use diligent efforts to research and develop ASTI Products in accordance with approved work plans and cost estimates under the Research and Development Agreement, most likely by paying Allergan or third parties to perform research and development services. ASTI is required to spend all Available Funds under the Research and Development Agreement. It is anticipated that ASTI will spend the Available Funds over a period of approximately four to five years. Prior to expenditure, ASTI will invest Available Funds in certain types of high quality marketable securities. ASTI may not encumber, pledge or otherwise take any action with respect to Available Funds that could prevent the full expenditure of such funds under the Research and Development Agreement. There are no restrictions on ASTI's use of its funds other than Available Funds to conduct its business as it determines, subject to the terms of ASTI's Restated Certificate of Incorporation and the Allergan/ASTI Agreements. Unless ASTI agrees otherwise, all ASTI Products will be owned by ASTI or, in the case of a product licensed from a third party (or a product incorporating a therapeutic agent licensed from a third party), exclusively licensed to ASTI, in each case subject to the License Option. Any such exclusive license will be worldwide, will include the right to sublicense and will grant rights to ASTI that are substantially similar to those rights ASTI would have as the owner of such product. As between Allergan and ASTI, Allergan will own all Developed Technology, including patents, subject to ASTI's exclusive license to use Developed Technology to select and develop ASTI Products and to conduct related activities, and to commercialize ASTI Products. Allergan will determine whether and to what extent to seek patent protection for Developed Technology. If Allergan declines to seek patent protection for any technology, ASTI will not have the right to do so. ASTI and Allergan will share equally the costs of obtaining and maintaining patents covering Developed Technology during the term of the Research and Development Agreement. Such costs are to be included as Research and Development Costs under the Research and Development Agreement. Allergan will pay Developed Technology Royalties to ASTI, on a country-by-country basis, equal to the sum of (i) 1% of Net Sales of such Developed Technology Product, plus (ii) 10% of any Sublicensing Revenues with respect to such Developed Technology Product. Subject to Allergan's payment buy-out option, Developed Technology Royalties will be payable with respect to a Developed Technology Product in any country until expiration of the last to expire of the relevant patent or patents. Allergan will make Pre-Selection Product Payments to ASTI equal to the sum of (i) 1% of Net Sales of such Pre-Selection Product, plus (ii) 10% of any Sublicensing Revenues with respect to such Pre-Selection Product. Subject to Allergan's payment buy-out option, Pre-Selection Product Payments will be payable with 39 43 respect to a Pre-Selection Product until seven years after the first commercial sale of such Pre-Selection Product in the first Major Market Country in which such product is commercially sold. In the case where Allergan is required to make payments with respect to a product that is both a Pre-Selection Product (by virtue of ASTI having funded Pre-Selection Work therefor) and a Developed Technology Product (by virtue of the issuance of a patent covering such product which claims Developed Technology) in any country, the payment due for any period with respect to such product will be limited to the sum of (i) 1% of Net Sales, plus (ii) 10% of Sublicensing Revenues. In determining the Developed Technology Royalties and Pre-Selection Product Payments due to ASTI, Net Sales by Allergan will be reduced by the amount of any license payments or similar payments due to third parties from Allergan with respect to such Developed Technology Product or Pre-Selection Product. It is possible that, to develop certain products using Developed Technology or Pre-Selection Products, licenses or other arrangements with third parties may be necessary or appropriate. Such arrangements could require payments by Allergan that would reduce payments owed to ASTI. Allergan has the option to buy out the right of ASTI to receive Developed Technology Royalties and Pre-Selection Product Payments with respect to any Developed Technology Product or Pre-Selection Product, in each case, on either a country-by-country or worldwide basis. A country-by-country buy-out option may be exercised for any Developed Technology Product or Pre-Selection Product in any country at any time after the end of the twelfth calendar quarter during which the product was commercially sold in such country. The buy-out price will be 15 times the payments made by or due from Allergan to ASTI with respect to sales of such product in such country for the four calendar quarters immediately preceding the quarter in which the buy-out option is exercised. The global buy-out option may be exercised for any Developed Technology Product or Pre-Selection Product at any time after the end of the twelfth calendar quarter during which the product was commercially sold in either the United States or two other Major Market Countries. The global buy-out price will be (i) 20 times (a) the payments made by or due from Allergan to ASTI for the relevant product, plus (b) such payments as would have been made by or due from Allergan to ASTI if Allergan had not exercised any country-specific buy-out option with respect to such product, in each case, for the four calendar quarters immediately preceding the quarter in which the global buy-out option is exercised, less (ii) any amounts previously paid to exercise any country-specific buy-out option with respect to such product. The Research and Development Agreement will terminate upon the exercise or expiration of the Purchase Option; provided, however that Allergan's obligation to pay Developed Technology Royalties and Pre-Selection Product Payments will continue if the Purchase Option expires unexercised. Either party may terminate the Research and Development Agreement if the other party (i) breaches a material obligation thereunder or under the Technology License Agreement, the License Option Agreement or any license thereunder (if such breach continues for 60 days after written notice by the terminating party), or (ii) enters into any proceeding, whether voluntary or involuntary, in bankruptcy, reorganization or similar arrangement for the benefit of creditors. In addition, ASTI's expenditures under the Research and Development Agreement relating to an ASTI Product in any country will terminate after exercise of the License Option for such ASTI Product in such country if the development of such ASTI Product is being continued by Allergan, alone or with a third party, and if Allergan elects not to include ASTI in the continuing development activities related to the ASTI Product. If Allergan does include ASTI in such development activities, ASTI may continue to fund all or a portion of Research and Development Costs, even after any arrangement with the third party has been executed, subject to ASTI's continued approval of the work plans and cost estimates for the ASTI Product. LICENSE OPTION AGREEMENT Pursuant to the License Option Agreement, ASTI has granted the License Option to Allergan pursuant to which Allergan may, on a product-by-product and country-by-country basis, obtain from ASTI a perpetual, exclusive license (with the right to sublicense) to research, develop, make, have made and use the Licensed Product and to sell and have sold the Licensed Product in the country or countries as to which the License Option is exercised (the "Territory"). Allergan may exercise the License Option with respect to any ASTI 40 44 Product on a country-by-country basis at any time until (i) with respect to the United States, 30 days after FDA clearance to market such ASTI Product in the United States and (ii) with respect to all other countries, 90 days after the earlier of (a) clearance by the appropriate regulatory agency to market such ASTI Product in such country, or (b) clearance by the FDA to market the ASTI Product in the United States. The License Option will expire, to the extent not previously exercised, 30 days after the expiration of the Purchase Option. Allergan must exercise the License Option for any country prior to the date of the first commercial sale of the ASTI Product in such country. Even if Allergan exercises its License Option with respect to an ASTI Product, ASTI may continue to fund the development of such product to the extent proposed by Allergan and accepted by ASTI's Board of Directors. If Allergan exercises the License Option for an ASTI Product, ASTI and Allergan will enter into a License Agreement with respect to such product (thereafter a "Licensed Product"), and Allergan will be required to use diligent efforts to complete the research and development of and to commercialize such Licensed Product in each Major Market Country covered by the License Agreement. Allergan will devote to its commercialization efforts the same resources as other pharmaceutical companies of similar size devote to products with similar market potential and similar relative importance in their product portfolios and may use reasonable discretion in allocation of its resources in performing such obligations. Allergan will make Product Payments to ASTI with respect to each Licensed Product as follows: (a) if the Licensed Product is sold by Allergan, royalties of up to a maximum of 6% of Net Sales of the Licensed Product determined as follows: (i) 1% of Net Sales of the Licensed Product, plus (ii) an additional 0.1% of such Net Sales for each full $1 million of Research and Development Costs of the Licensed Product paid by ASTI; and (b) if the Licensed Product is sold by a third party, sublicensing fees of up to a maximum of 50% of Sublicensing Revenues with respect to such Licensed Product determined as follows: (i) 10% of such Sublicensing Revenues, plus (ii) an additional 1% of Sublicensing Revenues for each full $1 million of Research and Development Costs of the Licensed Product paid by ASTI. For purposes of determining the payments due for any quarter, Research and Development Costs will be determined as of the last day of the immediately preceding calendar quarter. Because the marketing expenses associated with a newly introduced product during the first few years after launch are generally significantly higher than those for an established product, the Product Payments will not exceed 3% of Net Sales, on a quarterly basis, for the first twelve calendar quarters during which the Licensed Product is commercially sold in the first Major Market Country. As a result of this provision, if a Licensed Product were to be cleared for marketing in a country or countries that are not Major Market Countries prior to marketing clearance in the first Major Market Country and Product Payments in such countries would exceed 3% of Net Sales, the Product Payment rates in such countries will not exceed 3% for the first twelve calendar quarters during which the Licensed Product is commercially sold in the first Major Market Country. In determining the payments due to ASTI with respect to any Licensed Product, Net Sales by and Sublicensing Revenues of Allergan will be reduced by the amount of any license or similar payments made by or due from Allergan to third parties with respect to sales of such Licensed Product in the Territory. It is possible that, to develop the ASTI Products, licenses or other arrangements with third parties may be necessary or appropriate. Such arrangements could also require payments by Allergan that would reduce the Product Payments owed to ASTI. Subject to Allergan's buy-out option described below, Product Payments will commence on the date of the first commercial sale of such Licensed Product in any country for which the License Option has been exercised. Allergan will make such Product Payments, with respect to all countries for which the License Option has been exercised, until 10 years after the first commercial sale of the Licensed Product in the first Major Market Country in which such product is commercially sold. Allergan has the option to buy out ASTI's right to receive Product Payments for any Licensed Product on either a country-by-country or global basis. A country-specific buy-out option may be exercised for any Licensed Product at any time after the end of the twelfth calendar quarter during which the product was commercially sold in such country. The global buy-out option may be exercised for any Licensed Product, for all countries for which Allergan has exercised the License Option, at any time after the end of the twelfth calendar quarter during which the product was commercially sold in either the United States or two other 41 45 Major Market Countries. The buy-out price in the case of a country-specific buy-out will be 15 times the Product Payments made by or due from Allergan to ASTI with respect to such Licensed Product in such country for the four calendar quarters immediately preceding the quarter in which the buy-out option is exercised. The buy-out price in the case of a global buy-out will be (i) 20 times (a) the Product Payments made by or due from Allergan to ASTI with respect to the Licensed Product, plus (b) such Product Payments as would have been made by or due from Allergan to ASTI if Allergan had not exercised any country-specific buy-out option with respect to such Licensed Product, in each case for the four calendar quarters immediately preceding the quarter in which the global buy-out option is exercised, less (ii) any amounts previously paid to exercise any country-specific buy-out option with respect to such Licensed Product. In either case, the buy-out price will be computed as if Product Payments were not limited to 3% of Net Sales during early marketing as described above. At the time Allergan exercises the global buyout option for any Licensed Product, the License Option for such product will expire for all countries for which it has not been exercised. If Allergan exercises the License Option for any ASTI Product, Allergan will continue to own and have the right to use any clinical supplies, materials and other assets purchased, manufactured or developed for use in the development of such ASTI Product under approved work plans and cost estimates (the "Development Assets"), without any additional payment to or reimbursement of ASTI. To the extent Allergan does not exercise the License Option for any ASTI Product prior to its expiration, or to the extent Allergan notifies ASTI that it will not exercise its License Option for any ASTI Product, Allergan must make Development Assets relating to such ASTI Product available to ASTI at no charge, unless such Development Assets are being used under the Research and Development Agreement. During the term of the License Agreement for a Licensed Product, Allergan will provide quarterly reports to ASTI detailing payments due for such period with respect to the Licensed Product. Such reports will be due 90 days after the end of each calendar quarter and will indicate the quantity and dollar amount of Net Sales of or Sublicensing Revenue relating to the Licensed Product, or other consideration in respect of Net Sales, during the quarter covered by such report. No more than once in each calendar year upon reasonable notice and during regular business hours, at ASTI's expense, Allergan is required to make available for inspection by an independent public accountant selected by ASTI such records of Allergan as may be necessary to verify the accuracy of reports and payments made under the License Agreement. Allergan must provide similar reports and records with respect to all Developed Technology Products and Pre-Selection Products. A License Agreement may be terminated by ASTI in the event that Allergan (i) breaches any material obligation under the License Agreement (which breach continues for a period of 60 days after written notice by ASTI) or (ii) enters into any proceeding, voluntary or involuntary, in bankruptcy, reorganization or similar arrangement for the benefit of its creditors. Allergan may terminate a License Agreement as to any country upon 30 days' written notice to ASTI. To the extent Allergan does not exercise the License Option with respect to any ASTI Product, ASTI will retain exclusive rights to develop and commercialize such ASTI Product. PURCHASE OPTION The Purchase Option is set forth in ASTI's Restated Certificate of Incorporation. Pursuant to the Purchase Option, Allergan has an exclusive, irrevocable option to purchase all, but not less than all, of the issued and outstanding ASTI Shares. Allergan may exercise the Purchase Option by written notice to ASTI at any time during the period beginning immediately after the Distribution and ending on December 31, 2002; provided, that such date will be extended for successive six month periods if, as of any June 30 or December 31 beginning with June 30, 2001, ASTI has not paid or accrued expenses for at least 95% of all Available Funds pursuant to the Research and Development Agreement. The Purchase Option will in any case terminate on the 90th day after the date (the "Statement Date") on which Allergan receives notice that the amount of cash and marketable securities held by ASTI is less than $15 million. All certificates evidencing ASTI Shares will bear a legend indicating that such ASTI Shares are subject to the Purchase Option. 42 46 If the Purchase Option is exercised, the exercise price (the "Purchase Option Exercise Price") will be the greatest of: (a) (i) 25 times the aggregate of (a) all worldwide payments made by and all worldwide payments due to be made by Allergan to ASTI with respect to all Licensed Products, Developed Technology Products and Pre-Selection Products for the four calendar quarters immediately preceding the quarter in which the Purchase Option is exercised (the "Base Period") and (b) all payments that would have been made and all payments due to be made by Allergan to ASTI during the Base Period if Allergan had not previously exercised its payment buy-out option with respect to any product; provided, however, that, for the purposes of the foregoing calculation, for any product which has not been commercially sold during each of the four calendar quarters in the Base Period, Allergan will be deemed to have made Product Payments, Developed Technology Royalties and Pre-Selection Product Payments to ASTI for each such quarter equal to the average of the payments made during each of such calendar quarters during which such product was commercially sold, less (ii) any amounts previously paid to exercise any payment buy-out option for any product; (b) the fair market value of 500,000 shares of Allergan Common Stock determined as of the date Allergan provides notice of its intention to exercise its Purchase Option; (c) $250 million less the aggregate amount of all Technology Fee payments and Research and Development Costs paid or incurred by ASTI as of the date the Purchase Option is exercised; or (d) $60 million. In each case, the amount payable as the Purchase Option Exercise Price will be reduced to the extent, if any, that ASTI's liabilities at the time of exercise (other than liabilities under the Research and Development Agreement, the Services Agreement and the Technology License Agreement) exceed ASTI's cash and cash equivalents and short-term and longterm investments (excluding the amount of Available Funds remaining at such time). For this purpose, liabilities will include, in addition to liabilities required to be reflected on ASTI's financial statements under generally accepted accounting principles, certain contingent liabilities relating to guarantees and similar arrangements. Allergan may pay the Purchase Option Exercise Price in cash, in Allergan Common Stock registered under the Securities Act of 1933, or in any combination of cash and Allergan Common Stock. For the purpose of determining either the Purchase Option Exercise Price or the fair market value of the Allergan Common Stock to be issued in payment thereof, the fair market value of Allergan Common Stock shall be deemed to be the average of the closing sales price of Allergan Common Stock on the New York Stock Exchange for the 20 trading days ending with the trading day that is two trading days prior to the date of exercise of the Purchase Option. The closing of the acquisition of the ASTI Shares pursuant to exercise of the Purchase Option will take place on a date selected by Allergan, but no later than 60 days after the exercise of the Purchase Option unless, in the judgment of Allergan, a later date is required to satisfy any applicable legal requirements or to obtain required consents. Between the time of exercise of the Purchase Option and the time of closing of the acquisition of the ASTI Shares, ASTI may not, without Allergan's consent, incur additional debt, dispose of assets, pay or declare any dividends or operate its business other than in the ordinary course. Allergan's election, ASTI may redeem on such closing date the ASTI Shares for an aggregate redemption price equal to the final Purchase Option Exercise Price. Any such redemption would be in lieu of Allergan paying the final Purchase Option Exercise price directly to holders of ASTI Shares, and would be subject to Allergan providing the final Purchase Option Exercise Price to ASTI to allow ASTI to pay the redemption price. In the event that prior to Allergan's exercise of the Purchase Option, the number of outstanding shares of Allergan Common Stock is increased by virtue of a stock split or a dividend payable in Allergan Common Stock or the number of such shares is decreased by virtue of a combination or reclassification of such shares, then the number of shares of Allergan Common Stock used to compute the Purchase Option Exercise Price (if the Purchase Option Exercise Price is the fair market value of 500,000 shares of Allergan Common Stock) 43 47 shall be increased or decreased, as the case may be, in proportion to such increase or decrease in the number of outstanding shares of Allergan Common Stock. DISTRIBUTION AGREEMENT Under the Distribution Agreement, Allergan will contribute $200 million in cash to ASTI in exchange for all of the shares of ASTI Common Stock outstanding prior to the Distribution, and will distribute the ASTI Shares to the Holders. Under the Distribution Agreement, Allergan has agreed to indemnify ASTI's officers and directors to the same extent such persons are entitled to indemnification under ASTI's Restated Certificate of Incorporation if Allergan exercises the Purchase Option. SERVICES AGREEMENT ASTI and Allergan have entered into a Services Agreement pursuant to which Allergan has agreed to provide ASTI with administrative services, including accounting and legal services, and other services as mutually agreed on a fully-burdened cost reimbursement basis. The initial term of the Services Agreement expires on December 31, 1998, but such agreement will be renewed automatically for successive one-year terms during the term of the Research and Development Agreement, until six months after the expiration of the Purchase Option. ASTI may terminate the Services Agreement at any time upon 60 days' written notice. 44 48 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following discussion sets forth the opinion of Cooley Godward LLP with respect to certain material federal income tax considerations under the Internal Revenue Code of 1986, as amended (the "Code"), with respect to the ASTI Shares, cash in lieu of fractional ASTI Shares, or both ASTI Shares and cash distributed to Holders in the Distribution. THIS DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES OF THE ACQUISITION OF ASTI SHARES BY PURCHASE OR MEANS OTHER THAN THE DISTRIBUTION. In addition, this discussion is intended only to provide general information regarding Holders that are subject to United States federal income tax; it may not address all relevant federal income tax consequences to such persons or to other categories of Holders, e.g., foreign persons, dealers in securities, and Holders that are exempt from federal income tax. This discussion is based upon the Code, Treasury Regulations (including proposed Treasury Regulations) promulgated thereunder, rulings, official pronouncements and judicial decisions all as in effect on the date hereof and all of which are subject to change or different interpretations by the Internal Revenue Service ("IRS") or the courts, any of which changes or interpretations may have retroactive effect. Cooley Godward LLP has disclaimed any undertaking to advise as to any change in the law that may affect its opinion, including changes that may be made under currently pending legislative proposals, and has expressed no opinion as to the laws of any jurisdictions other than the federal income tax laws of the United States of America. An opinion of counsel does not bind the IRS, which could take a contrary position, but represents only counsel's judgment as to the likely outcome if the issues involved were properly presented to a court of competent jurisdiction. This discussion assumes that the ASTI Shares will at all relevant times constitute capital assets of the Holders. This discussion does not address state, local, or foreign tax considerations. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS. Cooley Godward LLP acted as United States federal income tax counsel to Allergan and assisted in preparing this Prospectus. TAXABILITY OF THE DISTRIBUTION TO HOLDERS OF ALLERGAN COMMON STOCK The fair market value of ASTI Shares, plus the cash intended to represent the fair market value of a fractional ASTI Share (together, the "Taxable Amount"), distributed to a Holder of Allergan Common Stock will constitute a dividend taxable as ordinary income to the extent that Allergan has current or accumulated "earnings and profits" as of the end of the taxable year in which the Distribution occurs that are allocable to the Distribution for federal income tax purposes. Assuming that there will be a public market for the ASTI Shares at the time of the Distribution, the fair market value of an ASTI Share to a Holder for this purpose is expected to be the average of the high and low trading price on the date of the Distribution or if such date is not a trading day, on the first trading day following the Distribution. However, if the Taxable Amount exceeds the Holder's allocable share of Allergan's current and accumulated earnings and profits for federal income tax purposes determined as of the end of Allergan's fiscal year ending December 31, 1998, the excess will generally be treated first as a basis-reducing, tax-free return of capital to the extent of the Holder's basis in the Holder's Allergan Common Stock, and after this basis is reduced to zero, as either short-term, mid-term or long-term capital gain. Allergan's management has advised that, based on the information currently available, Allergan's accumulated earnings and profits at December 31, 1998 is expected to be such that the Taxable Amount will not exceed the Holder's allocable share of such earnings and profits. No later than February 2, 1999, Allergan will issue to each Holder of Allergan Common Stock receiving ASTI Shares in the Distribution an IRS Form 1099-DIV reflecting the fair market value of the ASTI Shares (and any amount of cash received in lieu of fractional ASTI Shares) distributed to such Holder, as well as any portion of the Taxable Amount exceeding such Holder's allocable share of Allergan's current and accumulated earnings and profits. To the extent that the Taxable Amount constitutes ordinary income, it will generally be subject to back-up withholding with respect to Holders who, before the Distribution, have not provided their correct taxpayer identification numbers to Allergan on an IRS Form W-9 or a substitute therefor. Although this discussion does not generally address tax consequences of the Distribution to foreign Holders of Allergan Common Stock, such Holders should note that distribution of the Taxable Amount will generally be subject to U.S. withholding tax at the rate of 30%. This rate may be reduced by income tax treaties to which the United States 45 49 is a party. Non-resident alien individuals, foreign corporations and other foreign Holders are urged to consult their own tax advisors regarding the availability of such reductions and the procedures for claiming them. For corporate Holders of Allergan Common Stock, the Taxable Amount will be eligible for a "dividends-received" deduction, subject to limitations and exclusions provided by the Code, if the Purchase Option is "significantly out of the money" for at least 46 days during the 90-day period beginning 45 days before the Allergan Common Stock becomes ex-dividend with respect to the Distribution. However, for corporate Holders of Allergan Common Stock, the Taxable Amount will be subject to the Code's extraordinary dividend rules, which could reduce a corporate Holder's basis in its Allergan Common Stock by the amount of the deduction, if the Taxable Amount equals at least 10% of the Holder's basis. Moreover, to the extent that the untaxed distribution exceeds the corporate Holder's basis, gain will be recognized. SALE OF ASTI SHARES Upon the sale of ASTI Shares, the Holder will have a capital gain or loss equal to the difference between the sale price and the Holder's basis in the ASTI Shares sold. This gain or loss will be short-term if the ASTI Shares have a holding period of one year or less on the sale date. For individuals, short-term capital gain is subject to federal income tax at a maximum rate of 39.6%; under recently enacted federal income tax legislation, capital gain from assets like ASTI Shares, that have a holding period of more than a year on the sale date, is subject to federal income tax at rates that vary from 28% to 10%, depending upon the taxpayer's income level and the length of the holding period. If the holding period is more than one year but not more than 18 months, the maximum stated federal income tax rate upon sale is 28%. If the holding period is more than 18 months, the maximum stated federal income tax rate is 20%. (The phase-out or elimination of certain deductions and exemptions at higher income levels has the effect of raising the marginal tax rate at those levels for other income of the taxpayer.) These rules are new and complex and have not yet been interpreted by the IRS or the courts. In addition, the combination of the ASTI Shares and the Purchase Option may be deemed a "straddle," with the result that the holding period of ASTI Shares would not begin until such date as the Purchase Option is exercised or expires. There is presently no difference in federal income tax rates between ordinary income and capital gains of corporations. Limitations may apply to deduction of capital loss. A Holder's initial basis in ASTI Shares received in the Distribution will be the fair market value of those ASTI Shares at the time of the Distribution. EXERCISE OF PURCHASE OPTION If Allergan exercises its Purchase Option solely by delivering Allergan Common Stock in exchange for ASTI Shares, no gain or loss will be taxable to the Holders of ASTI Shares upon the exchange if: (a) exercise of the Purchase Option constitutes a "plan of reorganization" for purposes of Section 368(a)(1)(B) of the Code, (b) no consideration other than Allergan Common Stock and cash in lieu of fractional shares is deemed to be paid by Allergan upon exercise of the Purchase Option, and (c) the other requirements of Section 368(a)(1)(B) are satisfied. If the requirements for tax-free treatment are not satisfied (e.g., if Allergan delivers cash (other than cash in lieu of fractional shares) or both cash (other than cash in lieu of fractional shares) and Allergan Common Stock in exchange for ASTI Shares), Holders of ASTI Shares will have a capital gain or loss due to Allergan's exercise of the Purchase Option equal to the difference between (a) the sum of the cash and the fair market value of the Allergan Common Stock (and any other deemed consideration) received and (b) the Holder's basis in the ASTI Shares surrendered. Gain or loss due to the exercise of the Purchase Option should be short-term if the ASTI Shares have been held for one year or less at the time of the closing of the exercise of the Purchase Option. If the holding period is more than one year but not more than 18 months, the maximum stated federal income tax rate is 28%. If the holding period is more than 18 months, the maximum stated federal income tax rate is 20%. However, the combination of the ASTI Shares and the Purchase Option may be deemed a "straddle," with the result that the holding period of ASTI Shares would not begin until such date as the Purchase Option is exercised and that capital gain or loss upon exercise of the Purchase Option would be short-term. Limitations may apply to deduction of capital loss. 46 50 EXPIRATION OF PURCHASE OPTION If the Purchase Option expires unexercised, each Holder of ASTI Shares on the date it expires may have short-term capital gain in the amount of the fair market value of the portion of the Purchase Option covering the Holder's ASTI Shares on the date of the Distribution; any such gain would increase the Holder's basis in the ASTI Shares. Allergan believes that the fair market value of the Purchase Option is not readily ascertainable. Each Holder of ASTI Shares should consult his or her own tax adviser as to what amount, if any, should be reported as gain if the Purchase Option expires unexercised. 