-----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, PJ+i0i3POxdmnbT3FmEBslnEHcmvLRpp4/lOQqlczo07PRdX3nCw8dsXc5SGfkBV s7LsW9z7/xJNIX5cUMz+qw== /in/edgar/work/20000807/0000950109-00-003096/0000950109-00-003096.txt : 20000921 0000950109-00-003096.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950109-00-003096 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20000807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELIK INC CENTRAL INDEX KEY: 0001109196 STANDARD INDUSTRIAL CLASSIFICATION: [8731 ] IRS NUMBER: 930987903 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-33868 FILM NUMBER: 686952 BUSINESS ADDRESS: STREET 1: 750 GATEWAY BOULEVARD CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 BUSINESS PHONE: 6502449303 MAIL ADDRESS: STREET 1: 750 GATEWAY BLVD CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 S-1/A 1 0001.txt AMENDMENT #3 TO FORM S-1 As filed with the Securities and Exchange Commission on August 7, 2000 Registration No. 333-33868 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- Amendment No. 3 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- TELIK, INC. (Exact name of registrant as specified in its charter) Delaware 8731 93-0987903 (State or other (Primary Standard Industrial (I.R.S. Employer jurisdiction of Classification Code Identification No.) incorporation or Number) organization) 750 Gateway Boulevard South San Francisco, California 94080 (650) 244-9303 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------- Michael M. Wick, MD, PhD Chairman and Chief Executive Officer Telik, Inc. 750 Gateway Boulevard South San Francisco, California 94080 (650) 244-9303 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------- Copies to: Deborah A. Marshall, Esq. Edwin D. Williamson, Esq. Gregory B. Abbott, Esq. Sullivan & Cromwell Cooley Godward LLP 1701 Pennsylvania Avenue One Maritime Plaza Washington, D.C. 20006 20th Floor (202) 956-7500 San Francisco, CA 94111-3580 (415) 693-2000 ---------------- Approximate date 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 (the "Securities Act"), 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, 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 this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration 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, check the following box. [_] ---------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
Proposed Proposed Amount Maximum Maximum Title Of Securities To To Be Offering Price Aggregate Amount Of Be Registered Registered(1) Per Share(2) Offering Price(2) Registration Fee(3) - ------------------------------------------------------------------------------------------- Common Stock, par value $.01.................. 5,750,000 $11.00 $63,250,000 $16,698(4) - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
(1) Includes 750,000 shares of common stock issuable upon the exercise of the underwriters' over-allotment option, if any. (2) Estimated solely for the purposes of calculating the amount of the registration fee. (3) Calculated pursuant to Rule 457(a). (4) Previously paid. ---------------- The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and we are not soliciting offers to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Prospectus Subject to completion, dated August 7, 2000 5,000,000 Shares [LOGO OF TELIK, INC. APPEARS HERE] Telik, Inc. Common Stock - -------------------------------------------------------------------------------- This is our initial public offering of shares of common stock. We are offering 5,000,000 shares. No public market currently exists for our common stock. Our common stock has been approved for listing on the NASDAQ National Market under the symbol "TELK." We expect the public offering price to be between $9.00 and $11.00 per share. Investing in the shares involves risks. "Risk Factors" begin on page 4.
Per Share Total ----- ----- Public Offering Price............................................... $ $ Underwriting Discount............................................... $ $ Proceeds, before expenses, to Telik................................. $ $
We have granted the underwriters a 30 day option to purchase up to 750,000 shares of common stock on the same terms and conditions as set forth above to cover over-allotments, if any. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on or about , 2000. - -------------------------------------------------------------------------------- Lehman Brothers Chase H & Q Legg Mason Wood Walker Incorporated UBS Warburg LLC Fidelity Capital Markets a division of National Financial Services Corporation Inside Front Cover Graphic Title: Working to discover, develop and commercialize small molecule therapeutics to treat major diseases including cancer and diabetes. Legend: Product Pipeline. Graphic Description: This graphic shows Telik's product pipeline and the stage of development of Telik's product candidates. In the background is a C- shaped figure containing the words TRAP technology spanning the graphic from left to right to indicate that all of our product candidates have been discovered using TRAP. Extending from lower left to upper right are four rectangles. The rectangle at the lower left, labeled blockers of disease- related proteins, is aligned with the label Research to indicate that these programs are at the research stage. Moving right, the next rectangle, labeled insulin-like diabetes drug candidate, is aligned with the label Animal Safety Studies to indicate that these product candidates are being tested in animal safety studies. The third rectangle in the sequence, labeled TLK199 bone marrow stimulant, is also aligned with the label Animal Safety Studies to indicate that the product candidate TLK199 is being tested in animal safety studies. The final rectangle at the upper right, labeled TLK286 tumor activated cancer drug candidate, is aligned with the label Initial Human Studies indicate that the product candidate TLK286 is in phase I clinical trials. Gatefold Graphic Title: TLK286 A drug candidate in Phase I clinical trials designed to bind to a protein and release a cancer killing drug. Graphic Description: This is a depiction of a cancer cell, where TLK286 binds to a cancer drug inhibitor and releases an active cancer drug, which is represented by a pair of scissors. The activated cancer drug is shown moving into the nucleus of the cell where it causes cell death. Title: TLK199 A drug candidate in preclinical safety testing designed to restore white blood cell levels in patients undergoing cancer treatment. Graphic Description: This is a depiction of a bone marrow cell and shows how TLK199 interacts with the same pathway as the natural producer of white blood cells, leading to the growth of white blood cells. Legend: TLK199 is designed to enter the cell and activate the same pathway that produces white blood cells naturally. TABLE OF CONTENTS Prospectus Summary................... 1 Risk Factors......................... 4 Special Note Regarding Statements of Expected Future Performance......... 11 Use of Proceeds...................... 12 Dividend Policy...................... 12 Capitalization....................... 13 Dilution............................. 14 Selected Financial Data.............. 15 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 16
Business......................... 19 Management....................... 35 Related Party Transactions....... 45 Principal Stockholders........... 46 Description of Capital Stock..... 49 Shares Eligible for Future Sale.. 51 Underwriting..................... 52 Legal Matters.................... 54 Experts.......................... 54 Where You Can Find More Information..................... 54 Index to financial statements.... F-1
Until , 2000 (25 days after the date of this prospectus), all dealers selling shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ABOUT THIS PROSPECTUS You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. This prospectus is not an offer to sell or a solicitation of an offer to buy our common stock in any jurisdiction where it is unlawful. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. This preliminary prospectus is subject to completion prior to this offering. "Telik" and the Telik logo are trademarks of Telik, Inc. Other trademarks and trade names appearing in this prospectus are the property of their holders. PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under "Risk Factors." Our principal executive offices are located at 750 Gateway Boulevard, South San Francisco, CA 94080. Our telephone number is (650) 244-9303. Telik, Inc. Telik is a biopharmaceutical company working to discover, develop and commercialize drugs to treat serious diseases for which there is significant demand for new therapies. Our most advanced product development programs are for the treatment of cancer and diabetes. Our first product candidate, TLK286, is for the treatment of major cancers that have resisted standard treatments. TLK286 kills cancer cells by being activated by the same mechanism that normally deactivates chemotherapeutic drugs. We began clinical trials for TLK286 in January of this year. We expect to advance our second product candidate, TLK199, into human clinical trials in the first half of 2001. TLK199 is for the treatment of the depletion of infection-fighting white blood cells, which is a toxic side effect of cancer therapy. TLK199 activates the same signaling pathway that is activated by granulocyte colony stimulating factor, or G-CSF, known as Neupogen, causing the stimulation of white blood cell production. TLK199 accelerates the recovery from chemotherapy-induced low white blood cell levels in animals, similar to the results observed following treatment with G-CSF. TLK199 and G-CSF also produce similar increases in the number of circulating white blood cells in normal animals. We are conducting preclinical development studies of TLK199 and intend to file an Investigational New Drug application, or IND, with the FDA, for the initiation of clinical trials in the first half of 2001. We have retained rights for the worldwide commercialization of TLK286 and TLK199. We are initiating preclinical safety studies to support the development of a product candidate from a proprietary family of orally active insulin receptor activators for the treatment of Type 2 diabetes. All of our product candidates are in early stages of development and we face the risks of failure inherent in developing drugs based on new technologies. To date, we have no products that have generated any revenue. Consequently, we have generated operating losses since we began operations. All of our product candidates are small molecules. Small molecule drugs offer advantages in ease of manufacturing and administration, the potential for oral dosing and applicability to a wider range of disease targets, including those inside the cell. We discovered all of our product candidates using our proprietary technology known as Target-Related Affinity Profiling, or TRAP, which enables the rapid and efficient discovery of small molecule product candidates. TRAP exploits a fundamental property of all drugs, which is their interaction with molecules in the body called proteins. By developing a profile of how a protein disease target interacts with small molecules, we are able to select product candidates for development much faster than with alternative technologies, such as ultra high-throughput screening, or UHTS. We continuously protect the intellectual property surrounding our product candidates and our technology platform. In the United States, we hold 36 patents protecting our discoveries, and more than 16 applications are pending. In addition, outside the United States, we hold 56 patents, and more than 79 patent applications are pending. Strategy Key elements of our strategy are to: . develop small molecule drugs for major disease areas, such as cancer, diabetes, inflammatory diseases and stroke; . retain significant commercialization rights to our product candidates; . select targets where we believe we can show efficacy early and where we believe there is a shorter path to regulatory approval; . use TRAP to sustain a pipeline of product candidates; and . leverage and expand the use of TRAP by entering into additional technology collaborations. 1 The Offering The following information assumes that the underwriters do not exercise the over-allotment option we granted to them to purchase additional shares in the offering. Common stock we are offering............... 5,000,000 shares Common stock to be outstanding after the offering................................. 21,583,707 shares Proposed Nasdaq National Market symbol..... TELK Use of proceeds............................ Research and development and general corporate purposes
The number of shares of common stock to be outstanding after this offering is based on the number of shares of common stock outstanding as of June 30, 2000, after giving effect to the automatic conversion upon the closing of this offering of all convertible preferred stock outstanding as of June 30, 2000 into 13,806,702 shares of common stock and the exercise of 433,648 shares underlying stock options subsequent to June 30, 2000. Shares to be outstanding excludes: . 34,559 shares of common stock underlying warrants outstanding as of June 30, 2000 with a weighted average exercise price of $5.28 per share; . 3,003,418 shares of common stock underlying options outstanding as of June 30, 2000 with a weighted average exercise price of $1.46 per share, of which 433,648 shares were exercised subsequent to June 30, 2000; and . 2,000,000 shares available for issuance or future grant under our 2000 Equity Incentive Plan stock option plan, 250,000 shares available for issuance under our 2000 Employee Stock Purchase Plan and 300,000 shares available for issuance under our 2000 Non-Employee Directors' Stock Option Plan. 2 Summary Financial Data The pro forma net loss per share amounts and shares used in computing pro forma net loss per share amounts are calculated as if all of our convertible preferred stock was converted into shares of common stock on the date of their issuance. The as adjusted balance sheet data gives effect to the conversion of preferred stock, and to the sale of 5,000,000 shares of our common stock at an assumed initial public offering price of $10.00 per share, after deducting the estimated underwriting discount and offering expenses.
Six Months Ended Year Ended December 31, June 30, ------------------------- ------------------ 1997 1998 1999 1999 2000 ------- ------- ------- -------- -------- (Unaudited) (In thousands, except per share data) Statement of Operations Data: Contract revenues from collaborations................. $ 1,652 $ 3,194 $ 4,237 $ 2,489 $ 1,330 Total operating expenses........ 10,560 10,101 11,699 5,970 9,708 Net loss........................ (8,618) (6,579) (7,064) (3,255) (8,127) Deemed dividend to preferred stockholders................... -- -- -- -- (4,667) ------- ------- ------- -------- -------- Net loss allocable to common stock holders.................. (8,618) (6,579) (7,064) (3,255) (12,794) ======= ======= ======= ======== ======== Net loss per common share, basic and diluted.................... $ (3.95) $ (3.00) $ (3.21) $ (1.48) $ (5.75) ======= ======= ======= ======== ======== Weighted average shares used in computing net loss per common share, basic and diluted....... 2,184 2,194 2,204 2,200 2,225 Pro forma net loss per common share, basic and diluted....... $ (0.47) $ (0.83) ======= ======== Weighted average shares used in computing pro forma net loss per common share, basic and diluted........................ 14,879 15,489
As of June 30, 2000 ------------------ As Actual adjusted -------- -------- (In thousands, unaudited) Balance Sheet Data: Cash, cash equivalents and short-term investments........... $ 9,437 $ 54,437 Working capital............................................. 7,347 52,347 Total assets................................................ 11,743 56,743 Capital lease obligations, less current portion............. 20 20 Deferred stock compensation................................. (2,654) (2,654) Accumulated deficit......................................... (59,511) (59,511) Total stockholders' equity.................................. $ 8,295 $ 53,295
3 RISK FACTORS You should carefully consider the risks described below together with all of the other information included in this prospectus before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Risks Related to Our Business We have a history of net losses, which we expect to continue for at least several years. We will never be profitable unless we develop, and obtain regulatory approval and market acceptance of, our product candidates. Due to the significant research and development expenditures required to develop our TRAP technology and identify new product candidates and the lack of any products to generate revenue, we have not been profitable and have generated operating losses since we were incorporated in 1988. As of June 30, 2000, we had an accumulated deficit of approximately $59.5 million. We expect to incur losses for at least the next several years and expect that these losses will actually increase as we expand our research and development activities and incur significant clinical testing costs. To date, we have derived substantially all of our revenue from project initiation fees and research reimbursement paid pursuant to existing collaborative agreements with third parties and achievement of milestones under current collaborations. We expect that this trend will continue until we develop, and obtain regulatory approval and market acceptance of, our product candidates. We cannot assure you when, if ever, we will receive product revenue, if any, sufficient to become profitable. All of our product candidates are in research and development. If clinical trials of TLK286 are delayed or unsuccessful, if the IND for TLK199 is not accepted, or if we are unable to complete the preclinical development of our diabetes product candidate, our business may be adversely effected. Preclinical testing and clinical development are long, expensive and uncertain processes. It may take us or our collaborators several years to complete this testing, and failure can occur at any stage of the process. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Only one of our product candidates, TLK286, has advanced to the stage of human testing designed to determine safety, known as phase I clinical trials and, to date, we have only limited data on safety and efficacy in humans. We are in the process of conducting the necessary work to support the filing of an IND application for TLK199, our second cancer product candidate. The FDA may require us to run more preclinical tests, which could delay commencing clinical trials of TLK199. Finally, our success depends, in part, on our ability to complete preclinical development of our diabetes product candidates and take them through early clinical trials. We do not anticipate that any of our products will reach the market for at least several years. If we are unable to continue to identify new product candidates using TRAP, our proprietary drug discovery technology, we may not be able to maintain our product pipeline and develop commercially viable drugs. We believe that our ability to compete depends, in part, on our ability to use our proprietary TRAP technology to discover, develop and commercialize new pharmaceutical products. TRAP technology is a relatively new drug discovery method that uses a protein panel of approximately 20 proteins selected for their distinct patterns of interacting with small molecules. This panel may lack essential types of interactions that we have not yet identified, which may result in our inability to identify active compounds that have the potential to be developed into commercially viable drugs. 4 If our competitors develop and market products that are more effective than ours, or obtain marketing approval before we do, our commercial opportunity will be reduced or eliminated. The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Some of the drugs that we are attempting to develop, for example TLK199, will be competing with existing therapies. In addition, a number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. We face competition from pharmaceutical and biotechnology companies in the United States and abroad. Our competitors may develop new screening technologies and may utilize discovery techniques or partner with collaborators in order to develop products more rapidly or successfully than we, or our collaborators, are able to do. Many of our competitors, particularly large pharmaceutical companies, have substantially greater financial, technical and human resources than we do. In addition, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competing products or technologies and may establish exclusive collaborative or licensing relationships with our competitors. Our competitors may succeed in developing technologies and drugs that are more effective or less costly than any which are being developed by us or which would render our technology and potential drugs obsolete and noncompetitive. In addition, our competitors may succeed in obtaining FDA or other regulatory approvals for product candidates more rapidly than we, or our collaborators. We cannot assure you that drugs resulting from our research and development efforts, or from our joint efforts with our existing or future collaborative partners, will be able to compete successfully with competitors' existing products or products under development or that they will obtain regulatory approval in the United States or elsewhere. If we are unable to raise adequate funds in the future, we will not be able to continue to fund our operations, research programs, preclinical testing and clinical trials to develop our products. The process of carrying out the development of our own unpartnered products to later stages of development and developing other research programs to the stage that they may be partnered will require significant additional expenditures, including preclinical testing, clinical trials and obtaining regulatory approval. As a result, we will require additional financing to fund our operations. We do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on terms favorable to our stockholders. We have expended substantial amounts of cash to date and expect capital outlays and operating expenditures to increase over the next several years as we expand our research and development activities. We believe that the net proceeds from this offering, existing cash and investment securities and anticipated cash flow from existing and future collaborations, if any, will be sufficient to support our current operating plan through at least the next 18 months; however, we have based this estimate on assumptions that may prove to be wrong. Our future funding requirements will depend on many factors, including, but not limited to: . the progress and success of preclinical and clinical trials of our product candidates; . the progress and number of research programs in development; . the costs and timing of obtaining regulatory approvals; . our ability to establish, and the scope of, new collaborations; . our ability to meet the milestones identified in our collaborative agreements which trigger payments; and . the costs and timing of obtaining, enforcing and defending our patent and intellectual property rights. If we do not obtain regulatory approval to market products in the United States and foreign countries, we or our collaborators will not be permitted to commercialize our product candidates. Even if we are able to achieve success in our preclinical testing, we, or our collaborators, must provide the FDA and foreign regulatory authorities with clinical data that demonstrate the safety and efficacy of our 5 products in humans before they can be approved for commercial sale. Failure to obtain regulatory approval will prevent commercialization of our products. The pharmaceutical industry is subject to stringent regulation by a wide range of authorities. We cannot predict whether regulatory clearance will be obtained for any product that we are developing or hope to develop. A pharmaceutical product cannot be marketed in the United States until it has completed rigorous preclinical testing and clinical trials and an extensive regulatory clearance process implemented by the FDA. Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources. Of particular significance are the requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use. Before commencing clinical trials in humans, we, or our collaborators, must submit and receive approval from the FDA of an IND application. We must comply with FDA "Good Laboratory Practices" regulations in our preclinical studies. Clinical trials are subject to oversight by institutional review boards and the FDA and: . must be conducted in conformance with the FDA's IND regulations; . must meet requirements for informed consent; . must meet requirements for Good Clinical Practices; . may require large numbers of participants; and . may be suspended by us, our collaborators or the FDA at any time if it is believed that the subjects participating in these trials are being exposed to unacceptable health risks or if the FDA finds deficiencies in the IND application or the conduct of these trials. Before receiving FDA clearance to market a product, we or our collaborators must demonstrate that the product is safe and effective in the patient population that will be treated. Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be repeated or a program to be terminated or could delay getting approval. We typically rely on third party clinical investigators to conduct our clinical trials and other third party organizations to perform data collection and analysis and, as a result, we may face additional delaying factors outside our control. In addition, delays or rejections may be encountered based upon additional government regulation from future legislation or administrative action or changes in FDA policy or interpretation during the period of product development, clinical trials and FDA regulatory review. Failure to comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval. If regulatory clearance of a product is granted, this clearance will be limited to those disease states and conditions for which the product is demonstrated through clinical trials to be safe and efficacious. We cannot ensure that any compound developed by us, alone or with others, will prove to be safe and efficacious in clinical trials and will meet all of the applicable regulatory requirements needed to receive marketing clearance. Outside the United States, the ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authorities. This foreign regulatory approval process typically includes all of the risks associated with FDA clearance described above and may include additional risks. If physicians and patients do not accept our products, our ability to generate product revenue in the future will be adversely affected. Our product candidates may not gain market acceptance among physicians, patients and the medical community. We believe that market acceptance will depend on our ability to provide acceptable evidence of 6 safety, efficacy, convenience and ease of administration and cost effectiveness. In addition, we believe market acceptance depends on the effectiveness of our marketing strategy and the pricing of our products. Physicians may elect not to recommend our products even if we meet the above criteria. If any of our product candidates fails to achieve market acceptance, we may not be able to successfully market and sell the product, which would limit our ability to generate revenue and adversely affect our operations. If we, or our licensees and licensors, cannot obtain and defend our respective intellectual property rights, or if our products or technologies are found to infringe patents of third parties, we could become involved in lengthy and costly legal proceedings that could adversely affect our success. Our success will depend in large part on our own, our licensees' and our licensors' ability to obtain and defend patents for each party's respective technologies and the compounds and other products, if any, resulting from the application of these technologies. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. Accordingly, we cannot predict the breadth of claims allowed in our or other companies' patents. Our success will also depend, in part, on our ability to operate without infringing the intellectual property rights of others. We cannot assure you that our activities will not infringe patents owned by others. If our products or technologies are found to infringe patents issued to third parties, the manufacture, use and sale of our products could be enjoined, and we could be required to pay substantial damages. In addition, we may be required to obtain licenses to patents or other proprietary rights of third parties. No assurance can be given that any licenses required under any such patents or proprietary rights would be made available on terms acceptable to us, if at all. Failure to obtain such licenses could negatively affect our business. The degree of future protection for our proprietary rights is uncertain and we cannot assure you that: . we were the first to make the inventions covered by each of our pending patent applications; . we were the first to file patent applications for these inventions; . others will not independently develop similar or alternative technologies or duplicate any of our technologies; . any of our pending patent applications will result in issued patents; . any patents issued to us or our collaborators will provide a basis for commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties; . we will develop additional proprietary technologies that are patentable; or . the patents of others will not have an adverse effect on our ability to do business. In addition, we could incur substantial costs in litigation if we are required to defend against patent suits brought by third parties or if we initiate these suits, and we cannot predict whether we would be able to prevail in any such suit. Others may have filed and in the future may file patent applications covering small molecules or therapeutic products that are similar to ours. We cannot assure you that any patent application filed by someone else will not have priority over patent applications filed by us. Any legal action against us or our collaborators claiming damages and seeking to enjoin commercial activities relating to the affected products and processes could, in addition to subjecting us to potential liability for damages, require us or our collaborators to obtain a license to continue to manufacture or market the affected products and processes. We cannot predict whether we, or our collaborators, would prevail in any of these actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. We believe that there may be significant litigation in the industry regarding patent and other intellectual property rights. If we become 7 involved in litigation, it could consume a substantial portion of our managerial and financial resources and we may not be successful in any such litigation. We also rely on trade secrets to protect technology, including our TRAP technology, where we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we require employees, academic collaborators and consultants to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information. If the identity of specific proteins or other elements of our technology become known, our competitive advantage in drug discovery could be reduced. We will be dependent upon collaborative arrangements to complete the development and commercialization of some of our product candidates. These collaborative arrangements may place the development of our product candidates outside of our control, may require us to relinquish important rights or may otherwise not be on terms favorable to us. We expect to enter into collaborative arrangements with third parties for clinical trials, manufacturing, regulatory approvals or commercialization of some of our products, particularly outside North America, or in disease areas requiring larger and longer clinical trials, such as diabetes. Dependence on collaborative arrangements will subject us to a number of risks. We may not be able to control the amount and timing of resources our collaborative partners may devote to the product candidates. Should a collaborative partner fail to develop or commercialize a compound or product to which it has rights from us, we may not receive any future milestone payments and will not receive any royalties associated with this compound or product. Business combinations or significant changes in a collaborative partner's business strategy may also adversely affect a partner's willingness or ability to complete its obligations under the arrangement. Failure to enter into additional collaborative agreements on favorable terms could have a material adverse effect on our business, financial condition and results of operations. Some of our collaborations are for early stage programs and allow partners significant discretion in electing whether to pursue any of the planned activities. We do not anticipate significant revenues to result from these relationships until the collaborator has advanced products into clinical testing, which will not occur for several years, if at all. Such arrangements are subject to numerous risks, including the right of the collaboration partner to control the timing of the research and development efforts, and discretion to advance lead candidates to clinical testing and commercialization of the product. In addition, a collaborative partner could independently move forward with a competing lead candidate developed either independently or in collaboration with others, including our competitors. If we are unable to contract with third parties to manufacture our products in sufficient quantities and at an acceptable cost, we may be unable to meet demand for our products and lose potential revenue. We do not currently operate manufacturing facilities for clinical or commercial production of our products under development. We currently lack the resources or capability to manufacture any of our products on a clinical or commercial scale. As a result, we will be dependent on corporate partners, licensees or other third parties for the manufacturing of clinical and commercial scale quantities of our products. Our products may be in competition with other products for access to these facilities. For this and other reasons, our collaborators or third parties may not be able to manufacture these products in a cost effective or timely manner. If not performed in a timely manner, the clinical trial development of our product candidates or their submission for regulatory approval could be delayed, and our ability to deliver products on a timely basis could be impaired or precluded. We are currently dependent upon a sole source of supply for clinical quantities of TLK286 and are in the process of identifying alternative suppliers. If our primary supplier fails to perform, our clinical trials or commercialization of TLK286 would be delayed. We may not be able to enter into any necessary third-party manufacturing arrangements on acceptable terms, if at all. Our current dependence upon others for the manufacture of our products may adversely affect our future profit margin and our ability to commercialize products on a timely and competitive basis. 8 If we are unable to create sales, marketing and distribution capabilities or enter into agreements with third parties to perform these functions, we will not be able to commercialize products. We currently have no sales, marketing or distribution capabilities. In order to commercialize any products, we must internally develop sales, marketing and distribution capabilities, or establish collaborations or other arrangements with third parties to perform these services. We intend to market some products directly in North America and rely on relationships with one or more pharmaceutical companies with established distribution systems and direct sales forces to market other products and address other markets. We may not be able to establish in house sales and distribution capabilities or relationships with third parties. To the extent that we enter into co-promotion or other licensing arrangements, our product revenues are likely to be lower than if we directly marketed and sold our products, and any revenues we receive will depend upon the efforts of third parties, whose efforts may not be successful. As our product programs advance, we will need to hire additional scientific and management personnel. Our research and development efforts will be seriously jeopardized if we are unable to attract and retain key personnel. As a small company with approximately 37 employees, our success depends on the continued contributions of our principal management and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, scientists and companies in the face of intense competition for such personnel. In particular, our research programs depend on our ability to attract and retain highly skilled chemists and other scientists. As we progress to advanced phase II and III clinical trials, we will also need to expand our clinical development personnel. We do not have employment contracts with our key employees. If we lose the services of Dr. Michael Wick or any of our other key personnel, our research and development efforts could be seriously and adversely affected. There is currently a shortage of skilled executives and employees with technical expertise in the biotechnology industry, and this shortage is likely to continue. As a result, competition among numerous companies, academic and other research institutions for skilled personnel and experienced scientists is intense and turnover rates are high. In recent years, the cost of living in the San Francisco Bay Area has increased significantly, which we expect will adversely impact our ability to compete for qualified personnel. Because of this competitive environment, we may encounter increasing difficulty in attracting qualified personnel as our operations expand and the demand for these professionals increases, and this difficulty could significantly impede the achievement of our research and development objectives. If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of our products. The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. If we are unable to obtain sufficient product liability insurance at an acceptable cost, potential product liability claims could prevent or inhibit the commercialization of pharmaceutical products we develop, alone or with corporate collaborators. If we use biological and hazardous materials in a manner that causes injury, we may be liable for damages. Our research and development activities involve the controlled use of potentially harmful biological materials, hazardous materials, chemicals and various radioactive compounds, and are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for damages that result, and any liability could exceed our resources. 9 Risks Related to The Offering Our stock price may be volatile, and you may not be able to resell your shares at or above the initial offering price. The market prices for securities of biotechnology companies in general have been highly volatile, with recent significant price and volume fluctuations, and may continue to be highly volatile in the future. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters based upon a number of factors and may not be indicative of prices that will prevail in the trading market. You may not be able to sell your shares quickly or at the market price if trading in our stock is not active or the volume is low. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock: . announcements of technological innovations or new commercial products by our competitors or us; . developments concerning proprietary rights, including patents; . developments concerning our collaborations; . publicity regarding actual or potential medical results relating to products under development by our competitors or us; . regulatory developments in the United States and foreign countries; . litigation; . economic and other external factors or other disaster or crisis; or . period-to-period fluctuations in financial results. If our stockholders sell substantial amounts of our common stock after the offering, the market price of our common stock may fall. If our stockholders sell substantial amounts of our common stock, including shares issued upon the exercise of outstanding options and warrants, the market price of our common stock may fall. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. Substantially all of our outstanding shares are subject to a lock up for 180 days after the completion of this offering. After the lock up expires, at least 4,906,331 shares of our common stock will become freely tradable and an additional 10,062,873 shares will be tradable subject to Rules 144 and 701. We intend to file a registration statement on Form S-8 covering shares issuable upon exercise of options to purchase common stock and common stock reserved for issuance under our stock plans. 10 SPECIAL NOTE REGARDING STATEMENTS OF EXPECTED FUTURE PERFORMANCE You should not rely on statements in this prospectus indicating expectations about future performance. These statements reflect our views only as of the date of this prospectus and you can usually identify them by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "intend," "potential," or "continue" or the negative of these terms or other comparable terminology. Examples of these statements include, but are not limited to, statements regarding the following: the development of TLK286, TLK199 or insulin receptor activators to treat cancer and diabetes, our intention to file INDs for clinical testing for our product candidates, the timing of the advancement of our product candidates into preclinical and clinical trials, the design, goals and expansion of those clinical trials, the selection of a product candidate from our proprietary family of insulin receptor activators, our partnering with third parties to share the costs of developing product candidates for diabetes and other diseases that require larger and longer clinical trials, the use of TRAP to select product candidates much faster than with alternative technologies, the ability to address the U.S. hospital-based cancer market with a limited sales and marketing presence, our entry into collaborations to assist in commercializing our product candidates, our ability to apply our drug discovery technology to virtually any protein target, our development of product candidates with a clear path to regulatory approval and the potential to show early evidence of clinical efficacy, our use of TRAP to provide a stream of promising future development candidates, our selection of additional partners for additional TRAP collaborations, the advantages of TLK199 over a therapeutic protein, the effect of certain members of the TLK17411 family on more sensitive control of blood sugar and on the delayed need for injected insulin, the ability of our panel of proteins to simulate most of the significant interactions between a small molecule and a protein, the use of TRAP to create a small molecule library with a greater likelihood of containing a compound that interacts with any specified protein and a higher probability of generating drug candidates, the impact of our collaborations on our ability to identify new product development and commercialization opportunities, the financing sources for our future cash needs, our investment of the proceeds of this offering, our use of third parties for materials production, the relations with our employees and the adequacy of our existing facilities. Factors that may cause actual results to differ materially from the results expressed or implied by these statements are set forth under "Risk Factors." 11 USE OF PROCEEDS The net proceeds to us from the sale of the 5,000,000 shares of common stock in the offering are estimated to be $45,000,000 ($51,750,000 if the underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $10.00 per share and after deducting the estimated underwriting discount and offering expenses. We tentatively anticipate the following allocations of net proceeds for our research and development programs: . $15-20 million for the advancement of TLK286 through the completion of phase II clinical trials; and . $4-6 million for the advancement of each of the TLK199 and TLK17411 programs, respectively, covering the costs of pre-clinical studies, the filing of the INDs and phase I clinical trials. We also intend to use the balance of the net proceeds for other general research and development activities. We may use a portion of the net proceeds to acquire or invest in products and technologies that are complementary to our own, although no acquisitions are planned or being negotiated as of the date of this prospectus, and no portion of the net proceeds has been allocated for any specific acquisition. The remainder of the proceeds will be used for general corporate and administrative expenses. Pending these uses, the net proceeds will be invested in investment-grade interest-bearing securities. The principal purposes of this offering are to increase our capitalization and financial flexibility, to provide a public market for our common stock and to facilitate access to public equity markets. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds we will have upon completion of the offering because they will depend upon numerous factors beyond our control, such as the rate of our progress in research and development, the results of preclinical studies and clinical trials, the timing of regulatory approvals, the determination of commercial potential of our product candidates, the rate at which operating losses are incurred and various other factors. Accordingly, our management will have broad discretion in the application of net proceeds. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock. We currently intend to retain earnings, if any, to support the development of our business and do not anticipate paying cash dividends for the foreseeable future. 12 CAPITALIZATION The following table shows our capitalization as of June 30 , 2000: . on an actual basis; and . as adjusted to give effect to the conversion of preferred stock and to the sale of 5,000,000 shares of our common stock at an assumed initial public offering price of $10.00 per share, after deducting the estimated underwriting discount and offering expenses. This table should be read with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and notes appearing elsewhere in this prospectus.
Actual As Adjusted -------- ----------- (In thousands) Capital lease and equipment loan obligations, including current portion......................................... $ 48 $ 48 -------- -------- Stockholders' equity: Convertible preferred stock, $0.01 par value; authorized--3,023,799 shares actual, 5,000,000 shares as adjusted; issued and outstanding--2,186,817 shares actual, none as adjusted.............................. 22 -- Common stock, $0.01 par value; authorized--46,976,201 shares actual, 100,000,000 as adjusted; issued and outstanding--2,343,357 shares actual, 21,150,059 shares as adjusted.................................... 23 212 Additional paid-in capital............................... 70,568 115,401 Note receivable from employee............................ (153) (153) Deferred stock compensation.............................. (2,654) (2,654) Accumulated deficit...................................... (59,511) (59,511) -------- -------- Total stockholders' equity............................... 8,295 53,295 -------- -------- Total capitalization................................... $ 8,343 $ 53,343 ======== ========
The number of shares of common stock to be outstanding after the offering is based on the number of shares outstanding as of June 30, 2000 and excludes: . 34,559 shares of common stock underlying warrants outstanding as of June 30, 2000 with a weighted average exercise price of $5.28 per share; . 3,003,418 shares of common stock underlying options outstanding as of June 30, 2000 with a weighted average exercise price of $1.46 per share; and . 2,000,000 shares available for issuance or future grant under our 2000 Equity Incentive Plan stock option plan, 250,000 shares available for issuance under our 2000 Employee Stock Purchase Plan and 300,000 shares available for issuance under our 2000 Non-Employee Director's Stock Option Plan. 13 DILUTION The historical net tangible book value of our common stock on June 30, 2000 was approximately $8.3 million, or $3.54 per common share, based on the number of common shares outstanding as of June 30, 2000. Historical net tangible book value per share is equal to the amount of our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding as of June 30, 2000. The pro forma net tangible book value of our common stock on June 30, 2000, after giving effect to the automatic conversion upon the closing of this offering of all convertible preferred stock outstanding as of June 30, 2000 into 13,806,702 shares of common stock, was approximately $8.3 million, or $0.51 per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities divided by the pro forma number of shares of common stock outstanding. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of our common stock immediately afterwards. After giving effect to the sale of 5,000,000 shares of common stock offered by this prospectus at an assumed initial public offering price of $10.00 per share, assuming the underwriters' over-allotment option is not exercised, and after deducting the estimated underwriting discount and estimated offering expenses, our pro forma net tangible book value at June 30, 2000 would have been approximately $53.3 million or $2.52 per share. This represents an immediate decrease in net tangible book value of $7.48 per share to new investors purchasing shares of common stock in this offering. The following table illustrates this dilution on a per share basis: Assumed initial public offering price............................ $10.00 Historical net tangible book value per share as of June 30, 2000.......................................................... $3.54 Decrease attributable to conversion of preferred stock......... (3.03) ----- Pro forma net tangible book value per share at June 30, 2000... $0.51 Increase per share attributable to new investors............... 2.01 ----- Pro forma net tangible book value per share after this offering........................................................ 2.52 ------ Dilution per share to new investors.............................. $ 7.48 ======
The following table summarizes, on a pro forma basis as of June 30, 2000, the differences between the number of shares purchased from us, the total consideration paid and the average price per share paid by the existing stockholders and the new investors. We have assumed an initial public offering price of $10.00 per share, no exercise of the underwriters' over-allotment option, and we have not deducted the estimated underwriting discount and estimated offering expenses in our calculations.
Shares Purchased Total Consideration ------------------ -------------------- Average Price Number Percent Amount Percent Per Share ---------- ------- ------------ ------- ------------- Existing investors........ 16,150,059 76.4% $ 71,956,700 59.0% $ 4.46 New investors............. 5,000,000 23.6 50,000,000 41.0 10.00 ---------- ----- ------------ ----- ------ Total..................... 21,150,059 100.0% $121,956,700 100.0% $ 5.77 ========== ===== ============ ===== ======
The number of shares of common stock outstanding in the table above is based on the number of shares outstanding as of June 30, 2000 and excludes: . 34,559 shares of common stock underlying warrants outstanding as of June 30, 2000 with a weighted average exercise price of $5.28 per share; . 3,003,418 shares of common stock underlying options outstanding as of June 30, 2000 with a weighted average exercise price of $1.46 per share; and . 2,000,000 shares available for issuance or future grant under our 2000 Equity Incentive Plan stock option plan, 250,000 shares available for issuance under our 2000 Employee Stock Purchase Plan and 300,000 shares available for issuance under our 2000 Non-Employee Director's Stock Option Plan. 14 SELECTED FINANCIAL DATA This section presents our historical financial data. You should read carefully the financial statements included in this prospectus, including the notes to the financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected data in this section is not intended to replace the financial statements. The statement of operations data for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 and the balance sheet data at December 31, 1995, 1996, 1997, 1998 and 1999 have been derived from our financial statements which have been audited by Ernst & Young LLP, our independent auditors. The financial statements at December 31, 1998 and 1999 and for each of the three years in the period ended December 31, 1999 are included elsewhere in this prospectus. The statement of operations data for the six month periods ended June 30, 1999 and 2000 and the balance sheet data as of June 30, 2000 are derived from our unaudited financial statements included elsewhere in the prospectus and include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the data. Historical results are not necessarily indications of future results. Contract revenue from collaborations includes $1.3 million, $1.5 million, $1.8 million, $2.0 million, $1.0 million and $1.125 million from a related party in 1996, 1997, 1998, 1999 and for the six months ended June 30, 1999 and 2000, respectively. The pro forma net loss per share and shares used in computing pro forma net loss per share are calculated as if all of our convertible preferred stock was converted into shares of common stock on the date of issuance.
Six Months Ended ------------------ Year Ended December 31, ------------------------------------------ June 30, June 30, 1995 1996 1997 1998 1999 1999 2000 ------ ------- ------- ------- ------- -------- -------- (In thousands, except per share data) Statement of Operations Data: Contract revenue from collaborations......... $ 358 $ 1,350 $ 1,652 $ 3,194 $ 4,237 $ 2,489 $ 1,330 Costs and expenses: Research and development............ 5,784 8,688 8,090 7,952 9,547 5,198 5,119 General and administrative......... 1,428 1,880 2,470 2,149 2,152 772 4,589 ------ ------- ------- ------- ------- ------- -------- Loss from operations.... (6,854) (9,218) (8,908) (6,907) (7,462) (3,481) 9,708 Interest income, net.... 164 320 290 328 398 226 251 ------ ------- ------- ------- ------- ------- -------- Net loss................ (6,690) (8,898) (8,618) (6,579) (7,064) (3,255) (8,127) Deemed dividend to preferred stockholders........... -- -- -- -- -- -- (4,667) ------ ------- ------- ------- ------- ------- -------- Net loss allocable to common stockholders.... $6,690 $(8,898) $(8,618) $(6,579) $(7,064) $(3,255) $(12,794) ====== ======= ======= ======= ======= ======= ======== Net loss per common share, basic and diluted................ $(3.39) $ (4.41) $ (3.95) $ (3.00) $ (3.21) $ (1.48) $ (5.75) ====== ======= ======= ======= ======= ======= ======== Weighted average shares used in computing net loss per common share, basic and diluted...... 1,974 2,019 2,184 2,194 2,204 2,200 2,225 Pro forma net loss per common share, basic and diluted................ $ (0.47) $ (0.83) ======= ======== Weighted average shares used in computing pro forma net loss per common share, basic and diluted................ 14,879 15,489
As of December 31, ------------------------------------------------ June 30, 1995 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- -------- (In thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments............ $ 13,504 $ 11,179 $ 10,692 $ 14,402 $ 7,556 $ 9,437 Working capital......... 13,072 8,429 7,250 10,915 3,936 7,347 Total assets............ 15,469 14,071 12,902 16,586 9,170 11,743 Total long-term liabilities............ 594 1,231 797 425 83 77 Deferred compensation... -- -- -- -- (260) (2,654) Accumulated deficit..... (20,225) (29,123) (37,741) (44,320) (51,384) (59,511) Total stockholders' equity................. $ 14,171 $ 9,942 $ 8,438 $ 12,177 $ 5,130 $ 8,295
15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read with "Selected Financial Data" and our financial statements and notes included elsewhere in this prospectus. The discussion in this prospectus contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this prospectus should be read as applying to all related forward-looking statements wherever they appear in this prospectus. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include those discussed in "Risk Factors," as well as those discussed elsewhere. Overview Telik is engaged in the discovery, development and commercialization of small molecule therapeutics. We have incurred net losses since inception and expect to incur substantial and increasing losses for the next several years as we expand our research and development activities and move our product candidates into later stages of development. The process of carrying out the development of our own unpartnered products to later stages of development and our research programs for our corporate partners may require significant additional research and development expenditures including preclinical testing and clinical trials, as well as for obtaining regulatory approval. To date, we have funded our operations primarily through the sale of equity securities, non-equity payments from collaborators and capital asset lease financings. We received our first funding from our collaborative partners in November 1996. Including both research funding and the issuance of equity investments, we received an aggregate of $13.7 million in 1998, of which $10.5 million was equity and $3.2 million was funded research, an aggregate payment of $4.5 million for funded research in 1999, and no payments were received in the three months ended June 30, 2000. As of June 30, 2000, our accumulated deficit was approximately $59.5 million. Deferred Compensation During the year ended December 31, 1999, in connection with the grant of stock options to employees, we recorded deferred stock compensation totaling $0.3 million, representing the difference between the deemed fair value of our common stock for financial reporting purposes on the date these options were granted and the exercise price. This amount is included as a reduction of stockholders' equity and is being amortized over the vesting period of the individual options, generally four years, using the straight line method. Because stock options subject to deferred compensation were primarily granted in the second half of 1999, the amortization of deferred stock compensation was not material for the year ended December 31, 1999. We recorded additional deferred compensation of approximately $2.6 million for stock options granted from January 1, 2000 to June 30, 2000. We recorded amortization of deferred compensation of $223,000 for the six months ended June 30, 2000. Results of Operations Six months ended June 30, 2000 and 1999 Revenues Revenues for the six months ended June 30, 2000 and 1999 were $1.3 million and $2.5 million, respectively. The decrease in revenue is attributable to the completion of the Taiho collaboration in 1999. Revenue for the first six months of 2000 results from the recognition of deferred contract revenue from collaborative agreements with Sanwa and Sankyo. Research and development expenses Research and development expenses for the six months ending June 30, 2000 and 1999 were $5.1 million and $5.1 million, respectively. There was a decrease principally due to the effect of lower headcount in 2000 which was partially offset by the non-cash charge related to the amortization of deferred stock compensation and compensation expense incurred during the six months ended June 2000. 16 General and administrative expenses General and administrative expenses were $4.6 million for the six months ended June 30, 2000 and $0.8 million for the six months ended June 30, 1999. The increase was primarily due to a $3.8 million non-cash charge for compensation expense relating to stock options granted to a former executive officer. Years Ended December 31, 1999, 1998 and 1997 Revenues Contract revenue from collaborations were $4.2 million in 1999, $3.2 million in 1998 and $1.7 million in 1997. The increase in 1999 was primarily due to the initiation of our Sankyo collaboration signed in March 1999. The increase in 1998 revenue was primarily due to the initiation of a development agreement with Taiho Pharmaceuticals in late 1997, substantially all of which was earned in 1998. Contract revenue recognized related mainly to collaboration revenues earned from Sanwa, Sankyo and Taiho in 1999 and Sanwa and Taiho in 1998 and 1997. Contract revenues from Sanwa, a related party, were $1.5 million, $1.8 million and $2.0 million in 1999, 1998 and 1997 respectively. We expect contract revenue from collaborations to constitute substantially all of our total revenues for the foreseeable future. For details of the Company's revenue recognition policy, refer to Note 1 to the financial statements. Research and development expenses Research and development expenses were $9.5 million in 1999, $8.0 million in 1998 and $8.1 million in 1997. The 1999 increase was primarily attributable to increased costs associated with the filing of an IND for TLK286, a small molecule product candidate being developed for the treatment of chemotherapy- resistant cancers. We expect research and development expenses to increase with the advancement of our unpartnered product candidates into later stages of development. General and administrative expenses General and administrative expenses, which consist primarily of salaries, consulting services and rent, were $2.2 million in 1999, $2.1 million in 1998 and $2.5 million in 1997. This decrease of $0.4 million from 1997 to 1998 was primarily attributable to a reduction in the number of employees. We expect that general and administrative expenses will increase in the future to support the continued growth of our research and development efforts and to accommodate operating as a public company. Net interest income Net interest income was $0.4 million in 1999, $0.3 million in 1998 and $0.3 million in 1997. Interest income results from our interest on short-term investments, while interest expense is associated with capital lease obligations and other long-term liabilities. Liquidity and capital resources Cash, cash equivalents and short-term investments totaled $9.4 million at June 30, 2000. We have financed our operations from inception primarily through the private placement of equity securities, revenue from collaborative agreements, interest earned on short-term investments and equipment lease line financings. As of June 30, 2000, we had raised $58.7 million from the sale of equity securities, including $11.0 million from collaborators, and received $11.1 million in non-equity payments from collaborators. During the six month period ended June 30, 2000, the company received net proceeds of $7 million from the sale of equity securities. In 1998 and 1997, we received net proceeds of $10.3 million and $7.1 million, respectively, from private financing activities. As of June 30, 2000, $0.2 million in equipment loans were secured by our equipment. The loans bear interest at 8% and are due at various times in 2000. 17 We plan to apply the net proceeds from this offering to the phase II clinical trials for TLK 286 and for preclinical studies, IND filings and phase I clinical trials for TLK 199 and TLK 17411. We will use the balance of the proceeds, as available, for other general research and development activities. We believe our existing cash resources, plus the proceeds of this offering and anticipated proceeds from corporate collaborations, will be sufficient to satisfy our anticipated cash requirements through at least 18 months. We expect to finance our future cash needs through the sale of equity securities, strategic collaborations and possibly debt financing. Our future capital uses and requirements depend on numerous factors, including the following: . the progress and success of preclinical and clinical trials of our product candidates; . the progress and number of research programs in development; . the costs and timing of obtaining regulatory approvals; . our ability to establish, and the scope of, our new collaborations; . our ability to meet the milestones identified in our collaborative agreements which trigger payments; and . the costs and timing of obtaining, enforcing and defending our patent and intellectual property rights. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Financial Instruments and for Hedging Activities, or SFAS 133, which provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. SFAS 133 is effective for fiscal years beginning after June 15, 2000 and we do not anticipate an impact on our results of operations or financial condition, as we hold no derivative financial instruments and do not currently engage in hedging activities. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, or SAB 101. SAB 101 summarizes the SEC's views on applying generally accepted accounting principles to revenue recognition. The adoption of SAB 101 had no significant impact on our revenue recognition policy or results of operations. In March 2000, the FASB issued Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions involving Stock Compensation as Interpretation on APB 25." FIN 44 clarifies (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business continuation. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that FIN 44 covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying FIN 44 are recognized on a prospective basis from July 1, 2000. The adoption of FIN 44 does not have a material impact on our financial statements. Disclosure About Market Risk The primary objective of our investment activities is to preserve principal and at the same time maximize income we receive from our investments without significantly increasing risk. We maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities. In 1998 and 1999, we maintained an investment portfolio primarily in depository accounts. Due to the short-term nature of these investments, we have concluded that there is no material market risk exposure. In the future, we may invest the proceeds of this offering in financial instruments with longer maturities. We have operated primarily in the United States and all funding activities with our collaborators to date have been made in U.S. dollars. Accordingly, we do not have any exposure to foreign currency rate fluctuations. 18 BUSINESS Overview Telik is a biopharmaceutical company working to discover, develop and commercialize small molecule therapeutics to treat diseases for which there is significant demand for new therapies. Our most advanced product candidates are for the treatment of cancer and diabetes. All of our product candidates were discovered using our proprietary technology called Target-Related Affinity Profiling, or TRAP, which enables us to discover product candidates faster and more efficiently than with alternative technologies such as ultra high- throughput screening, or UHTS. Our most advanced product candidate, TLK286, is a chemotherapeutic drug for the treatment of cancers, such as breast, colon, ovarian and lung, that have shown resistance to standard cancer drugs. TLK286 entered clinical trials in January 2000. Our second cancer product candidate, TLK199, is for the treatment of the depletion of white blood cells, or neutropenia, which is a toxic side effect of cancer treatment. TLK199 appears to act by the same cellular mechanism as G-CSF, the current standard therapy, but has the advantages of being a small molecule drug. We expect to file an IND for TLK199 in the first half of 2001. We have retained rights for the worldwide commercialization of TLK286 and TLK199. Our third product development program has identified a proprietary class of orally active insulin receptor activators for the treatment of Type 2, or adult onset, diabetes. These product candidates activate insulin-signaling and lower blood sugar by a mechanism that is different from that of currently available diabetes drugs. The first of our insulin receptor activators, TLK17411, is in preclinical development. We granted commercialization rights to a partner for most of Asia and have retained these rights for the rest of the world. We have also developed a portfolio of preclinical programs in the areas of cancer, diabetes, inflammatory diseases and stroke. In each of these programs, we have used our TRAP technology to identify pharmaceutically active small molecules. The most advanced of the active compounds from these programs have shown efficacy in animal models of their respective disease targets. Our success in identifying product candidates has resulted from the use of TRAP, our proprietary drug discovery technology. We have used TRAP to rapidly and efficiently identify active small molecules relevant to a variety of disease states. Since TRAP reduces the need for conventional high-throughput screening and the associated need for large libraries of compounds, automation, assay technology and target licensing, TRAP offers a solution to the current bottleneck in drug discovery caused by the increased number of new targets that has resulted from advances in genomics and related fields. In addition to using TRAP for our internal drug discovery programs, we have entered into TRAP technology collaborations with third parties. Telik Strategy Key elements of our strategy are to: . Develop small molecule drugs for major disease areas. We intend to develop small molecule drugs to address unmet needs in the areas of cancer, diabetes, inflammatory disease and stroke. The number of patients with these diseases has been increasing due primarily to the aging population. This has led to a growing demand for new drugs that offer competitive advantages over existing products, such as improved effectiveness and reduced side effects. The advantages of small molecule drugs over therapeutic proteins include the ease of manufacturing and administration, the potential for oral dosing and applicability to a wider range of disease targets, including those inside the cell. Small molecule drugs comprise more than 95% of the pharmaceutical market. . Retain commercial rights to our product candidates. We will seek to retain significant commercial rights to our product candidates by conducting clinical development activities at least through initial proof of efficacy in humans. Since the development process for cancer drugs is relatively efficient and 19 well defined, the cost and time required to bring new drugs to market is significantly less than that required for other therapeutic categories, permitting us to retain commercialization rights through completion of clinical trials. In disease areas that require larger and longer clinical trials, such as diabetes, we will share the risks and costs of development by partnering these programs before completion of pivotal trials, which we expect may require granting commercialization rights to our collaborators. Our goal is to develop and commercialize our cancer product candidates in North America. We believe that the hospital-based cancer market in the United States is readily accessible by a limited sales and marketing presence due to the concentrated market of prescribing physicians coupled with the substantial unmet therapeutic needs. As appropriate, we will establish collaborations with multinational pharmaceutical companies to assist in the commercialization of our product candidates. . Select targets strategically. We believe that we can apply our drug discovery technology to virtually any protein target. We regularly review the progress of scientific and clinical research in important disease areas to identify targets with commercial promise. By careful selection of targets, we intend to develop product candidates with a clear path to regulatory approval and the potential to show early evidence of clinical efficacy. This strategy will allow us to reduce the risk inherent in drug discovery and accelerate the commercialization of our drug candidates. . Use TRAP to sustain a pipeline of drug candidates. Because our TRAP platform technology allows us to rapidly and efficiently identify small molecules active against potential disease targets, we have the capacity to examine a large number of targets in order to select those with therapeutic promise. We will seek to use this platform to provide a stream of promising future development candidates. . Leverage and expand the use of TRAP. We may seek selected additional partners for TRAP collaborations. These collaborations will not limit our internal efforts and may strengthen our TRAP technology by providing information on the performance of our panel proteins. Any significant revenues from these collaborations are more likely to be in the form of milestone and royalty payments, rather than up front payments or funded research. 20 Product Candidates Our efforts are concentrated in four major diseases: cancer, diabetes, inflammatory diseases and stroke. Our two most advanced product candidates are for cancer treatment. TLK286, which entered clinical trials in January 2000, is being developed for the treatment of chemotherapy-resistant cancers. TLK199, a small molecule that accelerates recovery from chemotherapy-induced depletion of white blood cells, or neutropenia, represents a promising new adjunctive therapy. We have discovered novel insulin receptor activators for the treatment of Type 2 diabetes. Application of our TRAP technology has led to a pipeline of both potential product candidates and earlier stage research programs. The following table summarizes key information about these programs.
Product Development Commercialization Candidate Clinical Indication Status Rights - --------------------------------------------------------------------------------------------------- Cancer TLK286 Chemotherapy-resistant Phase I Worldwide Targeted cancers, including . phase I clinical chemotherapeutic drug colon, ovarian, lung, trial commenced pancreas, 1/00 lymphoma/leukemia and breast TLK199 Chemotherapy-induced low Pre-IND Worldwide Bone marrow stimulant white blood cell count, . IND-enabling or neutropenia studies initiated 6/99 . clinical grade material prepared 1/00 IGF-1 inhibitor Prostate cancer Lead optimization Worldwide . small molecule inhibitors discovered - --------------------------------------------------------------------------------------------------- Diabetes Insulin-independent Type 2 diabetes Candidate nomination/lead Worldwide except insulin receptor optimization Japan and most other Asian countries activators . oral activity in animal models . preclinical and safety assessment initiated Insulin-dependent Type 2 diabetes Candidate nomination/lead Worldwide except insulin receptor optimization Japan and most other activators Asian countries . activity in animal models . preclinical and safety assessment initiated - --------------------------------------------------------------------------------------------------- Inflammatory disease MCP-1 antagonist Rheumatoid arthritis, Lead optimization North and South asthma atherosclerosis, . small America and jointly multiple sclerosis, molecule in Europe cancer inhibitors discovered . activity in animal models MIP-1 alpha inhibitor Rheumatoid arthritis, Lead optimization North and South multiple sclerosis, . small America and jointly cancer molecule in Europe inhibitors discovered IL-8 inhibitor Rheumatoid arthritis, Lead optimization North and South nephritis, psoriasis, . small America and jointly cancer molecule in Europe inhibitors discovered - --------------------------------------------------------------------------------------------------- Stroke Caspase-3 inhibitor Stroke Lead optimization Worldwide . small molecule inhibitors discovered
21 Product Development Programs Cancer Our two most advanced product candidates, TLK286 and TLK199, are being developed to treat serious cancers for which there is significant demand for new therapies. Cancer is the second leading cause of death in the United States. It is estimated that 1.2 million people will be diagnosed with cancer in the United States this year and more than 555,000 of these people will die of their disease. The five-year survival rates for patients with cancers that have spread from their original site are poor. For example, after spread of the cancer, only 13% of patients with colorectal cancer survive, only 12% with lung cancer and only 21% with breast cancer. These poor survival rates reflect the limitations of current treatments and the development of resistance to available treatments. In addition, current treatments are often associated with severe toxic side effects. TLK286, a small molecule product candidate to treat chemotherapy-resistant cancers, entered phase I clinical trials in January 2000. Our second cancer product candidate, TLK199, is being developed for the treatment of the depletion of white blood cells, or neutropenia, a toxic side effect of chemotherapy. We expect to file an IND for TLK199 in the first half of 2001. TLK286--tumor-activated cancer drug Overview TLK286 is a small molecule product candidate we are developing for the treatment of cancers that have resisted standard chemotherapeutic drugs. TLK286 binds to glutathione S-transferase, or GST, a protein known to play an important role in the development of resistance to commonly used chemotherapeutic drugs. GST initiates a series of events in a cell responsible for the inactivation of a variety of drugs and toxins and their subsequent removal from the body. In a person with a cancer, GST also functions to break down chemotherapeutic drugs administered for treatment. If a person's cancer has increased GST levels either initially or following exposure to chemotherapeutic drugs, GST will limit the effectiveness of treatment by breaking down the chemotherapeutic drug before it can kill cancer cells. GST P1-1 is a type of GST that is elevated in many cancers and is often further elevated by treatment with standard chemotherapeutic drugs. When TLK286 binds to GST P1-1, it releases a compound with a proven mechanism of killing cancer cells. Thus, in contrast to the usual situation where GST is involved in the destruction of chemotherapeutic drugs, GST activates TLK286 when it reaches its cellular target. In this way, TLK286 kills cancer cells by utilizing the same mechanism that normally deactivates chemotherapeutic drugs. Preclinical Studies Preclinical studies suggest that TLK286 may have a more favorable safety and efficacy profile than that of standard chemotherapeutic drugs. We attribute this to its mechanism of activation. Since GST P1-1 activity is often increased in tumor tissues compared to normal tissues, TLK286 activation is further enhanced in tumors than in normal tissues. TLK286 activation is further enhanced in resistant tumors in which GST P1-1 activity is further elevated. Thus, activated TLK286 concentrates in parts of the body where cancer is present. TLK286 reduced the growth of human cancer cell lines and biopsy specimens derived from tumors of the breast, colon, lung, ovary and bone marrow and from melanomas and, in mouse models of human cancer, suppressed tumor growth. The efficacy of TLK286 against tumor cell lines was enhanced in those cell lines selected for drug resistance and exhibiting increased levels of human GST P1-1. For example, TLK286 showed an improved therapeutic effect in mouse models of human colon cancer cells that had been made resistant to a common chemotherapeutic drug called doxorubicin and have elevated levels of GST P1-1. Development Strategy In December 1999, we filed an IND with the FDA for permission to test TLK286 in advanced cancer patients. In January 2000, we initiated a phase I clinical trial of TLK286 in 36 patients with advanced solid tumors or non-Hodgkin's lymphoma which are unresponsive or for which no standard therapy is available. 22 The purpose of this phase I clinical trial is to determine the safety of TLK286 by finding the maximum tolerated dose and principal toxic side effects. In addition, we will also collect information on the relationship of GST P1-1 activity levels and tumor response. Patients will be assessed for tumor shrinkage at six weeks, after completing two cycles of treatment. Patients showing an objective clinical benefit may continue to receive TLK286 until the cancer progresses or unacceptable toxicity occurs. We intend to complete this study in the fourth quarter of 2000. Assuming successful completion of the phase I clinical trial, we intend to initiate phase II clinical trials to confirm the safety and study the antitumor activity of several doses and schedules of administration of TLK286 in the first quarter of 2001. Depending on patient accrual, we estimate completion of each of these phase II studies within 12 to 18 months. Upon completion of phase II, and based on the results of these studies, we intend to begin confirmatory phase III clinical trials which are expected to compare TLK286 to standard therapies in those chosen cancer types. We estimate that we will not be able to file a New Drug Application or an NDA, for TLK286 until late 2003. Cancer types under consideration include those which are not responsive, or are refractory, to standard therapy. These cancers include colon, ovarian, lung, pancreas, lymphoma/leukemia and breast. We have chosen these cancer types because they have high levels of GST P1-1 and generally require smaller and shorter trials. These cancers may also be candidates for accelerated regulatory review, because no effective alternative therapies are available. If we obtain approval in these refractory indications, we will expand the development program to study TLK286 in earlier stages of these diseases as well as in additional cancer types. We have worldwide commercial rights to TLK286 and intend to commercialize TLK286 in the North American market. At the appropriate time, we will select a collaborator in other territories with capabilities in manufacturing, sales and marketing. TLK199--Bone marrow stimulant as an adjunct for cancer therapy Overview TLK199 is a small molecule product candidate that is designed to increase white blood cell counts in cancer patients undergoing chemotherapy. In addition to killing cancer cells, chemotherapeutic drugs kill rapidly dividing normal cells. These include normal cells found in bone marrow that may eventually become white blood cells capable of fighting infection. Lowered levels of a type of white blood cells, called neutrophils, cause a condition called neutropenia. Neutropenia renders the already weakened cancer patient susceptible to life-threatening infections. Granulocyte colony stimulating factor, or G-CSF, is the current standard therapy for the treatment of neutropenia, since it accelerates the recovery of white blood cells to a normal level. G-CSF acts by binding to a receptor protein on the surface of the cell and activating a signaling pathway within the cell. This signal causes white blood cells in the bone marrow to divide and mature, increasing the number of white cells in the blood capable of fighting infection. TLK199 acts upon the same signaling pathway that is activated by G-CSF. Preclinical Studies TLK199 reduced the duration of neutropenia in animals treated with a standard cancer drug. The reduction was similar in degree and duration to that seen with G-CSF. In normal animals, TLK199 also increased the number of white cells in the blood to an extent similar to that produced by G-CSF. In experiments using human bone marrow, TLK199 caused white blood cells to divide and mature. Development Strategy TLK199 is undergoing preclinical testing to support initiation of clinical trials. Assuming successful completion of these studies, we anticipate filing an IND in the first half of 2001. Upon completion of FDA 23 review, we will begin phase I clinical testing. In the phase I clinical trial, we intend to determine the safety and blood levels, or pharmacokinetics, of TLK199 in healthy volunteers. We will also measure the enhancing effects of TLK199 on the white blood cell response. We anticipate that the phase I program will take approximately 12 months to complete. Our phase II program will be designed to confirm the white blood cell elevating effects of TLK199 in patients receiving cancer chemotherapeutic drugs that cause severe neutropenia. In this study, we will look at the ability of TLK199 to reduce the duration and intensity of neutropenia, which is correlated with the risk of infectious complications. We expect to conduct this study in patients undergoing a variety of standard chemotherapy regimens. Phase III clinical trials will be designed to compare the efficacy of TLK199 with Amgen's therapeutic protein version of G-CSF, known as Neupogen. We also intend to study additional diseases that are known to benefit from the stimulation of white blood cell production. TLK199 is expected to offer the advantages of a small molecule drug over a therapeutic protein, including ease of manufacturing and the potential for oral administration. Although Amgen reported worldwide sales of Neupogen of over $1.3 billion in 1999, we believe its broader use is limited by its expense and lack of oral administration. The low cost of production and potential oral availability of TLK199 may allow us to offer a product that is attractive to the current market for drugs that stimulate the production of white blood cells. We have retained worldwide commercial rights to TLK199 and intend to commercialize TLK199 in the North American market. At the appropriate time, we will select collaborators in other territories with capabilities in development, sales and marketing. These partners may participate in the phase II and phase III clinical development, which may affect the timelines for completion of the development program. Diabetes We have discovered and are developing proprietary orally active small molecule insulin receptor activators for the treatment of Type 2 diabetes, which represents 90-95% of all cases of diabetes. Diabetes is a major health problem with over 170 million people estimated to be afflicted worldwide. Diabetes is the leading cause of serious coronary disease, adult blindness, lower limb amputations and serious kidney disease. Diabetes results from the inability of insulin, a hormone produced by the pancreas, to regulate blood sugar levels. In Type 2 diabetes, the loss of blood sugar regulation is caused by a decreased ability of insulin to activate its protein receptor combined with a relative insulin deficiency. Two large international clinical studies, the Diabetes Control and Complications Trial and the United Kingdom Prospective Diabetes Study, have confirmed that blood sugar control is a key factor in the prevention of the long-term complications of diabetes, including eye and kidney disease. As a result of these studies, doctors are aggressively treating patients' blood sugar levels with a variety of oral drugs. This situation has increased the demand for more effective drugs to treat diabetes. 24 TLK17411--Insulin receptor activators Overview Using our TRAP technology, we have discovered a proprietary family of small molecule product candidates that bind to the insulin receptor and, like insulin, cause the receptor to activate and initiate a sequence of events called insulin signaling that lowers sugar levels in the blood by facilitating the entry of sugar into muscle and liver cells where it is metabolized. Results from animal models of diabetes suggest that these compounds may allow more sensitive control of blood sugar levels and may delay the need for insulin treatment. Our leading product candidate in this group is TLK17411. [GRAPHIC] Preclinical Studies Preclinical studies have provided evidence that TLK17411 can initiate or facilitate insulin signaling. In laboratory experiments and in four animal models of diabetes, we have shown that TLK17411 enhances insulin signaling. In one animal model, treatment with a single oral dose of TLK17411 lowered blood sugar by more than 25% and kept it suppressed for 24 hours. Its effectiveness was maintained for a longer period of time with single daily doses. We have shown that TLK17411 does not activate similar receptors or other signaling pathways in these cells, a positive property that suggests that TLK17411 may not have significant side effects. Some members of the TLK17411 family of compounds show activity only in the presence of insulin while others activate the glucose receptor in the absence of insulin. Each profile has potential advantages for the treatment of Type 2 diabetes. The insulin-dependent profile could produce more sensitive control of blood sugar levels, since the drug would be most active when blood sugar levels, and therefore insulin levels, are increased. The second profile may be more advantageous in later stage Type 2 diabetes, when insulin release is more severely impaired and insulin injections are required. A drug with this profile of activity could delay the need for injected insulin. We have shown that members of the TLK17411 group are sufficiently potent to allow oral administration. Furthermore, they do not cause genetic mutations in standard tests, which is a prerequisite for a product candidate to proceed for further development. 25 Development Strategy We have commenced the necessary preclinical testing to support the initiation of clinical trials. Assuming successful completion of preclinical testing, we anticipate filing an IND in the second half of 2001 . Upon completion of FDA review, we will begin phase I clinical testing. In the phase I clinical trial, we intend to evaluate the safety, pharmacokinetics and blood sugar lowering effects of the product candidate in healthy volunteers. In a second phase I clinical trial, we intend to evaluate the effects of multiple doses of the drug in patients with Type 2 diabetes. We anticipate that the phase I clinical program will take approximately 12 months to complete. Our collaborator, Sanwa, has commercialization rights in Japan and most other Asian countries. We have retained those rights in the rest of the world. In many types of cancer, there are no available effective therapies, the treatments are acute and administered over a few months. In contrast, diabetes is a chronic disease, often seen in younger, healthier individuals, requiring administration of daily medication for many years. As a result, new treatments being developed for diabetes require longer and larger preclinical and clinical safety and efficacy studies to establish long-term side effects and benefits. Because the development of diabetes drugs is longer and more expensive than for cancer drugs, we intend to share the risks and costs of development by partnering these programs before completion of pivotal trials, which we expect will require granting commercialization rights to our collaborators. Research Discovery Programs In addition to generating our current product portfolio, TRAP has allowed us to build our research pipeline with product candidates against targets in cancer, diabetes, inflammatory diseases and stroke. We have chosen to pursue those protein targets that have engendered a high level of interest in the drug discovery community, address important unmet clinical needs and whose modulation will have a beneficial effect in treating a given disease. IGF-1 receptor inhibitor for cancer Insulin-like growth factor-1, or IGF-1, is an important protein target for cancer therapy. Blood levels of IGF-1 are increased in prostate cancer patients and represent a significant risk factor for the development of prostate cancer in healthy males. Increases in the amount of the IGF-1 receptor predict a poor prognosis in breast cancer. Using TRAP technology, we have identified two families of small molecules that inhibit the interaction of IGF-1 with its receptor. Compounds from each family have been shown to inhibit the growth of cancer cells. Chemokine antagonists for inflammatory diseases Inflammation is an important response of the body to injury and infection. If inflammation becomes excessive or prolonged, it can lead to pathological conditions, including asthma, inflammatory bowel disease, multiple sclerosis, psoriasis, rheumatoid arthritis and septic shock. An early step in the inflammatory response is the attraction of white blood cells, or leukocytes, from the circulatory system to damaged or infected tissue by messenger molecules called chemokines. Our research has identified inhibitors selective for three important chemokine mediators of the inflammatory response: MCP-1, MIP-1 and IL-8. These inhibitors block the interaction of each chemokine with its protein receptor and, in the most advanced of these programs, are active in an animal model of inflammatory disease. We retain commercialization rights in North and South America, while sharing rights in Europe. Caspase-3 inhibitors for stroke The major cause of stroke is lack of blood flow, or ischemia, in a region of the brain. Loss of blood flow is directly responsible for the loss of brain cells. An additional loss of cells occurs over the next few hours to days, through a process initiated by the cells themselves, called apoptosis. This secondary loss of cells increases the disability produced by the stroke. Apoptosis is carried out by specialized proteins in the cell, called caspases, and particularly, caspase-3. We have identified small molecules that selectively inhibit caspase-3 and prevent apoptosis in cells and have retained worldwide commercialization rights. 26 TRAP Technology Our TRAP technology is designed to rapidly and efficiently identify small molecule drug candidates that act on disease related protein targets. Background Small Molecule Drugs, Protein Targets and Disease. All drugs interact with molecules in the body called proteins. Disease results from the abnormal production and function of proteins. Drugs restore normal protein production or function, either by acting directly on disease-related proteins or by acting on other proteins in a compensatory manner. Small molecule drugs are a class of drugs that remain the preferred treatment for most diseases, because they may be administered orally and, unlike the protein class of drugs, act on targets both external and internal to the cell. Small molecule drugs are particularly appropriate for the treatment of chronic diseases that require the daily administration of medications over many years. Historically, the opportunity to commercialize small molecule drugs has been limited by the difficulty in discovering safe and effective small molecules. The Explosive Growth of New Protein Targets. The entire content of human DNA, known as the human genome, contains an estimated 100,000 genes, each of which contains genetic instructions for producing a unique protein. Because proteins are drug targets and genes contain the instructions for making proteins, a massive government and private effort was undertaken in the 1980s to sequence the human genome with the hope that the comprehensive knowledge of the human genome would reveal the molecular cause for all diseases. The sequencing of the human genome is now complete. Since most diseases involve complex interactions between proteins, we believe the number of potential protein targets for disease treatment is very large and will overwhelm the ability of current technologies to identify small molecule drugs. Drug Discovery Challenges Created by the Explosive Growth of New Protein Targets. Ultra high-throughput screening, or UHTS, is the dominant technology used to identify compounds active against protein targets. UHTS allows a large number of compounds, up to millions, to be screened against tens to hundreds of targets per year. The rate-limiting step in UHTS is usually developing the test, or assay, that will provide analytical information about the activity of compounds against the protein target. The effort and expense required for assay development, combined with the resource outlay necessary to execute millions of assays, tend to limit the application of UHTS to targets for which involvement in disease has been confirmed. The biological systems used in UHTS assays are highly simplified and may not give an accurate representation of how the target functions in an animal. Furthermore, the size of the library of compounds necessary to represent an adequate sampling of the compounds that could be synthesized for screening might exceed the screening capacity of even UHTS. The limitations of UHTS potentially create a critical bottleneck, since both validating a disease related protein target and initiating the process of drug discovery begins with the identification of a small molecule with an affinity for the protein target. The TRAP solution Our proprietary Target-Related Affinity Profiling, or TRAP, technology offers solutions to the two major challenges facing drug discovery: the explosive growth in the number of new protein targets generated by the advances in genomics and the intrinsic limitations of the UHTS approach. TRAP offers several competitive advantages over UHTS, because it is able to accommodate thousands, rather than hundreds, of targets, is cost-effective to screen unproven targets for the purpose of validation and avoids the use of highly simplified assays. We have discovered that there are a limited number of ways that proteins interact with small molecules and that these interactions can be simulated using a carefully selected panel of diverse proteins. TRAP takes advantage of this discovery to profile the interactions of small molecules with proteins using a panel of less than 20 proteins selected for their distinct patterns of interacting with small molecules. We believe that our panel of proteins simulates, either individually or in combination, most of the significant interactions between a 27 small molecule and a protein. Furthermore, TRAP measures the diversity of compounds in a way that cannot be explained on the basis of chemical structure alone. Compounds that are structurally similar can have very different affinities for proteins and other biological properties, and, conversely, compounds that are structurally diverse may have similar affinities for proteins and other biological properties. By comparing the relative strengths of the interaction of a small molecule with each panel protein, a protein affinity profile, or fingerprint, is produced for the small molecule. One type of assay we use, called a binding assay, measures the interaction of a panel protein with a specially designed binding partner, or ligand, in the presence of a small molecule. If the small molecule has affinity for the same site on the panel protein as the ligand, the amount of ligand that binds will be reduced. This decrease in the amount of the ligand that binds to each panel protein comprises the small molecule's fingerprint. Using these fingerprints, we select a small subset of compounds, which we call the training set, that is sufficiently diverse in its protein recognition characteristics to represent our entire collection, or library, of small molecules. We screen this training set against the target of interest and use the resulting data to predict the type of small molecule-protein interactions present in the target. A model of small molecule interactions with the target is generated by mathematically combining the individual interactions of TRAP panel proteins, where the panel proteins to be included in the model are determined by the affinities of the initial subset of compounds for the target. We can then select from the library for assay those compounds that prefer these types of interactions. We have developed a set of computational tools, in the form of chemoinformatics algorithms, which are used to scan the library for patterns of protein affinity, since these patterns appear to correlate best with biological activity. The majority of active compounds in our library that are pharmaceutically active against a given target can be identified after screening as few as 200 compounds. We have used TRAP to assemble our library of small molecules, which is enriched by compounds that interact with proteins in a selective fashion and contains multiple compounds that can undergo each mode of protein interaction. We believe that this process creates a small molecule library with a greater likelihood of containing a compound that interacts with any specified protein, thus having a higher probability of generating drug candidates than a conventionally or randomly assembled library. As a consequence, TRAP identifies those small molecules with a higher probability of being drug candidates from within the universe of possible compounds, allowing their assembly into a manageable drug discovery library, by using their protein interaction characteristics. All of the known drugs that we have examined lie within the bounds of the library defined by TRAP. The ability of TRAP to identify active compounds after screening only a few hundred samples overcomes many of the limitations of UHTS. TRAP does not require assays capable of screening millions of compounds, thereby decreasing the time and resources necessary for assay development. TRAP permits the selection of a given target of interest from a much wider universe of targets by reducing the need to acquire targets and assay technologies and allows more physiologically relevant assay systems to be used. In addition, TRAP eliminates the need for large compound collections and sophisticated and expensive automation to support them, further lowering the financial barrier to screening and permitting its application to emerging biopharmaceutical companies. Finally, the overall efficiency and economy of TRAP allow multiple targets to be pursued simultaneously and permit the screening of higher risk, but potentially more valuable, targets. In summary, TRAP technology: . models protein targets to identify drug candidates faster and more efficiently; . creates a more drug-like small molecule library; . provides a search engine for identifying active compounds; . permits the use of more complex and physiologically relevant assays; . operates on numerous targets simultaneously; 28 . gives access to a broader universe of targets; . allows the pursuit of riskier, but potentially more valuable, targets; . lowers the financial barrier for screening; and . accommodates thousands rather than hundreds of targets. Collaborative Relationships We have established a number of joint discovery programs with other pharmaceutical, biotechnology and genomics companies. These collaborations exploit our TRAP technology platform and have the potential to identify new product development and commercialization opportunities either independently or pursuant to expanded collaborations. In addition, these collaborations have provided funding for our internal research and development programs. These collaborations include the following: Sanwa Diabetes Collaboration Agreement In December 1996, we entered into a collaboration agreement with Sanwa establishing a program to discover and commercialize compounds that act on the insulin signal transduction pathway and are useful for the treatment of diabetes and insulin resistance. In exchange for Sanwa's payment of an initial fee and provision of research funding, we are employing our compound library, TRAP technology, and other drug discovery technologies to identify and optimize drug development candidates. The research portion of the collaboration will terminate on December 20, 2000. During the research portion, each party has a non-exclusive, worldwide license to carry out its responsibilities under the research program. Under the collaboration agreement and a related license agreement, Sanwa has an exclusive, royalty-bearing license to commercialize human therapeutic products arising from the collaboration in Japan, Korea, Taiwan and China. Sanwa will make payments to us upon the achievement of specified milestones and will share its development data with us. We have already received a total of $6 million from Sanwa under the collaboration agreement and we may receive up to $12.25 million more in the future. In all other countries, we have rights to commercialize products containing compounds identified in the research collaboration, subject to obligations to Sanwa to share preclinical and clinical data. We also have an option to acquire from Sanwa a royalty-bearing license to develop and commercialize, outside the Sanwa territory, other products identified by Sanwa arising from the collaboration. Sanwa's obligation to pay royalties to us will end after the product has been sold in the relevant country for ten years and the patents in that country covering the product have expired. The collaboration agreement and related license agreement will terminate when Sanwa no longer has any payment obligations to us. Either party may terminate either agreement at any time with notice upon material breach by the other party of its obligations. Either party may terminate the collaboration agreement at any time that the other party becomes insolvent or bankrupt. Screening Services Agreement In December 1996, in addition to the diabetes collaboration agreement, we entered into a screening services agreement with Sanwa in which we agreed to employ our proprietary TRAP technology to identify compounds that are active against biological targets identified as disease related by Sanwa. In September 1997, and October 1998, this agreement was amended to increase the number of targets, extend the term of the agreement and include the optimization of two lead compounds, each for a period of two years. We are currently conducting the first optimization of a lead compound identified through the use of our TRAP technology. We are obligated to continue optimization of this or substitute active compounds through June 29 2001. Under the agreement, Sanwa has exclusive rights in Japan, Korea, Taiwan and China to commercialize the active compounds and inventions relating to these compounds. We have equivalent exclusive rights in North and South America. Elsewhere in the world, we will share with Sanwa all revenues arising from the active compounds and related inventions. The agreement will terminate on December 20, 2006. Either party may terminate the agreement at any time with notice upon material breach by the other party of its obligations. Equity Investment In connection with these agreements, Sanwa has invested an aggregate of $11.0 million in Telik, as more specifically described in the "Related Party Transactions" section. Sankyo In March 1999, we entered into an agreement with Sankyo. In exchange for Sankyo's payment of a series of upfront fees totalling $2.0 million that have already been paid, we are using our TRAP technology to identify compounds that are active against any of up to ten targets selected by Sankyo. Under the agreement Sankyo has an option to acquire an exclusive, worldwide license to commercialize products incorporating either compounds from our library with activity against the disease target or derivatives of these compounds. If Sankyo exercises the option, we are obligated to negotiate a separate royalty- bearing license agreement with Sankyo. If Sankyo does not exercise its option with respect to a particular target or if we are unable to reach agreement on the license during the specified period, Sankyo's exclusive rights with respect to such target will terminate and we will be free to pursue research and development with respect to the target on our own or with third parties. The agreement will terminate on the later of March 24, 2002, or the end of the period for entering into license agreements. Either party may terminate the agreement at any time with notice upon material breach by the other party of its obligations. COR Therapeutics In January 1999, we entered into an agreement with COR to discover active molecules for up to five disease targets. In January 2000, we extended the term through at least January 12, 2001, at which time the agreement will terminate unless COR selects a disease target for continued research and development. If COR selects a disease target, then the agreement will expire when the final patent covering a royalty-bearing product expires. Either party may terminate the agreement at any time with notice upon material breach by the other party of its obligations. We are using our TRAP technology to identify compounds that are active against the disease targets selected by COR. Under the agreement, COR has an exclusive license to develop, make and commercialize worldwide, other than Japan, China, Taiwan, Korea and certain other Asian countries, products incorporating compounds derived from our library that have activity against those disease targets that COR selects for continued research and development. COR also has a non-exclusive license to use related compounds from our library to develop these products. We have both an exclusive license to commercialize products outside the COR territory and an exclusive, worldwide license to commercialize products incorporating compounds derived from the Telik library with activity against those disease targets that COR does not select. We also have a non-exclusive, worldwide license to develop, make and commercialize products incorporating compounds from our library that do not have activity against any of the disease targets tested under the agreement. Each party may develop and commercialize these products independently or with a third party, and each party will pay the other party royalties on such products until the patents covering the products expire. In addition, COR will pay us a license fee and additional fees if and upon achievement of specified development milestones. The total of these fees will not exceed $26 million. Scios In February 1999, we entered into an agreement with Scios to employ our TRAP technology to discover small molecules that display activity against a disease target chosen by Scios. 30 Under the agreement, Scios has an option to acquire an exclusive, royalty- bearing license to commercialize worldwide, other than in Japan, China, Taiwan, Korea and certain other Asian countries, products incorporating compounds derived from the Telik library with activity against the disease target. If Scios does not exercise the option before the end of the option period, the agreement will terminate. If Scios exercises the option, we will receive a licensing fee, and potential milestone and royalty payments and an exclusive, royalty-free license to commercialize these products outside the Scios territory. The maximum total of the license fees and milestone payments that we might receive from Scios is $5.25 million. The parties will share data arising from their development of these products, and we may perform development or compound optimization work on behalf of Scios. We will retain all rights with respect to compounds for which Scios does not exercise its option and, in the event that Scios does not satisfy certain diligence requirements, we will receive an exclusive, worldwide, royalty-free license to develop, make and commercialize the relevant products. Scios' obligation to pay royalties to us will end after the product has been sold in the relevant country for ten years and Telik's patents in that country covering the product have expired. The agreement will terminate when Scios no longer has any payment obligations to us. Either party may terminate the agreement at any time with notice upon material breach by the other party of its obligations. Genaissance Pharmaceuticals In February 1998, we entered into a research agreement with Genaissance Pharmaceuticals. We amended this agreement in February 1999 to extend the term of the agreement. Under the terms of the agreement, we are using our TRAP technology to validate novel variants of the estrogen receptor through the identification of compounds from our library that exhibit selective pharmacological activity. We will jointly own the compounds or other intellectual property rights arising from the collaboration and have agreed to jointly seek a third party for a corporate partner to continue development of these compounds. We will share research funding proportionate to our research commitments and will share equally the other revenues received from any resulting license agreements. The agreement will terminate if we have not entered into a third party license agreement or otherwise agreed to a joint development program by August 11, 2000. Either party may terminate the agreement at any time with notice upon material breach by the other party of its material obligations. We are currently in negotiations to amend the agreement. Upon termination, the parties are obligated to consult with each other before independently developing the jointly owned compounds and other intellectual property rights. Patents and Proprietary Information Our success depends on our ability and the ability of our collaborators to obtain patents for compounds, technologies and products resulting from the application of these technologies, to defend patents once obtained, and to maintain trade secrets both in the United States and foreign countries. Accordingly, patents and other proprietary rights are an essential element of our business. As of March 31, 2000, 36 patents based on our discoveries have been granted in the United States and 56 abroad. In addition, more than 16 applications are pending in the United States and more than 79 abroad. Our policy is to aggressively file patent applications to protect new chemical entities, technology, other inventions and improvements to inventions that are commercially important to the development of our business. Applications pertaining to our core technology cover new chemical compounds, uses of compounds, pharmaceutical compositions, formulations, methods of compound preparation, methods of chemical classification, protein profiles of compounds and computational methods to analyze these protein profiles. We also rely on trade secret information, technical know-how and innovation to continuously expand our proprietary position. We require our employees and consultants to execute non-disclosure and assignment of invention agreements on commencement of their employment or engagement. Competition Competition in the pharmaceutical and biotechnology industries is intense. Many pharmaceutical or biotechnology companies have products on the market and are actively engaged in the research and development of products that are competitive with our potential products. Many of these companies and 31 institutions, either alone or together with their collaborative partners, have substantially greater financial, manufacturing, sales, distribution and technical resources and more experience in research and development, clinical trials and regulatory matters, than we do. Regulatory Considerations The manufacturing and marketing of our potential products and our ongoing research and development activities are subject to extensive regulation by numerous governmental authorities in the United States and other countries. In the United States, pharmaceutical products are subject to rigorous review by the FDA under the Federal Food, Drug and Cosmetic Act, the Public Health Service Act and other federal statutes and regulations. Non-compliance with applicable requirements can result in fines, recall or seizure of products, total or partial suspension of production, refusal of the government to approve marketing applications or allow us to enter into supply contracts and criminal prosecution. The FDA also has the authority to revoke previously granted marketing authorizations. Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish a product candidate's safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, involves post- marketing surveillance and may involve ongoing requirements for post-marketing studies. The FDA may also require post-marketing testing and surveillance to monitor the effects of approved products or place conditions on any approvals that could restrict the commercial applications of these products. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. With respect to patented products or technologies, delays imposed by the governmental approval process may materially reduce the period during which we will have exclusive rights to exploit them. Preclinical studies involve laboratory evaluation of product characteristics and animal studies to assess the initial efficacy and safety of the product. The FDA under its Good Laboratory Practices regulations regulates preclinical studies. Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring these studies to be replicated. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an Investigational New Drug application, or an IND, which must be approved by the FDA before we can commence clinical investigations in humans. Unless the FDA objects to an IND, the IND will become effective 30 days following its receipt by the FDA. Clinical trials involve the administration of the investigational product to humans under the supervision of a qualified principal investigator. Clinical trials must be conducted in accordance with Good Clinical Practice, or GCP, under protocols submitted to the FDA as part of the IND. In addition, each clinical trial must be approved and conducted under the auspices of an Investigational Review Board, or IRB, and with patient informed consent. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possibility of liability of the institution conducting the trial. Clinical trials are conducted in three sequential phases but the phases may overlap. Phase I clinical trials may be performed in healthy human subjects or, depending on the disease, in patients. The goal of the phase I clinical trial is to establish initial data about the safety and tolerance of the product in humans. In phase II clinical trials, in addition to safety, the efficacy of the product is evaluated in limited patients with the target disease. Phase III trials typically involve additional testing for safety and clinical efficacy in expanded, large-scale, multi-center studies of patients with the target disease. We and all of our contract manufacturers are required to comply with the applicable FDA current Good Manufacturing Practice regulations. Good Manufacturing Practice regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to inspection by the FDA. These facilities must be approved before we can use them in the commercial manufacture of our products. 32 Outside the United States, our ability to market a product is contingent upon receiving marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. At present, foreign marketing authorizations are applied for at a national level, although within the European Union registration procedures are available to companies wishing to market a product in more than one EU member state. If the regulatory authority is satisfied that adequate evidence of safety, quality and efficacy has been presented, a marketing authorization will be granted. Manufacturing We are using third party manufacturers to produce clinical supplies of TLK286 under the FDA's current Good Manufacturing Practices, or cGMP, regulations. We are evaluating potential drug manufacturers to produce clinical supplies of TLK199. In the insulin receptor activator program, we have developed preparative routes to our lead compounds that would be suitable for their commercial production. We intend to continue to use third-party contract manufacturers or corporate collaborators for the production of material for use in preclinical studies, clinical trials, manufacture of future products and commercialization. The manufacture of our potential products for preclinical and clinical trials and commercial purposes is subject to cGMP regulations promulgated by the FDA and to other applicable domestic and foreign regulations. Employees As of June 30, 2000, we had a workforce of 37 full-time employees, 12 of whom hold PhD or MD degrees, or both, and nine of whom hold other advanced degrees. Of our total workforce, 27 are engaged in research and development and 10 are engaged in business development, finance and administration. None of our employees are represented by a collective bargaining agreement, nor have we experienced work stoppages. We believe that our relations with our employees are good. Facilities Our facilities consist of approximately 20,680 square feet of research and office space located at 750 Gateway Boulevard in South San Francisco, California, that is leased to us until December 31, 2002. We have the option to renew this lease for one additional period of five years. We believe our existing facilities are adequate to meet our requirements through the year 2005. Scientific and Clinical Advisors We utilize scientists and physicians to advise us on scientific and medical matters including medicinal and computational chemistry, biochemistry, immunology, enzymology, molecular and cell biology, pharmacology and clinical trials. The following table lists our Scientific and Clinical Advisors:
Name Title/Affiliation ---- ----------------- Joseph R. Bertino, MD .. Chairman, Molecular Pharmacology and Therapeutics Program, Sloan-Kettering Institute for Cancer Research, Memorial Sloan-Kettering Cancer Center, New York Perry J. Blackshear, MD, Clinical Director, Office of Clinical Research, National PhD.................... Institute of Environmental Health Sciences, North Carolina Ronald H. Blum, MD...... Director, Cancer Center and Programs, Beth Israel Medical Center, New York
33
Name Title/Affiliation ---- ----------------- Richard F. Borch, MD, PhD.................... Eli Lilly Distinguished Professor of Medicine, Head, Department of Medicinal Chemistry and Molecular Pharmacology, Lafayette Center for Medical Education, Purdue University, Indiana Michael J. Buchmeier, PhD.................... Professor and Director, Emerging Virus Research Center, Scripps Research Institute, California Fritz R. Buhler, Prof. Dr. Med................ Vice-Chairman, International Biomedicine Management Partners, Inc., Director, European Center for Pharmaceutical Medicine, University of Basel, Switzerland M. Sheila Donnelly, MD.. Instructor of Medicine, Harvard Medical School and Clinical Associate, Dana Farber Cancer Center, Massachusetts Jurgen Drews, Prof. Med. .................. Chairman, International Biomedicine Partners, Inc., Switzerland Peter D. Eisenberg, MD .................... Medical Director, Marin Cancer Institute, San Rafael, California Ira D. Goldfine, MD .... Professor, University of California at San Francisco, Director, Division of Diabetes and Endocrine Research, Mount Zion Medical Center of the University of California at San Francisco Jordan U. Gutterman, MD .................... Professor and Chairman, Department of Clinical Immunology and Biological Therapy, The University of Texas M.D. Anderson Cancer Center W. David Henner, MD PhD.................... Professor of Medicine and Pharmacology, Oregon Health Sciences University Lawrence M. Kauvar, PhD.................... Founder and President, Trellis Bioinformatics, Inc. Bengt Mannervik, PhD.... Professor, Department of Biochemistry, Uppsala University, Sweden Daria Mochly-Rosen, PhD.................... Associate Professor, Department of Molecular Pharmacology, Stanford University School of Medicine, California John W. Sedat, PhD...... Professor of Biochemistry, Department of Biochemistry and Biophysics, University of California at San Francisco David Sidransky, MD .... Professor of Otolaryngology, Oncology, Pathology and Cellular and Molecular Medicine, Director, Head and Neck Cancer Research Division, Johns Hopkins University, Maryland John A. Tainer, PhD..... Member and Professor, Department of Molecular Biology, Scripps Research Institute, California Kenneth D. Tew, PhD..... Chairman of Pharmacology Department, Fox Chase Cancer Center, Adjunct Professor Pharmacology, University of Pennsylvania Sabina K. Wallach, MD .. Physician, Scripps Memorial Hospital, California Harel Weinstein, DSc ... Professor and Chairman, Department of Physiology and Biophysics, Mount Sinai School of Medicine, Director, Institute for Computational Biomedicine, Mount Sinai School of Medicine
Legal Proceedings We are currently not a party to any legal proceedings. 34 MANAGEMENT Executive Officers, Directors and Key Personnel The following table sets forth information regarding our executive officers, directors and key personnel.