47 51 DESCRIPTION OF ASTI CAPITAL STOCK At the time of the Distribution, ASTI's authorized capital stock will consist of 6,000,000 ASTI Shares and 1,000 shares of ASTI Class B Common Stock (together with ASTI Shares, the "ASTI Common Stock"). Holders of ASTI Common Stock will be entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor. Available Funds may not be used to pay dividends. In the event of a liquidation, dissolution or winding up of ASTI, holders of ASTI Common Stock will be entitled to receive, pro rata, all remaining assets of ASTI available for distribution to stockholders. No preemptive rights, conversion rights or sinking fund provisions will be applicable to ASTI Shares. Upon completion of this Distribution, all outstanding ASTI Shares will be fully paid and nonassessable and will not be subject to any liability for further call. The ASTI Shares will be subject to the Purchase Option and certificates representing such shares and book-entry account statements will bear a legend to that effect. See "The Agreements and the Purchase Option -- Purchase Option." No preemptive rights, redemption rights or sinking fund provisions will be applicable to the ASTI Class B Common Stock. Each share of the ASTI Class B Common Stock, all of which are held by Allergan, will automatically convert into one ASTI Share upon such date as the Purchase Option expires. Until the expiration of the Purchase Option, Allergan, as the sole holder of the ASTI Class B Common Stock, will be entitled to vote separately as a class with respect to any merger or liquidation of ASTI, the sale, lease, exchange, transfer or other disposition of any substantial asset of ASTI, and any amendments to the Restated Certificate of Incorporation of ASTI that would alter the Purchase Option, ASTI's authorized capitalization, or the provisions of the Restated Certificate of Incorporation governing ASTI's Board of Directors. Accordingly, Allergan could preclude the holders of the ASTI Shares from taking any of the foregoing actions during such period. Prior to exercise of the Purchase Option, the holders of the ASTI Class B Common Stock, voting as a separate class, will be entitled to elect one director, and the holders of the ASTI Shares will be entitled to elect up to four directors. Upon exercise of the Purchase Option, Allergan, as the sole holder of the ASTI Class B Common Stock, will have the right to elect all of the ASTI directors and to remove directors with or without cause. On all other matters, holders of the ASTI Shares and ASTI Class B Common Stock will vote together as a single class. Holders of ASTI Common Stock will have one vote for each share of ASTI Common Stock held by them. Only the ASTI Board of Directors, the Chairman of the Board or the President may call special meetings of the ASTI stockholders. The approval of the holder of the ASTI Class B Common Stock is required to amend the provisions of ASTI's Restated Certificate of Incorporation and bylaws governing the number and classification of the Board of Directors and certain related matters. The provisions of ASTI's Restated Certificate of Incorporation granting special voting rights to the holder or holders of the ASTI Class B Common Stock and eliminating the right of ASTI stockholders to call special meetings of stockholders may inhibit a change in control of ASTI. 48 52 TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the ASTI Shares is First Chicago Trust Company of New York, P.O. Box 2500, Jersey City, New Jersey 07303-2500, (201) 324-1644; email address: fctc@delphi.com; website: http://www.fctc.com. EXPERTS The balance sheet of Allergan Specialty Therapeutics, Inc. as of November 17, 1997 has been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. LEGAL MATTERS The statements included in this Prospectus under the caption "Certain Federal Income Tax Consequences" have been reviewed by, and the validity of the ASTI Shares offered hereby will be passed upon by, Cooley Godward LLP, San Diego, California, Allergan's and ASTI's counsel. 49 53 INDEX TO FINANCIAL STATEMENTS Report of KPMG Peat Marwick LLP, Independent Auditors................................. F-2 Allergan Specialty Therapeutics, Inc. Balance Sheet and Notes to Balance Sheet........ F-3 Allergan Specialty Therapeutics, Inc. Pro Forma Balance Sheet and Notes to Pro Forma Balance Sheet....................................................................... F-5
F-1 54 INDEPENDENT AUDITORS' REPORT The Board of Directors Allergan Specialty Therapeutics, Inc.: We have audited the accompanying balance sheet of Allergan Specialty Therapeutics, Inc. as of November 17, 1997. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit of a balance sheet includes examining, on a test basis, evidence supporting the amounts and disclosures in that balance sheet. An audit of a balance sheet also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Allergan Specialty Therapeutics, Inc. as of November 17, 1997, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Costa Mesa, California November 17, 1997 F-2 55 ALLERGAN SPECIALTY THERAPEUTICS, INC. BALANCE SHEET NOVEMBER 17, 1997 ASSETS Cash................................................................................ $1,000 ====== STOCKHOLDER'S EQUITY (NOTE 2) Common Stock, $1.00 par value, 100 shares authorized, 100 shares issued and outstanding.......................... $ 100 Additional paid-in capital.......................................................... 900 ------ Total stockholder's equity.......................................................... $1,000 ======
F-3 56 ALLERGAN SPECIALTY THERAPEUTICS, INC. NOTES TO BALANCE SHEET NOVEMBER 17, 1997 1. ORGANIZATION AND OWNERSHIP Allergan Specialty Therapeutics, Inc. (the "Company") was incorporated on November 12, 1997 in the state of Delaware for the purpose of conducting research and development of potential human pharmaceutical products, and to commercialize such products, most likely through licensing to Allergan, Inc. ("Allergan"). The Company has not yet commenced significant operations, and its only activity to date has been the initial funding provided by Allergan, which owns all of the Company's outstanding Common Stock. Accordingly, no statement of operations or statement of cash flows is presented. 2. COMMON STOCK Prior to the closing of the distribution contemplated by the Prospectus, of which this balance sheet is a part (the "Prospectus"), the Company intends to restate its Certificate of Incorporation to provide for Class A Common Stock and Class B Common Stock. The common stockholders of Allergan will receive one share of Allergan Specialty Therapeutics, Inc. Class A Common Stock for each 20 shares of Allergan Common Stock held on the record date. The shares of the Company's Common Stock owned by Allergan on the date on which the Restated Certificate of Incorporation is filed will be converted into 1,000 shares of Class B Common Stock. 3. CERTAIN TRANSACTIONS WITH ALLERGAN The Company expects to enter into certain agreements with Allergan in early 1998 including a Technology License Agreement, a Research and Development Agreement, a License Option Agreement, a Services Agreement and a Distribution Agreement. In addition, under the Company's Restated Certificate of Incorporation, Allergan will have an option, for a specified period, to purchase all of the outstanding shares of Class A Common Stock. For further information with respect to such agreements and the purchase option, see "The Agreements and the Purchase Option" in the Prospectus. F-4 57 ALLERGAN SPECIALTY THERAPEUTICS, INC. PRO FORMA BALANCE SHEET NOVEMBER 18, 1997 The following pro forma balance sheet should be read in conjunction with the audited balance sheet and notes of Allergan Specialty Therapeutics, Inc. as of November 17, 1997. The pro forma balance sheet is presented to show the financial position of ASTI following the receipt of $200,000,000 in cash from Allergan, the conversion of 100 shares of Common Stock owned by Allergan into 1,000 shares of Class B Common Stock, and the issuance to Allergan of ASTI Shares prior to the Distribution.
ASSETS PRO FORMA AS ADJUSTED UNADJUSTED ADJUSTMENTS AS OF NOVEMBER 18, 1997 ---------- ------------ ----------------------- Cash........................................... $1,000 $199,999,000(a) $200,000,000 ------ ------------ ------------ STOCKHOLDER'S EQUITY Common Stock, $1.00 par value, 100 shares authorized, 100 shares issued and outstanding (none as adjusted)........................... $ 100 $ (100)(b) $ -- Class A Common Stock, $.01 par value; 6,000,000 shares authorized; 3,262,400 shares to be issued and outstanding as adjusted........... -- 32,624 (c) 32,624 Class B Common Stock, $1.00 par value; 1,000 shares authorized; 1,000 shares to be issued and outstanding as adjusted........ -- 1,000 (b) 1,000 Additional paid-in capital..................... 900 (32,624)(c) (900)(b) 199,999,000 (a) 199,966,376 ------ ------------ ------------ Total stockholder's equity........... $1,000 $199,999,000 $200,000,000 ====== ============ ============
- --------------- (a) To reflect the receipt of the remainder of the $200,000,000 contribution from Allergan. (b) To reflect the conversion of 100 shares of Common Stock held by Allergan into 1,000 shares of Class B Common Stock. (c) To reflect the issuance of 3,262,400 ASTI Shares. F-5 58 EXHIBIT A Investment Banking Corporate and Institutional Client Group 3300 Hillview Avenue Suite 150 Palo Alto, California 94304 [LOGO] , 1998 Board of Directors Allergan, Inc. 2525 Dupont Drive Irvine, CA 92612 Ladies and Gentlemen: You have advised us that Allergan, Inc. ("Allergan") intends to distribute (the "Distribution") to its stockholders shares (the "ASTI Shares") of Class A Common Stock of Allergan Specialty Therapeutics, Inc. ("ASTI"). The Distribution is described in detail in the prospectus (the "Prospectus"), filed as part of a registration statement on Form S-1 file no. 333- , which is to be sent to Allergan stockholders in connection with the Distribution. You have asked us for our opinion as to whether or not (a) from a financial point of view, the Distribution provides a reasonable structure to pursue the financial objectives of Allergan as set forth in the Prospectus, and (b) from a financial point of view, the Distribution is fair to the stockholders of Allergan. In arriving at the opinion set forth below, we have, among other things: 1. reviewed the Prospectus including the following items as presented therein: (i) the terms and conditions of the Distribution, (ii) the Distribution Agreement, (iii) the Technology License Agreement, (iv) the Research and Development Agreement, (v) the License Option Agreement and (vi) the Restated Certificate of Incorporation of ASTI including the Purchase Option; 2. conducted discussions with members of the senior management of Allergan with respect to the businesses and prospects of Allergan and ASTI and the strategic objectives of each; 3. conducted discussions concerning the Distribution with other representatives and advisors of Allergan, including its independent public accountants; 4. reviewed the financial and other information concerning Allergan (with and without ASTI) that was publicly available or furnished to us by Allergan, including information provided during discussions with the senior management of Allergan; 5. reviewed historical trading prices and volume of the Common Stock of Allergan ("Allergan Common Stock"); and 6. reviewed such other financial studies and analyses and took into account such other matters as we deemed necessary, including our assessment of general economic, market and monetary conditions. In preparing our opinion, we have assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to us, discussed with or reviewed by or for us, or publicly available (including the information contained in the Prospectus), and we have not assumed any responsibility for independently verifying such information or undertaken an independent evaluation or appraisal of any of the assets or liabilities of Allergan (with or without ASTI) or been furnished with any such evaluation or appraisal. In addition, we have not assumed any obligation to conduct, nor have we conducted, any physical inspection of the properties or facilities of Allergan. With respect to the financial forecast information furnished to or discussed with us by Allergan, we have assumed it has been reasonably prepared and reflects A-1 59 the best currently available estimates and judgment of Allergan's management as to the expected future financial performance of Allergan and ASTI. We have also assumed that: (i) the Distribution will occur as described in the Prospectus, (ii) the Distribution will not be a taxable transaction to Allergan, and (iii) after the Distribution, ASTI will be accounted for as an entity independent of Allergan. Our opinion is necessarily based upon market, economic and other conditions as they exist and can be evaluated on, and on the information made available to us as of, the date hereof. We note that trading in shares of Allergan Common Stock and the ASTI Shares for a period following completion of the Distribution may be characterized by a redistribution of the shares of Allergan Common Stock and the ASTI Shares among existing Allergan stockholders and other investors and, accordingly, during such period, the shares of Allergan Common Stock and the ASTI Shares may trade at prices below those at which they would trade on a fully distributed basis. This opinion does not opine on or give assurances of the price at which the shares of Allergan Common Stock will actually trade after the announcement date of the Distribution or the price at which the ASTI Shares will actually trade after the Distribution. In addition, this opinion does not address the valuation or future performance of ASTI as an independent public company following the Distribution. We express no opinion as to whether the funds contributed by Allergan to ASTI will be adequate to accomplish the objective of successfully developing the intended pharmaceutical products. We are acting as financial advisor to Allergan in connection with the Distribution and will receive a fee for our services, which fee is contingent upon the consummation of the Distribution. In addition, Allergan has agreed to indemnify us for certain liabilities arising out of our engagement. We have, in the past, provided financial advisory and financing services to Allergan and may continue to do so and have received, and may receive, fees for the rendering of such services. In addition, in the ordinary course of our business, we may actively trade Allergan Common Stock, and we may, in the future, trade the ASTI Shares for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. This opinion is for the use and benefit of the Board of Directors of Allergan. On the basis of and subject to the foregoing, as of the date hereof, it is our opinion that (a) from a financial point of view, the Distribution provides a reasonable structure to pursue the financial objectives of Allergan as set forth in the Prospectus, and (b) from a financial point of view, the Distribution is fair to the stockholders of Allergan. Our conclusions are based on information available to us as of the date of this letter. Very truly yours, A-2 60 ====================================================== NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ASTI. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY 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 ASTI OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Available Information................. 2 Summary............................... 3 Glossary.............................. 13 Risk Factors.......................... 16 The Distribution...................... 21 ASTI Capitalization................... 22 Reasons for the Distribution and Effects on Allergan, Inc............ 23 Business of ASTI...................... 25 Selected Financial Data of ASTI....... 36 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 37 The Agreements and the Purchase Option.............................. 38 Certain Federal Income Tax Considerations...................... 44 Description of ASTI Capital Stock..... 47 Transfer Agent and Registrar.......... 48 Experts............................... 48 Legal Matters......................... 48 Index to Financial Statements......... F-1 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated......... A-1
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE ASTI CLASS A COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. ====================================================== ====================================================== [LOGO] ALLERGAN SPECIALTY THERAPEUTICS, INC. CLASS A COMMON STOCK ------------------------ PROSPECTUS ------------------------ , 1998 ====================================================== 61 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses incurred by Allergan and ASTI in connection with the distribution of the securities being registered which will be paid by Allergan. All amounts are estimated except the SEC Registration Fee and the Nasdaq National Market Application Fee. SEC Registration Fee............................................... $60,607 Nasdaq National Market Application Fee............................. 21,250 Financial Advisory Fee............................................. * Blue Sky Qualification Fees and Expenses........................... * Accounting Fees and Expenses....................................... * Legal Fees and Expenses (including Blue Sky)....................... * Transfer Agent and Registrar Fees.................................. 65,000 Printing and Engraving............................................. 65,000 Miscellaneous...................................................... * -------- Total.............................................................. * ========
- --------------- * To be completed by amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 102 of the Delaware General Corporation Law allows a corporation to eliminate the personal liability of directors of a corporation to the corporation or to any of its stockholders for monetary damage for a breach of his or her fiduciary duty as a director, except in the case where the director breached his or her duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. ASTI's Restated Certificate of Incorporation contains a provision that eliminates directors' personal liability as set forth above. Section 145 of the Delaware General Corporation Law, as amended, provides that a corporation may indemnify any 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 or she is or was a director, officer, employee or agent of the corporation or is or was serving at its request in such capacity in another corporation or business association against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her 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 corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In addition, Article 10 of ASTI's Restated Certificate of Incorporation provides as follows: LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS. (A) ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. No director of this corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except, to the extent provided by applicable law, for liability (i) for any breach of the director's duty of loyalty to this corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this article shall apply to or have any effect on II-1 62 the liability or alleged liability of any director of this corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. (B) INDEMNIFICATION AND INSURANCE. (1) RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), because he or she, or a person of whom he or she is the legal representative, is or was a director or officer of this corporation or is or was serving at the request of this corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise (including service with respect to employee benefit plans), whether the basis of the proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by this corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits this corporation to provide broader indemnification rights than that law permitted this corporation to provide before such amendment), against all expense, liability and loss (including attorneys' fees, judgments, penalties, fines, Employee Retirement Income Security Act of 1974 excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that this corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors of this corporation. Such indemnification shall continue as to a person who has ceased to be a director or officer of this corporation and shall inure to the benefit of his or her heirs, executors and administrators. The right to indemnification conferred by this Section shall be a contract right which may not be retroactively amended and shall include the right to be paid by this corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service with respect to an employee benefit plan) in advance of the final disposition of the proceeding shall be made only upon delivery to this corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if ultimately it shall be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. This corporation may, by action of its Board of Directors, provide indemnification to employees and agents of this corporation with the same scope and effect as the indemnification of directors and officers. (2) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Paragraph 1 of this Section is not paid in full by this corporation within ninety (90) days after a written claim has been received by this corporation, the claimant may at any time thereafter bring suit against this corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for this corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on this corporation. Neither the failure of this corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by this corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the II-2 63 claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (3) NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Restated Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. (4) INSURANCE. This corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of this corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not this corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. ASTI intends to purchase directors and officers liability insurance which would indemnify the directors and officers of ASTI against damages arising out of certain kinds of claims which might be made against them based on their negligent acts or omissions while acting in their capacity as such. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In November 1997, ASTI sold 100 shares of Common Stock to Allergan for an aggregate cash purchase price of $1,000 in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof. In connection with the Distribution contemplated by the Registration Statement, the 100 shares of Common Stock held by Allergan will be converted into 1,000 shares of Class B Common Stock in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(9) thereof. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1 Certificate of Incorporation of ASTI* 3.2 Bylaws of ASTI 3.3 Form of Restated Certificate of Incorporation of ASTI (to be effective prior to the Distribution) 4.1 Specimen Certificate of Class A Common Stock of ASTI+ 5.1 Form of Opinion of Cooley Godward LLP as to legality of ASTI Shares* 8.1 Opinion of Cooley Godward LLP as to tax matters* 10.1 Form of Technology License Agreement between Allergan and ASTI 10.2 Form of Research and Development Agreement between Allergan and ASTI 10.3 Form of License Option Agreement between Allergan and ASTI 10.4 Form of Services Agreement between Allergan and ASTI 10.5 Form of Distribution Agreement between Allergan and ASTI 23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors 23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)+ 23.3 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated+ 24.1 Power of Attorney (Reference is made to page II-5) 27.1 Financial Data Schedule+
- --------------- * Previously filed. + To be filed by amendment. II-3 64 ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes that: (1) For purpose of determining any liability under the Securities Act of 1933, 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 of 1933 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 of 1933, 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. (3) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions set forth in Item 14 above, or otherwise, the Registrant has been advised in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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 Securities Act of 1933 and the Registrant will be governed by the final adjudication of such issue. II-4 65 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Allergan Specialty Therapeutics, Inc. has duly caused this Amendment to the Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irvine, State of California on December 15, 1997. ALLERGAN SPECIALTY THERAPEUTICS, INC. By: * ------------------------------------ Lester J. Kaplan, Ph.D., President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE --------- -------- ---- * President, Chief December 15, 1997 - ----------------------------------------------- Executive Officer and Lester J. Kaplan, Ph.D. Sole Director (Principal Executive Officer) * Chief Financial Officer December 15, 1997 - ----------------------------------------------- (Principal Financial Dwight J. Yoder and Accounting Officer) *By: /s/ FRANCIS R. TUNNEY, JR. ------------------------------------------ Francis R. Tunney, Jr. Attorney-in-fact
II-5 66 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1 Certificate of Incorporation of ASTI* 3.2 Bylaws of ASTI 3.3 Form of Restated Certificate of Incorporation of ASTI (to be effective prior to the Distribution) 4.1 Specimen Certificate of Class A Common Stock of ASTI+ 5.1 Form of Opinion of Cooley Godward LLP as to legality of ASTI Shares* 8.1 Opinion of Cooley Godward LLP as to tax matters* 10.1 Form of Technology License Agreement between Allergan and ASTI 10.2 Form of Research and Development Agreement between Allergan and ASTI 10.3 Form of License Option Agreement between Allergan and ASTI 10.4 Form of Services Agreement between Allergan and ASTI 10.5 Form of Distribution Agreement between Allergan and ASTI 23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors 23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)+ 23.3 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated+ 24.1 Power of Attorney (Reference is made to page II-5) 27.1 Financial Data Schedule+