Name Age Position ---- --- -------- Executive Officers and Directors Michael M. Wick, MD, PhD.. 54 President, Chief Executive Officer and Chairman Cynthia M. Butitta........ 46 Chief Financial Officer Reinaldo F. Gomez, PhD.... 55 Vice-President, Corporate Alliances David R. Bethune.......... 59 Director Jean Deleage, PhD......... 59 Director Jerrold L. Glick.......... 57 Director David W. Martin, Jr., MD.. 59 Director Stefan Ryser, PhD......... 40 Director Key Personnel Michael R. Kozlowski, PhD...................... 46 Vice President, Biology Research Steven R. Schow, PhD...... 50 Vice President, Chemistry Research Hugo O. Villar, PhD....... 41 Vice President, Discovery Technologies
Michael M. Wick, MD, PhD has served as our Chairman of the board of directors since January 2000, as our Chief Executive Officer since July 1999 and as our President since June 1998. Dr. Wick served as our Chief Operating Officer from December 1997 until June 1998, and as our Executive Vice President, Research and Development, from December 1997 until June 1998. He has been one of our directors since December 1997. Prior to joining us in December 1997, Dr. Wick was Senior Vice President of Research for CV Therapeutics, a public biotechnology company, from May 1995 until May 1997, and continued as a consultant until December 1997. Dr. Wick served as Executive Director of oncology/immunology and clinical research at Lederle Laboratories, a division of American Cyanamid, a pharmaceutical company, from September 1990 until May 1995, and also directed the Cynamid/Immunex joint oncology research program. Dr. Wick began his career at Harvard Medical School, where he served as an Associate Professor from July 1981 until June 1994 and Chief of the Melanoma Clinic and Laboratory of Molecular Dermatological Oncology at the Dana Farber Cancer Institute from September 1980 until September 1992. Dr. Wick holds a PhD degree in chemistry from Harvard University and an MD degree from Harvard Medical School. Cynthia M. Butitta has served as our Chief Financial Officer since August 1998. Ms. Butitta also provides financial consulting services as a Partner in Altair Capital Associates LLC, which she co-founded in November 1998, and Butitta Consulting Services LLC, which she founded in September 1997. From December 1995 until September 1997, Ms. Butitta was Vice President of Finance and Administration and Chief Financial Officer for Connetics, Inc., a biotechnology company. From June 1994 until December 1995, she was Vice President of Finance and Administration and Chief Financial Officer for InSite Vision, Inc., a biotechnology company. Ms. Butitta holds a BS degree in business and accounting from Edgewood College in Madison, Wisconsin, and an MBA degree in finance from the University of Wisconsin, Madison. Reinaldo F. Gomez, PhD has served as our Vice President, Corporate Alliances since January 1998. He served as our Vice President, Research and Development from September 1996 until December 1997. From August 1995 to September 1996, Dr. Gomez served as our Vice President, Project Management. Dr. Gomez served as our Chief Executive Officer from July 1992 to August 1995. He served as our President from May 1991 until August 1995, and as one of our directors from May 1991 until January 1997. Over a ten-year period prior to that, Dr. Gomez held various research positions at Genentech, Inc., a biotechnology company, including that of Vice President of Discovery Research. During his tenure at Genentech, Dr. Gomez directed that company's major drug development effort for tissue plasminogen activator (t-PA), which led to the filing of the application for FDA marketing approval in 1986. He previously served on the faculty of the Massachusetts 35 Institute of Technology (MIT) as Associate Professor in Nutrition and Food Science. Dr. Gomez received his BS and MS degrees in food science from the University of Florida and his PhD in nutrition and food science from MIT. David R. Bethune has served as one of our directors since December 1999. Mr. Bethune has 34 years of experience in the pharmaceutical and biopharmaceutical industries. Since February 2000, he has served as Chairman and Chief Executive Officer of Atrix Laboratories, a pharmaceutical company, and became acting Chief Executive Officer of Atrix in August 1999. He has also served as a director of Atrix since April 1995. From July 1997 until October 1998, Mr. Bethune was President and Chief Operating Officer of IVAX Corporation, a pharmaceutical company. From March 1995 until June 1997, he served as President and Chief Executive Officer for Aesgen, Inc., a pharmaceutical company. Mr. Bethune has held various positions at American Cyanamid Company, a pharmaceutical company, from February 1988 until February 1995. Mr. Bethune also served as President of Operations and Vice President and General Manager of U.S. Pharmaceuticals for G. D. Searle & Co., a pharmaceutical company, from June 1984 until January 1988. Mr. Bethune is a director of St. Charles Pharmaceutical Co., a pharmaceutical company, and the Female Health Company, a company that sells female health products. Mr. Bethune holds an AB degree in Accounting and Finance from Lenoir-Rhyne College and a masters degree in Executive Management from Columbia University. Jean Deleage, PhD has served as one of our directors since August 1994. Dr. Deleage is a founder and Managing General Partner of Alta Partners, a venture capital partnership investing in information technologies and life science companies. From 1979 to 1996, Dr. Deleage was a Managing Partner of Burr, Egan, Deleage & Co., a venture capital firm. Dr. Deleage was a founder of Sofinnova, a venture capital organization in France, and Sofinnova, Inc., a U.S. subsidiary of Sofinnova. Dr. Deleage is a director of Flamel Technologies S.A., a polymer engineering company and Aclara Biosciences, Inc., a biotechnology company. In 1993, he was awarded the Ordre National du Merite and the Legion of Honor from the French government. Dr. Deleage received a Baccalaureate in France, an MS degree in electrical engineering from Ecole Superieure d'Eletricite and a PhD in economics from the Sorbonne. Jerrold L. Glick has served as one of our directors since 1988, as our Chairman of the board from 1988 until November 1995, and as our Secretary from December 1988 until November 1990. Mr. Glick has been a General Partner of Columbia Group Limited, LLP, a real estate development company, since 1972. In 1991, Mr. Glick founded QualiCenters, Inc., a multi-state provider of dialysis services and served as its secretary and director until 1997. He is a director of Urban Ventures LLC, a real estate development company; director, Secretary and Vice President of AML/APL, Inc., a clinical laboratory services company; director and Secretary of RV Management Corp., a multi-state provider of dialysis services; and director of Republic Financial Corporation, a financial services company. Mr. Glick received a BS degree in finance from the University of Southern California. David W. Martin, Jr., MD has served as one of our directors since August 1997. In July 1997, Dr. Martin co-founded Eos Biotechnology, Inc., a biotechnology company, and has been its President and Chief Executive Officer since July 1997. From May 1995 until November 1996, he served as President and Chief Executive Officer of Lynx Therapeutics, a company that develops technology for measuring gene activities. From January 1994 until April 1995, Dr. Martin held various positions at Chiron Therapeutics, a biotechnology company. He was Executive Vice President of Research and Development at The DuPont Merck Pharmaceutical Co., a pharmaceutical company, from January 1991 until January 1994. From January 1983 until September 1990, Dr. Martin served as the first Vice President of Research and Development of Genentech, a biotechnology company. Dr. Martin is a director of Varian Medical Systems, Inc., a spin-off of Varian Associates, Inc., a company that develops and markets radiation equipment and software, and Cubist Pharmaceuticals, Inc., a company that discovers and develops anti-infective drugs. Dr. Martin holds an MD degree from Duke University. Stefan Ryser, PhD has served as one of our directors since September 1998. Since April 2000, Dr. Ryser has served as a managing director of Bear Stearns Health Innoventures, a ventrure capital fund. Dr. Ryser 36 served as Chief Executive Officer until April 2000, and has served as a member and delegate of the board, of International Biomedicine Management Partners Inc., a company that manages investments in biotechnology companies on behalf of International BM Biomedicine Holdings Inc., since January 1998. From January 1989 until December 1997, Dr. Ryser held various positions at F. Hoffmann-La Roche Ltd. (Roche), a pharmaceutical company, including Scientific Assistant to the President of Global Research and Development, and was responsible for maintaining the scientific liaison between Roche and Genentech. From January 1991 until December 1997, Dr. Ryser served as a member of the Brussels-based senior advisory group of EuropaBio, a European biotechnology organization. Dr. Ryser is a director of Genaissance Pharmaceuticals, Inc., a genomics company; Arena Pharmaceuticals, a biotechnology company; and Cytokinetics, Inc., a biotechnology company. Dr. Ryser received a PhD degree in molecular biology from the University of Basel. Michael R. Kozlowski, PhD has served as our Vice President of Biology Research since March 2000. He served as our Senior Director of Discovery Biology from June 1998, and as our Director of Pharmacology since March 1998. Prior to joining us, Dr. Kozlowski served as a Program Director and Director of Assay Development and Screening at Geron Corporation, a biotechnology company, from January 1994 until March 1998. Dr. Kozlowski was a Senior Scientist/Principle Scientist at Bristol-Myers Squibb Co., a pharmaceutical company, from June 1987 until December 1993. Dr. Kozlowski earned his BS in biology from The California Institute of Technology in June 1976 and his PhD in biology in March 1983 from the University of California at Irvine. Steven R. Schow, PhD has served as our Vice President of Chemistry Research since March 2000. He served as our Senior Director of Medicinal Chemistry from March 1998 until March 2000. Prior to joining us, Dr. Schow served as a Director of Medicinal Chemistry at CV Therapeutics, a biotechnology company, from May 1995 to March 1998. He served as a Senior Group Leader at Lederle Laboratories, a division of American Cyanamid, a pharmaceutical company, from November 1991 until May 1995. Dr. Schow earned his PhD degree in organic chemistry in October 1977 from the University of California at San Diego. Hugo O. Villar, PhD has served as our Vice President, Discovery Technologies since February 1998. Dr. Villar previously served as our Director of Chemistry from May 1995 until February 1998, and as a Senior Scientist from October 1992 to May 1995. Prior to joining us, Dr. Villar served as a director of computational pharmacology at Molecular Research Institute, a not-for-profit research organization, from July 1989 until October 1992. He was also a computational chemist at SRI International, a not-for-profit research organization, from May 1988 until June 1989. Dr. Villar earned an MS degree in December 1981 and PhD degree in December 1985 in chemistry from the Universidad Nacional de La Plata, Argentina. Our executive officers are appointed by our board of directors and serve until their successors are elected or appointed. There are no family relationships among any of our directors or executive officers. No director has a contractual right to serve as a member of our board of directors. Board Committees Audit Committee. Our audit committee, consisting of Dr. Martin and Messrs. Bethune and Glick, reviews our internal accounting procedures and the services provided by our independent auditors. Compensation Committee. Our compensation committee reviews and recommends to our board of directors the compensation and benefits of all our officers and establishes and reviews general policies relating to compensation and benefits of our employees. Our compensation committee currently consists of Drs. Deleage and Ryser and Mr. Bethune. Mr. Glick served on our compensation committee from November 1992 until March 2000. Mr. James Gower served on our compensation committee from November 1992 until December 1999, when he retired from the board. 37 Compensation of Directors We do not provide cash compensation to members of our board of directors for serving on our board of directors or for attendance at committee meetings. Members of our board of directors are reimbursed for some expenses in connection with attendance at board and committee meetings. In consideration for services as directors, on December 17, 1999, we granted an option to purchase 5,000 shares of common stock to Mr. Bethune and 2,500 shares of common stock to each of Drs. Deleage, Martin and Ryser and Mr. Glick at an exercise price of $1.60 per share. The $1.60 per share exercise price for these options was equal to the fair market value of the common stock on the date of grant as determined by our board of directors. Twenty-five percent of these options vest immediately upon grant and the remaining shares vest in equal installments over the next forty-eight months. Executive Compensation The following table sets forth information concerning the compensation that we paid during 1999 to our Chief Executive Officer and each of the three other executive officers during 1999. There were no other executive officers during this period. All option grants were made under our 1996 Stock Option Plan. Summary Compensation
Annual Long Term Compensation Compensation -------------- ------------ Securities Underlying Other Name and Principal Position Salary Bonus Options Compensation --------------------------- -------- ----- ------------ ------------ Michael M. Wick President, Chief Executive Officer and Chairman(1)...................... $270,000 $-- 150,000 -- Clifford Orent Vice-Chairman(2)..................... 229,450 -- -- -- Reinaldo F. Gomez Vice-President, Corporate Alliances.. 209,467 -- -- -- Cynthia M. Butitta Chief Financial Officer.............. 120,000 -- -- --
- -------- (1) Dr. Wick was promoted to Chief Executive Officer in July 1999 and Chairman in January 2000. (2) Mr. Orent served as Chairman and Chief Executive Officer through June 1999 and Chairman through December 1999. Mr. Orent retired from Telik in March 2000. 38 The following table sets forth summary information regarding the option grants made to our Chief Executive Officer and each of our three other executive officers during 1999. Options granted to purchase shares of our common stock under our 1996 Stock Option Plan generally vest over a four-year period. Twenty-five percent of the initial option grant vests on the one-year anniversary of employment and the remainder vests in a series of equal monthly installments beginning on the one-year anniversary of employment and continuing over the next three years of service. Subsequent options granted generally vest according to the same schedule. The exercise price per share is equal to the fair market value of our common stock on the date of grant, as determined by our board of directors. The percentage of total options was calculated based on options to purchase an aggregate of 246,050 shares of common stock granted to employees under our stock option plan in 1999. The potential realizable value was calculated based on the ten-year term of the options and assumed rates of stock appreciation of 5% and 10%, compounded annually from the date the options were granted to their expiration date based on the fair market value of the common stock on the date of grant. Option Grants in 1999
Individual Grants Potential Realizable ------------------------ Value at Assumed Number of Percentage of Annual Rates of Stock Securities Total Options Price Appreciation Underlying Granted to for Option Term(2) Options Employees in Exercise Expiration --------------------- Granted Fiscal Year Price Date 5% ($) 10% ($) ---------- ------------- -------- ---------- ---------- ---------- Michael M. Wick.......... 150,000 61.0% $1.60 07/30/09 $2,203,342 $3,650,614 President, Chief Executive Officer and Chairman Clifford Orent........... -- -- -- -- -- -- Vice-Chairman(1) Reinaldo F. Gomez........ -- -- -- -- -- -- Vice-President, Corporate Alliances Cynthia M. Butitta....... -- -- -- -- -- -- Chief Financial Officer
- -------- (1) Mr. Orent served as Chairman and Chief Executive Officer through June 1999 and Chairman through December 1999. Mr. Orent retired from Telik in March 2000. (2) In order to comply with the rules of the Securities and Exchange Commission, we are including the gains or "option spreads" that would exist for the respective options we granted to the named executive officers. We calculate these gains based upon an assumed initial public offering price of $10.00 per share appreciating at 5% and 10% compounded annually from the date of the option grant until the termination date of the option. These gains do not represent our estimate or projection of the future common stock price. 39 The following table sets forth summary information regarding the number and value of options held as of December 31, 1999 by our Chief Executive Officer and each of our three executive officers. These executive officers did not exercise any options in 1999. Amounts shown in the value of unexercised in-the- money options at December 31, 1999 column are based on an initial public offering price of $10.00 per share without taking into account any taxes that may be payable in connection with the transaction, multiplied by the number of shares underlying the option, less the aggregate exercise price payable for these shares. 1999 Option Values
Number of Securities Underlying Value of Unexercised Unexercised Options at In-The-Money Options December 31, 1999 at December 31, 1999(2) ---------------------- ------------------------ Name Vested Unvested Vested Unvested ---- ---------- ----------- ----------- ------------ Michael M. Wick ................ 220,875 478,125 $ 1,855,350 $ 4,016,250 President, Chief Executive Officer and Chairman Clifford Orent.................. 403,803 202,447 $3,569,539 $ 1,725,821 Vice-Chairman(1) Reinaldo F. Gomez............... 142,396 88,021 $ 1,237,502 $ 742,501 Vice President, Corporate Alliances Cynthia M. Butitta.............. 96,000 -- $ 806,400 -- Chief Financial Officer
- -------- (1) Mr. Orent served as Chairman and Chief Executive Officer through June 1999 and Chairman through December 1999. Mr. Orent retired from Telik in March 2000. (2) The amount set forth represents the difference between the fair market value of the underlying common stock using an assumed initial public offering price of $10.00 per share and the exercise price of the option, multiplied by the number of shares underlying the option. Benefit Plans 2000 Equity Incentive Plan We adopted our 2000 Equity Incentive Plan in March 2000 to replace our 1988 Stock Option Plan and our 1996 Stock Option Plan. Share Reserve. We have reserved a total of 2,000,000 shares of our common stock for issuance under the incentive plan. On each January 1, starting with January 1, 2001 continuing through and including January 1, 2010, the share reserve automatically will be increased by a number of shares equal to the least of: . 5% of our then outstanding shares of common stock; . 1,500,000 shares; or . a number determined by our board. If the recipient of a stock award does not purchase the shares subject to such stock award before the stock award expires or otherwise terminates, the shares that are not purchased will again become available for issuance under the incentive plan. Administration. The board administers the incentive plan unless it delegates administration to a committee. The board has the authority to construe, interpret and amend the incentive plan as well as to determine: . who will receive awards under the incentive plan; 40 . the dates on which such awards will be granted; . the number of shares subject to the awards; . the vesting and exercisability of the awards; . the exercise price of the awards; . the type of consideration that may be used to satisfy the exercise price; and . the other terms of the awards. Eligibility. The board may grant incentive stock options that qualify under Section 422 of the Internal Revenue Code to our employees and to the employees of our affiliates. The board also may grant nonstatutory stock options, stock bonuses and restricted stock purchase awards to our employees, directors and consultants as well as to the employees, directors and consultants of our affiliates. Limits on Option Grants. There are limits on the number of shares that the board may grant under an option. No employee may receive incentive stock options that exceed the $100,000 per year limitation set forth in Section 422(d) of the Internal Revenue Code. For this purpose, the value of incentive stock options is determined based upon the fair market value of the common stock underlying such options on the date of grant. Option Terms. The board may grant incentive stock options with an exercise price of 100% or more of the fair market value of a share of our common stock on the grant date. The board may grant nonstatutory stock options with an exercise price as low as 85% of the fair market value of a share on the grant date. Options may have a term of up to 10 years. Options may, but need not, vest in installments according to a schedule established on the grant date. The board, however, may accelerate the vesting of such options. Terms of Other Stock Awards. The board determines the purchase price of other stock awards, which may not be less than 85% of the fair market value of our common stock on the grant date. However, the board may award stock bonuses in consideration of past services without a cash purchase price. Shares that we sell or award under the incentive plan may, but need not be, restricted and subject to a repurchase option in our favor in accordance with a vesting schedule that the board determines. The board, however, may accelerate the vesting of such awards. Stock Awards Granted. No stock options or other awards have been issued under the incentive plan. Plan Termination. The incentive plan will terminate in March 2010 unless the board terminates it prior to that time. 1988 Stock Option Plan and 1996 Stock Option Plan Our 1988 and 1996 Stock Option Plans will terminate as of the effective date of this offering, though the termination will have no effect on the options that are outstanding under these plans. No new stock options will be granted under these plans after the completion of this offering. Generally, the exercise price of the options granted under these plans is equal to the fair market value on the date of grant as determined by the board. As of June 30, 2000, we have granted incentive stock options and nonstatutory stock options to purchase an aggregate of 5,116,830 shares under the 1988 and 1996 Stock Option Plans and outside the plans. Of these shares, we issued an aggregate of 404,793 shares upon the exercise of options and options to purchase 3,003,418 shares at a weighted average exercise price of $1.46 were outstanding. 2000 Non-Employee Directors' Stock Option Plan We adopted the 2000 Non-Employee Directors' Stock Option Plan in March 2000. The Directors' Plan will become effective on the effective date of this offering. The Directors' Plan provides for the automatic grant to our non- employee directors of options to purchase shares of our common stock. 41 Share Reserve. We have reserved a total of 300,000 shares of our common stock for issuance under the Directors' Plan. If an optionholder does not purchase the shares subject to such option before the option expires or otherwise terminates, the shares that are not purchased again become available for issuance under the Directors' Plan. Administration. The board administers the Directors' Plan unless it delegates administration to a committee. The board has the authority to construe, interpret and amend the Directors' Plan, but the Directors' Plan specifies the essential terms of the options, including: . who will receive options under the directors' plan; . the dates on which such options will be granted; . the number of shares subject to the options; . the vesting schedule applicable to the options; . the exercise price of the options; and . the type of consideration that may be used to satisfy the exercise price. Eligibility. Each non-employee director who is serving on the effective date of this offering will automatically be granted an option to purchase 20,000 shares of common stock. Each person who is elected or appointed to be a non- employee director for the first time after the effective date of this offering will be granted an option to purchase 20,000 shares of common stock upon such election or appointment. In addition, each non-employee director who continues to serve as a non-employee director automatically will be granted an option to purchase 5,000 shares of common stock on the day following each annual meeting of our stockholders. The number of shares subject to the grants to be made following each annual meeting will be pro-rated for any non-employee director who has not continuously served as a director for the entire 12-month period prior to the date of grant. Twenty-five percent of the shares subject to the options will vest on the first anniversary of the grant date and the remainder of shares will vest in equal monthly installments over the next three years. The vesting of each option will cease on the date the non-employee director holding such option ceases to provide services (whether as a director, employee or consultant) to us or one of our affiliates. Option Terms. Options granted under the Directors' Plan will have an exercise price equal to 100% of the fair market value of the common stock on the grant date and a term of 10 years. As long as a non-employee director continues to serve with us or with one of our affiliates, whether in the capacity of a director, an employee or a consultant, the non-employee director's option will continue. Options will terminate three months after the non-employee director's service with the company and its affiliates terminates. However, if such termination is due to the non-employee director's disability, the exercise period will be extended to 12 months. If such termination is due to the non-employee director's death, or if the non-employee director dies within three months after his or her service terminates, the exercise period will be extended to 18 months following death. Options Issued. Each of our directors will receive an option to purchase 20,000 shares of common stock at the initial public offering price. Plan Termination. The Directors' Plan will terminate in March 2010 unless the board terminates it prior to that time. 2000 Employee Stock Purchase Plan We adopted the 2000 Employee Stock Purchase Plan in March 2000. Share Reserve. We have authorized the issuance of 250,000 shares of our common stock pursuant to purchase rights granted to eligible employees under the Purchase Plan. On each January 1, starting with 42 January 1, 2001 and continuing through January 1, 2010, the share reserve will automatically be increased by a number of shares equal to the lesser of: . 1% of our then outstanding shares of common stock; . 150,000 shares; or . a number determined by our board of directors. Eligibility. The Purchase Plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code. The Purchase Plan provides a means by which eligible employees may purchase our common stock through payroll deductions. We implement the Purchase Plan by offerings of purchase rights to eligible employees. Generally, all of our full- time employees and full-time employees of our affiliates incorporated in the United States may participate in offerings under the Purchase Plan. Administration. Under the Purchase Plan, the board may specify offerings of up to 27 months. Unless the board otherwise determines, common stock will be purchased for accounts of participating employees at a price per share equal to the lower of: . 85% of the fair market value of a share on the first day of the offering; or . 85% of the fair market value of a share on the purchase date. The first offering under this plan will begin on the effective date of this offering. The fair market value of the shares on the first date of the first offering under this plan will be the initial public offering price. The board may provide that employees who become eligible to participate after the offering period begins nevertheless may enroll in the offering. These employees will purchase our stock at the lower of: . 85% of the fair market value of a share on the day they began participating in the purchase plan; or . 85% of the fair market value of a share on the purchase date. If authorized by the board, participating employees may authorize payroll deductions of up to 15% of their base compensation for the purchase of stock under the Purchase Plan. Other Provisions. The board may grant eligible employees purchase rights under the Purchase Plan only if the purchase rights, together with any other purchase rights granted under other employee stock purchase plans established by us or by our affiliates, if any, do not permit the employee's rights to purchase our stock to accrue at a rate which exceeds $25,000 of fair market value of our stock for each calendar year in which the purchase rights are outstanding. Description of 401(k) Plan We maintain a retirement and deferred savings plan for our employees. The retirement and deferred savings plan is intended to qualify as a tax-qualified plan under Section 401 of the Internal Revenue Code. The retirement and deferred savings plan provides that each participant may contribute up to 20% of his or her pre-tax compensation (up to a statutory limit, which is $10,500 in calendar year 2000). Under the plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan's trustee. The retirement and deferred savings plan also permits us to make discretionary contributions, subject to established limits and a vesting schedule. To date, we have not made any discretionary contributions to the retirement and deferred savings plan on behalf of participating employees. 43 Employment Agreements and Termination of Employment Agreements We entered into an employment agreement with Michael M. Wick in August 1999 upon his promotion to the position of Chief Executive Officer. In December 1999, Dr. Wick was elected Chairman of the board which became effective in January 2000. Either Telik or Dr. Wick may terminate his employment at any time for any reason. In the event that Dr. Wick is terminated without cause, he is entitled to receive as severance, continued payment of his base salary and health care benefits for twelve months. The monthly vesting of stock options will also continue for the same twelve months. We entered into an employment agreement with Reinaldo F. Gomez in September 1999. His agreement with us terminates on August 31, 2000, unless extended by mutual agreement. In the event that Dr. Gomez is terminated without cause any time before August 31, 2000, he will be entitled to severance equal to the amount of his base salary and continue to receive health care benefits up to a three-month period. Either Telik or Dr. Gomez may terminate his employment at any time for any reason. In July 1998, we entered into an employment agreement with Cynthia M. Butitta, our Chief Financial Officer. Ms. Butitta serves us in a part-time capacity. Ms. Butitta is paid an annual base salary of $120,000 and was granted an option to purchase 96,000 shares of our common stock at an exercise price of $1.60 per share. As of November 1999, all such options were fully vested. Either Telik or Ms. Butitta may terminate her employment at any time. There are no severance provisions. 44 RELATED PARTY TRANSACTIONS Sale of Securities Since January 1997 through June 30, 2000, we have issued and sold the following securities to related parties in private placement transactions: . 114,606 shares of Series I preferred stock for an aggregate price of $5,770,300 in September 1997; . 210,000 shares of Series J preferred stock for an aggregate price of $10,500,000 in September 1998 and October 1998; and . 1,000,000 shares of Series K preferred stock for an aggregate price of $6,000,000 in March 2000. The following table sets forth the shares of common stock issuable upon conversion of preferred stock purchased by the holders of more than 5% of our outstanding stock and their affiliates. No executive officer or director purchased any shares, except Drs. Deleage and Ryser, who are affiliated with Alta V Management Partners, L.P. and Alta BioPharma Partners, L.P., and International BM Biomedicine Holdings AG, respectively.
Shares of common stock issuable upon conversion of: ------------------------------------------- Series I Series J Series K Executive officers, directors and Preferred Preferred Preferred Total 5% stockholders Stock Stock Stock consideration --------------------------------- --------- --------- --------- ------------- Sanwa Kagaku Kenkyusho Co., Ltd... 714,285 1,190,476 $8,000,000 Entities Affiliated with Alta V Management Partners, L.P......... 149,999 $ 630,000 Entities Affiliated with Alta BioPharma Partners, L.P.......... 833,333 $5,000,000 Entities Affiliated with Alpha Venture Partners III............. 23,809 $ 100,000 Entities Affiliated with Delphi Management Partners II, L.P...... 107,142 $ 450,000 Entities Affiliated with Weiss, Peck & Greer Venture Partners II, L.P.............................. 135,714 $ 570,000 Entities Affiliated with Oxford Bioscience Management Corp....... 114,285 $ 480,000 Entities Affiliated with Advent International Corporation........ 164,285 $ 690,000 International BM Biomedicine Holdings AG...................... 1,309,523 166,667 $6,500,000
We have entered into an amended and restated registration rights agreement with each of the purchasers of preferred stock set forth above, pursuant to which these and other stockholders will have registration rights with respect to their shares of common stock issuable upon conversion of their preferred stock following this offering. For a description of our collaboration agreements with Sanwa please refer to "Business--Collaborative Relationships." In addition to the purchases of preferred stock noted in the above table, in December 1996, Sanwa purchased 60,000 shares of Series H preferred stock at the purchase price of $50 per share, convertible into 540,540 shares of common stock. Since October 1998, Dr. Gail L. Brown has served as a consultant to us on matters involving the clinical development of our products. Dr. Brown is the spouse of Dr. Wick, our President, Chief Executive Officer and Chairman. From January 1, 1999 through December 31, 1999, we have paid Dr. Brown an aggregate of $107,875 for professional services to Telik and reimbursed her $10,309 for expenses. In June 2000, we made a loan to Ms. Butitta in connection with the exercise of her option to purchase 96,000 shares of our common stock. This full recourse loan is for the aggregate amount of $153,600, bearing an annual interest rate of 6.5% and is due in June 2003. In June 2000, we authorized an extension of the option exercise period for Mr. Orent for an aggregate of 433,648 previously vested shares of common stock. This option was exercised in full in July 2000. We have entered into indemnification agreements with our directors and certain officers for the indemnification and advancement of expenses to these persons to the fullest extent permitted by law. We also intend to enter into those agreements with our future directors and officers. 45 PRINCIPAL STOCKHOLDERS The following table sets forth information with respect to the beneficial ownership of our common stock as of June 30, 2000: . each person or group of affiliated persons who is known by us to own beneficially 5% or more of our common stock; . each of our directors and executive officers and the former executive officer named in the Summary Compensation Table; and . all of our directors and executive officers (and the former executive officer named in the Summary Compensation Table) as a group. Unless otherwise indicated, the persons listed below have sole voting and investment power with respect to shares of our common stock shown as beneficially owned by them, subject to community property laws where applicable. Applicable beneficial ownership in the following table is based on 16,150,059 shares of common stock outstanding as of June 30, 2000, after giving effect to the conversion of all of the preferred stock into common stock upon the closing of this offering and the issuance of 5,000,000 shares of common stock pursuant to this offering. In accordance with the rules of the SEC, the amounts assume the exercise or conversion of all options that are exercisable within 60 days after June 30, 2000. The percentages of beneficial ownership assume no exercise of the underwriters' over-allotment option. Except as otherwise noted, the address of each person listed is c/o Telik, Inc., 750 Gateway Boulevard, South San Francisco, CA 94080.
Percent Beneficially Number of Owned Shares ----------------------- Beneficially Before Name and Address of Beneficial Owner Owned Offering After Offering ------------------------------------ ------------ -------- -------------- Five percent stockholders Sanwa Kagaku Kenkyusho Co., Ltd.(1)..... 2,445,301 15.1% 11.6% International Division 35 Higashi-ku Nagoya 461 Japan International BM Biomedicine Holdings AG(2).................................. 1,480,031 9.2 7.0 Bank Julius Baer & Co., Ltd. c/o Brown Brothers Harriman & Co. 59 Wall Street New York, NY 10005 Alta V Limited Partnership(3)........... 1,194,440 7.4 5.7 One Embarcadero Center Suite 4050 San Francisco, CA 94111 Advent International Corporation(4)..... 1,199,555 7.5 5.7 101 Federal Street Boston, MA 20110 Weiss, Peck & Greer Venture Associates II, L.P.(5)............................ 1,083,254 6.7 5.1 555 California Street San Francisco, CA 94104
46
Percent Beneficially Number of Owned Shares ----------------------- Beneficially Before Name and Address of Beneficial Owner Owned Offering After Offering ------------------------------------ ------------ -------- -------------- Delphi Management Partners II, L.P.(6).. 874,996 5.4 4.1 3000 Sand Hill Road Building 1, Suite 135 Menlo Park, CA 94025 Oxford Bioscience Management Corp.(7)... 867,814 5.4% 4.1 650 Town Center Drive Suite 810 Costa Mesa, CA 92626 Alta BioPharma Partners, L.P. (3)....... 833,333 5.2 3.9 One Embarcadero Center Suite 4050 San Francisco, CA 94111 Directors and executive officers Michael M. Wick(8)...................... 350,042 2.1 1.6 Stefan Ryser(2)......................... 1,480,461 9.2 7.0 Jean Deleage(3)......................... 2,039,757 12.6 9.6 Jerrold L. Glick(9)..................... 130,330 * * David W. Martin, Jr.(10)................ 8,803 * * David Bethune(10)....................... 1,875 * * Reinaldo Gomez(11)...................... 285,727 1.7 1.3 Clifford Orent(12)...................... 533,648 3.2 2.5 Cynthia M. Butitta...................... 96,000 * * All directors and officers as a group (13) (9 persons)....................... 4,926,643 28.7 22.2
- -------- * Represents beneficial ownership of less than 1%. (1) Mr. Masuo Kato exercises investment and voting power over the shares held by Sanwa. Mr. Kato disclaims beneficial ownership of these shares. (2) Shares shown as beneficially owned by International BM Biomedicine Holdings, which include 4,271 shares issuable upon exercise of options exercisable within 60 days of June 30, 2000, are also shown as beneficially owned by Stefan Ryser, PhD, a Telik director, who possesses voting and investment power with respect to these shares. Dr. Ryser disclaims beneficial ownership of these shares. (3) Shares shown as beneficially owned by Alta V Limited Partnership are held by entities affiliated with it and are also included in the shares shown as beneficially owned by Dr. Deleage, a Telik director and a general partner of Alta V Limited Partnership. Shares shown as beneficially owned by Alta BioPharma Partners, L.P. are held by entities affiliated with it and are also included in the shares shown as beneficially owned by Dr. Deleage, a member of the general partner of Alta BioPharma Partners, L.P. Dr. Deleage has voting and investment power over these shares and disclaims beneficial ownership of all the shares, except for the portion of these shares attributable to his partnership interests. Shares shown as beneficially owned by Dr. Deleage also include 11,984 shares issuable to him upon exercise of options exercisable within 60 days of June 30, 2000. (4) Held by entities managed by Advent International Corporation. Includes 7,500 shares issuable upon exercise of options exercisable within 60 days of June 30, 2000. Dr. Jason S. Fisherman is a partner of Advent International Corporation and exercises voting and investment power. Dr. Fisherman disclaims 47 beneficial ownership of these shares, except to the extent of his proportionate partnership interest in these shares. (5) Held by entities of which Weiss, Peck & Greer Venture Partners is the general partner or adviser. Includes 15,006 shares issuable upon exercise of options exercisable within 60 days of June 30, 2000. Weiss, Peck & Greer Venture Fund Advisor is the Fund Investment Advisory Member of WPG Enterprise Fund, Liquidating Trust and Weiss, Peck & Greer Venture Associates II, Liquidating Trust, and Weiss, Peck & Greer Venture Associates II Overseas, Liquidating Trust. Mr. Gill Cogan is the senior managing member of Weiss, Peck & Greer Fund Advisor and has sole voting and investment power over the shares held by each of the funds. Mr. Cogan disclaims beneficial ownership of the shares except to the extent of his pecuniary interest in these shares. (6) Held by entities of which Delphi Management Partners is the general partner. Mr. James J. Bochnowski is a general partner of Delphi Management Partners II, L.P. and exercises investment and voting power. Mr. Bochnowski disclaims beneficial ownership of these shares, except to the extent of his proportionate partnership interest in these shares. (7) Held by Oxford Bioscience Management or entities of which it is the general partner. Includes 5,000 shares issuable to it upon exercise of options exercisable within 60 days of June 30, 2000. Mr. Edmund Olivier de Vezin is a general partner of Oxford Bioscience Partners and exercises investment and voting power. Mr. Olivier disclaims beneficial ownership of these shares, except to the extent of his proportionate partnership interest in these shares. (8) Includes 350,042 shares issuable to Dr. Wick pursuant to options exercisable within 60 days of June 30, 2000. (9) Held by Mr. Glick, who is a Telik director, entities which he may be deemed to control and members of his family. Includes 18,252 shares issuable to Mr. Glick upon exercise of options exercisable within 60 days of June 30, 2000. (10) Represents shares issuable upon exercise of options exercisable within 60 days of June 30, 2000. (11) Held by Dr. Gomez, who is Vice President, Corporate Alliances of Telik, by him and his spouse as trustees of a family trust and his minor child who resides with him. Includes 173,645 shares issuable to Dr. Gomez upon exercise of options exercisable within 60 days of June 30, 2000. (12) Includes 433,648 shares issuable pursuant to options exercisable within 60 days of June 30, 2000. (13) Includes 1,002,520 shares issuable pursuant to options exercisable within 60 days of June 30, 2000. 48 DESCRIPTION OF CAPITAL STOCK Upon the closing of this offering and the filing of our amended and restated certificate of incorporation, our authorized capital stock will consist of 100,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of preferred stock, $0.01 par value. Common Stock As of June 30, 2000, there were 16,150,059 shares of common stock outstanding that were held of record by approximately 216 stockholders, after giving effect to the conversion of our then outstanding preferred stock into common stock which will occur at the closing of this offering. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of our stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Subject to preferences that may be applicable to any preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive ratably any dividends out of assets legally available as our board of directors may from time to time determine. Upon liquidation, dissolution or winding up of Telik, holders of our common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding shares of preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable. Preferred Stock Pursuant to our amended and restated certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock, in one or more series. Our board shall determine the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of any series. The issuance of preferred stock could adversely affect the voting power of holders of common stock, and the likelihood that holders of preferred stock will receive dividend payments and payments upon liquidation may have the effect of delaying, deferring or preventing a change in control of Telik, which could depress the market price of our common stock. We have no present plan to issue any shares of preferred stock. Warrants We have outstanding warrants for the purchase of preferred stock which is convertible into an aggregate of 34,559 shares of common stock at an effective weighted average purchase price of $5.28 per share of common stock. These warrants will expire, unless exercised, prior to the closing of this offering. Registration Rights of Stockholders Under the terms of an agreement with some of our stockholders, after the closing of this offering the holders of 13,305,117 shares of common stock will be entitled to demand that we register their shares under the Securities Act. At any time beginning six months after the closing of this offering, and on no more than two occasions, the holders of at least 50% of these shares can demand that we file a registration statement covering their shares. Also, if we propose to register any shares of common stock, these stockholders are entitled to include their shares in the registration. At any time after we become eligible to file a registration statement on Form S-3, the holders of these shares can demand that we file a registration statement on Form S-3 covering their shares. The agreement contains some limitations, including the right of the underwriters of an offering to limit the number of shares of these stockholders to be included in the registration. 49 Anti-takeover Provisions of Delaware Law and our Charter We are subject to Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly held Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless: . prior to the date, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; . upon consummation of the transaction that resulted in the stockholder's becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers, and by employee stock plans in which shares held subject to the plan will be tendered in a tender or exchange offer; or . on or subsequent to this date, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person. Our amended and restated certificate of incorporation requires that upon completion of the offering, any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by a consent in writing. Additionally, our certificate of incorporation: . substantially limits the use of cumulative voting in the election of directors; . provides that the authorized number of directors may be changed only by resolution of our board of directors; and . authorizes our board of directors to issue blank check preferred stock to increase the amount of outstanding shares. Our amended and restated bylaws provide that candidates for director may be nominated only by our board of directors or by a stockholder who gives written notice to us no later than 60 days prior nor earlier than 90 days prior to the first anniversary of the last annual meeting of stockholders. The authorized number of directors is fixed in accordance with our certificate of incorporation. Our board of directors currently consists of six members who will be elected at each annual meeting of our stockholders. Our board of directors may appoint new directors to fill vacancies or newly created directorships. Our bylaws also limit who may call a special meeting of stockholders. Delaware law and these charter provisions may have the effect of deterring hostile takeovers or delaying changes in control of our management, which could depress the market price of our common stock. Transfer Agent and Registrar The transfer agent and registrar for the common stock is Wells Fargo Bank Minnesota, N.A. 50 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices. Furthermore, since no shares will be available for sale shortly after this offering because of contractual and legal restrictions on resale as described below, sales of substantial amounts of our common stock in the public market after these restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future. Upon completion of this offering, based on the number of shares outstanding on June 30, 2000, we will have outstanding an aggregate of 21,150,059 shares of common stock. The 5,000,000 shares sold in this offering will be freely tradable, unless these shares are purchased by affiliates. Substantially all of the remaining shares are subject to a lock up agreement prohibiting their sale, without the consent of Lehman Brothers Inc., until 180 days after completion of this offering. After the lock up expires, all of these shares will be freely tradable except for 10,062,873 shares that will be tradable subject to Rules 144 and 701. In addition, there are 1,166,667 shares that will be restricted and will not be eligible for sale until after March 31, 2001. Under Rule 144 an affiliate or a holder of restricted shares is entitled to sell within any three-month period a number of shares that does not exceed the greater of: . 1% of the number of shares of our common stock then outstanding, which will equal approximately 211,500 shares immediately after this offering; or . the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. Stock Options Under Rule 701 of the Securities Act as currently in effect, any of our employees, consultants or advisors, other than affiliates, who purchases or receives shares from us in connection with a compensatory stock purchase plan or option plan or other written agreement will be eligible to resell their shares beginning 90 days after the date of this prospectus, subject only to the manner of sale provisions of Rule 144, and by affiliates under Rule 144 without compliance with its holding period requirements. Following this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering 5,646,518 shares of common stock subject to outstanding options under our 1988 and 1996 Stock Options Plans and the shares reserved for issuance under our 2000 Equity Incentive Plan, 2000 Employee Stock Purchase Plan and 2000 Non-Employee Directors' Stock Option Plan that will become effective upon filing. Accordingly, shares registered under that registration statement will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market after the filing, except those shares subject to the lock up agreements. 51 UNDERWRITING Under the underwriting agreement, which was filed as an exhibit to the registration statement relating to this prospectus, each of the underwriters for whom Lehman Brothers Inc., Chase Securities Inc., Legg Mason Wood Walker, Inc., UBS Warburg LLC and Fidelity Capital Markets, a division of National Financial Services Corporation, are acting as representatives, have each agreed to purchase from us the respective number of shares of common stock set forth opposite its name below:
Underwriters Number of Shares - ------------ ---------------- Lehman Brothers Inc.......................................... Chase Securities Inc......................................... Legg Mason Wood Walker, Inc. ................................ UBS Warburg LLC.............................................. Fidelity Capital Markets, a division of National Financial Services Corporation........................................ ---- Total...................................................... ====
We have granted the underwriters an option to purchase up to an aggregate of 750,000 additional shares of common stock, exercisable solely to cover over- allotments, if any, at the public offering price less the underwriting discount shown on the cover page of this prospectus. The underwriters may exercise this option at any time until 30 days after the date of the underwriting agreement. If this option is exercised, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares of common stock proportionate to the underwriter's initial commitment as indicated in the table above and we will be obligated, under the over-allotment option, to sell the shares of common stock to the underwriters. The following table shows the per share and the total underwriting discount we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase up to an additional 750,000 shares.
No Exercise Full Exercise ----------- ------------- Per share............................................. $ $ ----- ----- Total............................................... $ $ ===== =====
We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $ . Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any of these securities dealers may resell any shares purchased from the underwriters to other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representative may change the offering price and the other selling terms. The underwriters have reserved for sale, at the initial public offering price, up to shares of our common stock being offered for sale to our customers and business partners. At the discretion of our management, other parties, including our employees, may participate in the reserved share program. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. We have agreed that, without the prior consent of Lehman Brothers Inc., we will not, directly or indirectly, offer, sell or otherwise dispose of any shares of common stock or any securities that may be converted into or 52 exchanged for any shares of common stock for a period of 180 days from the date of this prospectus. All of our executive officers, directors and substantially all of our stockholders have agreed under lock-up agreements that, without the prior written consent of Lehman Brothers Inc., they will not, directly or indirectly, offer, sell or otherwise dispose of any shares of common stock or any securities that may be converted into or exchanged for any shares of common stock for the period ending 180 days from the date of this prospectus. See "Shares Eligible for Future Sale." Prior to this offering, there has been no public market for our common stock. The initial public offering price will be negotiated by us and the representatives. The principal factors to be considered in determining the initial public offering price include: . the information set forth in this prospectus and otherwise available to the representatives; . the history and the prospects for the industry in which we compete; . the ability of our management; . our prospects for future earnings, the present state of our development and our current financial position; . the general condition of the securities markets at the time of this offering; and . the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies. Fidelity Capital Markets, a division of National Financial Services Corporation, is acting as an underwriter of this offering and will be facilitating electronic distribution through the Internet. In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. "Covered" short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares from the issuer in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. "Naked" short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales and stabilizing transactions may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise. The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of that underwriter in stabilizing or short covering transactions. 53 We have agreed to indemnify the several underwriters against some liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments that the underwriters may be required to make in respect thereof. Any offers in Canada will be made only under an exemption from the requirements to file a prospectus in the relevant province of Canada in which such sale is made. Purchasers of the shares of common stock offered by this prospectus may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover of this prospectus. The underwriters have informed us that they do not intend to confirm the sales to discretionary accounts that exceed 5% of the total number of shares of common stock offered by them. LEGAL MATTERS The validity of the shares of common stock in this offering will be passed upon for us by Cooley Godward LLP, San Francisco, California, and for the underwriters by Sullivan & Cromwell, Washington, D.C. As of the date of this prospectus, certain partners and associates of Cooley Godward LLP own an aggregate of 27,777 shares of our common stock through investment partnerships. Deborah A. Marshall, a partner at Cooley Goodward LLP, is our Secretary. EXPERTS Ernst & Young LLP, independent auditors, have audited our financial statements at December 31, 1998 and 1999, and for each of the three years in the period ended December 31, 1999, as set forth in their report. We have included our financial statements in this prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered under this prospectus. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule to the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and to the exhibits and schedule to registration statement. 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, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference. You may inspect a copy of the registration statement without charge at the SEC's principal office in Washington, D.C., and copies of all or any part of the registration statement may be obtained from the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of fees prescribed by the SEC. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The address of the Internet site is http://www.sec.gov. Upon completion of this offering, we will be subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, and we will file reports, proxy statements and other information with the SEC. We intend to furnish our stockholders with annual reports containing financial statements audited by our independent public accountants and quarterly reports for the first three fiscal quarters of each fiscal year containing unaudited interim financial information. Our telephone number is (650) 244-9303. 54 INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Ernst & Young LLP, Independent Auditors.......................... F-2 Balance Sheets............................................................. F-3 Statements of Operations................................................... F-4 Statement of Stockholders' Equity.......................................... F-5 Statements of Cash Flows................................................... F-6 Notes to Financial Statements.............................................. F-7
F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Telik, Inc. We have audited the accompanying balance sheets of Telik, Inc. as of December 31, 1998 and 1999, and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Telik, Inc. at December 31, 1998 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Palo Alto, California February 25, 2000 F-2 BALANCE SHEETS
Unaudited Pro forma December 31, Stockholders' ------------------ June 30, Equity at 1998 1999 2000 June 30, 2000 -------- -------- -------- ------------- (Unaudited) (In thousands, except share and per share data) Assets Current assets: Cash and cash equivalents........ $ 2,196 $ 1,950 $ 1,728 Short-term investments........... 12,206 5,606 7,709 Prepaid expenses and other current assets.................. 497 337 263 Deferred offering costs.......... -- -- 1,018 -------- -------- -------- Total current assets........... 14,899 7,893 10,718 Property and equipment, net........ 1,566 1,197 945 Other assets....................... 121 80 80 -------- -------- -------- $ 16,586 $ 9,170 $ 11,743 ======== ======== ======== Liabilities and stockholders' equity Current liabilities: Accounts payable................. $548 $780 $ 543 Accrued contracts and other liabilities..................... 688 680 1,208 Deferred revenue................. 2,118 2,250 1,592 Current portion of capital lease obligations and equipment loans........................... 630 247 28 -------- -------- -------- Total current liabilities...... 3,984 3,957 3,371 Noncurrent portion of capital lease obligations and equipment loans... 272 25 20 Other long-term liabilities........ 153 58 57 Commitments Stockholders' equity: Convertible preferred stock, $0.01 par value, issuable in series, 1,023,799 shares authorized in 1998 and 1999, 3,023,799 at June 30, 2000 (and pro forma) 1,020,150 shares issued and outstanding at December 31, 1998 and 1999 and 2,186,817 at June 30, 2000 (none pro forma) (aggregate liquidation preference of $50,408 at December 31, 1999 and $57,408 at June 30, 2000)....... 10 10 22 $ -- Common stock, $0.01 par value, 23,000,000 shares authorized in 1998 and 1999, 46,976,201 shares at June 30, 2000 (and pro forma), 2,196,038, 2,207,281 and 2,343,357 shares issued and outstanding at December 31, 1998, 1999 and June 30, 2000 respectively (16,150,059 pro forma)...................... 22 22 23 162 Additional paid-in capital....... 56,465 56,742 70,568 70,451 Note receivable from employee.... -- -- (153) (153) Deferred stock compensation...... -- (260) (2,654) (2,654) Accumulated deficit.............. (44,320) (51,384) (59,511) (59,511) -------- -------- -------- -------- Total stockholders' equity..... 12,177 5,130 8,295 $ 8,295 -------- -------- -------- ======== Total liabilities and stockholders' equity.......... $ 16,586 $ 9,170 $ 11,743 ======== ======== ========
See accompanying notes F-3 STATEMENTS OF OPERATIONS
Years Ended December Six Months Ended 31, June 30, ------------------------- ----------------- 1997 1998 1999 1999 2000 ------- ------- ------- ------- -------- (Unaudited) (In thousands, except per share data) Contract revenue from collaborations: With related parties........... $ 1,500 $ 1,750 $ 2,000 $ 1,000 $ 1,125 Other.......................... 152 1,444 2,237 1,489 205 ------- ------- ------- ------- -------- 1,652 3,194 4,237 2,489 1,330 Costs and expenses: Research and development....... 8,090 7,952 9,547 5,198 5,119 General and administrative..... 2,470 2,149 2,152 772 4,589 ------- ------- ------- ------- -------- 10,560 10,101 11,699 5,970 9,708 ------- ------- ------- ------- -------- Loss from operations............. (8,908) (6,907) (7,462) (3,481) (8,378) Interest income, net............. 290 328 398 226 251 ------- ------- ------- ------- -------- Net loss......................... (8,618) (6,579) (7,064) (3,255) (8,127) Deemed dividend to Series K preferred stockholders.......... -- -- -- -- (4,667) ------- ------- ------- ------- -------- Net loss allocable to common stockholders.................... $(8,618) $(6,579) $(7,064) $(3,255) $(12,794) ======= ======= ======= ======= ======== Net loss per common share, basic and diluted..................... $ (3.95) $ (3.00) $ (3.21) $ (1.48) $ (5.75) ======= ======= ======= ======= ======== Weighted average shares used in computing net loss per common share, basic and diluted........ 2,184 2,194 2,204 2,200 2,225 Pro forma net loss per common share, basic and diluted (unaudited)..................... $ (0.47) $ (0.83) ======= ======== Weighted average shares used in computing pro forma net loss per common share, basic and diluted (unaudited)..................... 14,879 15,489
See accompanying notes F-4 STATEMENT OF STOCKHOLDERS' EQUITY
Note Convertible Receivable Preferred Stock Common Stock Additional Deferred From Total ---------------- ---------------- Paid-In Stock Stockholders Accumulated Stockholders' Shares Amount Shares Amount Capital Compensation and Employee Deficit Equity --------- ------ --------- ------ ---------- ------------ ------------ ----------- ------------- (In thousands, except share and per share data) Balance at December 31, 1996............. 667,150 $ 7 2,173,462 $22 $39,036 $ -- $ -- $(29,123) $ 9,942 Issuance of Series I preferred stock in September and November 1997 at $50 per share, net of issuance costs....... 143,000 1 -- -- 7,092 -- -- -- 7,093 Exercise of options to purchase common stock................ -- -- 19,026 -- 21 -- -- -- 21 Net loss and comprehensive loss... -- -- -- -- -- -- -- (8,618) (8,618) --------- --- --------- --- ------- ------- ------- -------- ------- Balance at December 31, 1997............. 810,150 8 2,192,488 22 46,149 -- -- (37,741) 8,438 Issuance of Series J preferred stock in September and October 1998 at $50 per share, net of issuance costs....... 210,000 2 -- -- 10,286 -- -- -- 10,288 Exercise of options to purchase common stock................ -- -- 3,550 -- 30 -- -- -- 30 Net loss and comprehensive loss... -- -- -- -- -- -- -- (6,579) (6,579) --------- --- --------- --- ------- ------- ------- -------- ------- Balance at December 31, 1998............. 1,020,150 10 2,196,038 22 56,465 -- -- (44,320) 12,177 Exercise of options to purchase common stock................ -- -- 11,243 -- 17 -- -- -- 17 Deferred stock compensation......... -- -- -- -- 260 (260) -- -- Net loss and comprehensive loss... -- -- -- -- -- -- -- (7,064) (7,064) --------- --- --------- --- ------- ------- ------- -------- ------- Balance at December 31, 1999............. 1,020,150 10 2,207,281 22 56,742 (260) -- (51,384) 5,130 Issuance of Series K preferred stock in March 2000 at $6 per share, net of issuance costs (unaudited).......... 1,166,667 12 -- -- 6,938 -- -- -- 6,950 Note receivable for Series K preferred stock (unaudited).... -- -- -- -- -- -- (5,000) -- (5,000) Payment of note receivable for Series K preferred stock (unaudited).......... -- -- -- -- -- -- 5,000 -- 5,000 Issuance of 96,000 shares of common stock at $1.60 per share upon the exercise of employee stock options for a promissory note in June 2000............ -- -- -- -- -- -- (153) -- (153) Stock options granted to consultants....... -- -- -- -- 4,063 4,063 Exercise of options to purchase common stock (unaudited).......... -- -- 136,076 1 208 -- -- -- 209 Deferred stock compensation (unaudited).......... -- -- -- -- 2,617 (2,617) Amortization of deferred stock compensation (unaudited).......... -- -- -- -- -- 223 -- -- 223 Net loss and comprehensive loss (unaudited).......... -- -- -- -- -- -- -- (8,127) (8,127) --------- --- --------- --- ------- ------- ------- -------- ------- Balance at June 30, 2000 (unaudited)..... 2,186,817 $22 2,343,357 $23 $70,568 $(2,654) $ (153) $(59,511) $ 8,295 ========= === ========= === ======= ======= ======= ======== =======
See accompanying notes F-5 STATEMENTS OF CASH FLOWS
Six Months Ended Years Ended December 31, June 30, ---------------------------- ------------------ 1997 1998 1999 1999 2000 -------- -------- -------- -------- -------- (In thousands) (Unaudited) Operating activities Net loss.................... $ (8,618) $ (6,579) $ (7,064) $ (3,254) $ (8,127) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization............. 1,175 892 609 314 281 Amortization of deferred stock compensation....... -- -- -- -- 223 Stock options issued to consultants.............. -- 4,063 Forgiveness of notes receivable from related parties.................. 43 -- -- -- -- Amortization of discount on investments........... (172) (272) 99 20 47 Short-term lease deposits................. -- -- (49) -- -- Changes in operating assets and liabilities: Prepaid expenses and other current assets.... (77) (272) 160 86 74 Other assets............. 51 -- 41 -- (1) Accounts payable......... (197) 435 232 (114) (237) Accrued contracts and other liabilities....... 450 (285) (8) (291) 528 Deferred revenue......... 498 120 132 (371) (658) Other long-term liabilities............. -- 153 (95) (89) -- -------- -------- -------- -------- -------- Net cash used in operating activities... (6,847) (5,808) (5,943) (3,699) (3,807) -------- -------- -------- -------- -------- Investing activities Maturities of short-term investments................ 8,500 12,200 11,008 5,932 500 Sales of short-term investments................ 3,360 2,786 5,880 2,926 -- Purchases of short-term investments................ (18,262) (17,032) (10,387) (6,250) (2,650) Purchase of property and equipment.................. (510) (530) (240) (216) (29) Proceeds from disposal of property and equipment..... -- 14 -- -- -- -------- -------- -------- -------- -------- Net cash (used in) provided by investing activities............. (6,912) (2,562) 6,261 2,392 (2,179) -------- -------- -------- -------- -------- Financing activities Proceeds from equipment loans...................... 210 -- -- -- -- Principal payments under capital lease obligations and equipment loans........ (626) (557) (581) (296) (224) Deferred offering costs..... -- -- -- -- (1,018) Net proceeds from issuance of convertible preferred stock...................... 7,093 10,288 -- -- 6,950 Net proceeds from issuance of common stock and warrants................... 21 30 17 11 56 -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities............. 6,698 9,761 (564) (285) 5,764 -------- -------- -------- -------- -------- Increase (decrease) in cash and cash equivalents....... (7,061) 1,391 (246) (1,592) (222) Cash and cash equivalents at beginning of period........ 7,866 805 2,196 2,196 1,950 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period................. $ 805 $ 2,196 $ 1,950 $ 604 $ 1,728 ======== ======== ======== ======== ======== Supplemental cash flow information Cash paid for interest...... $ 245 $ 122 $ 58 $ 40 $ 158 ======== ======== ======== ======== ======== Schedule of non cash transactions Deferred stock compensation............... $ -- $ -- $ 260 -- $ 2,617 ======== ======== ======== ======== ======== Note receivable for preferred stock............ $ -- $ -- $ -- $ -- $ 5,000 ======== ======== ======== ======== ======== Note receivable received for Common Stock............... $ -- $ -- $ -- $ -- $ 153 ======== ======== ======== ======== ========
See accompanying notes F-6 TELIK, INC. NOTES TO FINANCIAL STATEMENTS (Information as of June 30, 2000 and the six month periods ended June 30, 1999 and 2000 is unaudited) 1. Summary of significant accounting policies Nature of operations and basis of presentation Telik, Inc. (the "Company") was incorporated in the state of Delaware in October 1988 as Terrapin Diagnostics, Inc. which changed its name in June 1989 to Terrapin Technologies, Inc. ("Terrapin"). In May 1998, Terrapin changed its name to Telik, Inc. The Company is engaged in the discovery and development of small molecule drug candidates. The Company matured from its development stage to an operating company in 1999. As such, its financial statements are no longer prepared on a development stage basis. The Company expects continuing losses over the next several years. The Company plans to obtain its capital requirements through public or private equity or debt financing, capital lease financing and collaborative arrangements with corporate partners. If the financing arrangements contemplated by management are not consummated, the Company may have to seek other sources of capital or reevaluate its operating plans. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Unaudited pro forma information In January 2000, the board of directors authorized the filing of a registration statement with the Securities and Exchange Commission to register shares of its common stock in connection with a proposed initial public offering. If the offering contemplated by this prospectus is consummated, all the preferred stock outstanding as of the closing date will automatically be converted into shares of the Company's common stock. Unaudited pro forma stockholders' equity and the accompanying balance sheet as of June 30, 2000 reflects the conversion of the outstanding preferred stock. Interim financial data The financial information at June 30, 2000 and for the six months ended June 30, 1999 and 2000 is unaudited but, in the opinion of management, has been prepared on the same basis as the annual financial statements and includes all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of the financial position at such date and the operating results and cash flow for such periods. Results for the interim periods are not necessarily indicative of the results to be expected for any subsequent period. Cash equivalents and short-term investments The Company considers all highly liquid investments with an original maturity of 90 days or less when purchased, to be cash equivalents. For the periods presented, cash equivalents consist of money market funds and corporate debt securities. The Company's short-term investments include obligations of governmental agencies and corporate debt securities with original maturities ranging between 3 and 12 months. The Company limits concentration of credit risk by diversifying its investments among a variety of high credit-quality issuers. All cash equivalents and short-term investments are classified as available- for-sale. Available-for-sale securities are carried at estimated fair value, based on available market information, with unrealized gains and F-7 TELIK, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of June 30, 2000 and the six month periods ended June 30, 1999 and 2000 is unaudited) losses, if any, reported as a component of stockholders' equity. The cost of securities sold is based on the specific identification method. As of December 31, 1998 and 1999 and June 30, 2000, there were no material differences between amortized cost and fair value of available-for-sale securities. Realized gains and losses on sales of available-for-sale investments are not material. Fair value of financial instruments Financial instruments, including cash and cash equivalents, accounts payable, accrued liabilities and accrued compensation are carried at cost, which management believes approximates fair value. Property and equipment Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Furniture and equipment leased under capital leases are amortized using the straight-line method over the estimated useful lives of the respective assets or the lease term, whichever is shorter. Revenue Recognition Contract revenue consists of revenue from research and development collaboration agreements. The Company's research and development collaboration agreements provide for periodic payments in support of the Company's research activities. The Company recognizes contract revenue from these agreements as earned based upon the performance requirements of the agreements and payments for up-front technology access and license fees are recognized ratably over the period of the related research program. Payments received, which are related to future performance, are deferred and recognized as revenue when earned over future performance periods. Stock-based compensation As permitted by the Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" ("FASB 123"), the Company accounts for grants of stock options to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations ("APB No. 25"). Accordingly, the Company does not recognize compensation expense for stock options granted to employees with exercise prices equal to the fair value of the Company's common stock on the date of grant. Options granted to consultants are accounted for using the Black-Scholes method prescribed by FASB 123 and in accordance with Emerging Issues Task Force Consensus No. 96-18 ("EITF 96-18"), and such options are subject to periodic revaluation over their vesting term. Research and development Research and development expenditures, including direct and allocated expenses, are charged to expense as incurred. Collaboration agreements generally specify minimum levels of research effort required to be performed by the Company. Segment reporting Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131"), establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. F-8 TELIK, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of June 30, 2000 and the six month periods ended June 30, 1999 and 2000 is unaudited) The Company has determined that it operates in only one segment. Accordingly, the adoption of SFAS 131 had no impact on the Company's financial statements. Comprehensive loss Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" requires components of other comprehensive income, including gains and losses on available-for-sale investments, to be included as part of total comprehensive income. For all periods presented, the comprehensive loss is equal to the net loss and has been disclosed in the statement of stockholders' equity. Impairment of long-lived assets In accordance with the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company reviews long- lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Under SFAS 121, an impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Impairment, if any, is assessed using discounted cash flows. Through June 30, 2000, there have been no such losses. Net loss per common share Net loss per common share has been computed according to the Financial Accounting Standards Board Statement No. 128, "Earnings Per Share," which requires disclosure of basic and diluted earnings per share. Basic earnings per share excludes any dilutive effects of options, shares subject to repurchase, warrants and convertible securities. Diluted earnings per share includes the impact of potentially dilutive securities. Following the guidance given by the Securities and Exchange Commission Staff Accounting Bulletin No. 98, common stock and preferred stock that has been issued or granted for nominal consideration prior to the anticipated effective date of the initial public offering must be included in the calculation of basic and diluted net loss per common share as if these shares had been outstanding for all periods presented. To date, the Company has not issued or granted shares for nominal consideration. Pro forma net loss per share includes shares issuable upon the conversion of outstanding shares of preferred stock and warrants (using the as-if-converted method) from the original date of issuance. A reconciliation of shares used in the calculations is as follows (in thousands):
Years Ended December Six Months Ended 31, June 30, ------------------------- ----------------- 1997 1998 1999 1999 2000 ------- ------- ------- ------- -------- Net loss allocable to common stockholders.................... $(8,618) $(6,579) $(7,064) $(3,255) $(12,794) ======= ======= ======= ======= ======== Basic and diluted: Weighted average shares of common stock outstanding...... 2,184 2,194 2,204 2,200 2,225 ======= ======= ======= Adjustment to reflect weighted average effect of assumed conversions of preferred stock (unaudited)................... 12,675 13,264 ------- -------- Weighted average shares used in pro forma net loss per common share, basic and diluted (unaudited)................... 14,879 15,489 ======= ========
F-9 TELIK, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of June 30, 2000 and the six month periods ended June 30, 1999 and 2000 is unaudited) During all periods presented, the Company had securities outstanding which could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been antidilutive. These outstanding securities consist of the following (in thousands) common stock equivalents:
December 31, June 30, -------------------------------- --------------------- 1997 1998 1999 1999 2000 ---------- ---------- ---------- ---------- ---------- Convertible preferred stock.................. 10,140,035 12,640,035 12,640,035 12,640,035 13,806,702 Outstanding options..... 2,135,686 2,996,376 2,991,787 2,875,747 3,003,418 Preferred stock warrants............... 34,559 34,559 34,559 34,559 34,559
Recent accounting pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Financial Instruments and for Hedging Activities" ("SFAS 133"), which provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. SFAS 133 is effective for fiscal years beginning after June 15, 2000 and is not anticipated to have an impact on the Company's results of operations or financial condition when adopted as the Company holds no derivative financial instruments and does not currently engage in hedging activities. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes the SEC's views in applying generally accepted accounting principles to revenue recognition. The adoption of SAB 101 had no significant impact on the Company's revenue recognition policy or results of operations. In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"), "Accounting for Certain Transactions Involving Stock compensation--an Interpretation of APB 25." This Interpretation clarifies (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. This Interpretation is effective July 1, 2000, but certain conclusions in this Interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that this Interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this Interpretation are recognized on a prospective basis from July 1, 2000. The adoption of FIN 44 does not have a material impact on the Company's financial statements. F-10 TELIK, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of June 30, 2000 and the six month periods ended June 30, 1999 and 2000 is unaudited) 2. Cash equivalents and short-term investments The following is a summary of cash equivalents and short-term investments (in thousands):
Estimated Cost and Fair Value December 31, -------------- 1998 1999 ------- ------ Cash equivalents: Money market fund.......................................... $ 223 $ 107 Corporate notes............................................ 1,973 1,843 ------- ------ $ 2,196 $1,950 ======= ====== Short-term investments: U.S. Government notes...................................... $ 5,266 $ 996 Corporate notes............................................ 1,006 4,610 Commercial paper........................................... 4,934 -- Certificate of deposit..................................... 1,000 -- ------- ------ $12,206 $5,606 ======= ======
There are no unrealized gains or losses for the years ended December 31, 1998 and 1999. 3. Property and equipment Property and equipment consist of the following (in thousands):
December 31, ---------------- 1998 1999 ------- ------- Laboratory furniture and equipment......................... $ 3,914 $ 4,137 Office furniture and equipment............................. 383 400 Leasehold improvements..................................... 1,099 1,099 ------- ------- 5,396 5,636 Less accumulated depreciation and amortization............. (3,830) (4,439) ------- ------- Property and equipment, net.............................. $ 1,566 $ 1,197 ======= =======
Property and equipment includes assets under capitalized leases at December 31, 1998 and 1999 of approximately $525,000 and $53,000, respectively. Accumulated amortization related to leased assets was approximately $366,000 and $20,000 at December 31, 1998 and 1999, respectively. 4. Lease obligations and equipment loans In September 1996, the Company entered into an equipment loan agreement with a finance company under which the Company can borrow up to $1,500,000. Equipment borrowings under this agreement totaled $688,000 and $237,000 at December 31, 1998 and 1999, respectively. The borrowings bear interest at 8% and the remaining principal balance of $237,000 is due in November 2000. F-11 TELIK, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of June 30, 2000 and the six month periods ended June 30, 1999 and 2000 is unaudited) The Company also has acquired certain equipment and furniture pursuant to capital lease arrangements. At December 31, 1999, the future minimum capital lease obligations are not significant. The Company occupies its facilities under an operating lease which expires in December 2002. Rent expense under operating leases totaled $387,000, $466,000 and $497,000 for the years ended December 31, 1997, 1998 and 1999, respectively. The Company has the option to renew the lease upon expiration for an additional term of five years. At December 31, 1999, noncancelable future minimum lease payments under the Company's operating leases are as follows (in thousands): Years ending December 31, 2000............................................................ $ 514 2001............................................................ 535 2002............................................................ 557 2003............................................................ 1 ------ $1,607 ======
5. Stockholders' equity Preferred stock Preferred stock is issuable in series, with rights and preferences designated by series. The shares designated, issued and outstanding at December 31, 1998, 1999 and June 30, 2000 are as follows:
Shares Aggregate Shares Issued and Liquidation Authorized Outstanding Preference ---------- ----------- -------------- (In thousands) Series B convertible................... 20,000 20,000 $ 400 Series E convertible................... 114,720 114,500 5,725 Series F convertible................... 169,600 169,600 8,480 Series G convertible................... 273,050 273,050 13,653 Series H convertible................... 93,429 90,000 4,500 Series I convertible................... 143,000 143,000 7,150 Series J convertible................... 210,000 210,000 10,500 --------- --------- ------- Balance at December 31, 1999........... 1,023,799 1,020,150 50,408 Series K convertible................... 2,000,000 1,166,667 7,000 --------- --------- ------- Balance at June 30, 2000............. 3,023,799 2,186,817 $57,408 ========= ========= =======
On March 31, 2000, the Company closed a private placement in which it sold 1,166,667 shares of Series K convertible preferred stock at $6.00 per share for net proceeds of approximately $1,950,000 and a short-term note receivable of $5,000,000. The note receivable was redeemed on April 10, 2000. In accordance with the provisions of the respective preferred stock agreements, Series A, C and D preferred stock were converted into common stock at the specified conversion price of $6.00 per share for Series A and C and $3.00 per share for Series D. F-12 TELIK, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of June 30, 2000 and the six month periods ended June 30, 1999 and 2000 is unaudited) Series B, E, F, G, H, I, J and K preferred stock are convertible into common stock at the option of the holder at conversion prices of $3.56, $3.00, $3.60, $4.20, $5.55, $4.20, $4.20 and $6.00 per share, respectively. These conversion prices are subject to price-based antidilution adjustments for future stock issuances. Series B, E, F, G, H, I, J and K preferred shares will automatically convert into common stock at the earlier of (i) the closing of the Company's initial underwritten public offering, or (ii) a vote or written consent of 2/3 of the shares of all series of preferred stock then outstanding, voting together as a single class or, in the case of Series J preferred stock, a vote or written consent of 2/3 of the shares of Series J preferred stock then outstanding. All preferred shares have voting rights equal to common stock on an as-if-converted basis. The holders of Series B, E, F, G, H, I, J and K preferred stock are entitled to receive noncumulative dividends, if declared, prior to and in preference to the payment of dividends to holders of common stock. No dividends have been declared through June 30, 2000. In the event of a liquidation or winding up of the Company, holders of Series B convertible preferred stock shall have a liquidation preference of $20 and the holders of Series E, F, G, H, I and J convertible preferred stock shall each have a liquidation preference of $50 per share, together with any declared but unpaid dividends, over holders of common shares. Holders of Series K preferred stock shall have a liquidation preference of $6 per share, together with any declared but unpaid dividends, over holders of common shares. Deemed Dividend During March 2000, the Company consummated the sale of 1,166,667 shares of Series K convertible preferred stock at $6.00 per share for net proceeds of approximately $1,950,000 and a short term note receivable of $5,000,000. At the date of issuance, the Company believed the per share price of $6.00 represented the fair value of the preferred stock. Subsequent to the date of issuance, Telik re-evaluated the fair value of its common stock. Accordingly, the increase in fair value has resulted in a beneficial conversion feature of $4,667,000, that has been recorded as a deemed dividend to preferred stockholders in 2000. The Company recorded the deemed dividend at the date of issuance by offsetting charges and credits to additional paid-in capital, without any effect on total stockholder's equity. The preferred stock dividend increases the net loss allocable to common stockholders in the calculation of basic and diluted net loss per common share for the six months ended June 30, 2000. Preferred stock warrants In connection with the negotiation of a secured note payable in December 1992, the Company issued warrants to purchase 220 shares of Series E preferred stock at an exercise price of $50.00 per share. These warrants expire on the earlier of December 31, 2002, the day preceding the closing date of the Company's initial public offering or the day preceding the effective date of any consolidation or merger of the Company, whichever is earlier. The value of these warrants was determined to be immaterial. In September 1996, in conjunction with a loan agreement for the purchase of property and equipment, the Company issued warrants that entitle the holder to purchase 3,429 shares of Series H preferred stock at an exercise price of $50.00 per share. These warrants are exercisable through August 31, 2003, the day preceding the closing date of the Company's initial public offering or the day preceding the effective date of any consolidation or merger of the Company, whichever is earlier. F-13 TELIK, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of June 30, 2000 and the six month periods ended June 30, 1999 and 2000 is unaudited) 1988 Stock Option Plan The 1988 Stock Option Plan (the "1988 Plan") was adopted in February 1989. Options granted under the 1988 Plan may be either incentive stock options ("ISOs") or nonstatutory stock options ("NSOs"). At December 31, 1999 and June 30, 2000, the Company had authorized 905,017 and 569,775 shares of common stock for issuance under the 1988 Plan, respectively. Options granted under the 1988 Plan expire no later than 10 years from the date of grant. For ISOs and NSOs, the option price shall be at least 100% and 85%, respectively, of the closing price of the Company's common stock on the date of the grant, or in the event there is no public market for the common stock, of the fair value on the date of the grant, as determined by the board of directors. If, at any time the Company grants an option, and the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, the option price shall be at least 110% of the fair value and shall not be exercisable more than five years after the date of grant. Options generally vest over a period of four years from the date of grant. 1996 Stock Option Plan The 1996 Stock Option Plan (the "1996 Plan") was adopted in April 1996 with terms similar to the 1988 Plan. At December 31, 1999 and June 30, 2000, the Company had authorized 2,238,816 and 2,117,240 shares of common stock for issuance under the 1996 Plan, respectively. The Company's Board of Directors has reserved 500,000 shares for issuance or future grant under the 1996 Plan, pending stockholder approval of such reservation. Additional options were granted prior to the adoption of the 1988 and 1996 Plans, of which 22,768 and 445,782 are outstanding at December 31, 1999 and June 30, 2000, respectively and have expiration dates ranging from June 2000 to June 2001. F-14 TELIK, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and the three month periods ended March 31, 1999 and 2000 is unaudited) Stock option plans A summary of activity under the Company's stock option plans through June 30, 2000 is as follows:
Options Outstanding ------------------------ Exercise Weighted- Number of Price Per Average Options Share Exercise Price --------- ------------- -------------- Balance at December 31, 1996........... 1,967,850 $1.00 - $1.60 $1.10 Options granted...................... 735,505 $1.60 $1.60 Options exercised.................... (19,207) $1.00 - $1.60 $1.40 Options forfeited.................... (548,462) $1.00 - $1.60 $1.13 --------- Balance at December 31, 1997........... 2,135,686 $1.00 - $1.60 $1.27 Options granted...................... 1,070,905 $1.60 $1.60 Options exercised.................... (3,550) $1.60 $1.60 Options forfeited.................... (206,665) $1.00 - $1.60 $1.40 --------- Balance at December 31, 1998........... 2,996,376 $1.00 - $1.60 $1.40 Options granted...................... 281,050 $1.60 $1.60 Options exercised.................... (11,243) $1.00 - $1.60 $1.04 Options forfeited.................... (274,396) $1.00 - $1.60 $1.32 --------- Balance at December 31, 1999........... 2,991,787 $1.40 Options granted (unaudited).......... 760,820 $1.00 - $2.00 $2.00 Options exercised (unaudited)........ (136,076) $1.00 - $1.60 $1.32 Options forfeited (unaudited)........ (613,113) $1.00 - $1.60 $1.50 --------- Balance at June 30, 2000............... 3,003,418 $1.46 Exercisable at December 31, 1997....... 696,250 $1.00 - $1.60 $1.08 Exercisable at December 31, 1998....... 1,143,771 $1.00 - $1.60 $1.19 Exercisable at December 31, 1999....... 1,757,992 $1.00 - $1.60 $1.30 Exercisable at June 30, 2000........... 1,818,331 $1.00 - $1.60 $1.35
At June 30, 2000, the Company has 129,379 shares available for grant under its option plans. At June 30, 2000, the remaining outstanding options expire at various dates through 2010 and have a weighted-average contractual life of 6.4 years. The weighted average fair value of options granted during 1997, 1998, 1999 and 2000 was $0.44, $0.42, $1.35 and $6.56, respectively. Pro forma information regarding net loss is required by FASB 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the minimum value method using the following weighted-average assumptions for years ended December 31, 1997, 1998, 1999 and the six months ended June 30, 2000: risk-free interest rate of 6.23%, 6.23%, 6.53% and 6.50%, respectively; an expected life of 5 years (except for option grants with abbreviated exercise periods, for which the expected life assumption is one year); and no dividends. F-15 TELIK, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of June 30, 2000 and the six month periods ended June 30, 1999 and 2000 is unaudited) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of the options. The Company's pro forma information follows:
Years Ended December 31, ------------------------- 1997 1998 1999 ------- ------- ------- (in thousands, except per share amounts) Net loss: As reported.................................... $(8,618) $(6,579) $(7,064) Pro forma...................................... $(8,728) $(6,779) $(7,346) Basic and diluted net loss per share: As reported.................................... $ (3.95) $ (3.00) $ (3.21) Pro forma...................................... $ (4.00) $ (3.09) $ (3.33)
The effects of applying SFAS 123 for pro forma disclosures are not likely to be representative of the effects as reported net loss for future years. During 1998 and 1999, the Company issued 41,500 and 20,000 options, respectively, to consultants in exchange for services performed for the Company. For these option grants, the Company recognized an expense equal to the estimated fair market value of the granted options on the date of the grant. This amount was equal to $26,000 for 1998 and was immaterial for 1999. In accordance with SFAS 123 and EITF 96-18, options granted to consultants are periodically revalued as they vest. During the year ended December 31, 1999 and the six months ended June 30, 2000, in connection with options granted to employees, the Company recorded deferred stock compensation of $260,000 and $2,617,000, respectively, representing the difference between the exercise price of the options and the deemed fair value of the common stock. These amounts are being amortized to operations over the vesting periods of the options on a straight line basis. The amortization expense was not material for the year ended December 31, 1999 and was $223,000 for the six months ended June 30, 2000. In June 2000, we authorized an extension of the option exercise period for a former officer for an aggregate of 433,648 previously vested shares of common stock. This option was exercised in full in July 2000. Common stock reserved At December 31, 1999 and June 30, 2000, the Company has reserved shares of common stock for future issuance as follows:
December 31, June 30, 1999 2000 ------------ ---------- Preferred stock warrants............................. 34,559 34,559 Incentive stock plan................................. 3,166,601 3,132,797 Convertible preferred stock.......................... 12,640,035 13,806,702 ---------- ---------- 15,841,195 16,974,058 ========== ==========
F-16 TELIK, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of June 30, 2000 and the six month periods ended June 30, 1999 and 2000 is unaudited) 2000 Employee Stock Purchase Plan In March 2000, subject to stockholder approval, the Company adopted its 2000 Employee Stock Purchase Plan (the "Purchase Plan"). A total of 250,000 shares of the Company's common stock have been reserved for issuance under the Purchase Plan. In addition, the Purchase Plan provides for annual increases in the number of shares available for issuance under the Purchase Plan on each anniversary date of the effective date of the offering. The number of shares reserved automatically is equal to the lesser of 150,000 shares, 1% of the outstanding shares on the date of the annual increase or such amount as may be determined by the Board. The Purchase plan permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock on the first day of the offering or 85% of the fair market value of the Company's common stock on the purchase date. The initial offering period will commence on the effective date of the offering. 2000 Non-Employee Directors' Stock Option Plan In March 2000, subject to stockholder approval, the Company adopted the 2000 Non-Employee Directors' Stock Option Plan and reserved a total of 300,000 shares of common stock for issuance thereunder. Each non-employee director at the IPO date will automatically be granted an option to purchase 20,000 shares of common stock, and each non-employee director who subsequently becomes a director of the Company will be automatically granted a nonstatutory stock option to purchase 20,000 shares of common stock on the date on which such person first becomes a director. At each Board meeting immediately following each annual stockholders meeting, beginning with the first Board meeting after the 2000 Annual Stockholders Meeting, each non-employee director will automatically be granted a nonstatutory option to purchase 5,000 shares of common stock or prorated for the part of the year served as non-employee director. The exercise price of options under the Directors' Plan will be equal to the fair market value of the common stock on the date of grant. The maximum term of the options granted under the Directors' Plan is ten years. All grants under the Directors' Plan will vest over a period of four years from date of grant, one fourth vesting one year after the date of the grant and thereafter the balance vesting monthly. The Directors' Plan will terminate in March 2010 unless terminated earlier in accordance with the provisions of the Directors' Plan. 2000 Equity Incentive Plan Subject to stockholder approval, the Company adopted the 2000 Equity Incentive Plan and reserved 2,000,000 shares of the Company's common stock. In addition the Incentive Plan provides for annual increases in the number of shares available for issuance under the Incentive Plan. 6. Collaborative agreements In December 1996, the Company entered into a collaboration and license agreement with a Japanese pharmaceutical company focusing on diabetes. Under the agreement, the Company granted an exclusive license to the Japanese pharmaceutical company to manufacture, use and sell products based on the Company's Target Related Affinity Profile (TRAP) technology within certain countries in Asia. The Company will receive payments for certain research and development activities, for achievement of specified development milestones and for royalties on product sales, if any, in Asia. In December 1996, September 1997 and October 1998, the Japanese pharmaceutical company purchased 60,000 shares of Series H preferred stock ($3,000,000), 60,000 shares of Series I preferred stock ($3,000,000) and 100,000 shares of Series J preferred stock ($5,000,000), respectively. F-17 TELIK, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of June 30, 2000 and the six month periods ended June 30, 1999 and 2000 is unaudited) 7. Income taxes As of December 31, 1999, the Company had federal and state net operating loss carryforwards of approximately $46,100,000 and $3,700,000, respectively. The Company also had federal research and development tax credit carryforwards of approximately $1,400,000. The net operating loss and credit carryforwards will expire at various dates beginning in the year 2005 through 2019, respectively if not utilized. Utilization of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. Deferred income taxes replace the net tax effects of temporary differences between the carrying amounts of assets for financial reporting and the amount used for income tax purposes. Significant components of the Company's deferred tax assets are as follows (in thousands):
December 31, ------------------ 1998 1999 -------- -------- Deferred tax assets: Net operating loss carryforwards..................... $ 14,800 $ 16,000 Capitalized research and development expenses........ 1,700 1,700 Research credit carryforwards........................ 2,100 2,100 Manufacturing and research equipment credit carryforward........................................ 100 -- Other, net........................................... 400 1,500 -------- -------- Total deferred tax assets.............................. 19,100 21,300 Valuation allowance.................................... (19,100) (21,300) -------- -------- Net deferred taxes..................................... $ -- $ -- ======== ========
Due to the Company's lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $14,100,000, $5,000,000 and $2,200,000 during the years ended December 31, 1997, 1998 and 1999, respectively. 8. Related Party Transactions In June 2000 the Company made a loan to an officer in connection with the exercise of an option to purchase 96,000 shares of the Company's common stock. This full recourse loan is for the aggregate amount of $153,600, bearing annual interest of 6.5%. The loan principal, with accumulated interest, is due and payable in June 2003. F-18 Inside Back Cover Graphic Title: Our proprietary TRAP technology accelerates drug discovery Title: TRAP measures the interactions of small molecules with selected proteins (a fingerprint) Graphic Description: On the left-hand side is a representation of a chemical compound. An arrow leads from this to a panel of four proteins indicated by vertical bars and labeled P1, P2, P3 and P4. A series of three dots to the right of P4 indicates that the panel actually contains additional proteins. Each vertical bar has a distinctively shaped notch with a complementary shape attached, which is labeled L1, L2, L3 and L4, and represents a ligand. An arrow points right from these proteins to a vertical bar divided horizontally into many sections, each colored a different shade of gray. Each section of the bar represents the affinity of the compound for one of the proteins in the panel. This bar is called the fingerprint of the compound. Title: TRAP uses these fingerprints to discover drug candidates for disease targets Graphic Description: On the left-hand side of the diagram, represented by a gray colored vertical bar with a notch in the center, is a disease target. An arrow points from the target to a panel of four representative proteins, indicated by vertical bars, labeled P1, P2, P3 and P4, whose notches contain elements of the notch in the disease target protein. A series of three dots to the right of P4 indicates that the panel actually contains additional proteins. The fingerprint for the compound, as described in the picture above, is shown above the arrow. A second arrow points from the panel of four proteins to a disease target. This disease target is identical to the first disease target. In the notch of this bar is a complementary shape that is labeled drug candidate. Above the arrow is another representation of a fingerprint. Black and White Picture in Text Title: Insulin Receptor Activators Legend: Telik's insulin receptor activators work within the cell to promote the activation of the insulin receptor and initiate the series of events that leads to the entry of sugar from the blood. Graphic Description: This is a depiction of a fat, liver or muscle cell and shows how the Telik insulin receptor activators enter the cell, bind to and activate the insulin receptor. Insulin acting outside the cell causes a similar activation. This stimulates a signaling pathway indicated by an arrow and labeled, Signal. This signaling pathway leads to blood sugar entering the cell. 5,000,000 Shares [LOGO OF TELIK, INC. APPEARS HERE] Telik, Inc. Common Stock ------------- Prospectus , 2000 ------------- Lehman Brothers Chase H & Q Legg Mason Wood Walker Incorporated UBS Warburg LLC Fidelity Capital Markets a division of National Financial Services Corporation Part II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses, other than the underwriting discounts payable by us, in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq National Market listing fee. SEC registration fee................................................ $ 19,800 NASD filing fee..................................................... 8,000 Nasdaq National Market listing fee.................................. 95,000 Blue Sky fees and expenses.......................................... 5,000 Transfer agent and registrar fees................................... 5,000 Accounting fees and expenses........................................ 400,000 Legal fees and expenses............................................. 750,000 Printing and engraving costs........................................ 200,000 Miscellaneous expenses.............................................. 17,200 ---------- Total............................................................. $1,500,000 ==========
ITEM 14. Indemnification of Directors and Officers As permitted by Delaware law, our amended and restated certificate of incorporation provides that no director of ours will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability: . for any breach of duty of loyalty to us or to our stockholders; . for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; . for unlawful payment of dividends or unlawful stock repurchases or redemptions under Section 174 of the Delaware General Corporation Law; or . for any transaction from which the director derived an improper personal benefit. Our amended and restated certificate of incorporation further provides that we must indemnify our directors and executive officers and may indemnify our other officers and employees and agents to the fullest extent permitted by Delaware law. We believe that indemnification under our amended and restated certificate of incorporation covers negligence and gross negligence on the part of indemnified parties. We have entered into indemnification agreements with each of our directors and certain officers. These agreements, among other things, require us to indemnify each director and officer for certain expenses including attorneys' fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of Telik, arising out of the person's services as our director or officer, any subsidiary of ours or any other company or enterprise to which the person provides services at our request. The underwriting agreement (Exhibit 1.1) will provide for indemnification by our underwriters of Telik, our directors, our officers who sign the registration statement and our controlling persons for some liabilities, including liabilities arising under the Securities Act. II-1 ITEM 15. Recent Sales of Unregistered Securities Since January 1, 1997, we have sold and issued unregistered securities to a limited number of persons, as described below. None of these transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and we believe that each transaction is exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in such transactions. We believe that all recipients had adequate access to information about us, through their relationships with us. Since January 1, 1997, we have sold and issued the following unregistered securities: (1) From January 1, 1988 to June 30, 2000, we granted incentive stock options and nonstatutory stock options to purchase an aggregate of 5,116,830 shares of our common stock at exercise prices ranging from $1.00 to $2.00 per share to employees, directors and consultants under the 1988 and 1996 Stock Option Plans and outside of the plans and issued an aggregate of 404,793 shares upon the exercise of these options. Options to purchase 1,708,618 shares of common stock have been canceled, and 163,390 of these options have lapsed without being exercised. (2) From September 24, 1997 to November 13, 1997, we sold an aggregate of 143,000 shares of our Series I preferred stock to 21 purchasers at a purchase price of $50.00 per share. (3) From September 30, 1998 to October 29, 1998, we sold an aggregate of 210,000 shares of our Series J preferred stock to two purchasers at a purchase price of $50.00 per share. (4) On March 31, 2000 we sold an aggregate of 1,166,667 shares of our Series K preferred stock to three purchasers at a purchase price of $6.00 per share. II-2 ITEM 16. Exhibits and Financial Statement Schedules 1.1* Form of Underwriting Agreement. 3.1* Form of Amended and Restated Certificate of Incorporation of Registrant to be effective upon the closing of the offering made pursuant to this Registration Statement. 3.2* Amended and Restated Bylaws of Registrant to be effective upon the closing of the offering made pursuant to this Registration Statement. 3.3* Amended and Restated Certificate of Incorporation, as amended. 4.1* Specimen Common Stock Certificate. 4.2* Amended and Restated Registration Rights Agreement, dated March 31, 2000, between Registrant and holders of Registrant's Series B, Series E, Series F, Series G, Series H, Series I, Series J and Series K preferred stock. 4.3* Warrant issued to Steven M. Costella, Trustee under the Steven M. Costella Trust, for purchase of shares of Series E preferred stock. 4.4* Warrant issued to William Kirsch for purchase of shares of Series E preferred stock. 4.5* Warrant issued to Glen McLaughlin for purchase of shares of Series E preferred stock. 4.6* Warrant issued to Venture Lending and Leasing, Inc. for purchase of shares of Series H preferred stock. 5.1* Opinion of Cooley Godward LLP. 10.1* Form of Indemnity Agreement. 10.2* 2000 Equity Incentive Plan and related documents. 10.3 2000 Employee Stock Purchase Plan and Offering. 10.4* 2000 Non-Employee Directors' Stock Option Plan and Agreement. 10.5++ Collaborative Research Agreement between Registrant and Sankyo Company, Ltd., dated March 24, 1999, as amended. 10.6++ Collaboration Agreement between Registrant and Sanwa Kagaku Kenkyusho Co., Ltd., dated December 20, 1996, as amended. 10.7++ License Agreement between Registrant and Sanwa Kagaku Kenkyusho Co., Ltd., dated September 24, 1997, as amended. 10.8++* Screening Services Agreement between Registrant and Sanwa Kagaku Kenkyusho Co., Ltd., dated December 20, 1996, as amended. 10.9* Consulting Agreement for Individual Consultants between Gail L. Brown, MD and Registrant, dated October 20, 1998, as amended. 10.10* Employment Agreement between Cynthia M. Butitta and Registrant, dated July 1, 1998. 10.11* Employment Agreement between Reinaldo F. Gomez, PhD and Registrant, dated April 18, 1991, as amended. 10.12* Employment Agreement between Michael M. Wick, MD, PhD and Registrant, dated December 10, 1997, as amended. 10.13* Lease between Registrant and Chamberlin Associates--Oyster Point Phase I L.P., dated July 25, 1997, as amended. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1). 24.1* Power of Attorney. 27.1 Financial Data Schedule.
- -------- * Previously filed. ++Confidential treatment requested as to specific portions, which portions are omitted and filed separately with the Securities and Exchange Commission. II-3 ITEM 17. Undertakings The undersigned registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification by the registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this Registration Statement or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of South San Francisco, State of California, on the 4th day of August, 2000. Telik, Inc. /s/ Michael M. Wick, MD, PhD By___________________________________ Michael M. Wick, MD, PhD Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 3 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Michael M. Wick, MD, PhD President, Chief Executive August 4, 2000 ____________________________ Officer and Director (Principal Michael M. Wick, MD, PhD Executive Officer) * Chief Financial Officer August 4, 2000 ____________________________ (Principal Finance and Cynthia M. Butitta Accounting Officer) * Director August 4, 2000 ____________________________ Jean Deleage, PhD * Director August 4, 2000 ____________________________ David R. Bethune * Director August 4, 2000 ____________________________ David W. Martin, Jr., MD * Director August 4, 2000 ____________________________ Stefan Ryser, PhD * Director August 4, 2000 ____________________________ Jerrold L. Glick
/s/ Michael M. Wick, MD, PhD *By:__________________________ Michael M. Wick, MD, PhD Attorney-in-fact II-5 EXHIBIT INDEX 1.1* Form of Underwriting Agreement. 3.1* Form of Amended and Restated Certificate of Incorporation of Registrant to be effective upon the closing of the offering made pursuant to this Registration Statement. 3.2* Amended and Restated Bylaws of Registrant to be effective upon the closing of the offering made pursuant to this Registration Statement. 3.3* Amended and Restated Certificate of Incorporation, as amended. 4.1* Specimen Common Stock Certificate. 4.2* Amended and Restated Registration Rights Agreement, dated March 31, 2000, between Registrant and holders of Registrant's Series B, Series E, Series F, Series G, Series H, Series I, Series J and Series K preferred stock. 4.3* Warrant issued to Steven M. Costella, Trustee under the Steven M. Costella Trust, for purchase of shares of Series E preferred stock. 4.4* Warrant issued to William Kirsch for purchase of shares of Series E preferred stock. 4.5* Warrant issued to Glen McLaughlin for purchase of shares of Series E preferred stock. 4.6* Warrant issued to Venture Lending and Leasing, Inc. for purchase of shares of Series H preferred stock. 5.1* Opinion of Cooley Godward LLP. 10.1* Form of Indemnity Agreement. 10.2* 2000 Equity Incentive Plan and related documents. 10.3 2000 Employee Stock Purchase Plan and Offering. 10.4* 2000 Non-Employee Directors' Stock Option Plan and Agreement. 10.5++ Collaborative Research Agreement between Registrant and Sankyo Company, Ltd., dated March 24, 1999, as amended. 10.6++ Collaboration Agreement between Registrant and Sanwa Kagaku Kenkyusho Co., Ltd., dated December 20, 1996, as amended. 10.7++ License Agreement between Registrant and Sanwa Kagaku Kenkyusho Co., Ltd., dated September 24, 1997, as amended. 10.8++* Screening Services Agreement between Registrant and Sanwa Kagaku Kenkyusho Co., Ltd., dated December 20, 1996, as amended. 10.9* Consulting Agreement for Individual Consultants between Gail L. Brown, MD and Registrant, dated October 20, 1998, as amended. 10.10* Employment Agreement between Cynthia M. Butitta and Registrant, dated July 1, 1998. 10.11* Employment Agreement between Reinaldo F. Gomez, PhD and Registrant, dated April 18, 1991, as amended. 10.12* Employment Agreement between Michael M. Wick, MD, PhD and Registrant, dated December 10, 1997, as amended. 10.13* Lease between Registrant and Chamberlin Associates--Oyster Point Phase I L.P., dated July 25, 1997, as amended. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1). 24.1* Power of Attorney. 27.1 Financial Data Schedule.
- -------- * Previously filed. ++Confidential treatment requested as to specific portions, which portions are omitted and filed separately with the Securities and Exchange Commission. EX-10.3 2 0002.txt 2000 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.3 Telik, Inc. 2000 Employee Stock Purchase Plan Adopted by Board of Directors March 22, 2000 Approved by Stockholders March 29, 2000 Termination Date: None 1. Purpose. (a) The purpose of the Plan is to provide a means by which Employees of the Company and certain designated Affiliates may be given an opportunity to purchase common stock of the Company (the "Common Stock"). (b) The Company, by means of the Plan, seeks to retain the services of such Employees, to secure and retain the services of new Employees and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) The Company intends that the Rights to purchase Common Stock granted under the Plan be considered options issued under an "employee stock purchase plan," as that term is defined in Section 423(b) of the Code. 2. Definitions. (a) "Affiliate" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the United States Internal Revenue Code of 1986, as amended. (d) "Committee" means a Committee appointed by the Board in accordance with subparagraph 3(c) of the Plan. (e) "Company" means Telik, Inc., a Delaware corporation. (f) "Director" means a member of the Board. (g) "Eligible Employee" means an Employee who meets the requirements set forth in the Offering for eligibility to participate in the Offering. (h) "Employee" means any person, including Officers and Directors, employed by the Company or an Affiliate of the Company. Neither service as a Director nor payment of a director's fee shall be sufficient to constitute "employment" by the Company or the Affiliate. 1. (i) "Employee Stock Purchase Plan" means a plan that grants rights intended to be options issued under an "employee stock purchase plan," as that term is defined in Section 423(b) of the Code. (j) "Exchange Act" means the United States Securities Exchange Act of 1934, as amended. (k) "Fair Market Value" means the value of a security, as determined in good faith by the Board. If the security is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, then, except as otherwise provided in the Offering, the Fair Market Value of the security shall be the closing sales price (rounded up where necessary to the nearest whole cent) for such security (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the relevant security of the Company) on the trading day prior to the relevant determination date, as reported in The Wall Street Journal or such other source as the Board deems reliable. (l) "Non-Employee Director" means a Director who either (i) is not a current Employee or Officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non- employee director" for purposes of Rule 16b-3. (m) "Offering" means the grant of Rights to purchase Common Stock under the Plan to Eligible Employees. (n) "Offering Date" means a date selected by the Board for an Offering to commence. (o) "Outside Director" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of the Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (p) "Participant" means an Eligible Employee who holds an outstanding Right granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Right granted under the Plan. (q) "Plan" means this 2000 Employee Stock Purchase Plan. 2. (r) "Purchase Date" means one or more dates established by the Board during an Offering on which Rights granted under the Plan shall be exercised and purchases of Common Stock carried out in accordance with such Offering. (s) "Right" means an option to purchase Common Stock granted pursuant to the Plan. (t) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3 as in effect with respect to the Company at the time discretion is being exercised regarding the Plan. (u) "Securities Act" means the United States Securities Act of 1933, as amended. 3. Administration. (a) The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subparagraph 3(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board (or the Committee) shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine when and how Rights to purchase Common Stock shall be granted and the provisions of each Offering of such Rights (which need not be identical). (ii) To designate from time to time which Affiliates of the Company shall be eligible to participate in the Plan. (iii) To construe and interpret the Plan and Rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iv) To amend the Plan as provided in paragraph 14. (v) To terminate or suspend the Plan as provided in paragraph 16. (vi) Generally, to exercise such powers and to perform such acts as it deems necessary or expedient to promote the best interests of the Company and its Affiliates and to carry out the intent that the Plan be treated as an Employee Stock Purchase Plan. (c) The Board may delegate administration of the Plan to a Committee of the Board composed of two (2) or more members, all of the members of which Committee may be, in the discretion of the Board, Non-Employee Directors and/or Outside Directors. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee of two (2) or more Outside Directors any of the administrative powers the 3. Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or such a subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 4. Common Stock Subject to the Plan. (a) Subject to the provisions of paragraph 13 relating to adjustments upon changes in securities, the Common Stock that may be sold pursuant to Rights granted under the Plan shall not exceed in the aggregate two hundred fifty thousand (250,000) shares (the "Reserved Shares"). As of each January 1, starting with January 1, 2001 and continuing through and including January 1, 2010, the number of Reserved Shares will be automatically increased by the least of (i) one percent (1%) of the total number of shares of Common Stock outstanding on such date, (ii) one hundred fifty thousand (150,000) shares or (iii) a number determined by the Board. If any Right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such Right shall again become available for the Plan. (b) The Common Stock subject to the Plan may be unissued shares or shares that have been bought on the open market at prevailing market prices or otherwise. 5. Grant of Rights; Offering. (a) The Board may from time to time grant or provide for the grant of Rights to purchase Common Stock of the Company under the Plan to Eligible Employees in an Offering on an Offering Date or Dates selected by the Board. Each Offering shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate, which shall comply with the requirements of Section 423(b)(5) of the Code that all Employees granted Rights to purchase Common Stock under the Plan shall have the same rights and privileges. The terms and conditions of an Offering shall be incorporated by reference into the Plan and treated as part of the Plan. The provisions of separate Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the document comprising the Offering or otherwise) the period during which the Offering shall be effective, which period shall not exceed twenty-seven (27) months beginning with the Offering Date, and the substance of the provisions contained in paragraphs 6 through 9, inclusive. (b) If a Participant has more than one Right outstanding under the Plan, unless he or she otherwise indicates in agreements or notices delivered hereunder: (i) each agreement or notice delivered by that Participant will be deemed to apply to all of his or her Rights under the Plan, and (ii) an earlier- granted Right (or a Right with a lower exercise price, if two Rights have identical grant dates) will be exercised to the fullest possible extent before a later-granted Right (or a Right with a higher exercise price if two Rights have identical grant dates) will be exercised. 6. Eligibility. (a) Rights may be granted only to Employees of the Company or, as the Board may designated as provided in subparagraph 3(b), to Employees of an Affiliate. 4. (i) Except as provided in subparagraph 6(b), an Employee shall not be eligible to be granted Rights under the Plan unless, on the Offering Date, such Employee has been in the employ of the Company or the Affiliate, as the case may be, for such continuous period preceding such grant as the Board may require in the Offering, but in no event shall the required period of continuous employment be equal to or greater than two (2) years. (ii) The Board may provide in an Offering that Employees whose customary employment is twenty (20) hours or less per week shall not be eligible to participate. (iii) The Board may provide in an Offering that Employees whose customary employment is for not more than five (5) months in any calendar year shall not be eligible to participate. (iv) The Board may provide in an Offering that Employees who are highly compensated Employees within the meaning of Section 423(b)(4)(D) of the Code shall not be eligible to participate. (b) The Board may provide that each person who, during the course of an Offering, first becomes an Eligible Employee will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an Eligible Employee or which occurs thereafter, receive a Right under that Offering, which Right shall thereafter be deemed to be a part of that Offering. Such Right shall have the same characteristics as any Rights originally granted under that Offering, as described herein, except that: (i) the date on which such Right is granted shall be the "Offering Date" of such Right for all purposes, including determination of the exercise price of such Right; (ii) the period of the Offering with respect to such Right shall begin on its Offering Date and end coincident with the end of such Offering; and (iii) the Board may provide that if such person first becomes an Eligible Employee within a specified period of time before the end of the Offering, he or she will not receive any Right under that Offering. (c) No Employee shall be eligible for the grant of any Rights under the Plan if, immediately after any such Rights are granted, such Employee owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subparagraph 6(c), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any Employee, and stock which such Employee may purchase under all outstanding rights and options shall be treated as stock owned by such Employee. (d) An Eligible Employee may be granted Rights under the Plan only if such Rights, together with any other Rights granted under all Employee Stock Purchase Plans of the Company and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit such Eligible Employee's rights to purchase common stock of the Company or any Affiliate to accrue at a rate which exceeds twenty five thousand dollars ($25,000) of the fair market value of such common 5. stock (determined at the time such Rights are granted) for each calendar year in which such Rights are outstanding at any time. 7. Rights; Purchase Price. (a) On each Offering Date, each Eligible Employee, pursuant to an Offering made under the Plan, shall be granted the Right to purchase up to the number of Shares purchasable either: (i) with a percentage designated by the Board not exceeding fifteen percent (15%) of such Employee's Earnings (as defined by the Board in each Offering) during the period which begins on the Offering Date (or such later date as the Board determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no later than the end of the Offering; or (ii) with a maximum dollar amount designated by the Board that, as the Board determines for a particular Offering, (1) shall be withheld, in whole or in part, from such Employee's Earnings (as defined by the Board in each Offering) during the period which begins on the Offering Date (or such later date as the Board determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no later than the end of the Offering and/or (2) shall be contributed, in whole or in part, by such Employee during such period. (b) The Board shall establish one or more Purchase Dates during an Offering on which Rights granted under the Plan shall be exercised and purchases of Common Stock carried out in accordance with such Offering. (c) In connection with each Offering made under the Plan, the Board may specify a maximum number of shares of Common Stock that may be purchased by any Participant as well as a maximum aggregate number of shares of Common Stock that may be purchased by all Participants pursuant to such Offering. In addition, in connection with each Offering that contains more than one Purchase Date, the Board may specify a maximum aggregate number of shares of Common Stock that may be purchased by all Participants on any given Purchase Date under the Offering. If the aggregate purchase of Common Stock upon exercise of Rights granted under the Offering would exceed any such maximum aggregate amount, the Board shall make a pro rata allocation of the Common Stock available in as nearly a uniform manner as shall be practicable and as it shall deem to be equitable. (d) The purchase price of Common Stock acquired pursuant to Rights granted under the Plan shall be not less than the lesser of: (i) an amount equal to eighty-five percent (85%) of the fair market value of the Common Stock on the Offering Date; or (ii) an amount equal to eighty-five percent (85%) of the fair market value of the Common Stock on the Purchase Date. 6. 8. Participation; Withdrawal; Termination. (a) An Eligible Employee may become a Participant in the Plan pursuant to an Offering by delivering a participation agreement to the Company within the time specified in the Offering, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to the maximum percentage specified by the Board of such Employee's Earnings during the Offering (as defined in each Offering). The payroll deductions made for each Participant shall be credited to a bookkeeping account for such Participant under the Plan and either may be deposited with the general funds of the Company or may be deposited in a separate account in the name of, and for the benefit of, such Participant with a financial institution designated by the Company. To the extent provided in the Offering, a Participant may reduce (including to zero) or increase such payroll deductions. To the extent provided in the Offering, a Participant may begin such payroll deductions after the beginning of the Offering. A Participant may make additional payments into his or her account only if specifically provided for in the Offering and only if the Participant has not already had the maximum permitted amount withheld during the Offering. (b) At any time during an Offering, a Participant may terminate his or her payroll deductions under the Plan and withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Company provides. Such withdrawal may be elected at any time prior to the end of the Offering except as provided by the Board in the Offering. Upon such withdrawal from the Offering by a Participant, the Company shall distribute to such Participant all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire Common Stock for the Participant) under the Offering, without interest unless otherwise specified in the Offering, and such Participant's interest in that Offering shall be automatically terminated. A Participant's withdrawal from an Offering will have no effect upon such Participant's eligibility to participate in any other Offerings under the Plan but such Participant will be required to deliver a new participation agreement in order to participate in subsequent Offerings under the Plan. (c) Rights granted pursuant to any Offering under the Plan shall terminate immediately upon cessation of any participating Employee's employment with the Company or a designated Affiliate for any reason (subject to any post-employment participation period required by law) or other lack of eligibility. The Company shall distribute to such terminated Employee all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire Common Stock for the terminated Employee) under the Offering, without interest unless otherwise specified in the Offering. If the accumulated payroll deductions have been deposited with the Company's general funds, then the distribution shall be made from the general funds of the Company, without interest. If the accumulated payroll deductions have been deposited in a separate account with a financial institution as provided in subparagraph 8(a), then the distribution shall be made from the separate account, without interest unless otherwise specified in the Offering. (d) Rights granted under the Plan shall not be transferable by a Participant otherwise than by will or the laws of descent and distribution, or by a beneficiary designation as provided in paragraph 15 and, otherwise during his or her lifetime, shall be exercisable only by the person to whom such Rights are granted. 7. 9. Exercise. (a) On each Purchase Date specified therefor in the relevant Offering, each Participant's accumulated payroll deductions and other additional payments specifically provided for in the Offering (without any increase for interest) will be applied to the purchase of Common Stock up to the maximum number of shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be issued upon the exercise of Rights granted under the Plan unless specifically provided for in the Offering. (b) Unless otherwise specifically provided in the Offering, the amount, if any, of accumulated payroll deductions remaining in any Participant's account after the purchase of Common Stock that is equal to the amount required to purchase one or more whole shares on the final Purchase Date of the Offering shall be distributed in full to the Participant at the end of the Offering, without interest. If the accumulated payroll deductions have been deposited with the Company's general funds, then the distribution shall be made from the general funds of the Company, without interest. If the accumulated payroll deductions have been deposited in a separate account with a financial institution as provided in subparagraph 8(a), then the distribution shall be made from the separate account, without interest unless otherwise specified in the Offering. (c) No Rights granted under the Plan may be exercised to any extent unless the Common Stock to be issued upon such exercise under the Plan (including Rights granted thereunder) are covered by an effective registration statement pursuant to the Securities Act and the Plan is in material compliance with all applicable state, foreign and other securities and other laws applicable to the Plan. If on a Purchase Date in any Offering hereunder the Plan is not so registered or in such compliance, no Rights granted under the Plan or any Offering shall be exercised on such Purchase Date, and the Purchase Date shall be delayed until the Plan is subject to such an effective registration statement and such compliance, except that the Purchase Date shall not be delayed more than twelve (12) months and the Purchase Date shall in no event be more than twenty-seven (27) months from the Offering Date. If, on the Purchase Date of any Offering hereunder, as delayed to the maximum extent permissible, the Plan is not registered and in such compliance, no Rights granted under the Plan or any Offering shall be exercised and all payroll deductions accumulated during the Offering (reduced to the extent, if any, such deductions have been used to acquire Common Stock) shall be distributed to the Participants, without interest unless otherwise specified in the Offering. If the accumulated payroll deductions have been deposited with the Company's general funds, then the distribution shall be made from the general funds of the Company, without interest. If the accumulated payroll deductions have been deposited in a separate account with a financial institution as provided in subparagraph 8(a), then the distribution shall be made from the separate account, without interest unless otherwise specified in the Offering. 10. Covenants of the Company. (a) During the terms of the Rights granted under the Plan, the Company shall ensure that the number of shares of Common Stock required to satisfy such Rights are available. 8. (b) The Company shall seek to obtain from each federal, state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell Common Stock upon exercise of the Rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Rights unless and until such authority is obtained. 11. Use of Proceeds from Common Stock. Proceeds from the sale of Common Stock pursuant to Rights granted under the Plan shall constitute general funds of the Company. 12. Rights as a Stockholder. A Participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, Common Stock subject to Rights granted under the Plan unless and until the Participant's Common Stock acquired upon exercise of Rights under the Plan are recorded in the books of the Company. 13. Adjustments upon Changes in Securities. (a) If any change is made in the Common Stock subject to the Plan, or subject to any Right, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of shares of Common Stock subject to the Plan pursuant to subparagraph 4(a), and the outstanding Rights will be appropriately adjusted in the class(es), number of shares of Common Stock and purchase limits of such outstanding Rights. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction that does not involve the receipt of consideration by the Company.) (b) In the event of: (i) a dissolution, liquidation or sale of all or substantially all of the securities or assets of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation or (iii) a reverse merger in which the Company is the surviving corporation but the Common Stock outstanding immediately preceding the merger is converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then any surviving corporation may assume outstanding Rights or substitute similar rights for those outstanding under the Plan. In the event that no surviving corporation assumes outstanding Rights or substitutes similar rights therefor, participants' accumulated payroll deductions shall be used to purchase Common Stock immediately prior to the transaction described above and the participants' Rights under the ongoing Offering shall terminate immediately following such purchase. 9. 14. Amendment of the Plan. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 13 relating to adjustments upon changes in securities and except as to minor amendments to benefit the administration of the Plan, to take account of a change in legislation or to obtain or maintain favorable tax, exchange control or regulatory treatment for Participants or the Company or any Affiliate, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary for the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3 under the Exchange Act and any Nasdaq or other securities exchange listing requirements. Currently under the Code, stockholder approval within twelve (12) months before or after the adoption of the amendment is required where the amendment will: (i) Increase the number of shares of Common Stock reserved for Rights under the Plan; (ii) Modify the provisions as to eligibility for participation in the Plan to the extent such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3; or (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3. (b) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Employee Stock Purchase Plans and/or to bring the Plan and/or Rights granted under it into compliance therewith. (c) Rights and obligations under any Rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the consent of the person to whom such Rights were granted, or except as necessary to comply with any laws or governmental regulations, or except as necessary to ensure that the Plan and/or Rights granted under the Plan comply with the requirements of Section 423 of the Code. 15. Designation of Beneficiary. (a) A Participant may file a written designation of a beneficiary who is to receive any Common Stock and/or cash, if any, from the Participant's account under the Plan in the event of such Participant's death subsequent to the end of an Offering but prior to delivery to the Participant of such Common Stock and cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant's account under the Plan in the event of such Participant's death during an Offering. (b) The Participant may change such designation of beneficiary at any time by written notice. In the event of the death of a Participant and in the absence of a beneficiary validly 10. designated under the Plan who is living at the time of such Participant's death, the Company shall deliver such Common Stock and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its sole discretion, may deliver such Common Stock and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. Termination or Suspension of the Plan. (a) The Board in its discretion may suspend or terminate the Plan at any time. No Rights may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Rights granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except as expressly provided in the Plan or with the consent of the person to whom such Rights were granted, or except as necessary to comply with any laws or governmental regulation, or except as necessary to ensure that the Plan and/or Rights granted under the Plan comply with the requirements of Section 423 of the Code. 17. Effective Date of Plan. The Plan shall become effective as determined by the Board, but no Rights granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted by the Board, which date may be prior to the effective date set by the Board. 11. Telik, Inc. 2000 Employee Stock Purchase Plan Offering Adopted March 22, 2000 Amended Effective June 8, 2000 1. Grant of Rights. (a) The Board of Directors ("Board") of Telik, Inc., a Delaware corporation (the "Company"), pursuant to the Company's 2000 Employee Stock Purchase Plan (the "Plan"), hereby authorizes the grant of Rights to purchase the common stock of the Company (the "Common Stock") to all Eligible Employees (an "Offering"). Defined terms not explicitly defined in this Offering but defined in the Plan shall have the same definitions as in the Plan. In the event of any conflict between the provisions of an Offering and those of the Plan (including interpretations, amendments, rules and regulations that may from time to time be promulgated and adopted pursuant to the Plan), the provisions of the Plan shall control. (b) An "Offering Date" is the first day of an Offering. An Offering may consist of one purchase period or may be divided into shorter purchase periods ("Purchase Periods"). A "Purchase Date" is the last day of a Purchase Period or the Offering, as the case may be. (c) Except as otherwise provided, each Offering hereunder shall be twenty- four (24) months long and shall be divided into four (4) shorter Purchase Periods approximately six (6) months in length. Offerings shall be consecutive. A new Offering shall begin the day after the immediately preceding Offering ends. (d) The first Offering shall begin simultaneously with the effectiveness of the Company's registration statement under the Securities Act of 1933 with respect to the initial public offering of the Common Stock and end on August 31, 2002 (the "Initial Offering"). The Initial Offering will be divided into four (4) shorter Purchase Periods of approximately six (6) months in duration, with the initial Purchase Period ending on February 28, 2001, the second Purchase Period ending on August 31, 2001, the third Purchase Period ending on February 28, 2002 and the fourth Purchase Period ending on August 31, 2002. (e) Thereafter, new Offerings shall begin on each September 1, beginning with September 1, 2002, and each such Offering shall end on the day prior to the second anniversary of its Offering Date. (f) Notwithstanding anything to the contrary, in the event that the fair market value of a share of Common Stock on any Purchase Date during an Offering is less than the fair market value of a share of Common Stock on the Offering Date of such Offering, then following the purchase of Common Stock on such Purchase Date: (i) the Offering shall terminate and (ii) all participants in the just-terminated Offering shall automatically be enrolled in a new Offering that shall commence on the day following the Purchase Date on the same terms on which such participants were enrolled in the terminated Offering. Such new Offering shall end on the day prior to the second anniversary of its Offering Date. (g) Prior to the commencement of any Offering, the Board may change any or all terms of such Offering and any subsequent Offerings. The granting of Rights pursuant to each Offering hereunder shall occur on each respective Offering Date unless, prior to such date (i) the Board (or such Committee) determines that such Offering shall not occur, or (ii) no shares of Common Stock remain available for issuance under the Plan in connection with the Offering. 