- --------------- * Previously filed. + To be filed by amendment. EX-3.2 2 EXHIBIT 3.2 1 EXHIBIT 3.2 BYLAWS OF ALLERGAN SPECIALTY THERAPEUTICS, INC. ARTICLE I REGISTERED OFFICE AND REGISTERED AGENT SECTION 1. REGISTERED OFFICE. The registered office of the corporation shall be in the City of Dover, County of Kent, State of Delaware. SECTION 2. OTHER OFFICES. The corporation may also have offices at such other places, both within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 3. TIME AND PLACE OF MEETINGS. All meetings of the stockholders shall be held at such time and place, either within or without the State of Delaware, as shall be fixed by the Board of Directors and stated in the notice or waiver of notice of the meeting. SECTION 4. ANNUAL MEETING. An annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting, shall be held on such date and at such time and place as the Board of Directors shall each year designate. SECTION 5. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of meeting, may be called only by the Board of Directors, the Chairman of the Board or the President of the corporation. SECTION 6. NO ACTION WITHOUT MEETING. Except as otherwise provided in the Certificate of Incorporation, at any time when the corporation has more than one stockholder of any class of capital stock, no action required to be taken or which may be taken at any annual or special meeting of the stockholders of such class of capital stock of the corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. 1. 2 SECTION 7. NOTICE. (a) Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the corporation). (b) When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken and the adjournment is not for more than thirty (30) days; provided however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. SECTION 8. NOMINATIONS AND PROPOSALS. (a) The Board of Directors of the corporation may nominate candidates for election as directors of the corporation and may propose such other matters for approval of the stockholders as the board deems necessary or appropriate. (b) Any stockholder entitled to vote for directors may nominate candidates for election as directors of the corporation; provided, however, that so long as the corporation has more than one stockholder, no nominations for director of the corporation by any person other than the Board of Directors shall be presented to any meeting of stockholders unless the person making the nomination is a record stockholder and shall have delivered a written notice to the Secretary of the corporation no later than the close of business sixty (60) days in advance of the stockholder meeting or ten (10) days after the date on which notice of the meeting is first given to the stockholders, whichever is later. Such notice (i) shall set forth the name and address of the person advancing such nomination and the nominee, together with such information concerning the person making the nomination and the nominee as would be required by the appropriate Rules and Regulations of the Securities and Exchange Commission to be included in a proxy statement soliciting proxies for the election of such nominee, and (ii) shall include the duly executed written consent of such nominee to serve as director if elected. 2. 3 (c) No proposal by any person other than the Board of Directors shall be submitted for the approval of the stockholders at any regular or special meeting of the stockholders of the corporation unless the person advancing such proposal shall have delivered a written notice to the Secretary of the corporation no later than the close of business sixty (60) days in advance of the stockholder meeting or ten (10) days after the date on which notice of the meeting is first given to the stockholders, whichever is later. Such notice shall set forth the name and address of the person advancing the proposal, any material interest of such person in the proposal, and such other information concerning the person making such proposal and the proposal itself as would be required by the appropriate Rules and Regulations of the Securities and Exchange Commission to be included in a proxy statement soliciting proxies for the proposal. SECTION 9. QUORUM AND REQUIRED VOTE. (a) At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote on the subject matter at the meeting, present in person or by proxy, shall constitute a quorum, unless or except to the extent that the presence of a larger number may be required by law. Except as otherwise provided in these bylaws or as otherwise required by law, the affirmative vote of a majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. (b) If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. (c) If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise provided in these bylaws or as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. SECTION 10. ORGANIZATION. The Chairman of the Board or, in his or her absence, the President of the corporation or, in the absence of both, such person as may be designated by the Board of Directors or, if there is no such designation, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. SECTION 11. CONDUCT OF BUSINESS. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such 3. 4 regulation of the manner of voting and the conduct of discussion as seem to him or her in order. SECTION 12. PROXIES AND VOTING. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing filed in accordance with the procedures established for the meeting. SECTION 13. STOCK LIST. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each such stockholder and the number of shares of each class registered in his or her name, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, 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 stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder present. ARTICLE III BOARD OF DIRECTORS SECTION 14. POWERS. The business and affairs of the corporation shall be managed by or under the direction of its Board of Directors. SECTION 15. NUMBER, CLASSIFICATION AND TERM OF OFFICE. The number of directors of the corporation who shall constitute the whole board shall be five (5) or as otherwise provided in this corporation's Certificate of Incorporation. Subject to the corporation's Certificate of Incorporation, each director shall serve for a term ending on the next annual meeting of stockholders following the date as of which the director was elected, or until his or her successor is duly elected and qualified or until his or her death, resignation or removal. SECTION 16. REMOVAL. Except as otherwise provided in the corporation's Certificate of Incorporation, a director may be removed from office only with cause, and then only by the holders of a majority of the shares entitled to vote in an election of directors. SECTION 17. RESIGNATIONS. A director may resign at any time by giving written notice to the corporation. Such resignation shall be effective when given unless the director specifies a later time. The resignation shall be effective regardless of whether it is accepted by the corporation. 4. 5 SECTION 18. VACANCIES. Except as otherwise provided in the corporation's Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office (and not by stockholders), even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office until such director's successor shall have been elected and qualified. SECTION 19. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. SECTION 20. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or any two directors. SECTION 21. NOTICE OF MEETINGS. (a) Special meetings and regular meetings not fixed as provided in these Bylaws shall be held upon four (4) days' notice by mail or two (2) days' notice delivered personally or by telephone or telegraph to each director who does not waive such notice. The notice shall state the place, date and time of the meeting. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting. (b) Notice of a reconvened meeting need not be given if the place, date and time of the reconvened meeting are announced at the meeting at which the adjournment is taken and the adjournment is not for more than twenty-four (24) hours. If a meeting is adjourned for more than twenty-four (24) hours, notice of the reconvened meeting shall be given prior to the time of that reconvened meeting to the directors who were not present at the time of adjournment. SECTION 22. ACTION WITHOUT MEETING. Except as required by law, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or any committee thereof, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of the Board of Directors or committee. SECTION 23. MEETING BY TELEPHONE. Except as required by law, members of the Board of Directors, or of any committee thereof may participate in the meeting of the Board of Directors or committee by means of conference telephone or similar communications equipment if all persons who participate in the meeting can hear each other. Such participation shall constitute presence in person at such meeting. 5. 6 SECTION 24. QUORUM AND MANNER OF ACTING. At any meeting of the Board of Directors, a majority of the directors then in office shall constitute a quorum for all purposes. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Except as provided herein, the act of the majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 25. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors, by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend or to authorize the issuance of stock if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. The principles set forth in Sections 19 through 24 of these Bylaws shall apply to committees of the Board of Directors and to actions taken by such committees. SECTION 26. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors or a committee thereof and may receive fixed fees and other compensation for their services as directors. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation for such service. ARTICLE IV OFFICERS SECTION 27. TITLES. The officers of the corporation shall be chosen by the Board of Directors and shall include a Chairman of the Board or a President or both and a Secretary. The Board of Directors may also appoint a Treasurer and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers or other officers. Any number of offices may be held by the same person. All officers shall perform their duties and exercise their powers subject to the Board of Directors. 6. 7 SECTION 28. ELECTION, TERM OF OFFICE AND VACANCIES. The officers shall be elected annually by the Board of Directors at its regular meeting following the annual meeting of the stockholders and each officer shall hold office until the next annual election of officers and until the officer's successor is elected and qualified or until the officers death, resignation or removal. Any officer may be removed at any time, with or without cause, by the Board of Directors. Any vacancy occurring in any office may be filled by the Board of Directors. SECTION 29. RESIGNATION. Any officer may resign at any time upon notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. The resignation of an officer shall be effective when given unless the officer specifies a later time. The resignation shall be effective regardless of whether it is accepted by the corporation. SECTION 30. CHIEF EXECUTIVE OFFICER. The Chairman of the Board shall be the chief executive officer. The Board of Directors may prescribe the duties and powers of the chief executive officer. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, the chief executive officer shall have the responsibility for the general management and control of the business and affairs of the corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him or her by the Board of Directors. Either the Chairman of the Board or the President and such other officers as may, from time to time, be expressly designated by the Board of Directors shall have the power to sign all stock certificates, contracts and other instruments of the corporation which are authorized. SECTION 31. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall issue all authorized notices for and shall keep minutes of all meetings of the stockholders and the Board of Directors. He or she shall have charge of the corporate books and shall perform such other duties as the Board of Directors may from time to time prescribe. At the request of the Secretary, or in the Secretary's absence or disability, any Assistant Secretary shall perform any of the duties of the Secretary and when so acting shall have all the powers of and be subject to all the restrictions upon, the Secretary. SECTION 32. OTHER OFFICERS. The other officers of the corporation, if any, shall exercise such powers and perform such duties as the Board of Directors or the chief executive officer shall prescribe. SECTION 33. COMPENSATION. The Board of Directors shall fix the compensation of the chief executive officer and may fix the compensation of other employees of the corporation, including the other officers. If the Board does not fix the compensation of the other officers, the chief executive officer shall fix such compensation. 7. 8 SECTION 34. ACTIONS WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless otherwise directed by the Board of Directors, the Chairman of the Board, the president or any officer of the corporation authorized by the Chairman of the Board or the president, shall have power to vote and otherwise act on behalf of the corporation, in person or by proxy, at any meeting of stockholders of, or with respect to any action of stockholders of, any other corporation in which the corporation may hold securities and otherwise shall have power to exercise any and all rights and powers which the corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE V STOCK AND DIVIDENDS SECTION 35. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a certificate signed by, or in the name of, the corporation by the Chairman, the President or a Vice President, and by the Secretary or an Assistant Secretary, or a Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be facsimile. SECTION 36. TRANSFERS OF STOCK. Transfers of stock shall be made only upon the transfer books of the corporation kept at an office of the corporation or by transfer agents designated to transfer shares of the stock of the corporation. Except where a certificate is issued in accordance with the next sentence of this Section, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. SECTION 37. REGULATIONS. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI RECORD DATE SECTION 38. RECORD DATE. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, 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, the Board 8. 9 of Directors may fix in advance a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed, the record date (1) for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the reconvened meeting. ARTICLE VII WAIVER OF NOTICE SECTION 39. WAIVER OF NOTICE. Whenever notice is required to be given by law or these Bylaws, a written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless so required by the Certificate of Incorporation or these Bylaws, neither the business to be transacted at, nor the purpose of any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice. ARTICLE VIII AMENDMENTS SECTION 40. AMENDMENTS. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors and the stockholders of this corporation are each expressly authorized to adopt, amend, or repeal these Bylaws subject to any particular provisions concerning amendments set forth in this corporation's Certificate of Incorporation or these Bylaws. 9. 10 ARTICLE IX MISCELLANEOUS SECTION 41. FISCAL YEAR. The fiscal year of the corporation shall be as fixed by the Board of Directors. SECTION 42. TIME PERIODS. In applying any provision of these Bylaws which requires that an act be done or not done within a specified number of days prior to an event, calendar days shall be used, the day of doing of the act shall be excluded, and the day of the event shall be included. SECTION 43. FACSIMILE SIGNATURES. In addition, to the provisions for use of facsimile signature elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the corporation may be used whenever and as authorized by the Board of Directors. SECTION 44. CORPORATE SEAL. The Board of Directors may provide a suitable seal, containing the name of the corporation, which seal shall be in the charge of the Secretary. Duplicates of the seal may be kept and used by a Treasurer or by an Assistant Secretary or Assistant Treasurer. SECTION 45. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each member of any committee designated by the Board of Directors, and each officer of the corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the corporation, including reports made to the corporation by any of its officers, by an independent certified public accountant or by an appraiser. This is to certify that these Bylaws were duly adopted by the Board of Directors of this corporation on November 12, 1997. ----------------------------------- Susan J. Glass Secretary and General Counsel 10. EX-3.3 3 EXHIBIT 3.3 1 EXHIBIT 3.3 RESTATED CERTIFICATE OF INCORPORATION OF ALLERGAN SPECIALTY THERAPEUTICS, INC. (Originally incorporated under the same name on November 12, 1997) FIRST: NAME. The name of this corporation is Allergan Specialty Therapeutics, Inc. (the "corporation"). SECOND: REGISTERED OFFICE; REGISTERED AGENT. The address of the registered office of this corporation in the State of Delaware is 9 East Loockerman Street, in the City of Dover, County of Kent. The name of the registered agent of this corporation at such address is National Registered Agents, Inc. THIRD: PURPOSE. The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: AUTHORIZED CAPITAL STOCK. (A) This corporation is authorized to issue two classes of shares, which shall be known as Class A Common Stock ("Class A Common Stock") and Class B Common Stock ("Class B Common Stock"). The total number of shares of stock of all classes that this corporation is authorized to issue is 6,001,000. The total number of shares of Class A Common Stock which this corporation is authorized to issue is 6,000,000. The total number of shares of Class B Common Stock which this corporation is authorized to issue is 1,000. Each share of Class A Common Stock shall have a par value of $0.01, and each share of Class B Common Stock shall have a par value of $1.00. Effective immediately upon the filing of this Restated Certificate of Incorporation (the "Filing Date"), each share of Common Stock, par value $1.00 per share, of this corporation outstanding immediately prior to such filing shall be converted into and reclassified as ten shares of Class B Common Stock. (B) The powers, designations, preferences, and relative, participating, optional or other special rights granted to, and the qualifications, limitations and restrictions imposed upon, the Class A Common Stock and Class B Common Stock and the respective holders thereof are as follows: (1) REDEMPTION. The shares of Class A Common Stock are redeemable and may be redeemed as provided in (but only as provided in) Article FIFTH, Section (F). 1. 2 (2) DIVIDENDS. The holders of shares of Class A Common Stock and Class B Common Stock shall be entitled to receive per share and without preference such dividends as may be declared by the Board of Directors from time to time out of funds legally available therefor. No dividend may be declared on the Class A Common Stock unless the same per share dividend is declared on the Class B Common Stock, and no dividend may be declared on the Class B Common Stock unless the same per share dividend is declared on the Class A Common Stock. Dividends may not be declared, nor may shares of Class A Common Stock or Class B Common Stock be repurchased, or redeemed (other than pursuant to Section (F) of Article FIFTH), if, after payment of such dividend, or after effecting such repurchase or redemption, the amount of this corporation's cash, cash equivalents, short-term and long-term investments would be less than the amount of Available Funds remaining after expenditures pursuant to the Research and Development Agreement, as of the date of such dividend, repurchase or redemption. (3) LIQUIDATION. In the event of voluntary or involuntary liquidation of this corporation, the holders of the Class A Common Stock and Class B Common Stock of the corporation shall be entitled to receive, on a pro rata per share basis and without preference, all of the remaining assets of this corporation available for distribution to its stockholders. (4) VOTING RIGHTS. Except as otherwise required by law or provided herein, the holders of Class A Common Stock and Class B Common Stock shall vote together as a single class. Each holder of Class A Common Stock and Class B Common Stock shall have one vote for each share standing in his or her name on all matters submitted to a vote of holders of the common shares. At any meeting of the stockholders of this corporation, the determination of a quorum shall be based upon the presence of shares of Class A Common Stock and Class B Common Stock representing a majority of the voting power of all of the shares of Class A Common Stock and Class B Common Stock. This corporation shall not, without the affirmative vote of the holders of a majority of the issued and outstanding shares of Class B Common Stock, voting separately and as a class, (a) alter or change the powers, designations, preferences and relative, participating, optional or other special rights granted to, or the qualifications, limitations and restrictions imposed upon, the Class A Common Stock or the Class B Common Stock, (b) alter or change this Article FOURTH or any of Articles FIFTH, SIXTH or SEVENTH of this Restated Certificate of Incorporation, or otherwise make any amendment to this Restated Certificate of Incorporation that would alter the rights of the holders of the Class B Common Stock, (c) authorize the creation or issuance of any additional class or series of stock, (d) undertake the voluntary dissolution, liquidation or winding up of this corporation, (e) merge or consolidate this corporation with or into any other corporation or entity, (f) sell, lease, exchange, transfer or otherwise dispose of any substantial asset of this corporation or (g) alter the bylaws of this corporation in a manner described in the 2. 3 last sentence of Article EIGHTH. Furthermore, from and after the Purchase Option Exercise Date, as defined in Article FIFTH, (i) the holders of Class B Common Stock shall be entitled to remove directors with or without cause; and (ii) the holders of the Class B Common Stock shall have the sole right to elect the directors of this corporation. No new directorships created as a result of the increase in the size of the Board of Directors pursuant to the preceding sentence shall be filled other than by the holders of the Class B Common Stock. (5) CONVERSION. The Class B Common Stock shall automatically convert into fully paid and non-assessable shares of Class A Common Stock of this corporation at 12:01 a.m. New York time on the day immediately following the expiration of the Purchase Option without exercise granted in Article FIFTH. The Class B Common Stock shall convert into Class A Common Stock at the rate of one share of Class A Common Stock for each share of Class B Common Stock. FIFTH: PURCHASE OPTION. (A) DEFINITIONS. For purposes of this Restated Certificate of Incorporation, the following terms shall have the following definitions: (1) Allergan means Allergan, Inc. and its successors or assigns of the Purchase Option. (2) Allergan Common Stock means the Common Stock of Allergan or, if such Common Stock is converted into or exchanged for another class or series of stock of Allergan or any other corporation, such other class or series of stock. (3) Available Funds means, as of any date of determination, $200 million plus any investment income earned thereon less (i) the aggregate amount of all Research and Development Costs paid or incurred by this corporation as of such date, (ii) this corporation's aggregate reasonable ongoing administrative expenses paid or incurred as of such date and (iii) the aggregate amount of all Technology Fee payments paid or incurred by this corporation as of such date. (4) ASTI Product means any dosage form of a compound which is the subject of research and development as a potential human pharmaceutical product which has been recommended by Allergan and accepted by the Board of Directors of this corporation for development as such under the Research and Development Agreement. Such recommendations may be made on on a field of use basis as provided in the Research and Development Agreement. The following compounds have been selected as the initial ASTI Products as of the Filing Date: (i) Tazarotene (oral), (ii) Memantine, (iii) AGN 4310 and (iv) a compound to be selected from the RAR alpha-selective agonist class of retinoid compounds for the treatment of various cancers. 3. 4 (5) Developed Technology means any technology generated or otherwise obtained pursuant to the Research and Development Agreement. (6) Developed Technology Product means any product other than an ASTI Product (i) covered, at the time of sale in a country, by one or more unexpired patents issued in such country that are included in Developed Technology and (ii) with respect to which Allergan receives any consideration. (7) Developed Technology Royalties means the payments made by Allergan to this corporation with respect to net sales of Developed Technology Products. (8) Fair Market Value means, with reference to Allergan Common Stock, (a) if Allergan Common Stock is listed on the New York Stock Exchange or any other securities exchange reporting closing sales prices (including without limitation the Nasdaq National Market), the average of the closing sales price of Allergan Common Stock on such exchange (which shall be the New York Stock Exchange or, if Allergan Common Stock is not then traded on such exchange, on the principal exchange on which Allergan Common Stock is then traded), for the twenty trading days ending with the trading day that is two trading days prior to the date of determination, (b) if Allergan Common Stock is not listed on any securities exchange described in clause (a) but is quoted on Nasdaq or another quotation system providing bid prices, the average (over the twenty day period described in clause (a)) of the bid prices at the close of each day in such period on Nasdaq (or, if Allergan Common Stock is not then quoted on Nasdaq, the largest quotation system on which Allergan Common Stock is then quoted), and (c) if Allergan Common Stock is not listed on any exchange or quoted on any quotation system, the value thereof as determined in good faith by Allergan's board of directors. (9) Final Purchase Option Exercise Price means the Purchase Option Exercise Price minus (a) the amount by which this corporation's Liabilities existing at the Purchase Option Exercise Date (other than Liabilities under the Research and Development Agreement, Services Agreement and Technology License Agreement) exceed the aggregate of this corporation's then existing cash, cash equivalents and short-term and long-term investments (but excluding from such cash, cash equivalents and short-term and long-term investments the amount of Available Funds determined as of the Purchase Option Exercise Date which had not, as of such date, been paid by this corporation in accordance with the Research and Development Agreement) and minus (b), if the Purchase Option Exercise Price was determined based upon the provisions of clause (c) of Section (A)(19) of this Article FIFTH, any additional amounts not already included in the calculation set forth in Article FIFTH, Section (A)(19) that are paid by (or due from) this corporation under the Research and Development Agreement from the date of the last report of such expenditures provided by this corporation to Allergan in a Status Statement 4. 5 through the Purchase Option Exercise Date pursuant to the Research and Development Agreement. (10) Liabilities means, with respect to this corporation, (a) all liabilities required to be reflected or reserved against in this corporation's financial statements under generally accepted accounting principles consistently applied ("GAAP") and (b) any reimbursement or similar obligation with respect to any letter of credit issued for the account of this corporation or as to which this corporation is otherwise liable. Liabilities of the type described in (b) shall be valued at the full amount of the potential liability of the corporation thereon. (11) License Agreement means any License Agreement between Allergan and this corporation entered into upon the exercise by Allergan of the license option granted to it pursuant to the License Option Agreement, as any such agreement may be amended or modified from time to time by amendments approved by Allergan and the Board of Directors of this corporation. (12) License Option Agreement means the License Option Agreement between Allergan and this corporation dated as of _________, 1998, as such agreement may be amended or modified from time to time by amendments approved by Allergan and the Board of Directors of this corporation. (13) Licensed Product means an ASTI Product as to which the license option under the License Option Agreement has been exercised by Allergan. (14) Pre-Selection Work means research and pre-clinical development work involving a product candidate owned or controlled by Allergan or a third party funded by this corporation pursuant to the Research and Development Agreement and undertaken in order to determine the suitability of such candidate for research and development. (15) Pre-Selection Product means a product, other than one which becomes an ASTI Product, for which this corporation funds Pre-Selection Work. (16) Pre-Selection Product Payments means the payments made by Allergan to this corporation with respect to net sales of Pre-Selection Products. (17) Product Payments means payments made by Allergan to this corporation under a License Agreement with respect to Licensed Products. (18) Purchase Option Exercise Date means the date upon which Allergan notifies this corporation in writing of its exercise of the Purchase Option as provided in Section (C) of this Article FIFTH. 5. 6 (19) Purchase Option Exercise Price means the greatest of the following: (A) (i) 25 times the aggregate of (A) all worldwide payments made by and all worldwide payments due to be made by Allergan to this corporation with respect to all Licensed Products, Developed Technology Products and Pre-Selection Products for the four calendar quarters immediately preceding the quarter in which the Purchase Option is exercised (the "Base Period") and (B) all payments that would have been made by Allergan to this corporation during the Base Period if Allergan had not previously exercised its payment buy-out option with respect to such Licensed Product, Developed Technology Product or Pre-Selection Product; provided, however, that for purposes of the foregoing calculation, for any Licensed Product, Developed Technology Product or Pre-Selection Product which has not been commercially sold during each of the four calendar quarters in the Base Period, Allergan will be deemed to have made Product Payments, Developed Technology Royalties and Pre-Selection Product Payments to this corporation for each such quarter equal to the average of the Product Payments, Developed Technology Royalties and Pre-Selection Product Payments made by or due from Allergan to this corporation for each of such calendar quarters during which such product was commercially sold, less (ii) any amounts previously paid to exercise any payment buy-out option for any Licensed Product, Developed Technology Product or Pre-Selection Product pursuant to a License Agreement or the Research and Development Agreement. (B) the Fair Market Value of five hundred thousand (500,000) shares of Allergan Common Stock (which number of shares shall be proportionately adjusted for any stock dividend, split-up, combination or reclassification of the Allergan Common Stock) determined as of the Purchase Option Exercise Date; (C) $250 million less the aggregate amount of all Technology Fee payments and Research and Development Costs paid or incurred by this corporation as of the Purchase Option Exercise Date; and (D) $60 million. (20) Purchase Option Expiration Time means 11:59 p.m. New York time on December 31, 2002; provided that such date will be extended for successive six month periods if, as of any June 30 or December 31 beginning with June 30, 2001, this corporation has not paid (or accrued expenses for) at least 95% of all Available Funds pursuant to the Research and Development Agreement. Notwithstanding the foregoing sentence, the Purchase Option Expiration Time will in no event occur later than 11:59 p.m. New York time on the 90th day after this corporation provides Allergan with a statement that, as of the end of any calendar month, there are less than $15 million of Available Funds remaining. 6. 7 (21) Research and Development Agreement means the Research and Development Agreement between Allergan and this corporation, dated as of _________, 1998, as such agreement may be amended or modified from time to time by amendments approved by Allergan and the Board of Directors of this corporation. (22) Research and Development Costs means payments paid by or due from this corporation under the Research and Development Agreement as last reported by this corporation to Allergan in a Status Statement through the Purchase Option Exercise Date. (23) Services Agreement means the Services Agreement between Allergan and this corporation, dated as of _________, 1998, as such agreement may be amended or modified from time by amendments approved by Allergan and the Board of Directors of this corporation. (24) Status Statement means, as of any date, a balance sheet prepared by the Company and delivered to Allergan dated as of such date, together with (a) a statement and brief description of all other liabilities of this corporation constituting Total Liabilities as of such date not reflected on such balance sheet, (b) a statement of the amount of Available Funds remaining as of such date, and (c) a statement of the total amounts paid by and due from this corporation pursuant to the Research and Development Agreement through such date. (25) Technology Fee means the payments to be made over a maximum period of four (4) years by this corporation to Allergan pursuant to the Technology License Agreement. (26) Technology License Agreement means the Technology License Agreement between Allergan and this corporation , dated as of _________, 1998, as such agreement may be amended or modified from time to time by amendments approved by Allergan and the Board of Directors of this corporation. (27) Total Liabilities means (a) all Liabilities, plus (b) any other debts, liabilities or obligations, absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, including all costs and expenses relating thereto, and including those debts, liabilities and obligations arising under any law, rule or regulation, or under any pending or threatened action, suit or proceeding, or any order or consent decree of any governmental entity or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking. (B) GRANT OF OPTION. Allergan is hereby granted an exclusive irrevocable purchase option to purchase all issued and outstanding shares of Class A Common Stock of this corporation for the Final Purchase Option Exercise Price (the "Purchase Option"). The 7. 8 Purchase Option, if exercised, must be exercised as to all, but not less than all, issued and outstanding shares of Class A Common Stock and may be exercised at any time at or prior to the Purchase Option Expiration Time. Allergan shall elect, at the time of exercise of the Purchase Option, to pay all or any portion of the Final Purchase Option Exercise Price in cash, Allergan Common Stock (valued at its Fair Market Value determined as of the Purchase Option Exercise Date and registered under the Securities Act of 1933, as amended), or any combination thereof. The Purchase Option, together with the other rights of Allergan under this Article FIFTH and Article SIXTH, may, at Allergan's option, be assigned or otherwise transferred to any person or entity, including this corporation. (C) MANNER OF EXERCISE. The Purchase Option shall be exercised, if at all, at or before the Purchase Option Expiration Time by written notice (the "Exercise Notice") from Allergan to this corporation stating that the Purchase Option is being exercised and setting forth (1) the Purchase Option Exercise Price; (2) the portion, if any, of the Final Purchase Option Exercise Price to be paid in cash and the portion, if any, of the Final Purchase Option Exercise Price to be paid in Allergan Common Stock, and if any portion of the Final Purchase Option Exercise Price is to be paid in Allergan Common Stock, stating the Fair Market Value of such Allergan Common Stock determined as of the Purchase Option Exercise Date; and (3) a closing date (the "Closing Date") on which all of the issued and outstanding shares of Class A Common Stock will be purchased. The Purchase Option shall be deemed to be exercised as of the date of mailing by first class mail of the Exercise Notice to this corporation at its principal offices. (D) CLOSING. (1) CLOSING DATE; COOPERATION. Except as set forth below, the Closing Date shall be the date specified as such in the Exercise Notice, which date specified shall be no later than sixty (60) days after the Purchase Option Exercise Date. The Closing Date may be extended by Allergan if, in the judgment of Allergan, an extension of the Closing Date is necessary to obtain any governmental or third party consent to the purchase of the Class A Common Stock, to permit any necessary registration statement or similar filing to be declared effective, or to permit the expiration prior to the Closing Date of any statutory or regulatory waiting period. Allergan may extend the Closing Date for the reasons set forth in the preceding sentence by delivering written notice of such extension to this corporation on or prior to the previously specified Closing Date. This corporation shall cooperate with Allergan to effect the closing of the Purchase Option, including without limitation seeking any required third-party or governmental consents, and filing any applications, notifications, registration statements or the like which may be necessary to effect the closing. 8. 9 (2) CERTAIN RESTRICTIONS FOLLOWING PURCHASE OPTION EXERCISE DATE. From the Purchase Option Exercise Date until the Closing Date, this corporation will not take any of the following actions (or permit any such actions to be taken on its behalf) except with the prior written consent of Allergan: (A) borrow money, or mortgage, remortgage, pledge, hypothecate or otherwise encumber any of its assets; (B) sell, lease, lend, exchange or otherwise dispose of any of its assets, other than sales of inventory in the ordinary course of business; (C) pay or declare any dividends or make any distributions on or in respect of any shares of its capital stock; (D) default in its obligations under any material contract, agreement, commitment or undertaking of any kind or enter into any material contract, agreement, purchase order or other commitment; or (E) enter into any other transaction or agreement or arrangement, or incur any liabilities, not in the ordinary course of this corporation's business. (3) DETERMINATION OF FINAL PURCHASE OPTION EXERCISE PRICE. Not later than twenty (20) business days following the Purchase Option Exercise Date, this corporation shall deliver a final Status Statement to Allergan prepared as of the Purchase Option Exercise Date. Following receipt of such Status Statement and completion of any other investigation as Allergan shall deem necessary or appropriate, and prior to the Closing Date, Allergan shall determine the Final Purchase Option Exercise Price by making the adjustments to the Purchase Option Exercise Price contemplated by Section (A)(9) of this Article FIFTH and shall notify this corporation of such determination. (4) PAYMENT OF FINAL PURCHASE OPTION EXERCISE PRICE. On or before the Closing Date, Allergan shall deposit the full amount of the Final Purchase Option Exercise Price with a bank or banks or similar entities designated by Allergan (which may include Allergan's transfer agent if shares of Allergan Common Stock are being delivered) to pay, on Allergan's behalf, the Final Purchase Option Exercise Price (the "Payment Agent"). Funds, if any, and Allergan Common Stock, if any, deposited with the Payment Agent shall be delivered in trust for the benefit of the holders of Class A Common Stock, and Allergan shall provide the Payment Agent with irrevocable instructions to pay, on or after the Closing Date, the Final Purchase Option Exercise Price for the shares of Class A Common Stock to the holders of record thereof determined as of the Closing Date. Payment for shares of Class A Common Stock shall be mailed to each holder at the address set forth in this corporation's records or at the address provided by each holder or, if no address is set forth in this corporation's records for a holder or 9. 10 provided by such holder, to such holder at the address of this corporation. As soon as practicable upon Allergan's request, this corporation shall provide, or shall cause its transfer agent to provide, to Allergan or to the Payment Agent, free of charge, a complete list of the record holders of shares of Class A Common Stock, as of a specified date, including the number of shares of Class A Common Stock held of record and the address of each record holder as set forth in the records of this corporation's transfer agent. (E) TRANSFER OF TITLE. Transfer of title to all of the issued and outstanding shares of Class A Common Stock shall be deemed to occur automatically on the Closing Date and thereafter this corporation shall be entitled to treat Allergan as the sole holder of all of the issued and outstanding shares of its Class A Common Stock, notwithstanding the failure of any holder of Class A Common Stock to tender the certificates representing such shares to the Payment Agent, whether or not such tender is required or requested by the Payment Agent. This corporation shall instruct its transfer agent not to accept any shares of Class A Common Stock for transfer on and after the Closing Date. This corporation shall take all actions reasonably requested by Allergan to assist in effectuating the transfer of shares of Class A Common Stock in accordance with this Article FIFTH. (F) REDEMPTION OF CLASS A COMMON STOCK. At Allergan's election (which election may be made at any time, provided it is made, by delivery of written notice thereof to this corporation, not less than five days prior to the Closing Date), this corporation shall, subject to applicable restrictions in the Delaware General Corporation Law, redeem on the Closing Date all issued and outstanding shares of Class A Common Stock for an aggregate redemption price equal to the Final Purchase Option Exercise Price. Such redemption shall be in lieu of Allergan paying the Final Purchase Option Exercise Price directly to the stockholders of this corporation, and shall be subject to Allergan providing the Final Purchase Option Exercise Price to this corporation to allow this corporation to pay the redemption price. SIXTH: PROTECTIVE PROVISIONS. (A) LEGEND. Certificates evidencing shares of Class A Common Stock issued by or on behalf of this corporation shall bear a legend in substantially the following form: "The shares of Allergan Specialty Therapeutics, Inc. evidenced hereby are subject to an option in favor of Allergan, Inc., its successors and assigns, as described in the Restated Certificate of Incorporation of Allergan Specialty Therapeutics, Inc. to purchase such shares at a purchase price determined in accordance with Article FIFTH thereof exercisable by notice delivered to this corporation at or prior to the Purchase Option Expiration Time (as defined in the Restated Certificate of Incorporation of Allergan Specialty Therapeutics, Inc.). Copies of the Restated Certificate of Incorporation of Allergan Specialty Therapeutics, Inc. are available at the principal place of business of 10. 11 Allergan Specialty Therapeutics, Inc. at 2525 Dupont Drive, Irvine, California 92612 and will be furnished to any stockholder on request and without cost." (B) NO CONFLICTING ACTION. This corporation shall not take, nor permit any other person or entity within its control to take, any action inconsistent with Allergan's rights under Article FIFTH. This corporation shall not enter into any arrangement, agreement or understanding, whether oral or in writing, that is inconsistent with or limits or impairs the rights of Allergan and the obligations of this corporation hereunder, including without limitation any arrangement, agreement or understanding which imposes any obligation upon this corporation, or deprives this corporation of any material rights, as a consequence of the exercise of the Purchase Option or the acquisition of the outstanding Class A Common Stock pursuant thereto. (C) INSPECTION AND VISITATION RIGHTS; STATUS STATEMENTS. Allergan shall have the right to inspect and copy, on reasonable notice and during regular business hours, the books and records of this corporation. Allergan shall also have the right to request from time to time (but not more frequently than monthly) a Status Statement as of such fiscal month end as Allergan may request. Each Status Statement shall be sent within twenty (20) business days of request by Allergan. Allergan shall also have the right to send a non-voting representative to attend all meetings of this corporation's Board of Directors and any committees thereof. Any representative, if designated in writing by Allergan as such, shall receive notice of all meetings of this corporation's Board of Directors and each committee thereof, as well as copies of all documents and other materials provided to any directors of this corporation in connection with any such meeting not later than the time such materials are provided to other directors. Such representative shall also be provided with copies of all resolutions adopted or proposed to be adopted by unanimous written consent not later than the time such resolutions are provided to other directors. SEVENTH: BOARD OF DIRECTORS. (A) The number of directors which shall constitute the whole Board of Directors of this corporation shall initially be five. (B) Subject to the provisions of this Article SEVENTH, nomination of candidates for election to the Board of Directors shall be made as provided in the bylaws of this corporation. Election of directors need not be by written ballot. (C) Subject to Article FOURTH, Section (B)(4), the holders of the Class B Common Stock, voting together as a separate class, shall be entitled to elect one (1) director of the corporation, and the holders of the Class A Common Stock shall be entitled to elect up to four (4) directors of the corporation. Subject to the provisions of this Article SEVENTH, each director shall serve until the next annual meeting of stockholders of this corporation 11. 12 following such director's election as a member of the Board of Directors or until his or her successor is duly elected and qualified or until his or her death, resignation, disqualification or removal. (D) Except as otherwise provided in Article FOURTH, Section (B)(4), or as required by law, a vacancy in any directorship elected by the holders of the Class B Common Stock shall be filled only by vote or written consent of the holders of the Class B Common Stock, and a vacancy in any directorship elected by the holders of the Class A Common Stock shall be filled only by vote or written consent of the holders of the Class A Common Stock. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. Except as otherwise provided in Article FOURTH, Section (B)(4), or as required by law, a director elected by the holders of the Class B Common Stock may be removed without cause only by vote of holders of a majority of the outstanding shares of Class B Common Stock, and a director elected by the holders of the Class A Common Stock may be removed without cause only by vote of holders of a majority of the outstanding shares of Class A Common Stock. (E) The name and mailing address of each person who is to serve as a director until the first annual meeting of the stockholders after the Filing Date or until a successor is elected or appointed and qualified are as follows: NAME MAILING ADDRESS Lester J. Kaplan, Ph.D. 2525 Dupont Drive Irvine, CA 92612 [to come] [to come] EIGHTH:BYLAWS. In furtherance and not in limitation of the powers conferred by statute, and subject to the next sentence, the Board of Directors and the stockholders of this corporation are each expressly authorized to adopt, amend or repeal the bylaws of this corporation subject to any particular provisions concerning amendments set forth in this Restated Certificate of Incorporation or the bylaws of this corporation. Any amendment of the bylaws shall be subject to the provisions of this Restated Certificate of Incorporation and no amendment to the bylaws may be adopted by the stockholders without the approval of holders of a majority of the Class B Common Stock voting separately as a class if such amendment would regulate the conduct of the Board's affairs or the manner in which it may act. 12. 13 NINTH: STOCKHOLDER MEETINGS. (A) SPECIAL MEETINGS. Special meetings of the stockholders for any purpose or purposes whatsoever may be called at any time only by the Board of Directors, the Chairman of the Board or the President of this corporation. (B) NO ACTION WITHOUT MEETING. At any time when this corporation has more than one stockholder of any class of capital stock, no action required to be taken or which may be taken at any annual or special meeting of the stockholders may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Notwithstanding the foregoing, the holder or holders of the Class B Common Stock may take any action permitted to be taken by such holders as a class by written consent without a meeting. TENTH: LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS. (A) ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. No director of this corporation shall be personally liable to this corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except, to the extent provided by applicable law, for liability (i) for any breach of the director's duty of loyalty to this corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article TENTH shall apply to or have any effect on the liability or alleged liability of any director of this corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. (B) INDEMNIFICATION AND INSURANCE. (1) RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), because he or she, or a person of whom he or she is the legal representative, is or was a director or officer of this corporation or is or was serving at the request of this corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise (including service with respect to employee benefit plans), whether the basis of the proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by this corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits 13. 14 this corporation to provide broader indemnification rights than that law permitted this corporation to provide before such amendment), against all expense, liability and loss (including attorneys' fees, judgments, penalties, fines, Employee Retirement Income Security Act of 1974 excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that this corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors of this corporation. Such indemnification shall continue as to a person who has ceased to be a director or officer of this corporation and shall inure to the benefit of his or her heirs, executors and administrators. The right to indemnification conferred by this Section shall be a contract right which may not be retroactively amended and shall include the right to be paid by this corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service with respect to an employee benefit plan) in advance of the final disposition of the proceeding shall be made only upon delivery to this corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if ultimately it shall be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. This corporation may, by action of its Board of Directors, provide indemnification to employees and agents of this corporation with the same scope and effect as the indemnification of directors and officers. (2) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Paragraph 1 of this Section is not paid in full by this corporation within ninety (90) days after a written claim has been received by this corporation, the claimant may at any time thereafter bring suit against this corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for this corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on this corporation. Neither the failure of this corporation (including its Board of 14. 15 Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by this corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (3) NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Restated Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. (4) INSURANCE. This corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of this corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not this corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. 15. 16 IN WITNESS WHEREOF, the undersigned officer has executed this Restated Certificate of Incorporation on _________, 1998 and does hereby certify that this Restated Certificate of Incorporation, which restates and integrates, and also further amends, the provisions of this corporation's Certificate of Incorporation, was duly adopted by the stockholders of this corporation in accordance with Sections 242 and 245 of the Delaware General Corporation Law. ALLERGAN SPECIALTY THERAPEUTICS, INC. By: _____________________________________ Lester J. Kaplan, Ph.D. President and Chief Executive Officer EX-10.1 4 EXHIBIT 10.1 1 EXHIBIT 10.1 TECHNOLOGY LICENSE AGREEMENT This Technology License Agreement (this "Agreement") is made as of the _____ day of _______, 1998 among Allergan, Inc., a Delaware corporation ("Allergan"), each Allergan Affiliate listed on the signature page hereto (an "Allergan Affiliate") and Allergan Specialty Therapeutics, Inc., a Delaware corporation ("ASTI"). BACKGROUND A. ASTI has been formed for the purpose of researching and developing human pharmaceutical products, including products using Allergan Technology (as defined herein), and commercializing such products, most likely through licensing to Allergan. B. Allergan and ASTI have entered into the Research and Development Agreement (as defined herein) for the research and development of such products and related activities. C. Allergan is willing to grant to ASTI a license to use Allergan Technology solely for the purposes set forth above on the terms set forth herein and in the Research and Development Agreement and the License Option Agreement (as defined herein). Now, therefore, the parties agree as follows: 1. DEFINITIONS. For the purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Affiliate" shall mean a corporation or any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the designated party. "Control" shall mean ownership of at least 50% of the shares of stock entitled to vote for the election of directors in the case of a corporation, and at least 50% of the interests in profits in the case of a business entity other than a corporation. 1.2 "Allergan Technology" shall mean all Proprietary Rights, whether patented or unpatented, owned by, licensed to or controlled by Allergan, as of the date of this Agreement or during the term of the Research and Development Agreement, relating to retinoid and neuroprotective technologies, including but not limited to Tazarotene, Memantine and other glutamate and ion channel blockers and Allergan's and each Allergan Affiliate's rights under the agreements listed on Exhibit A hereto. "Allergan 1. 2 Technology" shall also include any additional technology which Allergan designates expressly in a writing delivered to ASTI as Allergan Technology for purposes of this Agreement. Notwithstanding the foregoing, however, in no event shall "Allergan Technology" include, and ASTI shall have no rights with respect to, (i) any topical formulation of Tazarotene or the research, development, manufacture or commercial sale or other use thereof or (ii) the commercial sale of Memantine and/or products incorporating or based on Memantine outside of the United States. 1.3 "ASTI Product" shall mean any dosage form of a compound which is the subject of research and development as a potential human pharmaceutical product which has been recommended by Allergan and accepted by ASTI's Board of Directors for development as such under the Research and Development Agreement. Such recommendations may be made on a Field of Use basis. The following compounds have been selected as the initial ASTI Products as of the date hereof: (i) Tazarotene (oral), (ii) Memantine, (iii) AGN 4310 and (iv) a compound to be selected from the RAR alpha-selective agonist class of retinoid compounds for the treatment of various cancers. 1.4 "Developed Technology" shall mean Proprietary Rights that (a) are first generated, conceived or reduced to practice, as the case may be, by Allergan or by any third party in the course of performing activities undertaken pursuant to the Research and Development Agreement or (b) are, in any manner, acquired by, or otherwise obtained on behalf of, ASTI during the term of the Research and Development Agreement from persons other than Allergan and are necessary or useful to the research, development or commercialization of ASTI Products or Pre-Selection Products. 1.5 "Distribution" shall mean Allergan's distribution of all of the outstanding shares of Class A Common Stock of ASTI to Allergan stockholders of record on ________, 1998. 1.6 "Field of Use" shall mean a particular disease state or set of related disease states. 1.7 "Infringing Product" shall mean any product sold by a third party which infringes or is alleged to infringe any patent or patents licensed to ASTI hereunder and covering an ASTI Product. 1.8 "License Agreement" shall mean an exclusive license agreement for a particular ASTI Product between Allergan and ASTI, entered into as a result of Allergan's exercise of the License Option for such product. 1.9 "License Option" shall mean the option granted to Allergan pursuant to the License Option Agreement. 2. 3 1.10 "License Option Agreement" shall mean the License Option Agreement dated as of the date hereof between Allergan and ASTI. 1.11 "Pre-Selection Work" shall mean research and pre-clinical development work involving one or more product candidates owned or controlled by Allergan or a third party funded by ASTI pursuant to the Research and Development Agreement and undertaken in order to determine the suitability of such candidate for research and development. 1.12 "Pre-Selection Product" shall mean a product, other than one which becomes an ASTI Product, for which ASTI funds Pre-Selection Work. 1.13 "Pre-Existing Rights" shall mean the rights of each party other than Allergan under the agreements listed on Exhibit A. 1.14 "Proprietary Rights" shall mean data, inventions, information, processes, know-how and trade secrets, and patents or patent applications claiming any of the foregoing, owned by, licensed to or controlled by a person and which such person has the right to license or sublicense. Proprietary Rights shall not include trademarks. 1.15 "Purchase Option" shall mean that certain option contained in ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the right to purchase all of the outstanding shares of ASTI Class A Common Stock. 1.16 "Research and Development Agreement" shall mean the Research and Development Agreement dated as of the date hereof between Allergan and ASTI. 1.17 "Therapeutic Agent" shall mean a drug, protein, peptide, gene, compound or other pharmaceutically active incredient. 2. LICENSE. 2.1 GRANT OF LICENSE. Allergan hereby grants to ASTI, on the terms and conditions of this Agreement, a worldwide (except as set forth below), exclusive license (subject to the Pre-Existing Rights), in perpetuity, with the right to sublicense (as set forth below), to use the Allergan Technology to research and develop ASTI Products, to conduct related activities (including Pre-Selection Work), and to commercialize ASTI Products, but for no other purposes whatsoever; provided, however, that, the foregoing license shall exclude (i) the research, development, manufacture or commercial sale or other use of any topical formulation of Tazarotene and (ii) the commercial sale of Memantine and/or products incorporating or based on Memantine outside of the United States. ASTI shall not sublicense any Allergan Technology to, or enter into other 3. 4 arrangements with respect to any Allergan Technology with, any third party for any purpose, except as set forth in Sections 2.2 and 2.3 hereof. 2.2 PERMITTED SUBLICENSES. (a) Except as set forth in Section 2.2(b) hereof, ASTI may grant sublicenses to Allergan and third parties to use the Allergan Technology solely for the purpose of performing activities in connection with the research and development of ASTI Products and conducting related activities (including Pre-Selection Work); provided however, that, during the term of the Research and Development Agreement, any such sublicenses shall be granted in accordance with the terms of the Research and Development Agreement. (b) If the License Option with respect to any ASTI Product in one or more countries expires unexercised, from and after expiration of such License Option in any such country, ASTI may sublicense Allergan Technology to a third party or third parties solely to the extent necessary to complete the development of, or to make (or have made) and use such ASTI Product, or to sell (or have sold) such ASTI Product in such country. 2.3 CONDITIONS OF SUBLICENSES. Each sublicensee shall execute such agreements as Allergan reasonably deems appropriate to protect the Allergan Technology and to protect Allergan's rights under all agreements between Allergan and ASTI and under the Purchase Option. Each sublicensee shall have all the duties of ASTI hereunder with respect to such sublicense, and each sublicensee shall acknowledge these duties to Allergan in writing. No sublicense shall have the effect of relieving ASTI of any of its obligations hereunder. 2.4 PRIOR AND FUTURE GRANTS. ASTI understands and acknowledges that Allergan is in the business of researching and developing products incorporating the Allergan Technology for its own account and under arrangements with third parties, and as a result, the license granted hereunder is limited strictly to use the Allergan Technology for the purpose of researching and developing ASTI Products and conducting related activities (including Pre-Selection Work) and commercializing ASTI Products. ASTI acknowledges that Allergan may use and may grant third party licenses to use the Allergan Technology for any and all other purposes. 3. COVENANTS OF ASTI. 3.1 DILIGENCE. ASTI promptly shall commence and shall use diligent efforts to develop ASTI Products in accordance with approved work plans and cost estimates under the Research and Development Agreement, subject to Allergan diligently undertaking its obligations thereunder. 4. 5 3.2 TECHNOLOGY FEE. ASTI shall pay Allergan in arrears the following Technology Fee payments: (a) $833,333 thirty days after the date of the Distribution and $833,333 on the same day of each of the next eleven months; (b) $558,333 per month on the same day of each of the next twelve months; (c) $275,000 per month on the same day of each of the next twelve months; and (d) $166,667 per month on the same day of each of the next twelve months; provided, however, that ASTI shall no longer be obligated to make such payment beginning with any month following the date on which the total number of ASTI Products either under development by ASTI pursuant to the Research and Development Agreement or licensed to Allergan pursuant to Allergan's exercise of the License Option is less than two. 3.3 PRE-EXISTING OBLIGATIONS. ASTI agrees to perform and timely discharge all of Allergan's and/or each Allergan Affiliate's obligations and duties under each of the agreements listed on Exhibit A, including but not limited to any and all royalty, milestone, non-disclosure, patent filing and/or prosecution license grant and/or license back and/or similar or related obligations and duties. 4. PATENTS. 4.1 INFRINGEMENT. Each party shall promptly notify the other of any infringement or alleged infringement known to such party of any patent covering Allergan Technology, by the manufacture, development, use or sale by a third party of any Infringing Product. 4.2 ACTION BY ALLERGAN. Subject to the provisions of the Research and Development Agreement and any License Agreement, in the event of any such alleged infringement, Allergan shall have the right, at its own expense and with the right to all recoveries, to take appropriate action to restrain such alleged infringement. If Allergan takes any such action, ASTI shall cooperate fully with Allergan in its pursuit thereof, at Allergan's expense, to the extent reasonably requested by Allergan. If Allergan brings an action under this Section 4.2, the parties shall share equally any recoveries, after Allergan is reimbursed for its expenses of bringing the action (including reasonable attorneys' fees). 5. 