2. Eligible Employees. (a) All employees of the Company and each of its Affiliates incorporated in the United States shall be granted Rights to purchase Common Stock under each Offering on the Offering Date of such Offering, provided that each such employee otherwise meets the employment requirements of subparagraph 6(a) of the Plan and has been continuously employed for at least ten (10) days on the Offering Date of such Offering (an "Eligible Employee"); however, the ten- (10-) day eligibility requirement shall be waived with respect to the Initial Offering only. (b) Notwithstanding the foregoing, the following employees shall not be Eligible Employees or be granted Rights under an Offering: (i) part-time or seasonal employees whose customary employment is twenty (20) hours or less per week or five (5) months or less per calendar year or (ii) 5% stockholders (including ownership through unexercised options) described in subparagraph 6(c) of the Plan. (c) Notwithstanding the foregoing, each person who first becomes an Eligible Employee during any Offering will, on the next March 1 or September 1 during that Offering, receive a Right under such Offering, which Right shall thereafter be deemed to be a part of the Offering. Such Right shall have the same characteristics as any Rights originally granted under the Offering except that: (i) the date on which such Right is granted shall be the "Offering Date" of such Right for all purposes, including determination of the exercise price of such Right; and (ii) the Offering for such Right shall begin on its Offering Date and end coincident with the end of the ongoing Offering. 3. Rights. (a) Subject to the limitations contained herein and in the Plan, on each Offering Date each Eligible Employee shall be granted the Right to purchase the number of shares of Common Stock purchasable with up to fifteen percent (15%) of such Eligible Employee's Earnings paid during such Offering after the Eligible Employee first commences participation; provided, however, that: (i) no employee may purchase Common Stock on a particular Purchase Date that would result in more than fifteen percent (15%) of such employee's Earnings in the period from the Offering Date to such Purchase Date having been applied to purchase Common Stock under all ongoing Offerings under the Plan and all other Company plans intended to qualify as "employee stock purchase plans" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"); 2. (ii) no employee may purchase more than five thousand (5,000) shares of Common Stock on any Purchase Date; (iii) no Eligible Employee shall be granted any Right under the Plan which permits such Eligible Employee's Right to purchase Common Stock under this Plan and all other employee stock purchase plans (described in Section 423 of the Code) of the Company to accrue at a rate which exceeds twenty-five thousand dollars ($25,000) of fair market value of such Common Stock (determined at the time such Right is granted) for each calendar year in which such Right is outstanding at any time; and (iv) the maximum aggregate number of shares of Common Stock available to be purchased by all Eligible Employees under an Offering shall be the number of shares remaining available under the Plan on the Offering Date. If the aggregate purchase of shares of Common Stock upon exercise of Rights granted under the Offering would exceed the maximum aggregate number of shares of Common Stock available, the Board shall make a pro rata allocation of the shares of Common Stock available in a uniform and equitable manner. (b) For this Offering, "Earnings" means the total compensation paid to an employee, including all salary, wages (including amounts elected to be deferred by the employee, that would otherwise have been paid, under any cash or deferred arrangement established by the Company), overtime pay, commissions, bonuses, and other remuneration paid directly to the employee, but excluding profit sharing, the cost of employee benefits paid for by the Company, education or tuition reimbursements, imputed income arising under any Company group insurance or benefit program, traveling expenses, business and moving expense reimbursements, income received in connection with stock options, contributions made by the Company under any employee benefit plan, and similar items of compensation. 4. Purchase Price. (a) The purchase price of the Common Stock under the Offering shall be the lesser of eighty-five percent (85%) of the fair market value of the Common Stock on the Offering Date or eighty-five percent (85%) of the fair market value of the Common Stock on the Purchase Date, in each case rounded up to the nearest whole cent per Share. (b) For the Initial Offering, the fair market value of the Common Stock at the time when the Offering commences shall be the price per Share at which Common Stock is first sold to the public in the Company's initial public offering as specified in the final prospectus with respect to that offering. 5. Participation. (a) An Eligible Employee may elect to participate in an Offering only at the beginning of the Offering or on any subsequent March 1 or September 1. (b) A Participant who is enrolled in an Offering automatically will be enrolled in the next Offering that commences after the current Offering ends. 3. (c) An Eligible Employee shall become a Participant in an Offering by delivering an agreement authorizing payroll deductions. Such deductions must be in whole percentages, with a minimum percentage of one percent (1%) and a maximum percentage of fifteen percent (15%) of Earnings. A Participant may not make additional payments into his or her account. The agreement shall be made on such enrollment form as the Company provides, and must be delivered to the Company at least ten (10) days before the Offering Date, or before such later date specified in subparagraph 2(c), in advance of the date of participation to be effective, unless a later time for filing the enrollment form is set by the Board for all Eligible Employees with respect to a given Offering Date. For the Initial Offering, the time for filing an enrollment form and commencing participation for individuals who are Eligible Employees on the Offering Date for the Initial Offering may be after the Offering Date, as determined by the Company and communicated to such Eligible Employees. (d) If the agreement authorizing payroll deductions is required to be delivered to the Company or designated Affiliate a specified number of days before the Offering Date to be effective, then an employee who becomes eligible during the required delivery period shall not be considered to be an Eligible Employee at the beginning of the Offering but may elect to participate during the Offering as provided in subparagraph 2(c). 6. Changing Participation Level during Offering; Withdrawal from Offering. (a) A Participant may not increase his or her deductions during the course of a Purchase Period. A Participant may increase or decrease his or her deductions prior to the beginning of a new Purchase Period or a new Offering, to be effective at the beginning of such new Purchase Period or new Offering. A Participant shall make a change in his or her participation level by delivering a notice to the Company in such form as the Company provides and up to ten (10) days before the start of such new Purchase Period or new Offering (or such shorter period of time determined by the Company and communicated to Participants). (b) A Participant may reduce (including to zero) his or her deductions once (and only once) during a Purchase Period, effective as soon as administratively practicable. A Participant shall make a change in his or her participation level by delivering a notice to the Company in such form as the Company provides up to ten (10) days before the end of such Purchase Period (or such shorter period of time determined by the Company and communicated to Participants). (c) Except as otherwise specifically provided herein, a Participant may not increase or decrease his or her participation level during the course of an Offering. (d) Notwithstanding the foregoing, a Participant may withdraw from an Offering and receive his or her accumulated payroll deductions from the Offering (reduced to the extent, if any, such deductions have been used to acquire Common Stock for the Participant on any prior Purchase Dates), without interest, or reduce his or her participation percentage to zero (0), at any time prior to the end of the Offering, excluding only each ten (10) day period immediately preceding a Purchase Date (or such shorter period of time determined by the Company and communicated to Participants) by delivering a withdrawal notice to the Company in such form as the Company provides. 4. 7. Purchases. Subject to the limitations contained herein, on each Purchase Date, each Participant's accumulated payroll deductions (without any increase for interest) shall be applied to the purchase of whole shares of Common Stock, up to the maximum number of shares permitted under the Plan and the Offering. 8. Notices and Agreements. Any notices or agreements provided for in an Offering or the Plan shall be given in writing, in a form provided by the Company, and unless specifically provided for in the Plan or this Offering shall be deemed effectively given upon receipt or, in the case of notices and agreements delivered by the Company, five (5) days after deposit in the United States mail, postage prepaid. 9. Exercise Contingent on Stockholder Approval. The Rights granted under an Offering are subject to the approval of the Plan by the stockholders as required for the Plan to obtain treatment as a tax- qualified employee stock purchase plan under Section 423 of the Code or to comply with the requirements of Rule 16b promulgated under the Securities Exchange Act of 1934, as amended. 10. Offering Subject to Plan. Each Offering is subject to all the provisions of the Plan, and its provisions are hereby made a part of the Offering, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. 5. EX-10.5 3 0003.txt COLLABORATIVE RESEARCH AGMT DATED 03/24/1999 EXHIBIT 10.5 COLLABORATIVE RESEARCH AGREEMENT This Collaborative Research Agreement (the "Agreement") is made as of the 24th day of March, 1999 ("Effective Date"), by and between Telik, Inc., a Delaware corporation having a place of business at 750 Gateway Boulevard, South San Francisco, California 94080, U.S.A. ("Telik") and Sankyo Company, Ltd., a Japanese corporation having a place of business at 5-1, Nihonbashi Honcho 3- chome, Chuo-ku, Tokyo 103-8426, Japan ("Sankyo"). Telik and Sankyo shall be referred to herein individually as a "Party" and collectively as the "Parties." Recitals Whereas, Telik possesses a library of compounds ("Telik Library") and proprietary technology which enables it to classify and search compounds according to their protein-binding capabilities ("TRAP Technology"); Whereas, Sankyo has certain biological targets ("Sankyo Targets") for which it desires to find activity-modulating compounds; and Whereas, Sankyo wishes to evaluate the ability of the Telik Library and TRAP Technology to identify compounds that affect Sankyo Targets and that may lead to candidates for pharmaceutical development; Now, Therefore, in consideration of the foregoing premises and the covenants set forth below, the parties hereby agree as follows: 1. [ * ] Fee. 1.1 Payment of Fee. Sankyo shall pay Telik a [*] two million dollar ($2,000,000) [*] in [*] [*], and [*]. Telik shall send invoices to Sankyo [*] to the [*]. The installment payments shall be made in U.S. dollars by wire transfer to a bank account to be specified by Telik. 1.2 Taxes. Sample Supply Fee payments shall be made without deduction other than such amount (if any) Sankyo is required by law to deduct or withhold. If the Sample Supply Fee is subject to such deductions or other withholdings, it shall be increased by an amount which shall equal, as nearly as possible, the amount required to be deducted or withheld. 2. Screening Activity. 2.1 Screening Term. The term during which Sankyo may perform the screening activities set forth in this Article 2 (the "Screening Term") shall begin on the Effective Date and [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 1 expire [ * ] later, provided however, that if Sankyo elects to choose Substitute Selected Targets as provided in Section 2.4(a)(i), the Screening Term shall be extended as described therein. 2.2 Target Selection. During the first [ * ] of the Screening Term, Sankyo may notify Telik in writing of Sankyo Targets against which Sankyo wishes to screen compounds provided by Telik ("Proposed Targets"). Sankyo's notification must provide the molecular identity of the Proposed Targets and such other information as Telik may reasonably request to permit Telik to confirm that none of such Proposed Targets is identical to, overlapping or otherwise in conflict with (i) targets included in, or subject to any then- existing restriction resulting from, any research collaboration between Telik and a third party or (ii) targets that Telik was already actively pursuing prior to receipt of Sankyo's notice (collectively, "Reserved Targets"). Telik shall notify Sankyo in writing whether or not each Proposed Target is a Reserved Target. If a Proposed Target is not a Reserved Target, then the Proposed Target will be deemed a "Selected Target" upon dispatch of Telik's notification. Telik shall list all Proposed Targets in the Appendix to this Agreement and shall update such Appendix, as necessary, to indicate whether a Proposed Target becomes a Selected Target and to delete all Reserved Targets. Sankyo may designate no more than ten (10) Selected Targets. 2.3 Active Molecule Criteria. Prior to the initiation of compound screening against each Selected Target, the Parties will agree on the screening results required for a compound provided by Telik as set forth in Section 2.4 to be classified as an "Active Molecule." 2.4 Screening Activity and Data Collection. (a) Within [ * ] of the later of (i) the date that a Proposed Target is deemed a Selected Target or (ii) the Parties' agreement regarding the Active Molecule criteria for that Selected Target, Telik shall, based upon its knowledge of the Telik Library and using the TRAP Technology, select and provide to Sankyo approximately [ * ] compounds ("Initial Compounds") from the Telik Library that Telik believes, in its sole discretion, represent maximum chemical compound diversity in the Telik Library. Telik shall provide such Initial Compounds in quantities of approximately [ * ] per Initial Compound, per Selected Target. Sankyo shall screen each Initial Compound for activity in relation to the Selected Target and provide all data (including but not limited to the concentration at which a compound elicits a response which is 50% of the maximum response in the assay being applied (the "EC\50\") for each Initial Compound) resulting therefrom ("Initial Results") to Telik within [ * ] of Sankyo's receipt of the Initial Compounds. Sankyo hereby covenants that it will not use the Initial Compounds for any purpose other than that set forth in this Section 2.4(a), it will cease using the Initial Compounds after completion of testing as set forth in this Section 2.4(a), and it will store and return unused Initial Compounds as set forth in Section 2.4(f). (i) If none of the Initial Compounds has an EC\50\ equal to or less than [ * ] or the Initial Results otherwise contain insufficient useful information for Telik to select Secondary Compounds pursuant to Section 2.4(b), then Telik will provide Sankyo with another set of Initial Compounds (the "Substitute Initial Compounds"), in quantities of approximately [ * ] per Substitute Initial Compound, per Selected Target. The Substitute Initial Compounds shall be treated by both Parties as if they were Initial Compounds; provided, however, that if none of [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE sECURITIES ACT OF 1933, AS AMENDED. 2 the Substitute Initial Compounds has an EC\50\ equal to or less than [ * ] or the Initial Results from the Substitute Initial Compounds otherwise contain insufficient useful information for Telik to select Secondary Compounds, then (1) Telik shall not be obligated to provide any additional Compounds to Sankyo with respect to the relevant Selected Target, and Telik's obligations under Article 5 with respect to such Selected Target shall terminate; and (2) Sankyo may, at its election, not later than [ * ] after Telik's receipt of the Initial Results for the Substitute Initial Compounds for a particular Selected Target, choose a new target in substitution for such Selected Target ("Substitute Selected Target"), not to exceed ten (10) Substitute Selected Targets in the aggregate. The Substitute Selected Targets shall be treated by both Parties as if they were Selected Targets. If Sankyo exercises its right to choose a Substitute Selected Target, the Screening Term shall be extended as necessary to complete the screening process for such Substitute Selected Target within the schedule described in this Article 2, but in no event shall the Screening Term be extended by more than [ * ]. (b) Within [ * ] after receipt of the Initial Results, Telik shall, based upon the Initial Results and using the TRAP Technology or any other search technology available to Telik, select and provide to Sankyo an appropriate number of additional compounds ("Secondary Compounds") from the Telik Library that Telik believes, in its sole discretion, will exhibit the greatest likelihood of activity in relation to the Selected Target. Sankyo shall screen each Secondary Compound for selected activity in relation to the Selected Target and provide all data (including but not limited to the EC\50\ for each Secondary Compound) resulting therefrom ("Secondary Results") to Telik within [ * ] of Sankyo's receipt of the Secondary Compounds. Sankyo hereby covenants that it will not use the Secondary Compounds for any purpose other than that set forth in this Section 2.4(b), it will cease using the Secondary Compounds after completion of testing as set forth in this Section 2.4(b), and it will store and return unused Secondary Compounds as set forth in Section 2.4(f). (c) Within [ * ] after receipt of the Secondary Results, Telik shall, based upon the Secondary Results and using the TRAP Technology or any other search technology available to Telik, select and provide to Sankyo [ * ] additional compounds ("Tertiary Compounds") from the Telik Library that Telik believes, in its sole discretion, will exhibit the greatest likelihood of activity in relation to the Selected Target. Sankyo shall screen each Tertiary Compound for selected activity in relation to the Selected Target and provide all data (including but not limited to the EC\50\ for each Tertiary Compound) resulting therefrom ("Tertiary Results") to Telik within [ * ] of Sankyo's receipt of the Tertiary Compounds. Sankyo hereby covenants that it will not use the Tertiary Compounds for any purpose other than that set forth in this Section 2.4(c), it will cease using the Tertiary Compounds after completion of testing as set forth in this Section 2.4(c), and it will store and return unused Tertiary Compounds as set forth in Section 2.4(f). (d) If Sankyo and Telik jointly determine that further screening activity is necessary, then based upon the Tertiary Results and using the TRAP Technology or any other search technology available to Telik, Telik shall select and provide to Sankyo [ * ] additional compounds ("Quaternary Compounds") from the Telik Library that Telik believes, in its sole [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE sECURITIES ACT OF 1933, AS AMENDED. 3 discretion, will exhibit the greatest likelihood of assay activity in relation to the Selected Target. Sankyo will screen each Quaternary Compound for selected activity in relation to the Selected Target and provide Telik all data (including but not limited to the EC\50\ for each Quaternary Compound) resulting therefrom ("Quaternary Results") to Telik within [ * ] of Sankyo's receipt of the Quaternary Compounds. Sankyo hereby covenants that it will not use the Quaternary Compounds for any purpose other than that set forth in this Section 2.4(d), it will cease using the Quaternary Compounds after completion of testing as set forth in this Section 2.4(d), and it will store and return unused Quaternary Compounds as set forth in Section 2.4(f). (e) The total number of Initial Compounds, Secondary Compounds, Tertiary Compounds and Quaternary Compounds provided by Telik pursuant to this Section 2.4 (collectively, the "Provided Compounds") shall be in the range of approximately [ * ] to approximately [ * ] Provided Compounds per Selected Target. Telik shall provide to Sankyo any information Telik may have in its possession regarding appropriate usage and handling of the Provided Compounds concurrent with the delivery to Sankyo of such Provided Compounds. (f) Beginning with receipt by Sankyo and continuing through the completion of testing under Section 2.4(a), 2.4(b), 2.4(c) or 2.4(d), Sankyo shall store any unused Initial Compounds, Secondary Compounds, Tertiary Compounds or Quaternary Compounds, as applicable, in a secure location. Within [ * ] of the completion of screening against a Selected Target, Sankyo will return to Telik all unused Provided Compounds for that Selected Target unless specifically authorized by Telik, in writing, to do otherwise. 3. Identification and Disclosure of Chemical Structures. 3.1 Not later than [ * ] after sending the Tertiary Results or, if applicable, the Quaternary Results to Telik, Sankyo shall provide Telik with a written list of the Provided Compounds in which Sankyo has an interest. Telik shall determine which of these Provided Compounds qualify as Active Molecules and shall provide to Sankyo the two dimensional representations of the chemical structures of the Active Molecules on Sankyo's list (the "Disclosed Active Molecules"). In addition, to provide Sankyo with additional information for evaluating the potential of the Disclosed Active Molecules, Telik may also provide the two dimensional representations of the chemical structures of certain other Provided Compounds, selected by Telik in its sole discretion, that did not qualify as Active Molecules. Sankyo will use the structural information provided by Telik solely to evaluate whether it wishes to exercise its option, set forth in Section 4.1, for a license to develop and commercialize such Disclosed Active Molecules. Sankyo hereby covenants that it will not use the structural information for any other purpose. If Sankyo does not submit to Telik a written list of the Provided Compounds in which Sankyo has an interest within the time permitted under this Section 3.1, Telik's obligations under Article 5 with respect to the relevant Selected Target shall terminate. 3.2 The parties anticipate that Telik will be conducting research collaborations with third parties during the Screening Term with respect to targets other than Selected Targets. Telik will not provide to Sankyo under Section 2.4 compounds as to which a third party has exercised an option to obtain or has obtained license rights, or which has otherwise been reserved by a third party ("Reserved Compound"). Nonetheless, the parties acknowledge that the compounds provided to Sankyo under this Agreement may include compounds provided to third parties [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE sECURITIES ACT OF 1933, AS AMENDED. 4 under research collaborations or similar arrangements with such third parties. Accordingly, a third party may, while Sankyo is screening a particular compound, designate that compound a Reserved Compound. In such event, Telik will promptly inform Sankyo that such compound has become a Reserved Compound, and all of Sankyo's rights regarding that Reserved Compound, including those rights set forth in Articles 2, 3 and 4, shall terminate. In no event will Telik provide Sankyo with the chemical structure of such Reserved Compound. In the event that a third party terminates or otherwise waives its rights to a Reserved Compound that Sankyo has screened and which qualifies as an Active Molecule, Telik will notify Sankyo that such compound is no longer a Reserved Compound and Sankyo may elect, in its discretion and by written notice to Telik, to receive the two dimensional representation of its chemical structure from Telik. Such compound shall thereafter be deemed a Disclosed Active Molecule subject to Section 3.1 and Article 4. 4. Option for Development and Commercialization License. 4.1 License Option. Effective upon Telik's delivery to Sankyo of the structures of all of the Disclosed Active Molecules for a particular Selected Target (the "Option Effective Date"), Telik hereby grants to Sankyo an option to acquire an exclusive, worldwide license to develop and commercialize any or all Disclosed Active Molecules for such Selected Target (the "License Option"). The term of such option shall commence on the Option Effective Date and expire [ * ] thereafter (the "Option Term"). 4.2 Exercise of License Option. Sankyo shall exercise the License Option described in Section 4.1 by (i) providing written notice to Telik, prior to the expiration of the Option Term, identifying each Disclosed Active Molecule to which Sankyo desires to procure a license (a "Sankyo-Reserved Molecule") and (ii) negotiating and entering into a mutually agreed license agreement (the "License Agreement") as set forth in Section 4.4 within [ * ] of the Option Effective Date. 4.3 Consolidation of Licensing Negotiations. To facilitate the execution of a single License Agreement covering Sankyo-Reserved Molecules related to more than one Selected Target, Telik may, in its sole discretion, agree to extend the negotiation period for a Selected Target if Sankyo provides, during the negotiation period for that Selected Target, timely written notification of its desire to procure a license for Disclosed Active Molecules related to one or more additional Selected Targets. As a result of such an extension, the parties will have until [ * ] after the Option Effective Date for the last Selected Target as to which Sankyo has provided timely notification under Section 4.2 to negotiate and execute a License Agreement covering all such Selected Targets. 4.4 License Agreement. If Sankyo exercises the License Option, Telik intends to provide Sankyo with exclusive, worldwide rights to all know-how and under all patents, patent applications and patent claims owned by Telik to the extent necessary or useful to the development and commercialization of products that, in the course of their discovery, development or production, utilize or incorporate the relevant Licensed Active Molecule (as defined below) or a derivative thereof. To this end, in the License Agreement Telik shall grant to Sankyo an exclusive, worldwide license (with the right to sublicense) to make, have made, use, import, offer for sale and sell such products. The License Agreement shall contain such other [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE sECURITIES ACT OF 1933, AS AMENDED. 5 terms as are consistent with terms then-applied to products of similar market potential arising out of or developed in the biopharmaceutical industry, provided however that (i) the royalty rate payable to Telik on net sales of products to be developed and commercialized under such license shall not exceed [ * ]; and (ii) except for any patents or patent applications assigned to Sankyo under such a License Agreement, in the event that any inventions arise out of the development and commercialization of products incorporating the relevant Licensed Active Molecule or a derivative thereof, inventions made by either party shall be owned by the party that made such inventions and inventions made jointly by the parties shall be owned jointly by the parties. Upon the execution of a License Agreement, any Sankyo-Reserved Molecule that is subject to the License Agreement shall become a "Licensed Active Molecule." If Sankyo prefers the assignment by Telik of certain patent application(s) or patent(s) in lieu of an exclusive license for such applications or patents, Telik is willing to consider such a request during the negotiation of the License Agreement. 5. Exclusivity. 5.1 Research. Commencing on Telik's acceptance of a Proposed Target as a Selected Target, Telik shall not thereafter perform research directed at such Selected Target other than that research which is within the scope of this Agreement, until the earlier of (i) the expiration or termination of this Agreement, (ii) the expiration of the Option Term without receipt by Telik of written notice from Sankyo under Section 4.2, (iii) expiration of the time to enter a License Agreement as described in Sections 4.2 and 4.3, (iv) Telik has delivered all results to Sankyo under Section 2.4 without identification of an Active Molecule with respect to such Selected Target as provided in Section 3.1; or (v) the Initial Results are insufficient to permit Telik to select Secondary Compounds as described in Section 2.4(a)(i). 5.2 Sankyo-Reserved Molecules. Upon receipt of Sankyo's notice pursuant to Section 4.2, Telik shall remove each Sankyo-Reserved Molecule identified in such notice from the Telik Library, and shall not conduct or permit to be conducted, or grant any third party the right to conduct, any research, development or commercialization of such Sankyo-Reserved Molecules, provided that: (a) Telik's obligations under this Article 5 with respect to any Sankyo-Reserved Molecule not then the subject of an executed License Agreement shall terminate [ * ] after the Option Effective Date for the relevant Selected Target (or, if Telik grants an extension pursuant to Section 4.3, [ * ] after the Option Effective Date for the last Selected Target as to which Sankyo provided timely notification under Section 4.2). Telik shall thereafter be free to conduct or grant any third party the right to conduct research, development and commercialization activities with respect to such Sankyo-Reserved Molecules. (b) Telik's obligations under this Article 5 with respect to any Selected Target for which no Sankyo-Reserved Molecule is then the subject of an executed License Agreement shall terminate [ * ] after the Option Effective Date for such Selected Target (or, if Telik grants an extension pursuant to Section 4.3, [ * ] after the Option Effective Date for the last Selected Target as to which Sankyo provided timely notification under Section 4.2). Telik shall thereafter be free to conduct or grant any third party the right to conduct research, development and commercialization activities with respect to such Selected Target, and Sankyo shall be free to conduct or grant any third party the right to conduct research, development and commercialization activities with respect to such Selected Target. 6. Ownership of Data and Intellectual Property. [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 6 6.1 Data Ownership. Prior to the expiration of the License Option for all Disclosed Active Molecules for a Selected Target, the Initial Results, Secondary Results, Tertiary Results, and Quaternary Results, if applicable, (the "Combined Screening Results") pertaining to those Disclosed Active Molecules shall be jointly owned by the Parties. Upon the execution of a License Agreement pursuant to Article 4, Telik shall grant to Sankyo the exclusive right to use Telik's interest in the Combined Screening Results pertaining to the relevant Licensed Active Molecules in the manufacture, use and sale of products incorporating or based upon such Licensed Active Molecules, including analogues, derivatives, or formulations thereof, and in the manufacture, use and sale of products incorporating compounds identified via analysis of structure-activity information gathered from the Combined Screening Results. Upon the later of (i) the expiration of the License Option for a Disclosed Active Molecule or (ii) the passing of [ * ] from the Option Effective Date for a Sankyo-Reserved Molecule (or, if Telik grants an extension pursuant to Section 4.3, [ * ] after the Option Effective Date for the last Selected Target as to which Sankyo provided timely notification under Section 4.2) for which no License Agreement was executed, the Combined Screening Results pertaining to the Disclosed Active Molecule or Sankyo-Reserved Molecule shall be solely owned by Telik; Telik shall have the right to use such Combined Screening Results for any purpose, and Sankyo shall not have any right to use such Combined Screening Results. 6.2 Ownership of Telik Library, Provided Compounds and TRAP Technology. All right, title and interest in and to the Telik Library, Provided Compounds, TRAP Technology, and any know-how, patents, or patent applications controlled by Telik and pertaining to the above items shall remain exclusively with Telik, subject only to the rights granted to Sankyo under Sections 2.4, 4.1, 4.4 and 5.2. Sankyo agrees not to obtain or attempt to obtain patents on the Telik Library, Provided Compounds, TRAP Technology, or use thereof without the express written consent of Telik. 6.3 Inventions. Notwithstanding the ownership of data set forth in Section 6.1, any inventions or discoveries (whether patentable or not) pertaining to, and all information resulting directly from the activities of either party pursuant to Articles 2 and 3 (the "Inventions"), will be solely owned by Telik. Sankyo shall promptly disclose to Telik any Invention resulting from the activities of Sankyo, its employees, agents or affiliates. Sankyo agrees not to obtain or attempt to obtain patents on the Inventions without the express written consent of Telik. (a) Prior to the execution of a License Agreement pursuant to Article 4, Telik shall have the sole right to file, prosecute, maintain, enforce and defend all patent applications and patents for Inventions and shall pay all costs and fees incurred with respect to such activities. Sankyo shall provide Telik, at Telik's expense, any assistance reasonably requested by Telik for the filing, prosecution, maintenance, enforcement or defense of such patents or patent applications. If Telik decides not to file a patent application for an Invention and Sankyo so requests in writing, Telik shall file and prosecute such a patent application and maintain any patent arising therefrom for so long as Sankyo promptly pays all costs and fees incurred with respect to such activities (including any costs associated with assistance provided by Sankyo at Telik's request). Telik shall not be obligated to file, prosecute or maintain any patent application or patent for an Invention other than that for which Sankyo has complied with the requirements set forth in the preceding sentence. In no event shall Telik be obligated to enforce or defend such [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 7 patent application or patent for Inventions. Within [ * ] after the filing of a patent application for an Invention, Telik shall provide Sankyo with written notification that such filing has been made. (b) Upon the execution of a License Agreement pursuant to Article 4, Sankyo shall reimburse Telik for all patent filing, prosecution and maintenance costs (including attorneys' fees) incurred by Telik as of the effective date of such License Agreement regarding any patent or patent application for Inventions licensed to Sankyo thereunder. Thereafter, Sankyo shall promptly pay all patent filing, prosecution and maintenance expenses for any patent or patent application for Inventions licensed to Sankyo under the License Agreement. 7. Representations and Warranties. 7.1 Each Party represents and warrants to the other that: (a) It will exercise due care in performing its obligations under the Agreement. (b) All documentation and other information conveyed by one Party to another hereunder or in connection herewith, was, at the time it was conveyed or provided, accurate and complete in light of the purposes for which it was intended. 7.2 THE PROVIDED COMPOUNDS ARE BEING SUPPLIED TO SANKYO ON AN "AS IS" BASIS WITH NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR THAT THEY ARE FREE FROM THE RIGHTFUL CLAIM OF ANY THIRD PARTY, BY WAY OF INFRINGEMENT OR THE LIKE. TELIK MAKES NO REPRESENTATIONS THAT USE OF THE PROVIDED COMPOUNDS WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTIES. 8. Acknowledgments and Covenants by Sankyo. 8.1 Sankyo acknowledges and agrees that the Provided Compounds may have biological and/or chemical properties that are unpredictable and unknown at the time of transfer. Sankyo hereby covenants that it will use the Provided Compounds with caution and prudence and it will not use the Provided Compounds for testing in or treatment of humans or in any other test not part of the Appendix. 8.2 Sankyo covenants that it will maintain reasonable security measures, no less strict than it maintains to protect its own valuable tangible property, against loss, theft or destruction of the Provided Compounds. 8.3 Sankyo covenants that it shall not attempt to reverse engineer or ascertain, by any means, the chemical structure or any other information concerning any Provided Compound unless and until Telik has provided the chemical structure to Sankyo. 9. Confidentiality. [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES aCT OF 1933, AS AMENDED. 8 9.1 Definition of Confidential Information. "Confidential Information" shall mean any and all knowledge, know-how, Proposed Targets, Selected Targets, Combined Screening Results, structures of Provided Compounds, practices, processes, or other information received by one Party from the other Party pursuant to this Agreement. 9.2 Nondisclosure of Confidential Information. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing by the Parties, the Parties agree that, for the term of this Agreement and for [ * ] after its expiration or termination, the receiving Party shall keep confidential and shall not publish or otherwise disclose and shall not use for any purpose other than as provided for in this Agreement any Confidential Information, hereinafter defined, furnished to it by the other Party pursuant to this Agreement unless the receiving Party can demonstrate by competent written proof that such Confidential Information: (a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the other Party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of such Agreements; (d) was disclosed to the receiving Party, other than under an obligation of confidentiality to a third party, by a third party who had no obligation to the disclosing Party not to disclose such information to others; or (e) was independently discovered or developed by the receiving Party without the use of Confidential Information belonging to the disclosing Party. [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 9 9.3 Authorized Disclosure. Each Party may disclose Confidential Information belonging to the other Party to the extent such disclosure is reasonably necessary in the following instances: (a) Filing or prosecuting patents relating to Inventions or licensed products; (b) Regulatory filings; (c) Prosecuting or defending litigation; (d) Complying with applicable governmental regulations; (e) Disclosure to Affiliates, sublicensees, employees, consultants, or agents, each of whom prior to disclosure must be bound by similar obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Article 9; (f) Disclosure to investment bankers, investors, and potential investors of information relevant to their assessment of the disclosing company, such as the existence of the Agreement, the general nature of the diseases for which targets have been selected, the number (but not the identity) of targets selected and the status of the project on a per target basis (without identifying the target); and (g) Disclosure by Telik, more than [ * ] after the expiration of a deadline applicable to Sankyo as set forth in Sections 4.1, 4.2 or 4.3 without appropriate action or response by Sankyo, of the Combined Screening Results against the relevant, identified Selected Target for a Disclosed Active Molecule, to third parties interested in pursuing such Selected Target or Disclosed Active Molecule, provided however, that Telik will not disclose to such third party that Sankyo selected such Selected Target. In any event, the Parties agree to take all reasonable action to avoid disclosure of Confidential Information except as permitted hereunder. [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE sECURITIES ACT OF 1933, AS AMENDED. 10 9.4 Publicity. Any publication, news release or other public announcement relating to this Agreement or to the performance hereunder, shall be first reviewed and approved by both Parties, which approval shall not be unreasonably withheld. 10. Term; Termination. 10.1 Term. This Agreement shall become effective as of the Effective Date and unless earlier terminated as provided in this Article 10, shall expire on the later of (i) the expiration of the time to enter all License Agreements under Section 4.2, or (ii) thirty-six (36) months after the Effective Date. 10.2 Termination for Default. In the event that either party to this Agreement shall be in default of any of its material obligations hereunder and shall fail to remedy such default within [ * ] after receipt of written notice thereof, the party not in default shall have the option of terminating this Agreement by giving written notice thereof, notwithstanding anything to the contrary contained in this Agreement. 10.3 Effect of Termination. (a) In General. Termination of this Agreement shall not relieve the Parties of any obligations accruing prior to such termination. In the event of termination by Telik pursuant to Section 10.2 as a result of Sankyo's default of a material obligation, Sankyo shall pay Telik any Sample Supply Fee accrued at the time of termination but not yet paid. Except to the extent necessary to allow the Parties to exploit their respective rights pursuant to Section 6, promptly after termination of this Agreement each Party shall return or dispose of any know-how of the other in accordance with the instructions of the other, including without limitation any compounds, assays or other biological or chemical materials. (b) Default by Telik. Following Sankyo's termination of this Agreement pursuant to Section 10.2 as a result of Telik's default of a material obligation, [ * ]. If, as of the date of termination, Sankyo has not made payments to Telik equal to or greater than [ * ], Sankyo shall make such additional payment to Telik within [ * ] of the effective date of termination. If, as of the date of termination, Sankyo's payments total an amount greater than [ * ], Telik shall refund to Sankyo any excess amounts within [ * ] of the effective date of termination. Telik shall (i) disclose to Sankyo the structures for the Provided Compounds that have been tested by Sankyo and qualify as Active Molecules as of the date of Sankyo's termination and (ii) grant to Sankyo a nonexclusive, royalty-free, perpetual worldwide license (with the right to sublicense) to develop and commercialize products that, in the course of their discovery, development or production, utilize or incorporate such Disclosed Active Molecules. 10.4 Surviving Obligations. The terms of Articles 6 and 9 and Section 12.9 of this Agreement shall survive expiration or termination of this Agreement. 11. Governing Law; Dispute Resolution. 11.1 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of California, (i) without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 11 jurisdiction other than the State of California, and (ii) except that the rights of the parties to resolve by arbitration any dispute arising between them regarding the subject matter of this Agreement shall not be governed by the California arbitration act or international arbitration act (Cal. Code of Civ. Proc. (S) 1280 et seq. and 1297.11 et seq.) but rather by the United States Arbitration Act (9 U.S.C. (S)(S) 1-14, 201-208). 11.2 Dispute Resolution. In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, the Parties shall try to settle their differences amicably and in good faith between themselves first, by referring the disputed matter to the respective heads of research of each Party and, if not resolved by the research heads, by referring the disputed matter to the respective Chief Executive Officer of each Party. In the event such executives are unable to resolve such dispute within such thirty (30) day period, either Party may invoke the provisions of Section 11.3. 11.3 Arbitration. Upon failure to resolve any controversy or claim arising out of, relating to or in connection with any provision of this Agreement using the dispute resolution procedure described in Section 11.2, and except as provided in Section 11.3(c) below, any dispute, controversy or claim arising out of or relating to the validity, construction, enforceability or performance of this Agreement, including disputes relating to alleged breach or to termination of this Agreement, other than disputes which are expressly prohibited herein from being resolved by this mechanism, shall be settled by binding Alternative Dispute Resolution ("ADR") in the manner described below: (a) If a party intends to begin an ADR to resolve a dispute, such party shall provide written notice (the "ADR Request") to counsel for the other party informing such other party of such intention and the issues to be resolved. From the date of the ADR Request and until such time as any matter has been finally settled by ADR, the running of the time periods contained in Article 10 as to which a party must cure a breach of this Agreement shall be suspended as to the subject matter of the dispute. (b) Within ten (10) business days after the receipt of the ADR Request, the other party may, by written notice to the counsel for the party initiating ADR, add additional issues to be resolved. (c) Any dispute regarding the validity or enforceability of a patent or trademark applicable to a product shall be submitted to a court of competent jurisdiction in the country in which such patent or trademark right exists. [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 12 11.4 Procedure. The ADR shall be conducted pursuant to JAMS/ENDISPUTE Rules A and C then in effect. Notwithstanding those rules, the following provisions shall apply to the ADR hereunder. (a) Arbitrator. The arbitration shall be conducted by a panel of three arbitrators ("the Arbitrators"). The Arbitrators shall be selected from a pool of retired independent federal judges to be presented to the parties by JAMS/ENDISPUTE. Neither party shall engage in ex parte contact with the arbitrator. (b) Proceedings. The time periods set forth in the JAMS/ENDISPUTE rules shall be followed, unless a party can demonstrate to the Arbitrator that the complexity of the issues or other reasons warrant the extension of one or more of the time tables. The Arbitrator shall not award punitive damages to either party and the parties shall be deemed to have waived any right to such damages. The Arbitrator shall apply the Federal Rules of Evidence to the hearing. The proceeding shall take place in Honolulu, Hawaii in the English language. The fees of the Arbitrators and JAMS/ENDISPUTE shall be paid by the losing party, which shall be designated by the Arbitrator. If the Arbitrator is unable to designate a losing party, it shall so state and the fees shall be split equally between the parties. (c) Award. The Arbitrator is empowered to award any remedy allowed by law, including money damages, prejudgment interest and attorneys' fees, and to grant final, complete, interim, or interlocutory relief, including injunctive relief but excluding punitive damages. 11.5 Confidentiality. The ADR proceeding, the existence of any dispute submitted to ADR, and the award shall be confidential and the Panel shall issue appropriate protective orders to safeguard each party's Confidential Information. Except as required by law or in connection with the enforcement of an award hereunder, no party shall disclose (or instruct the Panel to disclose) such Confidential Information without prior written consent of each other party. 11.6 Judicial Enforcement. The parties agree that judgment on any arbitral award issued pursuant to this Article 11 shall be entered in the United States District Court for the Northern District of California or, in the event such court does not have subject matter jurisdiction over the dispute in question, such judgment shall be entered in the Superior Court of the State of California, in the County of San Mateo. 12. Miscellaneous. 12.1 Notices. All notices required or permitted to be given under this Agreement shall be in writing and shall be mailed by registered or certified mail, postage prepaid, addressed to the signatory to whom such notice is required or permitted to be given and transmitted by facsimile to the number indicated below. All notices shall be deemed to have been given when mailed, as evidenced by the postmark at the point of mailing, or transmitted by facsimile. All notices to Sankyo shall be addressed as follows: Sankyo Company, Ltd. [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE sECURITIES ACT OF 1933, AS AMENDED. 13 2-58, Hiromachi 1-chome Shinagawa-ku Tokyo 140-8710 JAPAN Attention: Dr. Hiroshi Fukumi Fax: 81-3-5436-8569 with a copy to: Sankyo Company, Ltd. 2-58, Hiromachi 1-chome Shinagawa-ku Tokyo 140-8710 JAPAN Attention: Dr. Hidenori Shimotsu Fax: 81-3-5436-8561 All notices to Telik shall be addressed as follows: Telik, Inc. 750 Gateway Boulevard South San Francisco, California 94080 U.S.A. Attention: President Fax: (650) 244-9388 with a copy to: Cooley Godward LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, California 94306 U.S.A. Attention: Robert L. Jones, Esq. Fax: (650) 857-0663 Any Party may, by written notice to the other, designate a new addressee, address or facsimile number to which notices to the Party giving the notice shall thereafter be mailed or faxed. 12.2 Force Majeure. No Party shall be liable for any delay or failure of performance to the extent such delay or failure is caused by circumstances beyond its reasonable control and that by the exercise of due diligence it is unable to prevent, provided that the Party claiming excuse uses its best efforts to overcome the same. 12.3 Entirety Of Agreement. This Agreement embodies the entire, final and complete agreement and understanding between the Parties and replaces and supersedes all prior [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE sECURITIES ACT OF 1933, AS AMENDED. 14 discussions and agreements between them with respect to its subject matter except as expressly stated herein. No modification or waiver of any terms or conditions hereof shall be effective unless made in writing and signed by a duly authorized officer of each Party. 12.4 Non-Waiver. The failure of a Party in any one or more instances to insist upon strict performance of any of the terms and conditions of this Agreement shall not constitute a waiver or relinquishment, to any extent, of the right to assert or rely upon any such terms or conditions on any future occasion. 12.5 Disclaimer Of Agency. Neither Party is, or will be deemed to be, the legal representative or agent of the other, nor shall either Party have the right or authority to assume, create, or incur any third party liability or obligation of any kind, express or implied, against or in the name of or on behalf of another except as expressly set forth in this Agreement. 12.6 Severability. If a court of competent jurisdiction declares any provision of this Agreement invalid or unenforceable, or if any government or other agency having jurisdiction over either Telik or Sankyo deems any provision to be contrary to any laws, then that provision shall be severed and the remainder of the Agreement shall continue in full force and effect. To the extent possible, the Parties shall revise such invalidated provision in a manner that will render such provision valid without impairing the Parties' original interest. 12.7 Affiliates; Assignment. Except as otherwise provided in this Section 12.7, neither Party may assign its rights or obligations under this Agreement without the prior written consent of the other Party, such consent not to be unreasonably withheld, except that a Party may assign its rights or obligations to a third party in connection with the merger, consolidation, reorganization or acquisition of stock or assets affecting substantially all of the assets or actual voting control of the assigning Party. This Agreement shall be binding upon the successors and permitted assigns of the Parties. Any attempted delegation or assignment not in accordance with this Section 12.7 shall be of no force or effect. 12.8 Headings. The headings contained in this Agreement have been added for convenience only and shall not be construed as limiting. 12.9 Limitation Of Liability and Indemnification. No Party shall be liable to another for indirect, incidental, consequential or special damages, including but not limited to lost profits, arising from or relating to any breach of this Agreement, regardless of any notice of the possibility of such damages. In no event shall Telik be liable for any use by Sankyo of the Provided Compounds. Sankyo hereby agrees to indemnify, defend and hold Telik harmless from damages for any loss, claim, injury or liability or whatsoever kind or nature, which may arise from Sankyo's use, handling or storage of the Provided Compounds. 12.10 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which shall constitute together the same document. 12.11 English Language. This Agreement has been prepared in the English language and shall be construed in the English language. [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 15 12.12 Further Assurances. Each party hereby agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. IN WITNESS WHEREOF, the parties have by duly authorized persons, executed this Agreement, as of the date first above written.