6 4.3 ACTION BY ASTI. If (a) the Infringing Product is substantially similar to an ASTI Product (in that the Infringing Product incorporates the same active Therapeutic Agent or Agents as such ASTI Product and, in the case of an ASTI Product that utilizes Allergan drug delivery technology, a drug delivery system substantially similar to the Allergan drug delivery system) for which the License Option has expired unexercised, and (b) within 90 days after the written notice from either party described above (or at any time thereafter), Allergan has not taken appropriate action to restrain such alleged infringement, and (c) at such time, the annualized unit sales volume of such Infringing Product in a country over a period of at least two calendar quarters, equals or exceeds 25% of the annualized unit sales volume of the related ASTI Product in such country during the same period, then ASTI shall have the right, at its own expense and with the right to all recoveries, to take such action as it deems appropriate to restrain such alleged infringement. If ASTI takes any such action, Allergan shall cooperate with ASTI in its pursuit thereof, at ASTI's expense, to the extent reasonably requested by ASTI. If the third party in any such action brings a counteraction for invalidation or misuse of a patent covering the Allergan Technology or the ASTI Product, ASTI shall promptly notify Allergan, and Allergan may, within six months after the notification, join and participate in such action at its own expense. ASTI shall not settle any such action relating to any alleged infringement which in any manner would adversely affect Allergan Technology without the prior written consent of Allergan. 5. CONFIDENTIALITY OF INFORMATION. 5.1 CONFIDENTIALITY. During the term of this Agreement and for a period of ten years following its termination, ASTI shall maintain in confidence all Allergan Technology; provided, however, that nothing contained herein shall prevent ASTI from disclosing any Allergan Technology to the extent such Allergan Technology (a) is required to be disclosed in connection with researching or developing ASTI Products, conducting Pre-Selection Work, conducting related activities, securing necessary governmental authorization for the marketing of ASTI Products, or directly or indirectly making, using or selling ASTI Products, as permitted or provided for in the agreements between the parties, (b) is required to be disclosed by law for the purpose of complying with governmental regulations, (c) is disclosed in connection with any sublicense permitted hereunder, (d) is known to or used by ASTI prior to the date hereof (other than through disclosure by or on behalf of Allergan) as evidenced by ASTI's written records, (e) is lawfully disclosed to ASTI by a third party having the right to disclose such information to ASTI, or (f) either before or after the time of disclosure to ASTI, becomes known to the public other than by an unauthorized act or omission of ASTI or any of ASTI's employees or agents. Any disclosure of Allergan Technology to third parties shall be made subject to similar obligations of confidentiality on the part of such third parties. The obligations of ASTI pursuant to this Section 5.1 shall survive the termination of this Agreement for any reason. Any breach of this Section 5.1 may result in irreparable harm 6. 7 to Allergan, and in the event of a breach, Allergan shall be entitled to seek injunctive relief (without the need to post a bond) in addition to any other remedies available at law or in equity . 6. DISCLAIMER. 6.1 DISCLAIMER CONCERNING ALLERGAN TECHNOLOGY. ALLERGAN DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY (A) THAT ANY ALLERGAN TECHNOLOGY, OR THE USE THEREOF, OR ANY PRODUCTS INCORPORATING OR MANUFACTURED BY THE USE THEREOF, WILL BE FREE FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF PROPRIETARY INFORMATION OF ANY THIRD PARTY AND (B) OF THE ACCURACY, RELIABILITY, TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF THE ALLERGAN TECHNOLOGY OR ITS SUITABILITY OR FITNESS FOR ANY PURPOSE WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE DESIGN, RESEARCH, DEVELOPMENT, MANUFACTURE, USE OR SALE OF PRODUCTS. ALLERGAN DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER NATURE, EXPRESS OR IMPLIED. 7. REPORTS OF ADVERSE REACTIONS. 7.1 REPORTS OF ADVERSE REACTIONS. During the term of this Agreement, each party shall promptly inform the other party of any information that it obtains or develops regarding the efficacy or safety of an ASTI Product and shall promptly report to the other party any information or notice of adverse or unexpected reactions or side effects related to the utilization or medical administration of an ASTI Product. Further, during the term of this Agreement, each party shall promptly inform the other of any information that it obtains or develops regarding the safety of any Allergan Technology as related to the ASTI Products. Each such party shall permit the other to comply with the adverse reaction reporting obligations under the United States Food, Drug and Cosmetic Act, or similar statutory provisions, and regulations thereunder and shall assist the other party in complying therewith, with respect to the ASTI Products. When appropriate, the parties will execute a standard operating procedure to cover the foregoing. ASTI agrees and acknowledges that Allergan may provide information it obtains under this Section 7.1 to Allergan's other clients developing and/or commercializing products incorporating the same Allergan drug delivery systems as are incorporated in the ASTI Products. 8. EFFECTIVE DATE; TERMINATION. 8.1 EFFECTIVE DATE. This Agreement shall become effective on the date of the Distribution. 7. 8 8.2 TERMINATION FOR BREACH. Either party may terminate this Agreement effective upon the giving of written notice of such termination to the other party in the event such other party breaches any of its material obligations hereunder or under the License Option Agreement and such breach continues for a period of 60 days after written notice thereof by the terminating party to the other party. 8.3 AUTOMATIC TERMINATION. This Agreement shall automatically terminate upon termination by ASTI of the Research and Development Agreement other than due to a breach by Allergan, or upon termination by Allergan of the Research and Development Agreement due to a breach by ASTI. 8.4 TERMINATION OF SUBLICENSES. Termination by Allergan of this Agreement shall automatically terminate any sublicenses granted by ASTI hereunder. 9. FORCE MAJEURE. 9.1 FORCE MAJEURE. Neither party to this Agreement shall be liable for failure or delay in the performance of any of its obligations hereunder if such failure or delay is due to causes beyond its reasonable control, including, without limitation, acts of God, earthquakes, fires, strikes, acts of war, or intervention of any governmental authority, but any such delay or failure shall be remedied by such party as soon as possible after the removal of the cause of such failure or delay. 10. INDEMNIFICATION. 10.1 INDEMNITY. ASTI shall indemnify, defend and hold Allergan harmless from and against any and all liabilities, claims, demands, damages, costs, expenses or money judgments incurred by or rendered against Allergan and its Affiliates, which arise out of the use, design, labeling, manufacture, processing, packaging, sale or commercialization of the ASTI Products by ASTI, its Affiliates and permitted subcontractors and sublicensees (other than Allergan and its Affiliates, subcontractors, sublicensees, distributors and others operating under arrangements with or through Allergan). Allergan shall permit ASTI's attorneys, at ASTI's discretion and cost, to control the defense of any claims or suits as to which Allergan may be entitled to indemnity hereunder, and Allergan agrees not to settle any such claims or suits without the prior written consent of ASTI. Allergan shall have the right to participate, at its own expense, in the defense of any such claim or demand to the extent it so desires. 10.2 NOTICE. Allergan shall give ASTI prompt notice in writing, in the manner set forth in Section 11.7 below, of any claim or demand made against Allergan for which Allergan may be entitled to indemnification under Section 10.1. 8. 9 11. MISCELLANEOUS. 11.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto of a breach of any provisions of this Agreement shall not be implied and shall not be valid unless such waiver is recited in writing and signed by such party. Failure of any party to require, in one or more instances, performance by the other party in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of the future performance of any such terms or conditions or of any other terms and conditions of this Agreement. A waiver by either party of any term or condition of this Agreement shall not be deemed or construed to be a waiver of any other term or condition of this Agreement. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement of either party. This Agreement may not be amended except in a writing signed by both parties. 11.2 ASSIGNMENT. Neither party may assign its rights and obligations hereunder without the prior written consent of the other party, which consent may not be unreasonably withheld; provided, however, that Allergan may assign such rights and obligations hereunder to an Affiliate of Allergan or to any person or entity with which Allergan is merged or consolidated or which acquires all or substantially all of the assets of Allergan. 11.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted resolution by good faith negotiations within sixty (60) days after such referral is made. During such period of good faith negotiations, any applicable time periods under this Agreement shall be tolled. In the event such executives are unable to resolve such dispute within such sixty (60) day period, the parties shall submit their dispute to binding arbitration before a retired California Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules for commercial disputes then in effect. The award of the arbitrator shall include an award of reasonable attorneys' fees and costs to the prevailing party. 11.4 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 11.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of California as applied to residents of that state entering into contracts to be performed in that state. 9. 10 11.6 HEADINGS. The section headings contained in this Agreement are included for convenience only and form no part of the Agreement between the parties. 11.7 NOTICES. Notices required under this Agreement shall be in writing and sent by registered or certified mail, postage prepaid, or by facsimile and confirmed by registered or certified mail, postage prepaid, and addressed as follows: If to Allergan and/or any Allergan Affiliate: Allergan, Inc. 2525 Dupont Drive Irvine, CA 92612 Facsimile: (714) 246-4774 Attention: Corporate Vice President, General Counsel If to ASTI: Allergan Specialty Therapeutics, Inc. 2525 Dupont Drive Irvine, CA 92612 Facsimile: (714) 246-4774 Attention: President and Chief Executive Officer All notices shall be deemed to be effective five days after the date of mailing or upon receipt if sent by facsimile (but only if followed by certified or registered confirmation). Either party may change the address at which notice is to be received by written notice pursuant to this Section 11.7. 11.8 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, it shall be stricken and the remaining provisions shall remain in full force and effect. 11.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI and Allergan shall be deemed to be independent contractors, and anything in this Agreement to the contrary notwithstanding, nothing herein shall be deemed to constitute ASTI and Allergan as partners, joint venturers, co owners, an association or any entity separate and apart from each party itself, nor shall this Agreement constitute any party hereto an employee or agent, legal or otherwise, of the other party for any purposes whatsoever. Neither party hereto is authorized to make any statements or representations on behalf of the other party or in any way obligate the other party, except as expressly authorized in writing by the other party. Anything in this Agreement to the contrary notwithstanding, 10. 11 no party hereto shall assume or be liable for any liabilities or obligations of the other party, whether past, present or future. 11.10 SURVIVAL. The provisions of Sections 1, 5, 6, 7, 10, 11.1, 11.3, 11.5, 11.6, 11.7, 11.8, 11.9 and this Section 11.10 shall survive the termination for any reason of this Agreement. Any payments due under this Agreement with respect to any period prior to its termination shall be made notwithstanding the termination of this Agreement. Neither party shall be liable to the other due to the termination of this Agreement as provided herein, whether in loss of good will, anticipated profits or otherwise. 11. 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. ALLERGAN SPECIALTY THERAPEUTICS, INC. By: ____________________________________________ Title: _________________________________________ ALLERGAN, INC. By: ____________________________________________ Title: _________________________________________ ALLERGAN AFFILIATES: ALLERGAN AMERICA, INC. By: ____________________________________________ Title: _________________________________________ ALLERGAN PHARMACEUTICALS (IRELAND) LTD., INC. By: ____________________________________________ Title: _________________________________________ 12. 13 VISION PHARMACEUTICALS, L.P. A Texas limited partnership, dba Allergan, by Allergan General, Inc., its general partner By: ____________________________________________ Title: _________________________________________ 13. 14 EXHIBIT A Exclusive License Agreement dated August 23, 1995 among Children's Medical Center Corporation, Allergan, Allergan America, Inc. ("Allergan America") and Allergan Pharmaceuticals (Ireland) Ltd., Inc. ("Allergan-Ireland"). License and Supply Agreement dated February 28, 1997 among Merz + Co. GmbH & Co., Vision Pharmaceuticals L.P. ("Vision"), Allergan America, Allergan-Ireland and Allergan. Collaborative Research, Development and Marketing Agreement dated November 20, 1996 between Cambridge NeuroScience, Inc. and Vision. Amended and Restated Technology Cross License Agreement dated September 24, 1997 among Ligand Pharmaceuticals Incorporated, Allergan and Allergan Ligand Retinoid Therapeutics, Inc. Cross License Agreement dated ________, 1998 among Allergan, Allergan America, Allergan-Ireland and Vision. 14. EX-10.2 5 EXHIBIT 10.2 1 EXHIBIT 10.2 RESEARCH AND DEVELOPMENT AGREEMENT This Research and Development Agreement (the "Agreement") is made as of the ____ day of ________, 1998 between Allergan, Inc., a Delaware corporation ("Allergan"), and Allergan Specialty Therapeutics, Inc., a Delaware corporation ("ASTI"). BACKGROUND A. ASTI has been formed for the purpose of research and developing human pharmaceutical products, including products using Allergan Technology (as defined below) and commercializing such products, most likely through licensing to Allergan. B. Allergan is engaged in the business of performing research, development, marketing, manufacture and distribution of therapeutic and prophylactic products. C. ASTI desires that Allergan perform, on behalf of ASTI, research and development activities directed toward the research and development of ASTI Products (as defined below) and related activities. Now, therefore, the parties agree as follows: 1. DEFINITIONS. For the purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Affiliate" shall mean a corporation or any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the designated party. "Control" shall mean ownership of at least 50% of the shares of stock entitled to vote for the election of directors in the case of a corporation, and at least 50% of the interests in profits in the case of a business entity other than a corporation. 1.2 "Allergan Technology" shall mean all Proprietary Rights licensed and/or sublicensed by Allergan and/or its Affiliates pursuant to the Technology License Agreement. 1.3 "ALRT" shall mean Allergan Ligand Retinoid Therapeutics, Inc, a Delaware corporation. 1.4 "ASTI Product" shall mean any dosage form of a compound which is the subject of research and development as a potential human pharmaceutical product which has been recommended by Allergan and accepted by ASTI's Board of Directors for 1. 2 development as such under this Agreement. Such recommendations may be made on a Field of Use basis. The following compounds have been selected as the initial ASTI Products as of the date hereof: (i) Tazarotene (oral), (ii) Memantine, (iii) AGN 4310 and (iv) a compound to be selected from the RAR alpha-selective agonist class of retinoid compounds for the treatment of various cancers. 1.5 "Available Funds" shall mean, as of any date of determination, $200 million plus any investment income earned thereon less (a) the aggregate amount of all Research and Development Costs paid or incurred by ASTI as of such date, (b) ASTI's aggregate reasonable ongoing administrative expenses paid or incurred as of such date and, (c) the aggregate amount of all Technology Fee payments paid or incurred by ASTI as of such date. 1.6 "Developed Technology" shall mean Proprietary Rights that (a) are first generated, conceived or reduced to practice, as the case may be, by Allergan or by any third party in the course of performing activities undertaken pursuant to this Agreement or (b) are, in any manner, acquired by, or otherwise obtained on behalf of, ASTI during the term of this Agreement from persons other than Allergan and are necessary or useful to the research, development or commercialization of ASTI Products or Pre-Selection Products. 1.7 "Developed Technology Product" shall mean any product (other than an ASTI Product) (i) covered, at the time of sale in a country by one or more unexpired patents issued in such country that are included in Developed Technology and (ii) with respect to which Allergan receives any consideration. 1.8 "Developed Technology Royalties" shall mean the payments made by Allergan to ASTI with respect to Net Sales of Developed Technology Products. 1.9 "Distribution" shall mean Allergan's distribution of all of the outstanding shares of Class A Common Stock of ASTI to Allergan stockholders of record on ________, 1998. 1.10 "Distribution Agreement" shall mean the Distribution Agreement dated as of the date hereof between Allergan and ASTI. 1.11 "FDA" shall mean the United States Food and Drug Administration or any successor agency whose clearance is necessary to market an ASTI Product in the United States. 1.12 "Field of Use" shall mean a particular disease state or set of related disease states. 2. 3 1.13 "License Option" shall mean the option granted to Allergan pursuant to the License Option Agreement. 1.14 "License Option Agreement" shall mean the License Option Agreement dated as of the date hereof between Allergan and ASTI. 1.15 "Major Market Country" shall mean any of the following countries: United States, France, Germany, Italy, Japan or the United Kingdom. 1.16 "Net Sales" shall mean, with respect to any Licensed Product, Developed Technology Product or Pre-Selection Product, the amount billed by Allergan or its Affiliates to a third party which is not an Affiliate of the selling party (unless such Affiliate is the end user of such product, in which case the amount billed therefor shall be deemed to be the amount that would be billed to a third party in an arm's length transaction) for sales of such Licensed Product, Developed Technology Product or Pre-Selection Product to third parties less the following items, as allocable to such Licensed Product, Developed Technology Product or Pre-Selection Product: (i) trade discounts, credits or allowances, (ii) credits or allowances additionally granted upon returns, rejections or recalls (except where any such recall arises out of Allergan's or its Affiliate's gross negligence, willful misconduct or fraud), (iii) freight, shipping and insurance charges, (iv) taxes, duties or other governmental tariffs (other than income taxes) and (v) government mandated rebates. 1.17 "Pre-Selection Work" shall mean research and pre-clinical development work involving one or more product candidates owned or controlled by Allergan or a third party undertaken in order to determine the suitability of such candidate for research and development by ASTI. 1.18 "Pre-Selection Product" shall mean a product, other than one which becomes an ASTI Product, for which ASTI funds Pre-Selection Work. 1.19 "Pre-Selection Product Payments" shall mean the payments made by Allergan to ASTI pursuant to Section 7.4 with respect to Net Sales of Pre-Selection Products. 1.20 "Product Candidate" shall mean a potential ASTI Product or potential Pre-Selection Product for which Allergan proposes a Work Plan in accordance with Section 2.2. 1.21 "Product Research and Development Program" shall mean a program to conduct research and development with respect to an ASTI Product. 3. 4 1.22 "Proprietary Rights" shall mean data, inventions, information, processes, know-how and trade secrets, and patents or patent applications claiming any of the foregoing, owned by, licensed to or controlled by a person and which such person has the right to license or sublicense. Proprietary Rights shall not include trademarks. 1.23 "Purchase Option" shall mean that certain option contained in ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the right to purchase all of the outstanding shares of ASTI Class A Common Stock. 1.24 "Research and Development Costs" shall mean the cost of the activities undertaken pursuant to this Agreement, determined in accordance with Exhibit A hereto. 1.25 "Specialty Royalty Payments" shall mean front-end distribution fees, prepaid royalties or similar one-time, infrequent or special payments from a sublicensee to Allergan with respect to a Licensed Product, a Developed Technology Product or a Pre-Selection Product. 1.26 "Sublicensing Revenues" shall mean percentage-of-sales payments and Specialty Royalty Payments received by Allergan from sublicensees with respect to a Licensed Product, a Developed Technology Product or a Pre-Selection Product. 1.27 "Technology Fee" shall mean payments to be made over a maximum period of four (4) years by ASTI to Allergan pursuant to the Technology License Agreement. 1.28 "Technology License Agreement" shall mean the Technology License Agreement dated as of the date hereof between Allergan and ASTI. 1.29 "Therapeutic Agent" shall mean a drug, protein, peptide, gene, compound or other pharmaceutically active ingredient. 1.30 "Work Plan" shall mean a work plan for research and development of a potential ASTI Product or potential Pre-Selection Product including cost estimates. 2. PRODUCT RESEARCH AND DEVELOPMENT PROGRAM. 2.1 PRODUCT CANDIDATE IDENTIFICATION PROCESS. On or before March 31, 1998 and at least annually thereafter, Allergan shall provide ASTI with a proposed Work Plan covering activities to be undertaken by Allergan to identify and conduct research and development with respect to Product Candidates for consideration by ASTI under Sections 2.2, 2.3 and, as applicable, Section 2.4. Promptly after Allergan provides ASTI with such proposed Work Plan, ASTI shall notify Allergan of its acceptance or rejection of such proposed Work Plan. 4. 5 2.2 PRODUCT CANDIDATE SELECTION. (a) From time to time during the term of this Agreement, Allergan shall present ASTI with Product Candidates recommended by Allergan for research and development as ASTI Products, together with preliminary lifetime plans that provide, for each such Product Candidate, an estimate of the total Research and Development Costs for the Product Research and Development Program for such Product Candidate through FDA review for clearance to market the resulting product, milestones (including the timetable for the development of the resulting product), detailed Work Plans for the first proposed stage of the Product Research and Development Program and any other factors that Allergan deems appropriate to determine whether to recommend the Product Candidate for research and development. (b) Promptly after Allergan recommends a Product Candidate for research and development to ASTI, ASTI shall notify Allergan in writing of its acceptance (in whole or in part) or rejection (in whole or in part) of the initial Work Plan included with such recommendation. Upon written acceptance (in whole or in part) of a Work Plan for a Product Candidate under this Section 2.2, such Product Candidate shall be deemed to be an ASTI Product. (c) If ASTI fails to accept a recommended Product Candidate for research and development as an ASTI Product within 120 days of recommendation by Allergan, then, subject to Section 7.4, ASTI shall have no rights with respect to such Product Candidate; provided, however, that, at any time during the term of this Agreement, ASTI may request Allergan to perform a Product Research and Development Program for such Product Candidate and Allergan shall undertake its duties with respect to such Product Research and Development Program, all in accordance with this Section 2 and Section 3, unless, at the time of such request, Allergan is then undertaking the research and development of such Product Candidate for its own account or with a third party, or Allergan is otherwise not permitted to undertake such research or development hereunder because of an arrangement with a third party. 2.3 ASTI PRODUCTS AND PRE-SELECTION WORK. ASTI shall fund the Research and Development Costs under Allergan approved Work Plans in accordance with Section 4.1 for each of the initial ASTI Products specified in Section 1.4 and for the Pre-Selection Work described in Exhibit B during the period from the date on which ALRT ceased such funding (October 23, 1997) through March 31, 1998. On or before March 31, 1998, Allergan shall provide ASTI with a proposed Work Plan and a lifetime plan for the continued development of each of such initial ASTI Products and such initial Pre-Selection Work. On or before March 31, 1998, ASTI shall notify Allergan in writing of its acceptance (in whole or in part) or rejection (in whole or in part) thereof. 5. 6 2.4 PRE-SELECTION WORK. From time to time during the term of this Agreement, Allergan may provide ASTI with a proposed Work Plan covering one or more Pre-Selection Work projects with respect to Product Candidates which Allergan designates as Pre-Selection Products. Promptly after Allergan provides ASTI with such proposed Work Plan, ASTI shall notify Allergan of its acceptance (in whole or in part) or rejection (in whole or in part) of such proposed Work Plan. Allergan may propose to ASTI at any time that any Pre-Selection Product (including any Pre-Selection Product relating to the Pre-Selection Work referred to on Exhibit B) become an ASTI Product by complying with the procedures set forth in Section 2.2. 2.5 PARTIAL ACCEPTANCE. If ASTI accepts or rejects a Work Plan in part, Allergan may either (i) perform the activities under the Work Plan as approved by ASTI or (ii) propose a modified Work Plan to ASTI for approval. 3. RESEARCH AND DEVELOPMENT PROGRAMS; ALLERGAN SERVICES. 3.1 PRODUCT DEVELOPMENT--ASTI OBLIGATIONS. Once ASTI accepts a Work Plan for an ASTI Product or a Pre-Selection Work pursuant to Section 2.2, 2.3 or 2.4, ASTI shall use diligent efforts to complete such Work Plan, as amended from time to time. ASTI shall request that Allergan or a third party perform the activities under each such Work Plan; provided, however, that Allergan's prior written consent shall be required for a third party to perform any activities that involve Allergan Technology or that could affect Allergan's rights under any agreement between Allergan and ASTI or Allergan's rights as holder of the Class B Common Stock of ASTI. ASTI shall use diligent efforts to cause each third party other than Allergan (or a third party engaged by Allergan) to perform diligently the activities assigned it under a Work Plan. 3.2 PRODUCT DEVELOPMENT--ALLERGAN OBLIGATIONS; OTHER ALLERGAN ACTIVITIES. ASTI hereby engages Allergan to perform product identification, evaluation, research, development and related activities in accordance with the tasks assigned to Allergan under the Work Plans accepted under Section 2, and to undertake such other activities as the parties may agree. Allergan diligently shall perform or cause to be performed such activities. In connection therewith, Allergan shall make available such of its scientific and other personnel, and shall take such steps as it deems necessary in order to perform its obligations in accordance with the terms hereof, but Allergan is not obligated to devote any specific amount of time or resources to activities hereunder. Allergan shall have full discretion to determine from time to time the allocation of resources of Allergan (facilities, equipment and personnel) that are available for activities hereunder, and to determine from time to time the allocation of resources of Allergan among such activities. ASTI understands, acknowledges and agrees that Allergan may devote substantial time and resources to research and development activities for other persons and for its own account, and as a result, Allergan may develop and commercialize, or have 6. 7 commercialized, products competitive with ASTI Products, Pre-Selection Products and Developed Technology Products. 3.3 WORK PLANS. The parties understand and acknowledge that it is difficult to predict accurately the activities that will be necessary to complete any Work Plan, including the Research and Development Costs thereof, and that significant uncertainties exist in any product development effort. ASTI and Allergan shall cooperate in good faith to devise mutually acceptable Work Plans for Product Research and Development Programs, Pre-Selection Work, candidate identification activities and such other activities as the parties may agree. Allergan and ASTI shall review each such Work Plan from time to time, and with respect to a Work Plan for an ASTI Product no less often than at the end of each stage of research and development, and shall revise each Work Plan as appropriate such that each Work Plan remains a best estimate of the work to be performed to complete the development objectives identified therein and of the Research and Development Costs thereunder. ASTI shall not be obligated to pay Research and Development Costs in excess of those provided for in approved Work Plans, and Allergan shall not be obligated to perform work which would result in Research and Development Costs exceeding those in approved Work Plans. 3.4 CONSULTATION. ASTI shall consult with Allergan and shall review with Allergan from time to time the progress toward completion of the activities under the Work Plans for each ASTI Product and Pre-Selection Work, including without limitation, the status in each country for each ASTI Product for which marketing clearance is being sought. 3.5 THIRD PARTY RIGHTS. Subject to the terms and conditions of this Agreement, ASTI shall have discretion to attempt to obtain, using Available Funds, any Proprietary Rights from any third party that ASTI reasonably determines to be necessary or useful to conduct any Product Research and Development Program, Pre-Selection Work or related activities under this Agreement. Such Proprietary Rights shall be included in the Developed Technology. The costs of obtaining any such Proprietary Rights shall be included in the calculation of Research and Development Costs paid by ASTI pursuant to this Agreement. 3.6 DEVELOPMENT ASSETS. Allergan shall own and have the right to use any clinical supplies, materials and other assets purchased, manufactured or developed pursuant to approved Work Plans ("Development Assets") and, until such time as the License Option is exercised with respect to the product to which any particular Development Asset pertains, shall use such Development Assets solely in the development of ASTI Products under approved Work Plans. 7. 8 3.7 NO USE OF AVAILABLE FUNDS. After either (i) such time as the License Option for an ASTI Product in a country expires unexercised as to such country or (ii) an investigational new drug application ("IND") is filed with the FDA with respect to a Pre-Selection Product which has not been recommended by Allergan and accepted by ASTI's Board of Directors as an ASTI Product, no additional Available Funds shall be expended for the research or development of such ASTI Product for sale in such country or such Pre-Selection Product, as applicable. 3.8 NOTICES. Allergan shall notify ASTI within three business days after Allergan receives notice of clearance to market any ASTI Product in any country. Allergan shall promptly notify ASTI of the first commercial sale of an ASTI Product, Developed Technology Product or Pre-Selection Product in any country. 4. PAYMENT FOR SERVICES; TIMING OF PAYMENTS. 4.1 PAYMENT OF RESEARCH AND DEVELOPMENT COSTS. In consideration of the work to be carried out by Allergan hereunder, ASTI shall reimburse Allergan for all Research and Development Costs incurred by Allergan in accordance with accepted Work Plans. ASTI shall also reimburse Allergan for (i) Research and Development Costs incurred with respect to the initial ASTI Products referred to in Section 1.4 and (ii) Pre-Selection Work described in Exhibit B, which costs are incurred from the date on which ALRT ceased such funding (October 23, 1997) through March 31, 1998 in accordance with the Allergan approved Work Plans therefor in effect as of the date hereof. 4.2 TIMING OF PAYMENTS. ASTI shall pay to Allergan monthly, in arrears, all such Research and Development Costs incurred by Allergan during the preceding calendar month, within 30 days after Allergan's invoice therefor. 4.3 SUFFICIENCY OF FUNDS. Neither ASTI nor Allergan makes any warranty, express or implied, that Available Funds will be sufficient to complete the development of any or all ASTI Products or the other activities contemplated hereunder. 5. REPORTS AND RECORDS. 5.1 PRODUCT RESEARCH AND DEVELOPMENT PROGRAM REPORTS. Within 45 days after the end of each calendar quarter, Allergan shall provide to ASTI, and ASTI shall require each third party engaged by ASTI pursuant to Section 3.1 to provide to ASTI and to Allergan, a reasonably detailed report setting forth (a) a summary of the work performed hereunder by Allergan or such third party, as appropriate, and its employees and agents during such quarter; and (b) the total Research and Development Costs of such activities during such quarter and cumulatively to date, for each Work Plan. 8. 9 5.2 AVAILABLE FUNDS STATEMENT. Within 45 days after the end of each calendar quarter, ASTI shall provide to Allergan a statement setting forth, as of the end of such quarter, the Available Funds remaining. 5.3 PAYMENT REPORTS. Within 90 days after the end of each calendar quarter for which payments are due under Section 7.4, Allergan shall render an accounting to ASTI, on a product-by-product and country-by-country basis, with respect to all payments due for such quarter under Section 7.4. Such report shall indicate, for such quarter, the quantity and dollar amount of Net Sales of, and Sublicensing Revenues with respect to, each Developed Technology Product and each Pre-Selection Product by Allergan and its Affiliates, sublicensees, distributors and marketing partners (and their Affiliates), with respect to which payments are due; provided, however, that if Allergan shall not have received from any foreign sublicensee, distributor or marketing partner a report of its (and its Affiliates') sales for such quarter, then such sales shall be included in the next quarterly report, and payments with respect to such report shall be due in the next quarter. In case no payment is due for any calendar quarter, Allergan shall so report. Allergan shall keep accurate records in sufficient detail to enable the payments due hereunder to be determined. 5.4 RECORDS; REVIEW BY ACCOUNTANTS. Each of ASTI and Allergan shall keep and maintain, in accordance with generally accepted accounting principles, proper and complete records and books of account documenting all Research and Development Costs and amounts paid or payable by Allergan to ASTI under this Agreement, in the case of Allergan, and remaining Available Funds, in the case of ASTI. Each of ASTI and Allergan shall have the right, once in each calendar year during regular business hours and upon reasonable notice to the other party, and at its own expense, to examine or to have examined by a certified public accountant or similar person reasonably acceptable to the other party, pertinent books and records of one another, for the sole purpose of determining the correctness of amounts invoiced, paid or due under this Agreement and the application of Available Funds by ASTI. Such examination shall take place not later than two years following the year in question, and only one examination may take place with respect to any period as to which such books and records are examined. Each party shall obtain, for itself and for the other party, similar reasonable rights to audit the Research and Development Costs of, and payments with respect to Net Sales by, each third party engaged by ASTI pursuant to Section 3.1 or appointed or permitted by Allergan to commercialize any product as to which payments are due to ASTI hereunder. 6. TECHNOLOGY LICENSED FOR DEVELOPMENT. 6.1 LICENSE TO USE ALLERGAN TECHNOLOGY. ASTI hereby grants to Allergan a sublicense to use the Allergan Technology and the Developed Technology solely for the purpose of conducting the activities contemplated hereunder. 9. 10 6.2 TERMINATION OF LICENSE. Termination of the license granted under the Technology License Agreement automatically shall terminate the sublicense to the Allergan Technology granted to Allergan pursuant to Section 6.1. 7. OWNERSHIP OF ASTI PRODUCTS AND DEVELOPED TECHNOLOGY; PATENTS; PAYMENTS TO ASTI. 7.1 OWNERSHIP OF ASTI PRODUCTS. Unless ASTI agrees otherwise, all ASTI Products will be owned by ASTI or, in the case of a product licensed from a third party (or a product incorporating a Therapeutic Agent licensed from a third party), exclusively licensed to ASTI on a worldwide basis, with the right to sublicense, and otherwise on terms granting rights substantially similar to those rights ASTI would have as an owner, in either case subject to the License Option. 7.2 OWNERSHIP OF DEVELOPED TECHNOLOGY. As between Allergan and ASTI, Allergan shall own all Developed Technology, subject to the Technology License Agreement. 7.3 PATENTS COVERING DEVELOPED TECHNOLOGY. Allergan shall determine whether and to what extent to seek and maintain United States and/or foreign patents covering any Developed Technology. Any such patents and applications therefor shall be in Allergan's name and shall be owned by Allergan. In the event that Allergan declines to seek patent protection for any Developed Technology, ASTI will not have the right to do so. ASTI and Allergan each shall pay one-half of the costs of obtaining and maintaining any such patents during the term of this Agreement. 7.4 PAYMENTS BASED ON SALES OF DEVELOPED TECHNOLOGY PRODUCTS AND PRE-SELECTION PRODUCTS. (a) Allergan shall pay Developed Technology Royalties to ASTI, on a country-by-country basis, equal to the sum of (i) 1% of Allergan's Net Sales in the relevant country of each Developed Technology Product plus (ii) 10% of any Sublicensing Revenues with respect to such Developed Technology Product. Only one payment under this Section 7.4 shall be payable by Allergan to ASTI with respect to Net Sales of each Developed Technology Product in any country, regardless of the number of patents covering such Developed Technology Product in such country. Subject to Section 7.5, payments with respect to sales of a Developed Technology Product in any country shall be made by Allergan until the expiration of the last to expire of the patent or patents covering such Developed Technology Product in any country. (b) Allergan shall make Pre-Selection Product Payments to ASTI equal to the sum of (i) 1% of Allergan's Net Sales of each Pre-Selection Product plus (ii) 10% of any Sublicensing Revenues with respect to such Pre-Selection Product. Subject to 10. 11 Section 7.5, payments with respect to sales of a Pre-Selection Product shall be made by Allergan until seven years after the first commercial sale of such Pre-Selection Product in the first Major Market Country in which such product is commercially sold. (c) In determining payments due under this Section 7.4, Net Sales by Allergan shall be reduced by the dollar amount of any license or similar payments made by or due from Allergan or its Affiliates to third parties with respect to any such sales of such Developed Technology Product or Pre-Selection Product. If license or similar payments are made to third parties with respect to sales of such products and to sales of other products, Allergan shall allocate such payments, if necessary, in a commercially reasonable manner. (d) Notwithstanding the foregoing, if a product is both a Developed Technology Product and a Pre-Selection Product, amounts payable under this Section 7.4 with respect to such product for any period of time shall be limited to the sum of (i) 1% of Allergan's Net Sales plus (ii) 10% of any Sublicensing Revenues. 7.5 BUY-OUT OF PAYMENTS BASED ON SALES OF DEVELOPED TECHNOLOGY PRODUCTS AND PRE-SELECTION PRODUCTS. (a) Allergan shall have the option with respect to each Developed Technology Product and each Pre-Selection Product, in its discretion, at any time after the end of the twelfth calendar quarter during which such product was commercially sold in a country, to buy out its remaining obligation to make payments under Section 7.4 with respect to sales of such Developed Technology Product or Pre-Selection Product in such country. The buy out price shall be an amount equal to 15 times the payments made by or due from Allergan to ASTI under Section 7.4 with respect to sales of such Developed Technology Product or Pre-Selection Product in such country for the four calendar quarters immediately preceding the quarter in which the buy out option is exercised. (b) Allergan shall have the option with respect to each Developed Technology Product and each Pre-Selection Product, in its discretion, at any time after the end of the twelfth calendar quarter during which such product was commercially sold in either the United States or two other Major Market Countries, to buy out its remaining worldwide obligations to make payments under Section 7.4 with respect to sales of such Developed Technology Product or Pre-Selection Product. The buyout price shall be an amount equal to (i) 20 times (A) the payments made by or due from Allergan to ASTI under Section 7.4 with respect to sales of such Developed Technology Product or Pre-Selection Product, plus (B) such payments as would have been made by or due from Allergan to ASTI if Allergan had not exercised any country-specific buy-out option with respect to such Developed Technology Product or Pre-Selection Product, in each case, for the four calendar quarters immediately preceding the quarter in which the buy-out option 11. 12 is exercised, less (ii) any amounts previously paid to exercise any country- specific buy-out option with respect to such Developed Technology Product or Pre-Selection Product. 7.6 PAYMENTS. Payments shown by each calendar quarter report described in Section 5.3 to have accrued shall be due and payable on the date the report is due and shall be paid in United States dollars. Any and all taxes due or payable on such payments or with respect to the remittance thereof shall be deducted from such payments and shall be paid by Allergan to the proper taxing authorities, and proof of payment shall be secured and sent to ASTI as evidence of such payment. The rate of exchange to be used in computing the amount of United States dollars due to ASTI in satisfaction of payment obligations with respect to sales in foreign countries shall be calculated by converting the amount due in such foreign currency into United States dollars based on the rate for the purchase of United States dollars with such currency as published in the Wall Street Journal on the last business day of the calendar quarter for which payment is being made. 7.7 CERTAIN FOREIGN PAYMENTS. If governmental regulations prevent remittance from any foreign country of any amounts due under Section 7.4 with respect to that country, Allergan shall so notify ASTI in writing, and the obligation under this Agreement to make payments with respect to sales in that country shall be suspended (but the amounts due but not paid shall continue to accrue) until such remittances are possible. ASTI shall have the right, upon written notice to Allergan, to receive payment in any such country in the local currency. 7.8 LATE PAYMENTS. Any payments due hereunder that are not made when due shall accrue interest at the lesser of 10% per annum or the maximum rate as may be allowed by law, beginning on the date when ASTI notifies Allergan that such payments are overdue. 8. ACCESS TO INFORMATION; CONFIDENTIALITY. 8.1 ACCESS. Subject to the terms of this Agreement, each party shall be permitted access to the premises of the other during normal business hours, for the purpose of monitoring the progress of activities under this Agreement. Each party shall keep full and complete records and notebooks containing all experiments performed during its work under this Agreement and the results thereof. Such items and copies of all documentation shall be available during normal business hours for inspection by the other party. In addition, each party shall provide to the other such other information as reasonably may be requested. 8.2 THIRD PARTIES. ASTI and Allergan shall cause each third party engaged pursuant to Section 3.1 or 3.2 to provide access similar to that to be provided pursuant to Section 8.1, for the benefit of both ASTI and Allergan. 12. 13 8.3 PRODUCT LISTS. Allergan shall maintain a complete list of ASTI Products, Developed Technology Products and Pre-Selection Products at all times. Confirmation of the completeness and accuracy of such list shall be made at any time upon the reasonable request of ASTI. 8.4 CONFIDENTIALITY. During the term of this Agreement and for a period of ten years following its termination, each party shall maintain in confidence all Proprietary Rights of the other; provided, however, that nothing contained herein shall prevent either party from disclosing any Proprietary Rights to the extent that such Proprietary Rights (a) are required to be disclosed in connection with researching and developing ASTI Products, conducting Pre-Selection Work, conducting related activities, securing necessary governmental authorization for the marketing of ASTI Products or Pre-Selection Products, or directly or indirectly making, using or selling ASTI Products or Pre-Selection Products, as permitted or provided for in the agreements between the parties, (b) are required to be disclosed by law for the purpose of complying with governmental regulations, (c) are disclosed to sublicensees, distributors or marketing partners or potential sublicenses, distributors or marketing partners permitted under the agreements between the parties in connection with the proposed or actual research, development, manufacturing or marketing of ASTI Products or Pre-Selection Products, subject to similar obligations of confidentiality on the part of such third parties as required by the agreements between the parties, (d) are known to or used by the recipient prior to the date hereof (other than through disclosure by or on behalf of the other party) as evidenced by the recipient's written records, (e) are lawfully disclosed to the recipient by a third party having the right to disclose such information to the recipient, or (f) either before or after the time of disclosure to the recipient, become known to the public other than by an unauthorized act or omission of the recipient or any of the recipient's employees or agents; provided that clause (d) does not give Allergan the right to disclose Proprietary Rights that relate exclusively to ASTI Products; provided further that, ASTI may disclose Allergan Proprietary Rights to third parties only in accordance with the provisions of Section 10.3 hereof and in accordance with the provisions of the Technology License Agreement. The obligations of each of the parties pursuant to this Section 8.4 shall survive the termination of this Agreement for any reason. Any breach of this Section 8.4 may result in irreparable harm, and in the event of a breach, the aggrieved party shall be entitled to seek injunctive relief (without the need to post a bond) in addition to any other remedies available at law or in equity. 9. PUBLIC DISCLOSURE. 9.1 PUBLIC DISCLOSURE. The parties will work together with respect to public statements disclosing the status of and results under Product Research and Development Programs and related matters. Except to the extent previously disclosed pursuant to the terms hereof, neither party shall disclose to third parties nor originate any publicity, news 13. 14 release or public announcement, written or oral, whether to the public, the press, stockholders or otherwise, referring to activities conducted, or the parties' performance under, this Agreement, except such announcements, as in the opinion of the counsel for the party making such announcement, are required by law, including United States securities laws, rules or regulations, without the prior written consent of the other party. If a party decides to make an announcement it believes to be required by law with respect to this Agreement, it will give the other party such notice as is reasonably practicable and an opportunity to comment upon the announcement. 10. COVENANTS. 10.1 USE OF AVAILABLE FUNDS. Unless Allergan agrees otherwise, ASTI agrees to expend all Available Funds for activities undertaken pursuant to this Agreement. Pending application of all Available Funds as set forth above, Available Funds shall be invested in securities issued or guaranteed as to principal and interest by the United States, or by a person controlled or supervised by or acting as an instrumentality of the government of the United States pursuant to authority granted by the Congress of the United States, or any certificate of deposit for any of the foregoing, or any other types of high quality marketable investment securities that are proposed by ASTI and are approved by Allergan in its sole discretion. 10.2 NEGATIVE PLEDGE. ASTI shall not create, incur, assume or suffer to exist any lien upon or with respect to, or otherwise take any action with respect to, Available Funds so as to prevent or interfere with full expenditure of such funds for activities under this Agreement in accordance with Section 10.1. 10.3 NO INCONSISTENT AGREEMENTS. Without the written consent of Allergan, ASTI shall not enter into any agreement or arrangement that is in any way inconsistent with or that could adversely affect Allergan Technology or Allergan's rights under any agreement between Allergan and ASTI, or that is in any way inconsistent with or that could adversely affect Allergan's rights as holder of the Class B Common Stock of ASTI. ASTI must include in any agreement between ASTI and a third party relating to ASTI Products and/or activities hereunder such provisions as Allergan reasonably deems appropriate to protect Allergan Technology and to protect Allergan's rights under any agreement between Allergan and ASTI and as a holder of the Class B Common Stock of ASTI (including Allergan's rights under the Purchase Option). 11. EFFECTIVE DATE; TERM AND TERMINATION. 11.1 EFFECTIVE DATE. The effective date of this Agreement shall be the date of the Distribution. 14. 15 11.2 AUTOMATIC TERMINATION. This Agreement shall terminate upon exercise or expiration of the Purchase Option, except that Allergan's obligations to make payments to ASTI with respect to Developed Technology Products and Pre-Selection Products shall continue after expiration of the Purchase Option as provided in Section 7 hereof. 11.3 OTHER TERMINATION. Either party may, in its discretion, terminate this Agreement in the event that the other party: (a) breaches any material obligation hereunder or under the Technology License Agreement, the License Option Agreement, or any license thereunder, and such breach continues for a period of 60 days after written notice thereof by the terminating party to the other party; or (b) enters into any proceeding, whether voluntary or otherwise, in bankruptcy, reorganization or arrangement for the appointment of a receiver or trustee to take possession of its assets or any other proceeding under any law for the relief of creditors, or makes an assignment for the benefit of its creditors. 12. FORCE MAJEURE. 12.1 FORCE MAJEURE. Neither party to this Agreement shall be liable for failure or delay in the performance of any of its obligations hereunder, if such failure or delay is due to causes beyond its reasonable control including, without limitation, acts of God, earthquakes, fires, strikes, acts of war, or intervention of any governmental authority, but any such delay or failure shall be remedied by such party as soon as possible after the removal of the cause of such failure or delay. 13. MISCELLANEOUS. 13.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto of a breach of any provisions of this Agreement shall not be implied and shall not be valid unless such waiver is recited in writing and signed by such party. Failure of any party to require, in one or more instances, performance by the other party in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of the future performance of any such terms or conditions or of any other terms and conditions of this Agreement. A waiver by either party of any term or condition of this Agreement shall not be deemed or construed to be a waiver of any other term or condition of this Agreement. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement of either party. This Agreement may not be amended except in a writing signed by both parties. 15. 16 13.2 ASSIGNMENT. Neither party may assign its rights and obligations hereunder without the prior written consent of the other party, which consent may not be unreasonably withheld; provided, however, that Allergan may assign such rights and obligations hereunder to an Affiliate of Allergan or to any person or entity with which Allergan is merged or consolidated or which acquires all or substantially all of the assets of Allergan. 13.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted resolution by good faith negotiations within sixty (60) days after such referral is made. During such period of good faith negotiations, any applicable time periods under this Agreement shall be tolled. In the event such executives are unable to resolve such dispute within such sixty (60) day period, the parties shall submit their dispute to binding arbitration before a retired California Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules for commercial disputes then in effect. The award of the arbitrator shall include an award of reasonable attorneys' fees and costs to the prevailing party. 13.4 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 13.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of California as applied to residents of that state entering into contracts to be performed in that state. 13.6 HEADINGS. The section headings contained in sections of this Agreement are included for convenience only and form no part of the Agreement between the parties. 13.7 NOTICES. Notices required under this Agreement shall be in writing and sent by registered or certified mail, postage prepaid, or by facsimile and confirmed by registered or certified mail, postage prepaid, and addressed as follows: If to Allergan: Allergan, Inc. 2525 Dupont Drive Irvine, CA 92715 Facsimile: (714) 246-4774 Attention: Corporate Vice President, General Counsel 16. 17 If to ASTI: Allergan Specialty Therapeutics, Inc. 2525 Dupont Drive Irvine, CA 92612 Facsimile: (714) 246-4774 Attention: President and Chief Executive Officer All notices shall be deemed to be effective five days after the date of mailing or upon receipt if sent by facsimile (but only if followed by certified or registered confirmation). Either party may change the address at which notice is to be received by written notice pursuant to this Section 13.7. 13.8 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, it shall be stricken and the remaining provisions shall remain in full force and effect. 13.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI and Allergan shall be deemed to be independent contractors, and anything in this Agreement to the contrary notwithstanding, nothing herein shall be deemed to constitute ASTI and Allergan as partners, joint venturers, coowners, an association or any entity separate and apart from each party itself, nor shall this Agreement constitute any party hereto an employee or agent, legal or otherwise, of the other party for any purposes whatsoever. Neither party hereto is authorized to make any statements or representations on behalf of the other party or in any way obligate the other party, except as expressly authorized in writing by the other party. Anything in this Agreement to the contrary notwithstanding, no party hereto shall assume or be liable for any liabilities or obligations of the other party, whether past, present or future. 13.10 SURVIVAL. The provisions of Sections 1, 7, 8.3, 8.4, 11, 13.1, 13.3, 13.5, 13.6, 13.7, 13.8, 13.9, and this Section 13.10, and of Sections 4 and 5 to the extent of obligations under such sections relating to periods prior to termination of this Agreement, shall survive the termination for any reason of this Agreement. Any payments due under this Agreement with respect to any period prior to its termination shall be made notwithstanding the termination of this Agreement. Neither party shall be liable to the other due to the termination of this Agreement as provided herein, whether in loss of good will, anticipated profits or otherwise. 17. 18 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. ALLERGAN, INC. By: ____________________________________ Title: _________________________________ ALLERGAN SPECIALTY THERAPEUTICS, INC. By: ____________________________________ Title: _________________________________ 18. 19 EXHIBIT A CALCULATION OF RESEARCH AND DEVELOPMENT COSTS Allergan shall charge ASTI for both "direct" and "indirect" Research and Development Costs based on Allergan's internal R&D Project Accounting System or such other comparable successor system as Allergan may use to gather such costs. Direct costs include third party contract costs, such as those expenses paid to outside vendors which can be directly identified to a specific research and development program or project (see Exhibit A1). Indirect costs include the fully absorbed cost of labor (labor plus overhead) which can be specifically identified with or physically traced to a project using the Allergan Project Reporting System. The allocation of such indirect costs is based on timecards which all Allergan R&D employees who work directly on research and development projects complete each month (see Exhibit A2). In order to fully and fairly allocate all allocable overhead to projects undertaken by Allergan hereunder, an amount equal to 10% of the total Research and Development Costs determined in accordance with the above provisions (exclusive of the costs charged to Allergan or ASTI pursuant to contracts with third parties for the performance of services related to research and development hereunder) will also be added to the amount charged to ASTI. 19. 20 EXHIBIT A1 RESEARCH AND DEVELOPMENT DIRECT COSTS The following is a list of the types of expenses which are considered as "direct" in Exhibit A and would be billable to ASTI when they can be directly identified with ASTI research and development: Collaborative research agreement payments Payments for compound supply Payments for biologicals Payments for chemical precursors Payment for clinical studies Payment for toxicological, pharmacokinetic studies and other outside services Payment for other Allergan functions (non-R&D) which provide services Payment for research grants Payment for consulting services Hiring expenses for people who will work predominantly on ASTI projects Milestone payments to third parties Project travel, entertainment and related expenses Capital equipment purchased exclusively for ASTI projects Miscellaneous project expenses Regulatory and filing fees Telephone and communications Patent and trademark expenses Software 20. 21 EXHIBIT A2 RESEARCH AND DEVELOPMENT INDIRECT COSTS The following is a list of the types of expenses which are considered as "indirect" in Exhibit A and would be billable to ASTI when they can be identified with ASTI research and development: Salaries and fringe benefits of people working directly on ASTI projects Salaries and fringe benefits of people managing and supporting those working directly on ASTI projects General supplies and chemicals General Information Systems and communications support General equipment depreciation General facilities depreciation, utilities, rent Miscellaneous indirect expenses Miscellaneous general and administrative expenses 21. 22 EXHIBIT B PRE-SELECTION WORK During the period from the date on which ALRT ceased funding (October 23, 1997) through March 31, 1998, ASTI shall, in addition to funding research and development of the four initial ASTI Products, fund research and development of certain classes of receptor-selective and function-selective retinoid compounds as well as compounds for use in the field of ion channel blockers, including compounds that may shut down the operation of voltage-activated sodium channels and/or NMDA channels, for the treatment of ophthalmic diseases and disorders. It is anticipated that the total Research and Development Costs to be incurred in connection with such additional research and development will be between $4 million and $5 million during such period. 22. EX-10.3 6 EXHIBIT 10.3 1 EXHIBIT 10.3 LICENSE OPTION AGREEMENT This License Option Agreement (the "Agreement") is made as of the ____ day of ________, 1998 by and between Allergan, Inc., a Delaware corporation ("Allergan"), and Allergan Specialty Therapeutics, Inc., a Delaware corporation ("ASTI"). BACKGROUND A. ASTI has been formed for the purpose of researching and developing human pharmaceutical products, including products using Allergan Technology (as defined herein) and commercializing such products, most likely through licensing to Allergan. B. As of the date hereof, Allergan and ASTI have entered into a Technology License Agreement and a Research and Development Agreement. C. ASTI desires to grant to Allergan an option to commercialize the products developed by ASTI under the Research and Development Agreement as set forth herein. NOW, THEREFORE, the parties agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Affiliate" shall mean a corporation or any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the designated party. "Control" shall mean ownership of at least 50% of the shares of stock entitled to vote for the election of directors in the case of a corporation, and at least 50% of the interests in profits in the case of a business entity other than a corporation. 1.2 "ASTI Product" shall mean any dosage form of a compound which is the subject of research and development as a potential human pharmaceutical product which has been recommended by Allergan and accepted by ASTI's Board of Directors for development as such under the Research and Development Agreement. Such recommendations may be made on a Field of Use basis. The following compounds have been selected as the initial ASTI Products as of the date hereof: (i) Tazarotene (oral), (ii) Memantine, (iii) AGN 4310 and (iv) a compound to be selected from the RAR alpha-selective agonist class of retinoid compounds for the treatment of various cancers. 