Sankyo Company, Ltd. Telik, Inc. By: /s/ Tetsuo Hiraoka By: /s/ Reinaldo A. Gomez ---------------------------- ---------------------------------- Title: Director, Research Institute Title: Vice President Corporate Alliances ---------------------------- ---------------------------------- Date: March 23, 1999 Date: March 24, 1999 ---------------------------- ----------------------------------
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 16 APPENDIX SELECTED TARGETS AND ASSAYS [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 17 APPENDIX Targets, Assays and Criteria of Active Molecules 5/13/99 [*] [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 18 September 30, 1999 Dr. Yoshiki Matsui Vice Director, Research Planning Department and Dr. Hidenori Shimotsu Research Planning Department Sankyo Co., Ltd. 2-58, Hiromachi 1-chome Shinagawa-ku, Tokyo 140 Japan Dear Dr. Matsui and Dr. Shimotsu: Reference is made to that certain Agreement dated as of March 24, 1999 between Sankyo Company, Ltd. and Telik, Inc. (the "Agreement"; capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement). Subject to your agreement herewith, as of the date indicated below, the notices provided to Sankyo stated in Article 12.1 of the Agreement shall be addressed as follows: Sankyo Company, Ltd. 2-58, Hiromachi 1-chome Shinagawa-ku Tokyo 140 JAPAN Attention: Dr. Hidenori Shimotsu Fax: 81-3-5436-8561 with a copy to: Sankyo Company, Ltd. 2-58, Hiromachi 1-chome Shinagawa-ku Tokyo 140 JAPAN Attention: Dr. Yoshiki Matsui Fax: 81-3-5436-8561 Page 2 September 30, 1999 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 19 If you are in agreement with the foregoing, please execute this letter agreement where indicated below whereupon it will become an agreement between us on the terms indicated above. Sincerely, TELIK, INC. By: /s/ Reinaldo F. Gomez ---------------------------- Name: Reinaldo F. Gomez ---------------------------- Title: VP Corporate Alliance ---------------------------- Accepted and Agreed to this ____ of October, 1999. SANKYO COMPANY, LTD. By: /s/ Yukio Sughnura ---------------------------- Name: Yukio Sughnura, Ph.D. ---------------------------- Title: Senior Director ---------------------------- Research Planning Department ---------------------------- Sankyo Co., Ltd. ---------------------------- [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 20 APPENDIX Targets, Assays and Criteria of Active Molecules Ammended 2/16/00 Selected Targets - ---------------- [*] Substitute Selected Targets - --------------------------- [*] [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE sECURITIES ACT OF 1933, AS AMENDED. 21 EX-10.6 4 0004.txt COLLABORATIVE AGMT DATED 12/20/1996 Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. EXHIBIT 10.6 COLLABORATION AGREEMENT This Collaboration Agreement (the "Agreement") is entered into as of the 20th day of December, 1996 (the "Effective Date") by and between Sanwa Kagaku Kenkyusho Co., Ltd., a Japanese corporation with its offices at 35 Higashi Sotobori-cho, Higashi-ku Nagoya, 461, Japan ("Sanwa") and Terrapin Technologies, Inc., a Delaware corporation with its offices at 750 Gateway Boulevard, South San Francisco, California 94080, U.S.A. ("Terrapin"). Sanwa and Terrapin are sometimes referenced in this Agreement individually as a "Party" and collectively as the "Parties." Recitals Whereas, Terrapin has knowledge of a novel target in the insulin signal transduction pathway and compounds that activate the insulin receptor; and Whereas, Terrapin possesses a library of compounds and is able to determine the affinity of each compound versus Terrapin's reference proteins employed in Terrapin's proprietary TRAP (TM) technology; and Whereas, Sanwa is engaged in the research, development, marketing, manufacture and distribution of therapeutic pharmaceutical products; and Whereas, Terrapin and Sanwa desire to enter into a collaborative program to research and discover compounds that act through activation of the insulin signal transduction pathway for purposes of the treatment of diabetes mellitus or insulin resistance; and Whereas, Terrapin and Sanwa have entered into a binding letter of intent, dated November 6, 1996, setting forth their intent to enter into a definitive agreement with respect to such collaborative program; and Whereas, Terrapin and Sanwa will enter into a separate agreement under which Terrapin shall utilize its proprietary TRAP (TM) technology to evaluate certain of Sanwa's drug targets for the purpose of identifying compounds for pharmaceutical development. Now, Therefore, in consideration of the foregoing and the covenants and premises contained in this Agreement, the Parties agree as follows: 1 Article 1 Definitions As used herein, the following terms shall have the following meanings: 1.1 "Affiliate" shall mean any company or entity controlled by, controlling, or under common control with a Party hereto and shall include without limitation any company fifty percent (50%) or more of whose voting stock or participating profit interest is owned or controlled, directly or indirectly, by a Party, and any company which owns or controls, directly or indirectly, fifty percent (50%) or more of the voting stock of a Party. 1.2 "Clinical Candidate" shall mean any compound identified under the Research Program which the RMC determines may be useful in the Field. 1.3 "Confidential Information" shall mean all information, inventions, know-how or data of either Party disclosed pursuant to, or in contemplation of, this Agreement in written, graphic or electronic form if marked as confidential or in oral form if designated as confidential and confirmed in writing promptly after oral disclosure, including, without limitation, (i) information regarding the Research Program, Clinical Candidates, Licensed Products, and other matters material to this Agreement or the business of the disclosing Party, including manufacturing, marketing, financial, personnel, scientific and other business information and plans, and (ii) the material terms of this Agreement. 1.4 "Control" shall mean possession of the ability to grant the licenses as provided for herein without violating the terms of any agreement or arrangement with a third party. 1.5 "FDA" shall mean the United States Food and Drug Administration. 1.6 "Field" shall mean compounds that act through activation of the insulin signal transduction pathway for the treatment of diabetes mellitus or insulin resistance in humans. 1.7 "IND" shall mean an Investigational New Drug Application as defined in the FDA regulations, as such regulations may be amended from time to time. 1.8 "Letter of Intent" shall mean that Letter of Intent between the Parties dated November 6, 1996. 1.9 "License Agreement" shall mean the license agreement referenced in Article 3. [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 2 1.10 "Licensed Product" shall have the meaning assigned to it in the License Agreement. 1.11 "NDA" shall mean a New Drug Application as defined in the United States Federal Food, Drug and Cosmetic Act and applicable regulations thereunder, as amended from time to time. 1.12 "Phase I" shall mean the clinical trials which are the equivalent in the relevant country of the Sanwa Territory to that phase of clinical development of pharmaceutical products defined as "Phase I" in FDA regulations as amended from time to time. 1.13 "Phase II" shall mean the clinical trials which are the equivalent in the relevant country of the Sanwa Territory to that phase of clinical development of pharmaceutical products defined as "Phase II" in FDA regulations as amended from time to time. 1.14 "Phase III" shall mean the clinical trials which are the equivalent in the relevant country of the Sanwa Territory to that phase of clinical development of pharmaceutical products defined as "Phase III" in FDA regulations as amended from time to time. 1.15 "Research Plan" shall have the meaning set forth in Section 2.1. 1.16 "Research Program" shall have the meaning set forth in Section 2.1. 1.17 "Research Term" shall have the meaning set forth in Section 2.1. 1.18 "RMC" shall mean the Research Management Committee established by the Parties pursuant to Section 2.2. 1.19 "Sanwa Technology" shall mean all technology, inventions, information, data, know-how, patents and patent applications (including any divisions, continuations, continuations-in-part, reissues, extensions, renewals, supplementary protection certificates and foreign counterparts thereof) that are useful in the Field and which Sanwa owns or Controls during the term of this Agreement. 1.20 "Sanwa Territory" shall mean Japan, Korea, Taiwan and the People's Republic of China. 1.21 "Terrapin Technology" shall mean all technology, inventions, information, data, know-how, patents and patent applications (including any divisions, continuations, continuations-in-part, reissues, extensions, renewals, supplementary [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 3 protection certificates and foreign counterparts thereof) that are useful in the Field and which Terrapin owns or Controls during the term of this Agreement. Article 2 Research Program Scope and Governance 2.1 Research Program; Research Plan. The Parties will participate in a collaborative program (the "Research Program") to research and discover novel compounds for use in the Field. The Research Program shall commence on the Effective Date and continue until the [ * ] unless earlier terminated pursuant to Section 9.2 and 9.3 or extended by mutual written agreement of the Parties. The period of time during which the Research Program is in effect shall be the "Research Term." The Research Program shall be conducted pursuant to a detailed research plan attached hereto as Exhibit A, which may be modified from time to time by the RMC (the "Research Plan"). Terrapin shall commence the Research Program promptly upon execution of this Agreement. Each Party shall devote commercially reasonable efforts to its obligations under the Research Program, consistent with the efforts it devotes to its own research programs of comparable market potential. 2.2 Research Management Committee Formation and Procedure. Within [ * ] of the Effective Date, the Parties will form a Research Management Committee (the "RMC") having the functions and powers described in Section 2.3. The RMC will be comprised of [ * ] from each of Terrapin and Sanwa. All decisions of the RMC must be unanimously approved by the members of the RMC. The RMC shall agree, in good faith, upon the chairperson of the RMC, the time and place of meetings of the RMC, substitutions for RMC members, qualifications of RMC members, and other similar matters. Within [ * ] days after each meeting, the RMC will provide the Parties with a written report describing the status of the Research Program, issues requiring resolution and resolutions of previously reported issues, all in reasonable detail. In the event the RMC is unable to reach a decision concerning the designation of a Clinical Candidate, such matters will be resolved in accordance with the provisions of Section 11.2. 2.3 Research Management Committee Functions and Powers. The RMC shall: (i) encourage and facilitate ongoing cooperation between the Parties, (ii) periodically review the progress of the Research Program, including all screening results and other work done and new developments in the Field, and propose changes to the Research Plan based upon such review, (iii) designate compounds as Clinical Candidates from time to time based upon the results of the Research Program, (iv) allocate tasks and coordinate activities required to perform the Research Program, (v) monitor progress of the Research Program and the Parties' diligence in carrying out their responsibilities [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 4 thereunder, and (vi) carry out any other duties and responsibilities described for it in this Agreement. 2.4 Research Liaison. Each Party shall appoint a qualified representative (each a "Research Liaison") to be the liaison to the other Party and to the RMC. The Research Liaisons shall serve as the principal point of communication between the parties and shall confer together at least monthly concerning the details of the Research Program. 2.5 Basic Responsibilities of Terrapin 2.5.1 Terrapin will be responsible for providing all infrastructure [*] necessary for conducting [ * ] Phase 1 of the Research Plan, relating to identification and selection of advanced lead compounds and Phase 2 of the Research Plan, relating to identification and selection of Clinical Candidates. If Terrapin shall choose to develop or have developed the same Clinical Candidate outside the Sanwa Territory, then Terrapin will also be responsible for providing all infrastructure [ * ] necessary for and conducting [ * ], Phase 3 of the Research Plan, relating to all IND enabling work for Clinical Candidates, except that portion of Phase 3 work identified therein as uniquely required for an IND application in Japan. 2.5.2 All research and development work to be performed by Terrapin pursuant to this Agreement shall be performed in a timely manner and meet all FDA quality standard requirements. In performing such work and without limiting the obligations set forth in this Section 2.5, Terrapin shall provide [ * ] a sufficient number of full-time, trained, experienced researchers, chemists, pharmacologists, biologists and technicians and other specialists competent and qualified to perform the work to be performed pursuant to this Agreement. 2.6 Use of Third Parties by Terrapin. During the term of this Agreement, Terrapin may utilize the services of outside consultants or third parties in connection with performing its research and development work provided that Terrapin assumes full responsibility and liability for such third parties. 2.7 Basic responsibilities of Sanwa. Sanwa will be responsible for providing all infrastructure [ * ] necessary for and conducting [ * ] that portion of Phase 3 of the Research Plan identified therein as uniquely required for an IND application in Japan with respect to Clinical Candidates for which Sanwa has sent or plans to send a Development and Commercialization Notice to Terrapin and which Terrapin chooses not to develop or have developed outside of Japan. [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 5 2.8 Cooperation; Reports; Reciprocal Sharing of Data. 2.8.1 Each Party will cooperate with each other in conducting the Research Program. 2.8.2 The Parties shall make available and disclose to one another, on a quarterly basis through the RMC, all results of the work conducted pursuant to Phase 1 and Phase 2 of the Research Program. 2.8.3 Terrapin shall make available and disclose to Sanwa, on a [ * ] basis through the RMC, all work related to Phase 3 of the Research Program for which Terrapin is responsible pursuant to Section 2.5. Terrapin shall also make available to Sanwa data within the Field relevant to the Research Program arising from arrangements between Terrapin and third parties similar to this Agreement but only to the extent, and upon such terms, as such third party shall agree including, if necessary, an agreement by Sanwa to provide similar information to such third party upon a reciprocal basis. Without limiting the generality of the foregoing, Terrapin agrees to use its reasonable efforts in good faith to cause any third party having rights to Clinical Candidates outside the Sanwa Territory to provide the results of tests and other work corresponding to Phase 3 of the Research Plan to Sanwa for such Clinical Candidates. 2.8.4 Sanwa shall disclose all Phase 3 work relating to Clinical Candidates to Terrapin. Terrapin may use such information solely for the purposes of the Research Program and shall not use it for any other purpose or disclose it to any third party unless Sanwa agrees to the terms of such use or disclosure (which may include cost reimbursement for all or a portion of the Phase 3 work conducted by Sanwa or on Sanwa's behalf by a third party). 2.9 Supply of Preclinical and Clinical Material. Terrapin will provide Sanwa [ * ] of Clinical Candidate requested by Sanwa. Such materials will be produced using a process to be developed by Terrapin which complies with then current good manufacturing processes in accordance with the requirements of the FDA; provided, however, that the parties may hereafter agree that Sanwa will produce some or all of the Clinical Candidate material. Sanwa will notify Terrapin of the quantities and delivery dates of the material needed and pay Terrapin [ * ] for such material, all according to such reasonable procedures as the parties shall hereafter agree. Article 3 Election to Pursue Further Development and Commercialization 3.1 Development and Commercialization Notice. At any time during the Research Term or within [ * ] thereafter, Sanwa may provide written notice (the [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 6 "Development and Commercialization Notice") to Terrapin of its intention to develop a Clinical Candidate for use in the Field and, if results of the human clinical studies justify, to prepare and file the Japanese equivalent of an NDA on such Clinical Candidate for use in the Field. Such notice shall be in the form attached hereto as Exhibit B and shall be made prior to the filing of the Japanese equivalent of an IND by Sanwa for such Clinical Candidate. Upon Terrapin's receipt of the first Development and Commercialization Notice, Terrapin and Sanwa shall promptly enter into a license agreement with respect to the Clinical Candidate described in such Development and Commercialization Notice, upon substantially the terms set forth in the form of License Agreement set forth in Exhibit C attached hereto. For each subsequent Clinical Candidate which Sanwa elects to develop and commercialize as set forth in this Article 3, Sanwa shall provide a new Development and Commercialization Notice to Terrapin and, upon Terrapin's receipt of such Development and Commercialization Notice, such Clinical Candidate(s) shall be added to Exhibit 1 to the License Agreement and shall be regarded as a Licensed Product for all purposes of the License Agreement. 3.2 Discussion Concerning Third Party Program in Territories. In the event Sanwa shall not deliver a Development and Commercialization Notice as provided in Section 3.1 with respect to at least [ * ] after the termination of this Agreement Terrapin shall be free to enter into an agreement with a third party in the Sanwa Territory pertaining to the Field without any obligation or liability to Sanwa other than as provided in this Section 3.2; provided, however, that at least [ * ] prior to entering into any such agreement, Terrapin shall notify Sanwa of its intention to do so and discuss with Sanwa in good faith during such period any proposal Sanwa may make concerning a further arrangement relating to the Field and Sanwa Territory. Terrapin's obligation to provide such notice to Sanwa and to discuss any such proposal with Sanwa shall survive the termination of this Agreement for a period of [ * ] 3.3 Rights with Respect to Clinical Candidates Not Selected. With respect to a Clinical Candidate which enters Phase 3 of the Research Program but for which Sanwa did not give a Development and Commercialization Notice as provided in Section 3.1 prior to [ * ] if, at any time during the first [ * ] thereafter, Terrapin determines it wishes to grant rights outside the Field to such Clinical Candidate to a third party, then, provided Sanwa has entered into the License Agreement with respect to at least one Clinical Candidate, Terrapin will first provide notice of its intention to Sanwa. If within [ * ] of receipt of Terrapin's notice, Sanwa provides Terrapin a Development and Commercialization Notice with respect to such Clinical Candidate, then such Clinical Candidate shall be added to Exhibit I to the License Agreement and shall be regarded as a Licensed Product for all purposes of the License Agreement. If, at or before the end of such period, Sanwa does not provide a Development and Commercialization Notice with respect to such Clinical Candidate, then Terrapin shall have no further obligation or [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 7 liability to Sanwa with respect to such Clinical Candidate and shall be free to enter into one or more transactions with third parties with respect thereto. 3.4 Royalty Rates in Certain Countries. The parties intend that the Sanwa Territory shall include Korea, Taiwan and the People's Republic of China, in addition to Japan, but have not as of the Effective Date of this Agreement agreed to royalty rates for such countries. As soon as practicable after the Effective Date of this Agreement but not later than the Effective Date of the License Agreement, the parties shall meet and agree on the royalty rates for such countries. Upon such agreement each such country and agreed rate shall be included in Appendix 2 to the License Agreement. In the event, however, that the parties shall fail to agree on the royalty rate for one or more of such countries, then such country shall not be included in Appendix 2 to the License Agreement and Sanwa shall have no rights hereunder or under the License Agreement with respect to such country. Article 4 License Grants 4.1 Grant by Terrapin. Terrapin hereby grants to Sanwa, during the Research Term, a non-exclusive, worldwide, royalty-free license under the Terrapin Technology for the sole purpose of allowing Sanwa to carry out its responsibilities under the Research Program. Sanwa may grant a sublicense under the foregoing license. In the event Sanwa grants a sublicense under the preceding sentence, it shall provide prior written notice to Terrapin of the name of the sublicensee and the purposes for such sublicense. 4.2 Grant by Sanwa. Sanwa hereby grants to Terrapin, during the Research Term, a non-exclusive, worldwide, royalty-free license under the Sanwa Technology for the sole purpose of allowing Terrapin to carry out its responsibilities under the Research Program. Terrapin may grant a sublicense under the foregoing license. In the event Terrapin grants a sublicense under the preceding sentence, it shall provide prior written notice to Sanwa of the name of the sublicensee and the purposes for such sublicense. 4.3 Documentation of License Rights. To the extent necessary to permit a party to carry out its responsibilities under the Research Program, the licensor of technology under Sections 4.1 or 4.2 above, promptly after request by the licensee, shall provide a complete and organized set of written materials embodying the requested technology. The licensor providing those materials may provide them in their original language. The licensee may from time to time convey questions to the licensor regarding the subject of the technology, and the licensor shall cause its technical personnel to respond promptly and fully to those questions without additional charge to the licensee. [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 8 4.4 Exclusive Collaboration. Each party to this Agreement covenants and agrees that the Research Program shall be its sole and exclusive activity within the Field in the Sanwa Territory during the term of this Agreement. Terrapin covenants and agrees that during the term of this Agreement, it will not license compounds to third parties in the Sanwa Territory where the development of such compounds is directed toward the Field. Article 5 Financial Provisions 5.1 Collaboration Agreement Signing Fee. Within five (5) business days after the Effective Date, Sanwa shall make a nonrefundable payment to Terrapin of [ * ] 5.2 Equity Investment in Terrapin. 5.2.1 Stock Purchase Agreement. Simultaneous with the execution of this Agreement, the Parties are entering into a Stock Purchase Agreement, in the form attached hereto as Exhibit D ("Stock Purchase Agreement"). 5.2.2 Initial Public Offering. In the event that Terrapin consummates an initial public offering in which Terrapin receives net proceeds of not less than Ten Million United States Dollars (US$10,000,000) at a per share price of not less than One United States Dollar and Twenty-Five United States Cents (US$1.25) (the "IPO"), Sanwa and Terrapin agree that, upon written request of Terrapin, Sanwa shall purchase and Terrapin shall issue and sell Three Million United States Dollars (US$3,000,000) worth of Terrapin common stock ("Additional Shares") in a separate private placement, but at a price per share equal to the price paid by investors in the IPO. The obligation set forth in this Section 5.2.2 shall continue for a period of three (3) years following the Effective Date, notwithstanding any termination of this Agreement prior to the expiration of such period, unless such termination occurs as a result of Terrapin's material breach under Section 9.2. The agreement or agreements pursuant to which Terrapin shall sell and Sanwa shall purchase the Additional Shares shall (i) provide that the closing of the sale of the Additional Shares shall occur on the second business day following the closing of the sale of shares in the IPO, (ii) contain a lock-up covenant ("Lock-up") substantially the same as Section 7.1 of the Stock Purchase Agreement, (iii) contain a demand registration right ("Demand Right") substantially the same as Section 1.2 of the Sixth Amended and Restated Investor Rights Agreement attached as Exhibit C1 to the Stock Purchase Agreement ("Investor Rights Agreement"), except that (A) such Sanwa provision shall be modified to reflect the fact that Sanwa will be the only "Holder", as such term is used therein, (B) only one (1) registration may be effected thereunder, (C) the Demand Right may be exercised by Sanwa in its sole discretion at any time after one hundred eighty (180) days following the date of closing of the IPO, subject to the Lock-up, (D) the Demand Right shall expire on the date which is the earlier of (1) the one hundred eighty-first (181) day following the date the Lock-up shall expire or (2) the day Sanwa could sell within six months of such date all the Additional Shares then held by Sanwa pursuant to Rule 144 and (E) the Company shall bear all Registration Expenses but no Selling Expenses, as such terms are defined in Section 1.1 of the Investor Rights Agreement, in connection with the registration effected pursuant to the Demand Right upon terms substantially the same as Section 1.4 of the Investor Rights Agreement and (iv) provide that Sanwa may rely on the statements contained in the prospectus distributed to investors in the IPO as if the statements contained therein were made directly to Sanwa and that Sanwa shall be entitled to all rights and remedies that an investor in the IPO would have under applicable laws. 5.3 Research Payments. In support of Terrapin's activities under the Research Program, Sanwa shall pay Terrapin (i) [ * ] within five (5) business days after the [ * ] (ii) [ * ] within five (5) business days after the [ * ] and (iii) [ * ] within five (5) business days after the [ * ] In the event this Agreement shall be terminated within a [ * ] period following any of the foregoing payment dates, then Terrapin shall [ * ] under this Section 5.3 in respect of such payment date. Such [ * ] shall equal [ * ] where X equals [ * ] [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 9 5.4 Milestone Payments to Terrapin. Sanwa shall make the following nonrefundable payments to Terrapin, within [ * ] after the occurrence of the following events: ================================================================== MILESTONE EVENT AMOUNT OF PAYMENT - ------------------------------------------------------------------ (1) [ * ] [ * ] - ------------------------------------------------------------------ (2) [ * ] [ * ] - ------------------------------------------------------------------ (3) [ * ] [ * ] - ------------------------------------------------------------------ (4) [ * ] [ * ] - ------------------------------------------------------------------ (5) [ * ] [ * ] - ------------------------------------------------------------------ (6) [ * ] [ * ] ================================================================== Each of the foregoing payments shall be made only once regardless of the number of products licensed to Sanwa. 5.5 Japan Withholding Taxes. 5.5.1 Payments under Section 5.1 and Section 5.3. Any withholding taxes to be levied on the payments to Terrapin under Section 5.1 and Section 5.3 by any tax authority in Japan shall be borne by [ * ] Terrapin agrees to make reasonable good faith efforts to assist Sanwa in the characterization of the payments under Section 5.3 as research expenses. 5.5.2 Other Payments. Except as set forth in Section 5.5.1, any income, withholding or other taxes to be levied on the income of Terrapin by any tax authority by reason of the execution of, or any performance under, this Agreement, other than as provided in Section 5.5.1, shall be borne by Terrapin. In the event that Sanwa deducts such tax from the amount of the income to be remitted to Terrapin in order to pay such tax authority on behalf of Terrapin, Sanwa shall send to Terrapin, in due course, reasonable evidence showing the payment of such tax. 5.6 Payments. All payments to be made by either Party to the other Party hereunder, except as otherwise provided herein, shall be remitted by wire transfer to the [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 10 account of the other Party with such bank as may be designated by the other Party, and shall be made in U.S. dollars. Article 6 Intellectual Property 6.1 Ownership Of Pre-Existing Technology And Technology Developed Outside Of The Research Program. Each Party shall remain the sole owner of all of its respective technology, compounds, discoveries and inventions which are either (i) in existence as of the Effective Date or (ii) made outside of the Research Program, subject to the license grants set forth in Article 4 and any license granted under the License Agreement. 6.2 Ownership Of Research Program Technology. Inventions or discoveries made, and materials and information created solely by one Party in the course of the Research Program shall be owned solely by such Party, subject to the license grants set forth in Article 4 and any license granted under the License Agreement. Inventions or discoveries made, and materials and information created jointly by the Parties in the course of the Research Program shall be owned jointly by the Parties. In all cases, inventorship under the Research Program shall be determined in accordance with the United States patent laws. 6.3 Patent Prosecution. 6.3.1 Under the Research Program. The RMC shall consider and recommend to each party from time to time which inventions arising from the Research Program shall be the basis of patent applications and which shall be maintained as trade secrets. Patent applications and patents for inventions arising under the Research Program which are owned by one Party pursuant to Section 6.2 shall be prosecuted and maintained by the Party owning such invention, at such Party's option and its own expense. Terrapin shall be responsible, on a worldwide basis, for filing and prosecuting patent applications for, and maintaining patents on, jointly owned inventions arising under the Research Program pursuant to Section 6.2 (the "Joint Research Program Patents"), using counsel of its choice, and at its own expense. Terrapin shall confer with Sanwa on the content of all filings with the United States Patent and Trademark Office (or the foreign equivalent), and, taking into account Sanwa's knowledge and expertise with respect to filing and maintaining patents in the Sanwa Territory, shall provide Sanwa with the opportunity to review the content of such filings prior to their submission to such authorities and give due consideration to its recommendations thereto. 6.3.2 Under the License Agreement. In the event that Sanwa provides a Development and Commercialization Notice to Terrapin regarding a Clinical Candidate [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 11 and the Parties enter into a License Agreement with respect to the Clinical Candidate described in such Notice, Sanwa shall, at its own expense, assume responsibility for filing and prosecuting in the Sanwa Territory patent applications for, and maintaining patents on, such Clinical Candidate and/or Licensed Products containing such Clinical Compound or derived therefrom. In such event, Terrapin shall transmit to Sanwa all information reasonable and appropriate then in its possession relating to such patent application or patent and execute all consents or other filings reasonably necessary to permit Sanwa to assume such responsibility. 6.3.3 Back-up Prosecution. In the event that a Party decides not to proceed with prosecuting a patent application for, or maintaining a patent on, an invention for which it is responsible under this Section 6.3 in any country of the Sanwa Territory, it shall give the other Party sixty (60) days notice before any relevant deadline and transmit all information reasonable and appropriate relating to such patent application or patent, and such other Party shall have the right to pursue, at its own expense, prosecution of such application for, or maintenance of, such patent. 6.4 Infringement. The License Agreement shall provide for enforcement of Licensed Patents (as defined in the License Agreement) and defense against third party claims of infringement, and such matters will be governed thereby. If any patent infringement matters arise prior to execution of the License Agreement, the Parties will discuss in good faith the manner in which they will proceed to address such issues, in accordance with the provisions set forth in Section 5.3 of the License Agreement attached hereto as Exhibit C. 6.5 Disclosure Of Inventions. Terrapin and Sanwa will disclose promptly to each other all discoveries or inventions made pursuant to the Research Program, including discoveries or inventions made by consultants or contractors of Terrapin and Sanwa pursuant to the Research Program, prior to any public disclosure or filing of patent applications and allowing sufficient time for comment and review by the other Party; provided, however, review and comment shall be subject to the time limitations necessitated as a practical matter by Japan's first to file patent system. Article 7 Representations and Warranties 7.1 Representations And Warranties. 7.1.1 Both Parties. Each Party represents and warrants to the other that: [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 12 (a) Corporate Power. It is duly organized and validly existing under the laws of its state or country of incorporation, and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof. (b) Due Authorization. It is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate action. (c) Binding Agreement. This Agreement is legally binding upon it and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by it does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it. (d) Grant of Rights; Maintenance of Agreements. It has not, and will not during the term of this Agreement, grant any right to any third party which would conflict with the rights granted to the other Party hereunder. It has (or will have at the time performance is due) maintained and will maintain and keep in full force and effect all agreements necessary to perform its obligations hereunder. (e) Validity. It is aware of no action, suit or inquiry or investigation instituted by any governmental agency which questions or threatens the validity of this Agreement. (f) Third Party Rights. To the best of its knowledge, it has all right, power and authority to perform its obligations under, and [ * ] To the best of its knowledge, there are [ * ] (g) Accuracy of Information. All documentation and other information conveyed by one Party to another hereunder or in connection herewith, was, at the time it was conveyed or provided, accurate and complete in light of the purposes for which it was intended. 7.1.2 By Terrapin. The compounds identified by Terrapin for use in the Research Program and described by Terrapin to Sanwa act at least in part through activation of the insulin signal transduction pathway. 7.2 Disclaimer Concerning Technology. EXCEPT AS SET FORTH IN SECTION 7.1 ABOVE, THE TECHNOLOGY PROVIDED BY EACH PARTY HEREUNDER IS PROVIDED "AS IS" AND EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 13 IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO. Without limiting the generality of the foregoing, each Party expressly does not warrant (i) the success of any study or test commenced under the Research Program or (ii) the safety or usefulness for any purpose of the technology it provides hereunder. 7.3 Disclaimer Concerning Compounds. EXCEPT AS SET FORTH IN SECTION 7.1 ABOVE, THE COMPOUNDS PROVIDED BY EACH PARTY PURSUANT TO THE RESEARCH PROGRAM ARE PROVIDED BY EACH PARTY "AS IS" AND EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON- INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO. Without limiting the generality of the foregoing, each Party expressly does not warrant (i) that any compound it provides hereunder is free from any third party rights or (ii) the safety or usefulness for any purpose of any compound it provides hereunder. 7.4 Terrapin Grant of Rights. Terrapin has not, and will not during the term of this Agreement, grant any right to any third party which would conflict with the rights granted to Sanwa hereunder. It has (or will have at the time performance is due) maintained and will maintain and keep in full force and effect all agreements necessary to perform its obligations hereunder. Article 8 Confidentiality; Publication 8.1 Confidentiality. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing by the Parties, the Parties agree that, for the term of this Agreement and for [ * ] after its expiration or termination, the receiving Party shall keep confidential and shall not publish or otherwise disclose and shall not use for any purpose other than as provided for in this Agreement any Confidential Information furnished to it by the other Party pursuant to this Agreement or the Letter of Intent unless the receiving Party can demonstrate by competent written proof that such Confidential Information: [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 14 (a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the other Party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of such Agreements; (d) was disclosed to the receiving Party, other than under an obligation of confidentiality to a third party, by a third party who had no obligation to the disclosing Party not to disclose such information to others; or (e) was independently discovered or developed by the receiving Party without the use of Confidential Information belonging to the disclosing Party. 8.2 Authorized Disclosure. Each Party may disclose Confidential Information belonging to the other Party to the extent such disclosure is reasonably necessary in the following instances: (a) filing or prosecuting patents relating to Clinical Candidates or Licensed Products; (b) regulatory filings; (c) prosecuting or defending litigation; (d) complying with applicable governmental regulations; (e) conducting preclinical or clinical trials of Clinical Candidates; (f) disclosure to Affiliates, sublicensees, employees, consultants, or agents each of whom prior to disclosure must be bound by similar obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Article 8; and, (g) disclosure to investment bankers; provided, however, that no such disclosure shall be made of Sanwa Confidential Information without its written consent, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, in the event a Party is required to make a disclosure of the other Party's Confidential Information pursuant to this Section 8.2 it will, except where impracticable, give reasonable advance notice to the other Party of such disclosure and use best efforts to secure confidential treatment of such information. In any event, the [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 15 Parties agree to take all reasonable action to avoid disclosure of Confidential Information hereunder. Article 9 Term and Termination 9.1 Term Of The Agreement. This Agreement shall become effective upon the Effective Date. Unless earlier terminated pursuant to Sections 9.2, 9.3 or 9.4, this Agreement shall continue in effect until the expiration or termination of the License Agreement or, if no License Agreement has been entered into by the one year anniversary of the end of the Research Term this Agreement shall terminate on the one year anniversary of the end of the Research Term. The term of this Agreement may be extended by mutual written agreement of the Parties. 9.2 Termination For Material Breach. Each Party shall have the right to terminate this Agreement after [ * ] prior written notice to the other that the other Party has committed a material breach of the Agreement, unless the other Party cures (to the extent practicable) the material breach within such period of time. In the event of such termination by Sanwa due to Terrapin's material breach, Sanwa may, for a period of [ * ] after such written notice of termination, provide a Notice of Development and Commercialization with respect to one or more Clinical Candidates. Terrapin and Sanwa shall thereafter enter into a License Agreement for any such Clinical Candidates or add any such Clinical Candidate to any existing License Agreement as provided under Section 3.1 above; provided, however, that Sanwa shall, at its own expense, develop such Clinical Candidates as set forth under Section 3.1. 9.3 Termination Upon Bankruptcy. Each Party shall have the right to terminate this Agreement if the other Party (the "Bankrupt Party") becomes insolvent or a petition in bankruptcy or for corporate reorganization or for any similar relief is filed by or against such other Party or a receiver is appointed with respect to any of the assets of such other Party or a liquidation proceeding is commenced by or against such other Party. 9.4 Accrued Rights; Surviving Obligations. Termination of this Agreement shall not affect any accrued rights of either Party. The terms of Articles 3 (other than Section 3.4), 6, 8 and 10 of this Agreement shall survive termination of this Agreement. Except as set forth in the License Agreement, promptly after termination of this Agreement each Party shall return or dispose of any know-how of the other in accordance with the instructions of the other, including without limitation any compounds, assays or other biological or chemical materials. [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 16 Article 10 Indemnity 10.1 Indemnification. Each Party hereby agrees to save, defend and hold the other Party and its directors, officers, employees, and agents harmless from and against any and all claims, suits, actions, demands, liabilities, expenses and/or loss, including reasonable legal expense and attorneys' fees (collectively, "Claims") for damage to persons or property resulting directly or indirectly from actions in connection with the Research Program by the indemnifying Party, its Affiliates, agents or sublicensees, but only to the extent such Claims result from the gross negligence or willful misconduct of the indemnifying Party or its Affiliates, agents or sublicensees and do not result from the negligence of the Party seeking indemnification. 