1. 2 1.3 "Distribution" shall mean Allergan's distribution of all of the outstanding shares of Class A Common Stock of ASTI to Allergan stockholders of record on _______, 1998. 1.4 "FDA" shall mean the United States Food and Drug Administration or any successor agency whose clearance is necessary to market an ASTI Product in the United States. 1.5 "Field of Use" shall mean a particular disease state or set of related disease states. 1.6 "License Agreement" shall mean an exclusive license agreement for a particular ASTI Product between Allergan and ASTI, in the form of Exhibit A to this Agreement. 1.7 "License Option" shall mean the option granted to Allergan pursuant to Section 2 of this Agreement. 1.8 "Product Payments" shall have the meaning set forth in Section 3.1 of the License Agreement. 1.9 "Proprietary Rights" shall mean data, inventions, information, processes, know-how and trade secrets, and patents or patent applications claiming any of the foregoing, owned by, licensed to or controlled by a person and which such person has the right to license or sublicense. Proprietary Rights shall not include trademarks. 1.10 "Purchase Option" shall mean that certain option contained in ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the right to purchase all of the outstanding shares of ASTI Class A Common Stock. 1.11 "Research and Development Agreement" shall mean the Research and Development Agreement dated as of the date hereof between Allergan and ASTI. 1.12 "Technology License Agreement" shall mean the Technology License Agreement dated as of the date hereof between Allergan and ASTI. 2. LICENSE OPTION. 2.1 GRANT OF LICENSE OPTION. On the terms and subject to the conditions of this Agreement, ASTI hereby grants to Allergan an option to obtain an exclusive license with respect to each ASTI Product, exercisable on a product-by-product and country-by-country basis as described in Section 2.2. 2. 3 2.2 TIME FOR EXERCISE. (a) Allergan may exercise the License Option with respect to any ASTI Product on a country-by-country basis at any time during the period beginning on the date hereof and ending (i) with respect to the United States, 30 days after clearance by the FDA to market such ASTI Product in the United States, and (ii) with respect to any other country, 90 days after the earlier of (A) clearance by the appropriate regulatory agency to market such ASTI Product in such country and (B) clearance by the FDA to market such ASTI Product in the United States. Notwithstanding the foregoing, the License Option shall expire, to the extent not previously exercised, at the close of business on the 30th day after the expiration of the Purchase Option or, with respect to a particular ASTI Product, upon exercise by Allergan of the global buy-out option for such ASTI Product under the License Agreement for such ASTI Product. In any case, Allergan must exercise the License Option for a particular ASTI Product in a particular country prior to the first commercial sale of such product in such country by Allergan or any of its Affiliates, sublicensees, distributors or marketing partners. (b) The License Option for any ASTI Product in any country will expire if not exercised within the time periods described above. In addition, the License Option for any ASTI Product will expire, with respect to all countries for which it has not yet been exercised, upon exercise by Allergan of the global buy-out option for such ASTI Product under the License Agreement for such ASTI Product. (c) ASTI will notify Allergan in writing within 10 business days of receipt of each clearance to market any ASTI Product in any country. 2.3 MANNER OF EXERCISE. Allergan shall exercise its License Option by delivering to ASTI, within the time period described in Section 2.2 above, a written notice of exercise specifying the ASTI Product and the country or countries as to which the License Option is exercised. A License Agreement for such ASTI Product shall be deemed to be effective in such country or countries as of the date of such notice of exercise, without the necessity of any additional action by the parties. For the convenience of the parties, however, Allergan shall, promptly after delivery of such notice, forward to ASTI two executed copies of a License Agreement dated the effective date thereof and containing completed Attachments A and B. ASTI shall execute both copies and return one to Allergan as soon as possible. Failure of either or both of the parties to execute such License Agreement shall not, however, affect the effectiveness of the license granted thereby. The parties shall enter into a separate License Agreement for each ASTI Product as to which Allergan elects to exercise a License Option. For convenience, the parties shall amend Attachment B to a License Agreement to add a country or countries in cases where a License Option is being exercised for an ASTI Product for which a License Option already has been exercised in another country or 3. 4 countries. Such amendment shall set forth the additional country or countries and the dates of exercise of the License Option for such countries. 2.4 DEVELOPMENT ASSETS. If Allergan does not exercise the License Option for any ASTI Product in any country prior to the expiration of such License Option or, if Allergan notifies ASTI expressly in writing that it will not exercise the License Option for an ASTI Product, Allergan shall make available to ASTI for further development and commercialization activities at no charge, all clinical supplies, materials and other assets purchased, manufactured or developed for use in the development of such ASTI Product with respect to such country to the extent such assets will not be used under the Research and Development Agreement. 3. NO CONFLICT. ASTI agrees that no license, sale or other commercialization of any ASTI Product has been or shall be made or offered to any person or entity on any basis that is or will be in conflict with this Agreement or any License Agreement. 4. ACCESS TO INFORMATION. 4.1 INFORMATION AVAILABLE TO ALLERGAN. ASTI shall make available to Allergan, at all reasonable times, all available information relating to all ASTI Products as to which the License Option remains exercisable so as to enable Allergan to determine whether and when to exercise its License Option. 4.2 CONSULTATION WITH ALLERGAN. ASTI shall consult with Allergan and inform Allergan on a continuing basis of the current state of research and development of all ASTI Products as to which the License Option remains exercisable and will review from time to time with Allergan the progress towards completion of the ASTI Products. 4.3 CONSULTATION WITH ASTI. In the event that the License Option with respect to one or more ASTI Products in one or more countries expires unexercised, Allergan shall make available to ASTI all information reasonably available to Allergan relating to such ASTI Products and Allergan's previous contacts with potential sublicensees, distributors or marketing partners for such ASTI Products in such countries. 5. EFFECTIVE DATE; TERMINATION. 5.1 EFFECTIVE DATE. This Agreement shall become effective on the date of the Distribution. 5.2 TERMINATION. This Agreement shall terminate on the earlier of (a) the date of expiration of the License Option for all of the ASTI Products and (b) 30 days after expiration of the Purchase Option. 4. 5 6. MISCELLANEOUS. 6.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto of a breach of any provisions of this Agreement shall not be implied and shall not be valid unless such waiver is recited in writing and signed by such party. Failure of any party to require, in one or more instances, performance by the other party in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of the future performance of any such terms or conditions or of any other terms and conditions of this Agreement. A waiver by either party of any term or condition of this Agreement shall not be deemed or construed to be a waiver of such term or condition for any other term. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement of either party. This Agreement may not be amended except in a writing signed by both parties. 6.2 ASSIGNMENT. Neither party may assign its rights and obligations hereunder without the prior written consent of the other party, which consent may not be unreasonably withheld; provided, however, that Allergan may assign such rights and obligations hereunder to an Affiliate of Allergan or any person or entity with which Allergan is merged or consolidated or which acquires all or substantially all of the assets of Allergan. 6.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted resolution by good faith negotiations within sixty (60) days after such referral is made. During such period of good faith negotiations, any applicable time periods under this Agreement shall be tolled. In the event such executives are unable to resolve such dispute within such sixty (60) day period, the parties shall submit their dispute to binding arbitration before a retired California Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules for commercial disputes then in effect. The award of the arbitrator shall include an award of reasonable attorneys' fees and costs to the prevailing party. 6.4 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 6.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of California as applied to residents of that state entering into contracts wholly to be performed in that state. 6.6 HEADINGS. The section headings contained in this Agreement are included for convenience only and form no part of the Agreement between the parties. 5. 6 6.7 NOTICES. Notices required under this Agreement shall be in writing and sent by registered or certified mail, postage prepaid, or by facsimile and confirmed by registered or certified mail and addressed as follows: If to Allergan: Allergan, Inc. 2525 Dupont Drive Irvine, CA 92612 Facsimile: (714) 246-4774 Attention: Corporate Vice President, General Counsel If to ASTI: Allergan Specialty Therapeutics, Inc. 2525 Dupont Drive Irvine, CA 92612 Facsimile: (714) 246-4774 Attention: President and Chief Executive Officer All notices shall be deemed to be effective five days after the date of mailing or upon receipt if sent by facsimile (but only if followed by certified or registered confirmation). Either party may change the address at which notice is to be received by written notice pursuant to this Section 6.7. 6.8 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, it shall be stricken and the remaining provisions shall remain in full force and effect. 6.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI and Allergan shall be deemed to be independent contractors, and anything in this Agreement to the contrary notwithstanding, nothing herein shall be deemed to constitute ASTI and Allergan as partners, joint venturers, co owners, an association or any entity separate and apart from each party itself, nor shall this Agreement constitute any party hereto an employee or agent, legal or otherwise, of the other party for any purposes whatsoever. Neither party hereto is authorized to make any statements or representations on behalf of the other party or in any way obligate the other party, except as expressly authorized in writing by the other party. Anything in this Agreement to the contrary notwithstanding, no party hereto shall assume nor shall be liable for any liabilities or obligations of the other party, whether past, present or future. 6.10 SURVIVAL. The provisions of Sections 1, 2.4, 4.3, 6.1, 6.3, 6.5, 6.7, 6.8, 6.9 and this Section 6.10 shall survive the termination for any reason of this Agreement. Any payments due under this Agreement with respect to any period prior to its termination shall be made notwithstanding the termination of this Agreement. Neither party shall be 6. 7 liable to the other due to the termination of this Agreement as provided herein, whether in loss of good will, anticipated profits or otherwise. 7. 8 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. ALLERGAN, INC. By: ____________________________________ Title: _________________________________ ALLERGAN SPECIALTY THERAPEUTICS, INC. By: ____________________________________ Title: _________________________________ 8. 9 EXHIBIT A FORM OF LICENSE AGREEMENT This License Agreement (the "Agreement") is made this ____ day of _______________ , _____, by and between Allergan, Inc., a Delaware corporation ("Allergan"), and Allergan Specialty Therapeutics, Inc. ("ASTI"), a Delaware corporation. BACKGROUND A. ASTI and Allergan have entered into a License Option Agreement and certain other agreements dated as of _______, 1998. B. Section 2 of the License Option Agreement provides for a license, the terms of which are to be set forth herein. NOW, THEREFORE, the parties agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Affiliate" shall mean a corporation or any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the designated party. "Control" shall mean ownership of at least 50% of the shares of stock entitled to vote for the election of directors in the case of a corporation, and at least 50% of the interests in profits in the case of a business entity other than a corporation. 1.2 "Research and Development Cost(s)" shall mean the cost of activities undertaken pursuant to the Research and Development Agreement with respect to the Licensed Product, determined in accordance with Exhibit A thereto. 1.3 "Infringing Product" shall mean any product sold by a third party, other than pursuant to an agreement with Allergan, (i) which incorporates the same Therapeutic Agent or Agents as incorporated in the Licensed Product and (ii) which infringes or is alleged to infringe any patent or patents owned by, licensed to or controlled by Allergan. 1.4 "License Option Agreement" shall mean the License Option Agreement between Allergan and ASTI dated as of _______, 1998. 1.5 "Licensed Product" shall mean the product listed on Exhibit A hereto. 9. 10 1.6 "Major Market Country" shall mean any of the following countries: the United States, France, Germany, Italy, Japan or the United Kingdom. 1.7 "Net Sales" shall mean, with respect to a product, the amount billed by Allergan or its Affiliates to a third party which is not an Affiliate of the selling party (unless such Affiliate is the end user of such product, in which case the amount billed therefor shall be deemed to be the amount that would be billed to a third party in an arm's length transaction) for sales of such product to third parties less the following items, as allocable to such product: (i) trade discounts, credits or allowances, (ii) credits or allowances additionally granted upon returns, rejections or recalls (except where any such recall arises out of Allergan's or its Affiliate's gross negligence, willful misconduct or fraud), (iii) freight, shipping and insurance charges specifically included in the billing amount, (iv) taxes, duties or other governmental tariffs (other than income taxes) specifically included in the billing amount and (v) government mandated rebates. 1.8 "Research and Development Agreement" shall mean the Research and Development Agreement between Allergan and ASTI dated as of _______, 1998. 1.9 "Specialty Royalty Payments" shall mean front-end distribution fees, prepaid royalties or similar one-time, infrequent or special payments from a sublicensee to Allergan with respect to a Licensed Product. 1.10 "Sublicensing Revenues" shall mean percentage-of-sales payments and Specialty Royalty Payments received by Allergan from sublicensees with respect to a Licensed Product. 1.11 "Territory" shall mean the country or countries listed on Exhibit B hereto, as amended from time to time by the parties in connection with the exercise by Allergan of its option for additional countries under the License Option Agreement or the surrender by Allergan of its rights to commercialize the Licensed Product in any country or countries. 1.12 "Therapeutic Agent" shall mean a drug, protein, peptide, gene, compound or other pharmaceutically active ingredient. 2. GRANT OF LICENSE. 2.1 GRANT. ASTI hereby grants to Allergan an exclusive, perpetual license, with the right to sublicense, to research, develop, make, have made and use the Licensed Product and to sell and have sold the Licensed Product in the Territory. Allergan agrees to use diligent efforts to conduct or have conducted any remaining activities necessary to complete the development of the Licensed Product in the Territory through regulatory clearance to market the Licensed Product in the Territory. Such activities will be 10. 11 undertaken at no cost to ASTI, unless ASTI agrees otherwise in writing. Promptly after regulatory clearance, Allergan shall commence and continue to use diligent efforts to commercialize the Licensed Product in each Major Market Country of the Territory through the manufacture and sale or the sublicensing of the Licensed Product, devoting to the Licensed Product the same resources as other pharmaceutical companies of similar size devote to products with similar market potential and with similar relative importance to their product portfolios. Allergan may use reasonable business discretion in the allocation of its technological and monetary resources in performing its obligations hereunder, taking into account not only the Licensed Product but also activities for its own account and its obligations under its other agreements with third parties. ASTI acknowledges that Allergan will continue to own and have the right to use any clinical supplies, materials and other assets purchased, manufactured or developed for use in the development of such Licensed Product, without any additional payment to or reimbursement of ASTI. 2.2 NO OTHER COMMERCIALIZATION. Allergan shall not commercialize the Licensed Product in any country except pursuant to this Agreement. 3. PRODUCT PAYMENTS. 3.1 PAYMENTS. (a) Allergan shall make payments to ASTI ("Product Payments") with respect to the Licensed Product as follows: (i) if the Licensed Product is sold by Allergan, royalties of up to a maximum of 6% of Allergan's Net Sales of the Licensed Product determined as follows: (A) 1% of such Net Sales, plus (B) an additional 0.1% of such Net Sales for each full $1 million of Research and Development Costs of the Licensed Product that have been paid by ASTI prior to such quarter end; and (ii) if the Licensed Product is sold by a third party, sublicensing fees of up to a maximum of 50% of Sublicensing Revenues with respect to such Licensed Product determined as follows: (A) 10% of such Sublicensing Revenues, plus (B) an additional 1% of such Sublicensing Revenues for each full $1 million of Research and Development Costs of the Licensed Product that have been paid by ASTI prior to such quarter end. Notwithstanding the foregoing, Product Payments for any quarter will not exceed 3% of Net Sales, on a quarterly basis, in the Territory for the first twelve calendar quarters during which the Licensed Product is commercially sold in the first Major Market Country. 11. 12 (b) In determining Product Payments, Research and Development Costs shall be determined as of the last day of each calendar quarter, in order to determine the rates payable with respect to Net Sales for the next calendar quarter for all countries included in the Territory as of the first day of such next calendar quarter, and for any country added to the Territory during such next calendar quarter. (c) In determining Product Payments, Net Sales by and Sublicensing Revenues of Allergan shall be reduced by the dollar amount of any license or similar payments made by or due from Allergan or its Affiliates to third parties with respect to sales of such Licensed Product in the Territory. If license or similar payments are made to third parties with respect to sales of both the Licensed Product in the Territory and to sales of other products, Allergan shall allocate such payments, if necessary, in a commercially reasonable manner. 3.2 TERM OF PAYMENTS. The obligation to make Product Payments hereunder shall continue until seven years after the date of the first commercial sale of the Licensed Product in any Major Market Country, and shall terminate as to all countries at the end of such seven-year period. 3.3 BUY-OUT OF PAYMENTS. (a) Allergan shall have the option, in its discretion, at any time after the end of the twelfth calendar quarter during which the Licensed Product was commercially sold in any country, to buy out its remaining obligations to make Product Payments with respect to Net Sales and Sublicensing Revenues of such Licensed Product in such country. The buy-out price shall be an amount equal to 15 times the Product Payments made by or due from Allergan to ASTI with respect to Net Sales and Sublicensing Revenues of such Licensed Product in such country for the four calendar quarters immediately preceding the quarter in which the buy-out option is exercised, plus 15 times such additional Product Payments as would have been made but for the 3% limit set forth in Section 3.1 on Product Payments for such period. (b) Allergan shall have the option, in its discretion, at any time after the end of the twelfth calendar quarter during which the Licensed Product was commercially sold in either the United States or two other Major Market Countries, to buy out its remaining obligations to make Product Payments with respect to Net Sales and Sublicensing Revenues of such Licensed Product in the Territory. The buy-out price shall be an amount equal to (i) 20 times (A) the Product Payments made by or due from Allergan to ASTI for such Licensed Product in the Territory, plus (B) such payments as would have been made by or due from Allergan to ASTI if Allergan had not exercised any country-specific buy-out option with respect to Net Sales and Sublicensing Revenues of such Licensed Product, plus (C) such additional Product Payments as would have been made but for the 3% limit set forth in Section 3.1 on Product Payments for such period, in 12. 13 each case, for the four calendar quarters immediately preceding the quarter in which the buy-out option is exercised, less (ii) any amounts previously paid to exercise any country-specific buy-out option with respect to Net Sales and Sublicensing Revenues of such Licensed Product. 4. ACCOUNTING. 4.1 REPORTS. Within 90 days after the end of each calendar quarter for which Product Payments are due, Allergan shall render an accounting to ASTI, on a country-by-country basis, with respect to all Product Payments due for such quarter. Such report shall indicate, for such quarter, the quantity and dollar amount of Net Sales of the Licensed Product by Allergan and its Affiliates, sublicensees, distributors and marketing partners (and their Affiliates), or other consideration with respect to Net Sales, with respect to which payments are due; provided, however, that if Allergan shall not have received from any sublicensee, distributor or marketing partner a report of its (and its Affiliates') sales for such quarter, then such sales shall be included in the next quarterly report. In case no Product Payments are due for any calendar quarter, Allergan shall so report 4.2 RECORDS; REVIEW BY ACCOUNTANTS. Allergan shall keep and maintain, in accordance with generally accepted accounting principles, proper and complete records and books of account documenting all amounts paid or payable by Allergan to ASTI. ASTI shall have the right, once in each calendar year during regular business hours and upon reasonable notice to Allergan, at ASTI's expense, to examine or have examined by a certified public accountant or similar person, such of the records of Allergan as may be necessary to verify the accuracy of the reports and payments made under this Agreement. Such examination shall take place not later than two years following the year in question, and only one examination may take place with respect to any period as to which such books and records are examined. Allergan shall obtain, for itself and for ASTI, similar reasonable rights to audit information pertaining to Net Sales from each party appointed to commercialize any product as to which payments are due to ASTI hereunder. 5. TIMES AND CURRENCIES OF PAYMENTS. 5.1 PAYMENTS. Payments shown by each calendar quarter report to have accrued shall be due and payable on the date such report is due and shall be paid in United States dollars. Any and all taxes due or payable on such payments or with respect to the remittance thereof shall be deducted from such payments and shall be paid by Allergan to the proper taxing authorities, and proof of payment shall be secured and sent to ASTI as evidence of such payment. The rate of exchange to be used in computing the amount of the United States dollars due to ASTI in satisfaction of payment obligations with respect to sales in foreign countries shall be calculated by converting the amount due in such foreign currency into United States dollars at the rate for the purchase of United 13. 14 States dollars with such currency as published in The Wall Street Journal on the last business day of the calendar quarter for which payment is being made. 5.2 CERTAIN FOREIGN PAYMENTS. If governmental regulations prevent remittance from any foreign country of any amounts due under Section 3.1 in respect of that country, Allergan shall so notify ASTI in writing, and the obligation under this Agreement to make payments with respect to sales in that country shall be suspended (but the amounts due but not paid shall continue to accrue) until such remittances are possible. ASTI shall have the right, upon written notice to Allergan, to receive payment in any such country in the local currency. 5.3 LATE PAYMENTS. Any payments due hereunder that are not made when due shall bear interest at the lesser of 10% per annum or the maximum rate as may be allowed by law, beginning on the date when ASTI has notified Allergan that such payments are overdue. 6. PATENT INFRINGEMENT. 6.1 NOTICE. Each party shall promptly notify the other party of use or sale by a third party of an Infringing Product. 6.2 LEGAL ACTION. If a third party manufactures or sells an Infringing Product, Allergan may, at its own expense, bring legal action to restrain such infringement and for damages. Any recoveries resulting from any such action shall be first applied to reimburse Allergan for its expenses (including reasonable attorneys' fees) incurred in bringing the action. ASTI will be entitled to a share of the remaining recoveries in the same percentage as the percentage of Net Sales as to which Product Payments are due to ASTI during the period of the infringement or alleged infringement. If (a) Allergan fails to take the necessary steps to restrain such infringement or alleged infringement by litigation or otherwise within 90 days after either party's notice described in Section 6.1, (b) if the infringement or alleged infringement occurs during a period for which ASTI is entitled to receive Product Payments hereunder, and (c) if over a period of at least two calendar quarters such Infringing Product achieves an annualized unit sales volume in the country of infringement equal to 25% of the annualized unit sales volume of the Licensed Product sold by Allergan and its Affiliates, sublicensees, distributors and marketing partners (and their Affiliates) in such country during such year, then ASTI may institute, in its own name, at its own expense and with the right to all recoveries, such litigation or other appropriate action as it may deem appropriate to restrain such infringement, provided that ASTI has first given to Allergan 60 days advance notice of its intention to take such action, and provided further, that Allergan has not itself taken appropriate action during such 60 day period. 14. 15 6.3 COOPERATION. If either party desires to bring an action in accordance with Section 6.2, the other party agrees to cooperate fully with the party bringing such action in the pursuit thereof, at the expense of the party bringing such action and to the extent reasonably requested by such party. If the third party in any such action brought by ASTI brings a counteraction for invalidation or misuse of a patent covering the Licensed Product, ASTI promptly shall notify Allergan and Allergan may, within six months of the notification, join and participate in such action at its own expense. 6.4 SETTLEMENT. Each party agrees not to settle any action it brings in a manner that would adversely affect the other party without the other party's prior written approval. 7. EFFECTIVE DATE AND TERM. 7.1 EFFECTIVE DATE AND TERM. This Agreement will become effective in accordance with Section 2.3 of the License Option Agreement and, unless terminated in accordance with any of the provisions hereof, shall remain in full force and effect thereafter. 8. INDEMNIFICATION. 8.1 INDEMNITY. Allergan shall indemnify, defend and hold ASTI (and its Affiliates) harmless from and against any and all liabilities, claims, demands, damages, costs, expenses or money judgments incurred by or rendered against ASTI and its Affiliates, which arise out of the use, design, labeling or manufacture, processing, packaging, sale or commercialization of the Licensed Product by Allergan, its Affiliates, subcontractors, sublicensees, distributors and marketing partners (and their Affiliates). ASTI shall permit Allergan's attorneys, at Allergan's discretion and cost, to control the defense of any claims or suits as to which ASTI may be entitled to indemnification hereunder, and ASTI agrees not to settle any such claims or suits without the prior written consent of Allergan. ASTI shall have the right to participate, at its own expense, in the defense of any such claim or demand to the extent it so desires. 8.2 NOTICE. ASTI shall give Allergan prompt notice in writing, in the manner set forth in Section 11.7 below, of any claim or demand made against ASTI for which ASTI may be entitled to indemnification under Section 8.1. 9. DISCLAIMERS. ASTI DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY (A) THAT THE LICENSED PRODUCT OR ANY TECHNOLOGY INCORPORATED THEREIN, OR THE MANUFACTURE, USE OR SALE THEREOF, WILL BE FREE FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF 15. 16 PROPRIETARY INFORMATION OF ANY THIRD PARTY AND (B) OF THE ACCURACY, RELIABILITY, TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF THE LICENSED PRODUCT OR ANY TECHNOLOGY INCORPORATED THEREIN OR THEIR SUITABILITY OR FITNESS FOR ANY PURPOSE WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE RESEARCH, DESIGN, DEVELOPMENT, MANUFACTURE, USE OR SALE OF THE LICENSED PRODUCT. ASTI DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER NATURE, EXPRESS OR IMPLIED. 10. TERMINATION. 10.1 TERMINATION BY ASTI. ASTI may, in its discretion, terminate this Agreement in the event that Allergan: (a) breaches any of its material obligations hereunder and such breach continues for a period of 60 days after written notice thereof; or (b) enters into any proceeding, whether voluntary or otherwise, in bankruptcy, reorganization or arrangement for the appointment of a receiver or trustee to take possession of Allergan's assets or any other proceedings under any law for the relief of creditors or makes an assignment for the benefit of its creditors. 10.2 TERMINATION BY ALLERGAN. Allergan may terminate this Agreement with respect to one or more countries included in the Territory upon 30 days' prior written notice to ASTI if Allergan elects for any reason to discontinue commercialization of the Licensed Product in such country. 10.3 CONSEQUENCES OF TERMINATION. Termination of this Agreement for any reason in accordance with the terms hereof shall be without prejudice to: (a) ASTI's right to receive all payments accrued under Section 3 prior to the effective date of such termination; and (b) any other remedies which either party may then or thereafter have hereunder or otherwise. If this Agreement terminates pursuant to this Section 10, Allergan shall immediately discontinue any promotion and sales of the Licensed Product. Notwithstanding the foregoing, in the event of any termination under this Section 10, Allergan may sell its inventory in stock on the date of termination for a period of up to six months after the termination, and shall remit payments to ASTI in respect thereto in accordance with this Agreement. 16. 17 11. MISCELLANEOUS. 11.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto of a breach of any provisions of this Agreement shall not be implied and shall not be valid unless such waiver is recited in writing and signed by such party. Failure of any party to require, in one or more instances, performance by the other party in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of the future performance of any such terms or conditions or of any other terms and conditions of this Agreement. A waiver by either party of any term or condition of this Agreement shall not be deemed or construed to be a waiver of such term or condition for any other term. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement of either party. This Agreement may not be amended except in a writing signed by both parties. 11.2 ASSIGNMENT. Neither party may assign its rights and obligations hereunder without the prior written consent of the other party, which consent may not be unreasonably withheld; provided, however, that Allergan may assign such rights and obligations hereunder to an Affiliate of Allergan or to any person or entity with which Allergan is merged or consolidated or which acquires all or substantially all of the assets of Allergan. 11.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted resolution by good faith negotiations within sixty (60) days after such referral is made. During such period of good faith negotiations, any applicable time periods under this Agreement shall be tolled. In the event such executives are unable to resolve such dispute within such sixty (60) day period, the parties shall submit their dispute to binding arbitration before a retired California Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules for commercial disputes then in effect. The award of the arbitrator shall include an award of reasonable attorneys' fees and costs to the prevailing party. 11.4 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 11.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of California as applied to residents of that state entering into contracts to be performed in that state. 17. 18 11.6 HEADINGS. The headings set forth at the beginning of the various sections of this Agreement are for convenience and form no part of the Agreement between the parties. 11.7 NOTICES. Notices required under this Agreement shall be in writing and sent by registered or certified mail, postage prepaid, or by facsimile and confirmed by registered or certified mail, postage prepaid, and addressed as follows: If to Allergan: Allergan, Inc. 2525 Dupont Drive Irvine, CA 92612 Facsimile: (714) 246-4774 Attention: Corporate Vice President, General Counsel If to ASTI: Allergan Specialty Therapeutics, Inc. 2525 Dupont Drive Irvine, CA 92612 Facsimile: (714) 246-4774 Attention: President and Chief Executive Officer All notices shall be deemed to be effective five days after the date of mailing or upon receipt if sent by facsimile (but only if followed by certified or registered confirmation). Either party may change the address at which notice is to be received by written notice pursuant to this Section 11.7. 11.8 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, it shall be stricken and the remaining provisions shall remain in full force and effect. 11.9 RELATIONSHIP OF THE PARTIES. For all purposes of this Agreement, ASTI and Allergan shall be deemed to be independent contractors and anything in this Agreement to the contrary notwithstanding, nothing herein shall be deemed to constitute ASTI and Allergan as partners, joint venturers, co-owners, an association or any entity separate and apart from each party itself, nor shall this Agreement constitute any party hereto an employee or agent, legal or otherwise, of the other party for any purposes whatsoever. Neither party hereto is authorized to make any statements or representations on behalf of the other party or in any way to obligate the other party, except as expressly authorized in writing by the other party. Anything in this Agreement to the contrary notwithstanding, no party hereto shall assume nor shall be liable for any liabilities or obligations of the other party, whether past, present or future. 18. 19 11.10 SURVIVAL. The provisions of Sections 1, 4.2, 8, 9, 10.3, 11.1, 11.3, 11.5, 11.6, 11.7, 11.8, 11.9, and this Section 11.10 shall survive the termination for any reason of this Agreement. Any payments due under this Agreement with respect to any period prior to its termination shall be made notwithstanding the termination of this Agreement. Neither party shall be liable to the other due to the termination of this Agreement as provided herein, whether in loss of good will, anticipated profits or otherwise. 11.11 FORCE MAJEURE. Neither party to this Agreement shall be liable for failure or delay in the performance of any of its obligations hereunder, if such failure or delay is due to causes beyond its reasonable control including, without limitation, acts of God, earthquakes, fires, strikes, acts of war, or intervention of any governmental authority, but any such delay or failure shall be remedied by such party as soon as possible after the removal of the cause of such failure or delay. 19. 20 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above. ALLERGAN, INC. By: ____________________________________ Title: _________________________________ ALLERGAN SPECIALTY THERAPEUTICS, INC. By: ____________________________________ Title: _________________________________ 20. 21 ATTACHMENT A LICENSED PRODUCT 21. 22 ATTACHMENT B TERRITORY DATE OF EXERCISE COUNTRY 22. EX-10.4 7 EXHIBIT 10.4 1 EXHIBIT 10.4 SERVICES AGREEMENT This Services Agreement (the "Agreement") is made as of the __ day of _______, 1998 between Allergan, Inc., a Delaware corporation ("Allergan"), and Allergan Specialty Therapeutics, Inc., a Delaware corporation ("ASTI"). BACKGROUND ASTI desires that Allergan provide certain services to ASTI, and Allergan desires to provide such services, on the terms and conditions set forth herein. Now, therefore, the parties agree as follows: 1. SERVICES. Upon request by ASTI, Allergan will supply ASTI with any number of the following services: accounting, legal, stockholder relations, cash management and similar management and administrative services, as mutually agreed. Such services will be provided at reasonable times and upon reasonable notice, as mutually agreed. 2. COMPENSATION. ASTI shall pay Allergan's "Costs" in providing such services, monthly in arrears, within 30 days of the date of Allergan's invoice. Allergan's "Costs", for purposes of this Agreement, shall include reimbursement for (i) Allergan's direct and indirect expenses relating to the services provided hereunder and (ii) the cost of assets purchased for use solely on behalf of ASTI, the purchase of which is approved by ASTI. In order to fully and fairly allocate all allocable overhead to services performed by Allergan hereunder, an amount equal to 10% of the total Costs determined in accordance with the above provisions (exclusive of the costs charged to Allergan or ASTI by third parties) will also be added to the amount charged to ASTI. 3. TERM AND TERMINATION. The initial term of this Agreement shall commence on the date hereof and shall terminate on December 31, 1998. Thereafter, this Agreement shall automatically be renewed for successive terms of one year each unless written notice of termination is given by the terminating party to the other party at least 30 days in advance of the expiration of any term; provided, however, that in no event shall the renewal term extend past the date that is 180 days after the exercise or expiration of the option granted to Allergan pursuant to ASTI's Restated Certificate of Incorporation to purchase all but not less than all of the shares of Class A Common Stock of ASTI. ASTI may, in its discretion, terminate this Agreement at any time upon 60 days written notice to Allergan. Either party may, in its discretion, terminate this Agreement by written notice to the other party in the event that the other party (a) breaches any material obligations hereunder or under the Technology License Agreement, the Research and 1. 2 Development Agreement or the License Option Agreement, each dated as of the date hereof and between Allergan and ASTI, or any license granted to Allergan under the License Option Agreement, which breach continues for a period of 60 days after written notice thereof, or (b) enters into any proceeding, whether voluntary or involuntary, in bankruptcy, reorganization or arrangement for the appointment of a receiver or trustee to take possession of such party's assets or any other proceeding under any law for the relief of creditors, or makes an assignment for the benefit of its creditors. 4. INDEMNIFICATION OF ALLERGAN. ASTI hereby agrees to indemnify, protect and hold Allergan harmless from any and all liabilities, costs or expenses incurred by Allergan as a result of services rendered by it under this Agreement, including, without limitation, lawsuits of and claims by third parties, except for liabilities, costs or expenses resulting from Allergan's gross negligence or willful misconduct. Allergan shall give ASTI prompt notice, in writing, in the manner set forth in Section 6.7 below, of any claim or demand made against Allergan for which Allergan may be entitled to indemnification under this Section 4. 5. FORCE MAJEURE. Allergan shall not be liable for failure or delay in performance of any of its obligations hereunder if such failure or delay is due to causes beyond its reasonable control including, without limitation, acts of God, fires, earthquakes, strikes, acts of war, or intervention of any governmental authority, but any such delay or failure shall be remedied by Allergan as soon as possible after the removal of the cause of such failure or delay. 6. MISCELLANEOUS. 6.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto of a breach of any provisions of this Agreement shall not be implied and shall not be valid unless such waiver is recited in writing and signed by such party. Failure of any party to require, in one or more instances, performance by the other party in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of the future performance of any such terms or conditions or of any other terms and conditions of this Agreement. A waiver by either party of any term or condition of this Agreement shall not be deemed or construed to be a waiver of such term or condition for any other term. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement of either party. This Agreement may not be amended except in a writing signed by both parties. 6.2 ASSIGNMENT. Neither party may assign its rights and obligations hereunder without the prior written consent of the other party, which consent may not be unreasonably withheld; provided, however, that Allergan may assign such rights and 2. 3 obligations hereunder to an Affiliate of Allergan or any person or entity with which Allergan is merged or consolidated or which acquires all or substantially all of the assets of Allergan. 6.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted resolution by good faith negotiations within sixty (60) days after such referral is made. During such period of good faith negotiations, any applicable time periods under this Agreement shall be tolled. In the event such executives are unable to resolve such dispute within such sixty (60) day period, the parties shall submit their dispute to binding arbitration before a retired California Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules for commercial disputes then in effect. The award of the arbitrator shall include an award of reasonable attorneys' fees and costs to the prevailing party. 6.4 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 6.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of California as applied to residents of that state entering into contracts wholly to be performed in that state. 6.6 HEADINGS. The section headings contained in this Agreement are included for convenience only and form no part of the Agreement between the parties. 6.7 NOTICES. Notices required under this Agreement shall be in writing and sent by registered or certified mail, postage prepaid, or by facsimile and confirmed by registered or certified mail and addressed as follows: If to Allergan: Allergan, Inc. 2525 Dupont Drive Irvine, CA 92612 Facsimile: (714) 246-4774 Attention: Corporate Vice President, General Counsel If to ASTI: Allergan Specialty Therapeutics, Inc. 2525 Dupont Drive Irvine, CA 92612 Facsimile: (714) 246-4774 Attention: President and Chief Executive Officer 3. 4 All notices shall be deemed to be effective five days after the date of mailing or upon receipt if sent by facsimile (but only if followed by certified or registered confirmation). Either party may change the address at which notice is to be received by written notice pursuant to this Section 6.7. 6.8 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, it shall be stricken and the remaining provisions shall remain in full force and effect. 6.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI and Allergan shall be deemed to be independent contractors, and anything in this Agreement to the contrary notwithstanding, nothing herein shall be deemed to constitute ASTI and Allergan as partners, joint venturers, co-owners, an association or any entity separate and apart from each party itself, nor shall this Agreement constitute any party hereto an employee or agent, legal or otherwise, of the other party for any purposes whatsoever. Neither party hereto is authorized to make any statements or representations on behalf of the other party or in any way obligate the other party, except as expressly authorized in writing by the other party. Anything in this Agreement to the contrary notwithstanding, no party hereto shall assume nor shall be liable for any liabilities or obligations of the other party, whether past, present or future. 6.10 SURVIVAL. The provisions of Sections 4, 6.3, 6.5, 6.6, 6.7, 6.8, 6.9 and this Section 6.10 shall survive the termination for any reason of this Agreement. Any payments due under this Agreement with respect to any period prior to its termination shall be made notwithstanding the termination of this Agreement. Neither party shall be liable to the other due to the termination of this Agreement as provided herein, whether in loss of good will, anticipated profits or otherwise. 4. 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. ALLERGAN, INC. By: ____________________________________ Title: _________________________________ ALLERGAN SPECIALTY THERAPEUTICS, INC. By: ____________________________________ Title: _________________________________ 5. EX-10.5 8 EXHIBIT 10.5 1 EXHIBIT 10.5 DISTRIBUTION AGREEMENT This Distribution Agreement (the "Agreement") is made as of the __ day of _______, 1998 between Allergan, Inc., a Delaware corporation ("Allergan"), and Allergan Specialty Therapeutics, Inc., a Delaware corporation ("ASTI"). BACKGROUND A. Allergan is the holder of all of the issued and outstanding shares of capital stock of ASTI. Allergan intends to make a $200 million capital contribution to ASTI, to license certain technology to ASTI, and to make other arrangements in order to establish ASTI as a separate enterprise for the purpose of researching and developing human pharmaceutical products and commercializing such products, most likely through licensing to Allergan. B. Allergan intends to distribute all of the ASTI Shares (as defined below) to the holders of Allergan Common Stock. Now, therefore, the parties agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Action" shall mean any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal. 1.2 "Agent" shall mean First Chicago Trust Company of New York, as distribution agent, appointed by Allergan to set up book entry accounts under the Direct Registration System representing the ASTI Shares pursuant to the Distribution. 1.3 "Allergan/ASTI Agreements" shall mean this Agreement, the Research and Development Agreement, the Technology License Agreement, the License Option Agreement, the Services Agreement and the Purchase Option. 1.4 "Allergan Common Stock" shall mean the Common Stock, par value $0.01 per share, of Allergan. 1.5 "Commission" shall mean the Securities and Exchange Commission. 1.6 "ASTI Shares" shall mean the Class A Common Stock, par value $0.01 per share, of ASTI. 1. 2 1.7 "Distribution" shall mean the distribution of ASTI Shares to holders of record on ______, 1998 of Allergan Common Stock immediately following completion of the transactions contemplated in Sections 2 and 3 hereof. 1.8 "Distribution Date" shall mean the proposed date of effecting the Distribution, which is anticipated to occur on or about _______, 1998. 1.9 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1.10 "Form 8-A" shall mean the registration statement on Form 8-A to be filed by ASTI with the Commission to effect the registration of the ASTI Shares pursuant to the Exchange Act. 1.11 "License Option Agreement" shall mean the License Option Agreement dated as of the date hereof between Allergan and ASTI. 1.12 "Prospectus" shall mean the prospectus to be distributed to the holders of Allergan Common Stock in connection with the Distribution. 1.13 "Purchase Option" shall mean that certain option contained in ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the right to purchase all, but not less than all, of the outstanding ASTI Shares. 1.14 "Record Date" shall mean the close of business on _______, 1998 or such other date as is determined by the Allergan Board of Directors or any committee thereof. 1.15 "Registration Statement" shall mean the registration statement on Form S-1 registering the issuance of ASTI Shares pursuant to the Distribution. 1.16 "Research and Development Agreement" shall mean the Research and Development Agreement dated as of the date hereof between Allergan and ASTI. 1.17 "Services Agreement" shall mean the Services Agreement dated as of the date hereof between Allergan and ASTI. 1.18 "Securities Act" shall mean the Securities Act of 1933, as amended. 1.19 "Technology License Agreement" shall mean the Technology License Agreement dated as of the date hereof between Allergan and ASTI. 2. 3 2. PRELIMINARY ACTION. 2.1 REGISTRATION STATEMENT AND PROSPECTUS. ASTI has prepared and filed the Registration Statement with the Commission. Subject to the conditions set forth herein, Allergan and ASTI shall use reasonable efforts to cause the Registration Statement to become effective under the Securities Act. ASTI has prepared, and Allergan shall cause to be mailed, the Prospectus to the record holders on the Record Date of Allergan Common Stock. 2.2 FORM 8-A. ASTI has prepared and filed with the Commission a Form 8-A which includes or incorporates by reference relevant portions of the Registration Statement. Subject to the conditions set forth herein, ASTI shall use reasonable efforts to cause the Form 8-A to become effective under the Exchange Act. 2.3 BLUE SKY. ASTI shall take all such action as may be necessary or appropriate under the securities or blue sky laws of states or other political subdivisions of the United States in connection with the Distribution to permit the ASTI Shares to be distributed as described in the Prospectus. 2.4 LISTING. ASTI has prepared and filed an application to effect the listing of the ASTI Shares on the Nasdaq National Market. ASTI shall use reasonable efforts to cause the ASTI Shares to be so listed. 2.5 NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each party hereto understands and agrees that no party hereto is, in this Agreement or in any other agreement or document contemplated by this Agreement or otherwise, representing or warranting in any way that the obtaining of any consents or approvals, the execution and delivery of any agreements or the making of any filings or applications contemplated by this Agreement will satisfy the provisions of any or all applicable laws. Notwithstanding the foregoing, the parties shall use reasonable efforts to obtain all consents and approvals, to enter into all agreements and to make all filings and applications which may be required for the consummation of the transactions contemplated by this Agreement, including, without limitation, all applicable regulatory filings or consents under federal or state laws and all necessary consents, approvals, agreements, filings and applications. 3. ISSUE AND SALE OF ASTI SHARES. 3.1 PURCHASE OF ASTI CLASS A COMMON STOCK. Prior to the Distribution Date, ASTI will issue to Allergan that number of ASTI Shares such that Allergan may distribute to holders of Allergan Common Stock one ASTI Share for every 20 shares of Allergan Common Stock held on the Record Date. Allergan and ASTI acknowledge that all of the ASTI Shares held by Allergan will be distributed by Allergan to the holders of outstanding shares of Allergan Common Stock. 3. 4 4. THE DISTRIBUTION. 4.1 THE DISTRIBUTION. ASTI shall take all steps required by Allergan or the Agent to effect the Distribution. Prior to the Distribution, and upon receipt of the capital contribution described in Section 3 hereof, ASTI shall cause to be issued to Allergan a certificate or certificates representing a sufficient number of ASTI Shares so that Allergan may distribute one ASTI Share for every 20 shares of Allergan Common Stock held on the Record Date. 4.2 EXPENSES OF DISTRIBUTION. All expenses related in any way to the Distribution, including without limitation all legal, financial advisory and accounting fees of Allergan and ASTI, shall be borne by ASTI. 5. ADDITIONAL ASSURANCES; INDEMNIFICATION. 5.1 MUTUAL ASSURANCES. Allergan and ASTI agree to cooperate with respect to the implementation of the Allergan/ASTI Agreements and to execute such further documents and instruments as may be necessary to confirm the transactions contemplated thereby. 5.2 INDEMNIFICATION. If Allergan exercises the Purchase Option, from and after such exercise, Allergan shall indemnify, defend and hold harmless ASTI's officers and directors to the same extent as provided in ASTI's Restated Certificate of Incorporation. 5.3 NOTICE. Any person entitled to indemnification pursuant to Section 5.2 shall give Allergan prompt notice in writing, in the manner set forth in Section 7.7 below, of any claim or demand made against such person for which such person may be entitled to indemnification under Section 5.2. 6. CONDITIONS TO EFFECTIVENESS OF DISTRIBUTION. The Distribution shall be subject to the satisfaction or waiver by Allergan of the following conditions and the satisfaction or waiver by ASTI of the conditions in Sections 6.8 and 6.9: 6.1 BOARD APPROVAL. The Allergan/ASTI Agreements (including exhibits and schedules) shall have been approved by the Board of Directors of Allergan and ASTI and shall have been executed and delivered by appropriate officers of Allergan and ASTI, and the Allergan Board of Directors (or a committee thereof) shall have declared a dividend of the ASTI Shares as of the Record Date to the holders of record of the Allergan Common Stock. 4. 5 6.2 SECURITIES LAW COMPLIANCE. The transactions contemplated hereby shall be in compliance with applicable federal and state securities laws, and the Registration Statement shall have been declared effective and no stop orders shall have been instituted with respect thereto under the Securities Act. 6.3 RESTATED CERTIFICATE OF INCORPORATION. The Restated Certificate of Incorporation of ASTI shall have been adopted by the Board of Directors, approved by Allergan as sole stockholder of ASTI, and filed with the Delaware Secretary of State. 6.4 FORM 8-A EFFECTIVE. The Form 8-A shall have become effective under the Exchange Act. 6.5 LISTING APPLICATION APPROVED. The ASTI Shares shall be approved for quotation on the Nasdaq National Market. 6.6 FAIRNESS OPINION. Allergan shall have received an opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, investment advisor to Allergan, in form and substance satisfactory to Allergan, to the effect that (i) from a financial point of view, the Distribution provides a reasonable structure to pursue the financial objectives described in the Prospectus of Allergan and (ii) from a financial point of view, the Distribution is fair to the stockholders of Allergan. 6.7 PERMITS AND LICENSES. ASTI shall have received such permits and licenses as may be necessary for the purpose of commencing operations contemplated by the Allergan/ASTI Agreements. 6.8 CONSENTS. Each of Allergan and ASTI shall have received such consents, and shall have received executed copies of such agreements or amendments of agreements, as it shall deem necessary in connection with the completion of the transaction contemplated by this Agreement. 6.9 OTHER INSTRUMENTS. All actions and other documents and instruments deemed necessary or advisable in connection with the transactions contemplated hereby shall have been taken or executed, as the case may be, in form and substance satisfactory to Allergan and ASTI. 6.10 LEGAL PROCEEDINGS. No legal proceedings affecting or arising out of the transactions contemplated hereby or which could otherwise affect Allergan or ASTI in a materially adverse manner shall have been commenced or threatened against Allergan, ASTI or the directors or officers of either Allergan or ASTI. 6.11 MATERIAL CHANGES. No material adverse change shall have occurred with respect to Allergan or ASTI, the securities markets (either generally or with respect to 5. 6 Allergan or ASTI) or general economic or financial conditions which shall, in the reasonable judgment of Allergan, make the transactions contemplated by this Agreement inadvisable. 6.12 OTHER CONDITIONS. Such other conditions as may be set by the Allergan Board of Directors or any committee thereof in the resolutions authorizing the Distribution shall have been satisfied. 7. MISCELLANEOUS. 7.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto of a breach of any provisions of this Agreement shall not be implied and shall not be valid unless such waiver is recited in writing and signed by such party. Failure of any party to require, in one or more instances, performance by the other party in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of the future performance of any such terms or conditions or of any other terms and conditions of this Agreement. A waiver by either party of any term or condition of this Agreement shall not be deemed or construed to be a waiver of such term or condition for any other term. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement of either party. This Agreement may not be amended except in a writing signed by both parties. 7.2 ASSIGNMENT. Neither party may assign its rights and obligations hereunder without the prior written consent of the other party, which consent may not be unreasonably withheld; provided, however, that Allergan may assign such rights and obligations hereunder to an Affiliate of Allergan or to any person or entity with which Allergan is merged or consolidated or which acquires all or substantially all of the assets of Allergan. 7.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall refer such dispute to the Chief Executive Officer ("CEO") of ASTI and the CEO of Allergan for attempted resolution by good faith negotiations within sixty (60) days after such referral is made. During such period of good faith negotiations, any applicable time periods under this Agreement shall be tolled. In the event such executives are unable to resolve such dispute within such sixty (60) day period, the parties shall submit their dispute to binding arbitration before a retired California Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules for commercial disputes then in effect. The award of the arbitrator shall include an award of reasonable attorneys' fees and costs to the prevailing party. 6. 7 7.4 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 7.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of California as applied to residents of that state entering into contracts to be performed in that state. 7.6 HEADINGS. The headings set forth at the beginning of the various sections of this Agreement are for convenience and form no part of the Agreement between the parties. 7.7 NOTICES. Notices required under this Agreement shall be in writing and sent by registered or certified mail, postage prepaid, or by facsimile and confirmed by registered or certified mail, postage prepaid, and addressed as follows: If to Allergan: Allergan, Inc. 2525 Dupont Drive Irvine, CA 92612 Facsimile: (714) 246-4774 Attention: Corporate Vice President, General Counsel If to ASTI: Allergan Specialty Therapeutics, Inc. 2525 Dupont Drive Irvine, CA 92612 Facsimile: (714) 246-4774 Attention: President and Chief Executive Officer All notices shall be deemed to be effective five days after the date of mailing or upon receipt if sent by facsimile (but only if followed by certified or registered confirmation). Either party may change the address at which notice is to be received by written notice pursuant to this Section 7.7. 7.8 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, it shall be stricken and the remaining provisions shall remain in full force and effect. 7.9 RELATIONSHIP OF THE PARTIES. For all purposes of this Agreement, ASTI and Allergan shall be deemed to be independent contractors and anything in this Agreement to the contrary notwithstanding, nothing herein shall be deemed to constitute ASTI and Allergan as partners, joint venturers, coowners, an association or any entity separate and 7. 8 apart from each party itself, nor shall this Agreement constitute any party hereto an employee or agent, legal or otherwise, of the other party for any purposes whatsoever. Neither party hereto is authorized to make any statements or representations on behalf of the other party or in any way to obligate the other party, except as expressly authorized in writing by the other party. Anything in this Agreement to the contrary notwithstanding, no party hereto shall assume nor shall be liable for any liabilities or obligations of the other party, whether past, present or future. 7.10 SURVIVAL. The provisions of Sections 1, 5, 7.1, 7.3, 7.5, 7.6, 7.7, 7.8 and this Section 7.10 shall survive the termination for any reason of this Agreement. Any payments due under this Agreement with respect to any period prior to its termination shall be made notwithstanding the termination of this Agreement. Neither party shall be liable to the other due to the termination of this Agreement as provided herein, whether in loss of good will, anticipated profits or otherwise. 8. 9 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. ALLERGAN, INC. By:_____________________________________ Title:__________________________________ ALLERGAN SPECIALTY THERAPEUTICS, INC. By:_____________________________________ Title:__________________________________ 9. EX-23.1 9 EXHIBIT 23.1 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Allergan Specialty Therapeutics, Inc. We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG PEAT MARWICK LLP Costa Mesa, California December 15, 1997 -----END PRIVACY-ENHANCED MESSAGE-----