10.2 Control Of Defense. Any entity entitled to indemnification under this Article shall give notice to the indemnifying Party of any Claims that may be subject to indemnification, promptly after learning of such Claim, and the indemnifying Party shall assume the defense of such Claims with counsel reasonably satisfactory to the indemnified Party. If such defense is assumed by the indemnifying Party with counsel so selected, the indemnifying Party will not be subject to any liability for any settlement of such Claims made by the indemnified Party without its consent (but such consent will not be unreasonably withheld or delayed), and will not be obligated to pay the fees and expenses of any separate counsel retained by the indemnified Party with respect to such Claims. Article 11 Governing Law; Dispute Resolution 11.1 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of California, (i) without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of California, and (ii) except that the rights of the parties to resolve by arbitration any dispute arising between them regarding the subject matter of this Agreement shall not be governed by the California arbitration act or international arbitration act (Cal. Code of Civ. Proc. (S) 1280 et seq. and 1297.11 et seq.) but rather by the United States Arbitration Act (9 U.S.C. (S)(S) 1-14, 201-208). 11.2 Dispute Resolution. In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, the Parties shall try to settle their differences amicably and in good faith between themselves first, by referring the disputed matter to the respective heads of research of each Party and, if not resolved by the research heads, by referring the disputed matter to the respective Chief [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 17 Executive Officers of each Party. In the event such executives are unable to resolve such dispute within such thirty (30) day period, either Party may invoke the provisions of Section 11.3. 11.3 Arbitration. Upon failure to resolve any controversy or claim arising out of, relating to or in connection with any provision of this Agreement using the dispute resolution procedure described in Section 11.2, such controversy or claim shall be finally settled by arbitration. Arbitration shall be held in Honolulu, Hawaii in the English language and conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The decision of such arbitration shall be conclusive and binding upon both Parties. If a Party commences any action or proceeding against the other Party to enforce this Agreement or any rights related thereto, the prevailing Party in such action shall be entitled to recover from the other Party the reasonable attorneys' fees and other reasonable costs and expenses incurred by that prevailing Party in connection with such action or proceeding and in connection with enforcing any judgment, award or order thereby obtained. Article 12 General Provisions 12.1 Notices. All notices required or permitted to be given under this Agreement shall be in writing and shall be mailed by registered or certified mail, postage prepaid, addressed to the signatory to whom such notice is required or permitted to be given and transmitted by facsimile to the number indicated below. All notices shall be deemed to have been given when mailed, as evidenced by the postmark at the point of mailing, or transmitted by facsimile. All notices to Sanwa shall be addressed as follows: Sanwa Kagaku Kenkyusho Co., Ltd. 35 Higashi Sotobori-cho Higashi-ku Nagoya, 461 Japan Attention: President Fax: 011-81-52-9571067 With a copy to: Graham & James, L.L.P. One Maritime Plaza, Suite 300 San Francisco, California 94111 ` [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 18 U.S.A. Attention: Michael R. Moyle, Esq. Fax: (415) 391-2493 All notices to Terrapin shall be addressed as follows: Terrapin Technologies, Inc. 750 Gateway Boulevard South San Francisco, California 94080 U.S.A. Attention: President Fax: (415) 244-9388 with a copy to: Cooley Godward LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, California 94306 Attention: Brian C. Cunningham, Esq. Fax: (415) 857 0663 Any Party may, by written notice to the other, designate a new addressee, address or facsimile number to which notices to the Party giving the notice shall thereafter be mailed or faxed. 12.2 Force Majeure. No Party shall be liable for any delay or failure of performance to the extent such delay or failure is caused by circumstances beyond its reasonable control and that by the exercise of due diligence it is unable to prevent, provided that the Party claiming excuse uses its best efforts to overcome the same. 12.3 Entirety Of Agreement. This Agreement embodies the entire, final and complete agreement and understanding between the Parties and replaces and supersedes all prior discussions and agreements between them with respect to its subject matter, including the Letter of Intent, except as expressly stated herein. No modification or waiver of any terms or conditions hereof shall be effective unless made in writing and signed by a duly authorized officer of each Party. 12.4 Non-Waiver. The failure of a Party in any one or more instances to insist upon strict performance of any of the terms and conditions of this Agreement shall not constitute a waiver or relinquishment, to any extent, of the right to assert or rely upon any such terms or conditions on any future occasion. [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 19 12.5 Disclaimer Of Agency. Neither Party is, or will be deemed to be, the legal representative or agent of the other, nor shall either Party have the right or authority to assume, create, or incur any third party liability or obligation of any kind, express or implied, against or in the name of or on behalf of another except as expressly set forth in this Agreement. 12.6 Severability. If a court of competent jurisdiction declares any provision of this Agreement invalid or unenforceable, or if any government or other agency having jurisdiction over either Terrapin or Sanwa deems any provision to be contrary to any laws, then that provision shall be severed and the remainder of the Agreement shall continue in full force and effect. To the extent possible, the Parties shall revise such invalidated provision in a manner that will render such provision valid without impairing the Parties' original interest. 12.7 Affiliates; Assignment. Except as otherwise provided in this Section 12.7, neither Party may assign its rights or obligations under this Agreement without the prior written consent of the other Party, except that a Party may assign its rights or obligations to a third party in connection with the merger, consolidation, reorganization or acquisition of stock or assets affecting substantially all of the assets or actual voting control of the assigning Party. This Agreement shall be binding upon the successors and permitted assigns of the Parties. Any attempted delegation or assignment not in accordance with this Section 12.7 shall be of no force or effect. 12.8 Headings. The headings contained in this Agreement have been added for convenience only and shall not be construed as limiting. 12.9 Limitation Of Liability. No Party shall be liable to another for indirect, incidental, consequential or special damages, including but not limited to lost profits, arising from or relating to any breach of this Agreement, regardless of any notice of the possibility of such damages. Nothing in this Section is intended to limit or restrict the indemnification rights or obligations of any Party. 12.10 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which shall constitute together the same document. 12.11 English Language. This Agreement has been prepared in the English language and shall be construed in the English language. [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 20 IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement. TERRAPIN TECHNOLOGIES, INC. SANWA KAGAKU KENKYUSHO CO., LTD. By: /s/ Clifford Orent By: /s/ Keiji Tanimoto ----------------------------- --------------------------------- Name: Clifford Orent Name: Keiji Tanimoto Title: Chairman, President and Chief Title: President and Chief Executive Executive Officer Officer [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 21 EXHIBIT A TO COLLABORATION AGREEMENT RESEARCH PLAN [*] (9-2/3 successive pages have been redacted here.) [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 22 EXHIBIT B TO COLLABORATION AGREEMENT DEVELOPMENT AND COMMERCIALIZATION NOTICE This Development and Commercialization Notice is provided by Sanwa Kagaku Kenkyusho Co., Ltd. ("Sanwa") to Terrapin Technologies, Inc. ("Terrapin"), pursuant to Article 3 of the Collaboration Agreement between Sanwa and Terrapin, dated as of December 20, 1996 (the "Collaboration Agreement"). All capitalized terms contained in this notice but not defined herein will have the meaning set forth in the Collaboration Agreement. Sanwa hereby notifies Terrapin of its intention to develop the following Clinical Candidate for use in the Field and, if results of the human clinical studies justify, to prepare and file the Japanese equivalent of an NDA on such Clinical Candidate for use in the Field: ______________________________________________ [Chemical Name of Clinical Candidate] Such Clinical Candidate shall be included on Exhibit 1 to the License Agreement. Sanwa Kagaku Kenkyusho Co., Ltd. By:_______________________________ Printed Name:_____________________ Title:____________________________ Date:_____________________________ The undersigned has received the foregoing notice: Terrapin Technologies, Inc. By:_______________________________ Printed Name:_____________________ Title:____________________________ Date:_____________________________ [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 23 FIRST AMENDMENT TO COLLABORATION AGREEMENT This First Amendment to Collaboration Agreement (this "First Amendment") is made and dated September 24, 1997 (the "First Amendment Effective Date"), by and between Sanwa Kagaku Kenkyusho Co., Ltd., a Japanese corporation ("Sanwa") and Terrapin Technologies, inc., a Delaware corporation ("Terrapin"). RECITALS A. The Parties are parties to that Collaboration Agreement dated as of December 20, 1996 (the "Collaboration Agreement') pursuant to which the parties have jointly engaged in research to identify one or more compounds which activate the insulin signal transduction pathway and appear to be useful for treatment of diabetes mellitus or insulin resistance in humans. B. The Parties are entering into a Series 1 Stock Purchase Agreement of even date herewith (the `Stock Purchase Agreement") in connection with which, as one of the conditions to Sanwa consummating the transactions contemplated by the Stock Purchase Agreement, the parties have agreed to execute and deliver this First Amendment, the License Agreement attached hereto as Exhibit A and a First Amendment to Screening Services Agreement. NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereby agree as follows: AGREEMENT 1. Amendments. The Collaboration Agreement is hereby amended as follows: (a) In Section 2.7 to the Collaboration Agreement, delete the following phrase: "for which Sanwa has sent or plans to send a Development and Commercialization Notice to Terrapin and" (b) Revise Section 2.8.2 to the Collaboration Agreement to provide in its entirety as follows: 2.8.2 The Parties shall make available and disclose to one another, on a quarterly basis through the RMC, all results of the work conducted pursuant to Phase 1 and Phase 2 of the Research Program. Further, upon the reasonable request of Sanwa and notice to Terrapin, Terrapin shall disclose to Sanwa all results of Terrapin's work conducted [ * ] - Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 1 pursuant to the Research Program since the last date Terrapin disclosed such results to Sanwa. (c) Add a new Section 2.10 to provide in its entirety as follows: 2.10 Research Budget. Within fifteen (15) business days after the First Amendment Effective Date, the parties shall agree and finalize a detailed budget ("Budget"), which shall be incorporated by reference herein in its entirety, and attached to this Agreement as Exhibit E. To the best of its present knowledge, Terrapin represents and warrants that [ * ]. Terrapin shall ensure at all times that it [ * ] and shall not [ * ] without the prior written consent of Sanwa, which consent shall not be unreasonably withheld. (d) Article 3 shall be revised to read "License Agreement," and Article 3 shall be revised in its entirety to read as follows: Article 3. License Agreement. As of the First Amendment Effective Date, the Parties are entering into a License Agreement, in the form attached hereto as Exhibit A, pursuant to which Terrapin is granting to Sanwa an exclusive license to all technology developed to date and technology to be developed under this Collaboration Agreement, such license to be in the Field and in the Sanwa Territory (as defined in such License Agreement to include Japan, Korea, Taiwan and the People's Republic of China). At any time during the term of this Agreement, Sanwa shall provide written notice (the "Development and Commercialization Notice") to Terrapin of its intention to develop a Licensed Product for use in the Field and, if results of the human clinical studies justify, to prepare and file the Japanese equivalent of NDA on such Licensed Product for use in the Field. Such notice shall be in the form attached hereto as Exhibit B and shall be made prior to the filing of the Japanese equivalent of an IND by Sanwa for such Licensed Product. For each Licensed Product which Sanwa elects to develop and commercialize as set forth in this Article 3, Sanwa shall provide a new Development and Commercialization Notice to Terrapin. (e) Delete Sections 3,1, 3.2, 3.3 and 3.4 in their entirety. (f) Delete Section 5.2.2 in its entirety. (g) Revise Section 6.3.2 to provide in its entirety as follows: 6.3.2 Under the License Agreement. Sanwa shall, at its own expense, assume responsibility for filing and prosecuting in the Sanwa Territory [ * ] - Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 2 patent applications for, and maintaining patents on, Licensed Products. Upon the request of Sanwa, Terrapin shall transmit to Sanwa all information reasonable and appropriate in its possession relating to such patent application or patent and execute all consents or other filings reasonably necessary to permit Sanwa to assume such responsibility. (h) Delete the last two sentences of Section 9.2. (i) Revise Section 12.7 to provide in its entirety as follows: 12.7 Assignment. 12.7.1 General. Except as otherwise provided in Section 12.7.2 or 12.7.3, neither party may assign its rights or obligations under this Agreement without the prior written consent of the other party. This Agreement shall be binding upon the permitted successors and permitted assigns of the Parties. Any attempted delegation or assignment not in accordance with this Section 12.7 shall be of no force and effect. 12.7.2 Permitted Assignment by Sanwa. Sanwa may assign its rights or obligations under this Agreement to a third party in connection with the merger, consolidation, reorganization or acquisition of stock or assets affecting substantially all of the assets or actual voting control of Sanwa. 12.7.3 Permitted Assignment by Terrapin. Upon the written consent of Sanwa, such consent not to be unreasonably withheld or delayed, Terrapin may assign its rights or obligations under this Agreement to a third party in connection with the merger, consolidation, reorganization or acquisition of stock or assets affecting substantially all of the assets or actual voting control of Terrapin. Sanwa may only withhold its consent under the preceding sentence if (a) such third party [ * ] according to the terms of this Agreement or (b) such third party [ * ]. 2. Defined Terms: Incorporation. Unless otherwise expressly provided herein, defined terms used in this First Amendment shall have the same meaning as set forth in the Collaboration Agreement, and all terms herein shall be incorporated into the Collaboration Agreement. From and after the First Amendment Effective Date, all reference to the "Collaboration Agreement" in all other documents delivered in connection with the Collaboration Agreement shall refer to the Collaboration Agreement, as amended hereby. 3. Counterparts: Facsimile. This First Amendment may be executed in counterparts and by facsimile. [ * ] - Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 3 IN WITNESS WHEREOF, the Parties have executed this First Amendment effective as of the date first set forth above. TERRAPIN TECHNOLOGIES, INC. SANWA KAGAKU KENKYUSHO, CO. LTD. /s/ Clifford Orent /s/ Keiji Tanimoto - ------------------ ------------------------------ By: By: Keiji Tanimoto Its: Its: President and CEO [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 4 SECOND AMENDMENT TO COLLABORATION AGREEMENT This Second Amendment to Collaboration Agreement (this "Second Amendment") is made and dated October 29, 1998 (the "Second Amendment Effective Date"), by and between Sanwa Kagaku Kenkyusho Co., Ltd., a Japanese corporation ("Sanwa") and Telik, Inc. (formerly Terrapin Technologies, Inc.), a Delaware corporation ("Telik"). RECITALS A. Sanwa and Telik are parties to that Collaboration Agreement dated as of December 20, 1996, as amended by that certain First Amendment to Collaboration Agreement dated September 24, 1997 (the "Collaboration Agreement") pursuant to which the Parties have jointly engaged in research to identify one or more compounds which activate the insulin signal transduction pathway and appear to be useful for treatment of diabetes mellitus or insulin resistance in humans. B. Sanwa and Telik are entering into a Series J Preferred Stock Purchase Agreement of even date herewith (the "Stock Purchase Agreement") in connection with which, as one of the conditions to Sanwa consummating the transactions contemplated by the Stock Purchase Agreement, the parties have agreed to execute and deliver this Second Amendment. NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereby agree as follows: AGREEMENT 4. Amendments. The Collaboration Agreement is hereby amended as follows: (a) Each reference in the Collaboration Agreement to "Terrapin Technologies, Inc." is amended and replaced by "Telik, Inc." Each reference in the Collaboration Agreement to "Terrapin" is amended and replaced by "Telik." (b) Section 2.1 is amended in its entirety as follows: The Parties will participate in a collaborative program (the "Research Program") to research and discover novel compounds for use in the Field. The Research Program shall commence on the Effective Date and continue until the [ * ], unless (i) earlier terminated pursuant to Sections 9.2 and 9.3, (ii) extended pursuant to Section 2.10, or (iii) extended by mutual written agreement of the Parties. The period of time during which the Research Program is in effect shall be the "Research Term." The Research Program shall be [ * ] - Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 1 conducted pursuant to a detailed research plan attached hereto as Exhibit A, which may be modified from time to time by the RMC (the "Research Plan"). Telik shall commence the Research Program promptly upon execution of this Agreement. Each Party shall devote commercially reasonable efforts to its obligations under the Research Program, consistent with the efforts it devotes to its own research programs of comparable market potential. (c) Section 2.5.1 is amended in its entirety as follows: Telik will be responsible for providing [ * ] (the [ * ] all infrastructure [ * ] necessary for conducting [ * ] Phase 1 of the Research Plan, relating to identification and selection of advanced lead compounds and Phase 2 of the Research Plan, relating to identification and selection of Clinical Candidates. Telik, [ * ] will also be responsible for providing all infrastructure [ * ] necessary for and conducting [ * ], Phase 3 of the Research Plan, relating to all IND enabling work for Clinical Candidates, except that portion of Phase 3 work identified in the Research Plan as uniquely required for an IND application in Japan, for: (i) The first Clinical Candidate; and (ii) Subsequent Clinical Candidates if Telik shall choose by written notice to Sanwa, to develop or have developed the same Clinical Candidate(s) outside the Sanwa Territory. If, as of the date Telik provides notice to Sanwa pursuant to Section 2.5.l(ii), Sanwa has commenced work on that portion of Phase 3 of the Research Plan for which Telik would be responsible as a result of providing such notice using protocols for such Phase 3 work as may be recommended by the RMC, then Telik shall promptly [ * ] such portion of Phase 3 of the Research Plan and Telik shall take over and complete or have such work completed. (d) Section 2.10 is amended by renumbering the existing Section 2.10 as Section 2.10 "(a)" and by adding the following at the end of that section: (b) At each of the RMC meetings, the RMC will discuss whether it would be scientifically advisable to extend the Research Term for an additional [ * ] period. By no later than [ * ] ("Cut-Off Date"), the RMC shall make a final recommendation to the Parties of whether to extend the Research Term for an additional [ * ] period. [ * ] - Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 2 If at any RMC meeting the RMC recommends to extend the Research Term for an additional [ * ] period, the Research Term shall be extended until the [ * ]. If by the Cut-Off Date the RMC has not made a final recommendation to extend the Research Term for an additional [ * ] period or if the RMC has recommended not to extend the Research Term for an additional [ * ] period, Sanwa may, at its option exercisable no later than [ * ] after the Cut- Off Date upon written notice to Telik, extend the Research Term for an additional [ * ]. Upon Sanwa's exercise of its option to extend the Research Term, the Research Term shall be extended until the [ * ]. (c) Sanwa agrees that if the Research Term is extended for an additional [ * ] period pursuant to Section 2.10 (b), then Sanwa will make an additional research payment to Telik of [ * ] within [ * ] after the [ * ], subject to the conditions set forth in the last two sentences in Section 5.3. (d) Telik shall be fully responsible for performing all work [ * ] (the [ * ] during any extensions to the Research Term and ensuring that at all times Telik [ * ] during any such extensions to the Research Term. (e) Section 5.4 is amended by adding the following clause to the end of that section: Furthermore, the amount of each of the foregoing payments shall be [ * ] at the time the Milestone Events occur as follows: (i) [ * ] (ii) [ * ]; and (iii) [ * ]. 5. Defined Terms; Incorporation. Unless otherwise expressly provided herein, defined terms used in this Second Amendment shall have the same meaning as set forth in the Collaboration Agreement, and all terms herein shall be incorporated into the Collaboration Agreement. From and after the Second Amendment Effective Date, all references to the "Collaboration Agreement" in all other documents delivered in connection with the Collaboration Agreement shall refer to the Collaboration Agreement, as amended hereby. 6. Counterparts; Facsimile. This Second Amendment may be executed in counterparts and by facsimile. [ * ] - Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 3 IN WITNESS WHEREOF, the Parties have executed this Second Amendment effective as of the date first set forth above. TELIK, INC. SANWA KAGAKU KENKYUSHO, CO. LTD. /s/ Clifford Orent /s/ Keiji Tanimoto - ----------------------------- ----------------------------------- By: Clifford Orent By: Keiji Tanimoto Its: Chairman and Chief Its: President and Chief Executive Executive Officer Officer Exhibit C LICENSE AGREEMENT The License Agreement has been filed with the SEC by Telik, Inc. as Exhibit 10.7 to this Telik Registration Statement Form S-1, filed March 31, 2000, which is titled "License Agreement by and between Registrant and Sanwa Kagaku Kenkyusho Co., Ltd., dated September 24, 1997, as amended," and is hereby incorporated by reference. [*]=CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. EX-10.7 5 0005.txt LICENSE AGMT DATED 09/24/1997 Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the securities Act of 1933, as amended. EXHIBIT 10.7 LICENSE AGREEMENT This License Agreement (the "Agreement") is entered into as of the 24th day of September 1997 (the "Effective Date") by and between Terrapin Technologies, Inc., a Delaware corporation ("Terrapin") and Sanwa Kagaku Kenkyusho co., Ltd., a Japanese corporation ("Sanwa"). Sanwa and Terrapin are sometimes referenced in this Agreement individually as a "Party" and collectively as the "Parties." Recitals Whereas, Terrapin and Sanwa have entered into a Collaboration Agreement dated as of December 20, 1996, as amended by the First Amendment to Collaboration Agreement dated September 24, 1997, (the "Collaboration Agreement"); and Whereas, pursuant to the Collaboration Agreement, the Parties have jointly engaged in research to identify one or more compounds which activate the insulin signal transduction pathway and appear to be useful for treatment of diabetes mellitus or insulin resistance in humans. Now, Therefore, in consideration of the foregoing and the covenants and premises contained herein, the Parties agree as follows: ARTICLE 1 DEFINITIONS Capitalized terms used but not defined herein will have the meaning set forth in the Collaboration Agreement. In addition, as used herein, the following terms shall have the following meanings: 1.1 Collaboration Agreement shall have the meaning assigned in the first recital above. 1.2 Confidential Information shall mean all information, inventions, know- how or data of either Party disclosed pursuant to this Agreement, whether in oral, written, graphic or electronic form, including, without limitation, (i) information regarding the Licensed Product and all other matters material to this Agreement or the business of the disclosing Party, including manning, marketing, financial, personnel, scientific and other business information and plans, and (ii) the material terms of this Agreement. 1.3 Licensed Field shall mean all human pharmaceutical uses. 1.4 Licensed Know-How shall mean any know-how and other information which (i) is necessary or useful to the manufacture, use, sale, offer for sale or import of the Licensed 1 Products in the Licensed Field in the Sanwa Territory and (ii) is owned or Controlled by Terrapin. 1.5 Licensed Patent Rights shall mean all of (i) Terrapin's interest in any patents and patent applications (including any divisions, continuations-in- part, reissues, extensions, renewals, supplementary protection certificates and foreign counterparts thereof) covering inventions made in the course of the Research Program (the "Research Program Patents") and (ii) other patents and patent applications (including any divisions, continuations-in-part, reissues, extensions, renewals, supplementary protection certificates and foreign counterparts thereof) owned or Controlled by Terrapin, but only to the extent such other patents and patent applications are necessary or useful for Sanwa for the manufacture, use, sale, offer for sale or import of Licensed Products which are covered by the Research Program Patents. 1.6 Licensed Product shall mean: (i) any Clinical Candidate (as defined in the Collaboration Agreement); (ii) any compound (a) which is identified, developed or discovered by Sanwa using Licensed Technology and (b) which acts through activation of the insulin signal transduction pathway for the treatment of diabetes mellitus or insulin resistance in humans; and (iii) any compound which is an analog, homolog or chemical modification of a compound described in clause (i) or (ii) and which acts through activation of the insulin signal transduction pathway for the treatment of diabetes mellitus or insulin resistance in humans. 1.7 Licensed Technology shall mean the Licensed Patent Rights and the Licensed Know-How. 1.8 Net Sales shall mean the gross sales price of the Licensed Product in finished product form realized or invoiced by Sanwa, its Affiliates and sublicensees from sales to arm's-length third party purchasers, less, to the extent such amounts are included in the invoiced sales price, taxes, shipping costs (including freight and insurance), and duties and other governmental charges paid for. Additional allowances will be permitted for (i) cash, trade and/or quantity discounts actually allowed; (ii) amounts repaid or credited by means of rejection or return of goods; (iii) discounts mandated by or granted in response to law. Net Sales shall not be reduced for [ * ]. A sale of a Licensed Product is deemed to occur upon the earliest of invoicing or transfer of title in the Licensed Product to an arm's-length third party purchaser. 1.9 Regulatory Approval shall mean any approval, licenses, registrations, or authorizations, other than pricing approvals, of any national, regional or local regulatory agency, department, bureau or other government entity, necessary for the manufacture, use, storage, import, transport or sale of Licensed Product in a country within the Sanwa Territory. 1.10 Sanwa Territory shall mean Japan and the other countries listed on Exhibit 2 hereto. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 2 1.11 Valid Claim shall mean a claim in an issued, unexpired patent that has not been held invalid or unenforceable in an unappealed and unappealable judgment of a court of competent jurisdiction. ARTICLE 2 INTELLECTUAL PROPERTY; DILIGENCE 2.1 License to Sanwa. Subject to the other provisions of this License Agreement, Terrapin hereby grants to Sanwa, under the Licensed Technology, an exclusive, royalty-bearing license, with the right to grant sublicenses, to develop, have developed, make, have made, use, sell, offer for sale and import Licensed Products within the Licensed Field in the Sanwa Territory. 2.2 Trademarks. Sanwa shall be free to use such trademarks in connection with the sale of Licensed Products as it may choose; provided, however, neither Party hereby grants the other Party any right or license to use its name or any of its trademarks nor shall the other Party use such name or trademarks without prior written consent. 2.3 Diligence. Sanwa is responsible for [ * ] the preclinical and clinical development plan for the Licensed Products in the Sanwa Territory. Sanwa shall use [ * ] efforts to develop and market the Licensed Products, consistent with the efforts it expends on products of its own research have comparable market potential, unless and until Sanwa terminates this Agreement. If Sanwa fails to use such efforts with respect to a particular Licensed Product in a country of the Sanwa Territory, Terrapin may give notice to Sanwa describing such failure. Within [ * ] after receipt of such notice (the "First [ * ]"), Sanwa shall either remedy such failure or propose to Terrapin a written plan reasonably designed to correct such failure. If Sanwa does not correct such failure within the First [ * ] or propose a plan within the First [ * ] and carry out such plan within an additional [ * ], Terrapin may, at any time thereafter upon written notice to Sanwa, convert the license granted to Sanwa in Section 2.1 of this Agreement to a nonexclusive license for the Licensed Product and country of the Sanwa Territory for which Sanwa has not satisfied its obligations pursuant to the preceding clause of this sentence. In the event the Parties disagree on whether Sanwa's actions are [ * ] or on whether Sanwa's plan is [ * ], the Parties shall submit the dispute to arbitration as described in Section 11.3. 2.4 Obligation to Inform and Share Data. Sanwa agrees to keep Terrapin fully informed on a reasonable basis of the development and commercialization of all Licensed Products for which [ * ], including but not limited to providing periodic written updates on the progress of each filing for Regulatory Approval in the Sanwa Territory. In addition to the foregoing, Sanwa will make available to Terrapin any preclinical and clinical data it creates or obtains with respect to the Licensed Products for which [ * ]. Terrapin may make such data available to each of its licensees of the Licensed Product outside of the Sanwa Territory (each, an "Other Licensee"), but only to the extent such Other Licensee agrees to make its preclinical and clinical data relating to the Licensed Product available to Sanwa (either directly or through Terrapin) on a reciprocal basis. It is understood by the Parties that neither Sanwa's commitment to exchange such data, nor the actual exchange of such data implies [ * ]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 3 2.5 Complaints and Adverse Reactions. Sanwa shall advise Terrapin of any adverse reactions, safety issues or toxicity issues relating to the Licensed Products for which [ * ] of which it becomes aware, in the manner mandated by FDA regulations. 2.6 Data Sharing for Certain Licensed Products. With respect to any Licensed Products for which [ * ], Sanwa agrees to keep Terrapin informed on a reasonable basis of the development and commercialization of such Licensed Products, to the extent reasonably necessary for Terrapin to evaluate whether Terrapin is interested in developing and commercializing such Licensed Products in the Field outside the Sanwa Territory. Terrapin shall maintain the confidentiality of all information received from Sanwa regarding such Licensed Products, and Terrapin shall use all such information solely for the purpose of evaluating whether Terrapin is interested in developing and commercializing such Licensed Products in the Field outside the Sanwa Territory. Sanwa shall advise Terrapin of any adverse reactions, safety issues or toxicity issues relating to the Licensed Products, to the extent and in the manner mandated by FDA regulations. Terrapin shall reimburse Sanwa, upon receipt of invoice therefor, for reasonable copying and mailing costs of the information transmitted to Terrapin pursuant to this Section 2.6. 2.7 Negotiation for License Outside the Sanwa Territory. In the event Sanwa decides to develop and commercialize a product described in clause (ii) or (iii) of the definition of Licensed Product (a "Sanwa-Identified Licensed Product"), and Terrapin is interested in developing and commercializing such a Sanwa-Identified Licensed Product in the Field outside the Sanwa Territory, Terrapin shall notify Sanwa of such interest and the Parties shall thereafter enter into good faith negotiations for Sanwa to grant Terrapin a royalty-bearing license to make, have made, use, offer for sale, sell and import such Sanwa- Identified Licensed Product in the Field outside the Sanwa Territory, upon terms mutually acceptable to the Parties. ARTICLE 3 ROYALTIES 3.1 Royalty Rate. Sanwa shall pay Terrapin a royalty on Net Sales in Japan and the other countries of the Sanwa Territory at the rates which are set forth in Exhibit 2 hereto; provided, however, that the royalty rate in a country shall be [ * ] for so long as [ * ] in such country during a calendar year shall have been [ * ] as compared to the previous calendar year due to [ * ]. In the event of [ * ] during the first year of the sale of Licensed Product by Sanwa in such country, the royalty rate in such country shall be [ * ] of Sanwa's Net Sales of Licensed Product in that country for that year. As soon as is practicable after the Effective Date of this Agreement, the parties shall meet and agree on the royalty rates for Taiwan, Korea, and the People's Republic of China. Upon such agreement, each such agreed rate shall be included in Appendix 2 hereto. For purposes of this Section 3.1, the phrase [ * ] shall be determined by reference to [ * ] or another comparable source. 3.2 Period of Royalty Obligation. The royalty obligation under Section 3.1 shall commence on the date of first commercial sale or a Licensed Product in a country and shall expire, on a product-by-product and country-by country basis, upon the later of: (a) the last to expire patent containing a composition of matter patent claim that covers such Licensed Product [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 4 (corresponding to a claim of a bushitsu tokkyo in Japan) in a country or (b) the date that is [ * ] after the date of first commercial sale of such Licensed Product in such country. ARTICLE 4 PAYMENT; RECORDS; AUDIT 4.1 Payments; Reports. All amounts payable to Terrapin under this Agreement shall be paid in U.S. dollars. Payments made to Terrapin under this Agreement shall be paid within [ * ] after the end of each calendar quarter. Each payment of royalties and amounts due to Terrapin under Section 3.1 shall be accompanied by a statement of the amount of Net Sales during such period on a product-by-product and country-by-country basis, and all other information necessary to determine the appropriate amount of such payments. 4.2 Exchange Rate. The rate of exchange to be used in computing the amount of currency equivalent in United States dollars due Terrapin shall be the average of the closing spot rate quoted by the Tokai Bank, Nagoya Head Office, on the last business day of each month of the quarterly royalty period in question. 4.3 Records and Audit. During the term of this Agreement and for a period of three (3) years thereafter, Sanwa shall keep complete and accurate records pertaining to the sale or other disposition of the Licensed Products commercialized by it, in sufficient detail to permit Terrapin to confirm the accuracy of all payments due hereunder. Terrapin shall have the right to cause an independent, certified public accountant to audit such records to confirm Sanwa's Net Sales and royalty payments; provided, however, that such auditor shall not disclose Sanwa's Confidential Information to Terrapin, except to the extent such disclosure is necessary to verify the amount of royalties and reimbursement due under this Agreement. Such audits may be exercised once a year, within three (3) years after the royalty period to which such records relate, upon notice to Sanwa and during normal business hours. Terrapin shall bear the full cost of such audit unless such audit discloses a variance of more than [ * ] from the royalties and reimbursement previously paid for such year. In such case, Sanwa shall bear the full cost of such audit. The terms of this Section shall survive any termination or expiration of this Agreement for a period of three (3) years. 4.4 Withholding of Taxes. Any withholding of taxes levied by tax authorities outside the United States on the payments hereunder shall be borne by [ * ]. At least [ * ] prior to the date Sanwa intends to make payment of any such withholding tax, notice of such intent to be given to Terrapin at least [ * ] prior to such date, Terrapin shall provide to Sanwa such documents as may be required by Japanese law and as are identified by Sanwa so as to permit Sanwa to make application to the Japanese tax authorities pursuant to the U.S.- Japan treaty regarding relief from income tax on royalty payments. Sanwa agrees to cooperate with Terrapin in the event [ * ] under any double taxation or other similar treaty or agreement from time to time in force, such cooperation to consist of [ * ] reasonably available to Sanwa. If in the opinion of either Party the provisions of this Section become extremely burdensome, the Parties agree to meet and discuss such other options as may be available to them. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 5 4.5 Non-Monetary Consideration. In the event Sanwa receives any non- monetary consideration in connection with the sale of Licensed Products, Sanwa's royalty and, if applicable, reimbursement obligations to Terrapin under Article 3 shall be based on the monetary value of such other consideration. In such case, Sanwa shall disclose the terms of such arrangement to Terrapin and the Parties shall endeavor in good faith to agree on such monetary value. ARTICLE 5 OWNERSHIP; PATENTS 5.1 Ownership. Sanwa acknowledges and agrees that Sanwa has rights to the Licensed Technology only as set forth in this Agreement and the Collaboration Agreement. 5.2 Patents. Provision is made in the Collaboration Agreement for the ownership, filing, prosecution and maintenance of patents on inventions arising under the Research Program and such matters shall be governed thereby. 5.3 Infringement of Licensed Patent Rights by Third Parties. (a) Notice. Each Party shall promptly notify the other in writing of any alleged or threatened infringement of the Licensed Patent Rights which may adversely impact the rights of the Parties hereunder, of which it becomes aware. (b) Enforcement Action. In the event that the Parties become aware of any alleged or threatened infringement of the Licensed Patent Rights, Sanwa shall have the right, but not the obligation, to take appropriate action against any person or entity directly or contributorily infringing such Licensed Patent Rights in the Sanwa Territory. In the event Sanwa fails to institute an infringement suit or take other reasonable action in response to such infringement within [ * ], Terrapin shall have the right, but not the obligation upon [ * ] notice to Sanwa, to institute such suit or take other appropriate action in its own name, Sanwa's name or both names. Regardless of which Party brings such enforcement action, the other Party hereby agrees to cooperate reasonably in any such effort, including, if required, bringing a legal action or furnishing a power of attorney. The Party not bringing the action shall have the right to participate in such action at its own expense with its own counsel and any recovery obtained by settlement or otherwise shall be disbursed as follows: Each Party shall first recover any reasonable expenses incurred in such action (including counsel fees). Thereafter, the Parties shall share any remaining recovery in accordance with their economic interests as directly related to the profitability of the product. 5.4 Infringement of Third Party Patent Rights. (a) Joint Strategy. In the event that the use or sale of a Licensed Product becomes the subject of a claim of infringement or a patent, copyright or other proprietary right anywhere in the Sanwa Territory, and without regard to which Party is charged with said infringement, and the venue of such claim, the Parties shall promptly confer to discuss the claim. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 6 (b) Defense. Unless the Parties otherwise agree, Sanwa shall assume the primary responsibility for the conduct of the defense of any such claim brought in the Sanwa Territory. Terrapin shall have the right, but not the obligation, to participate in any such suit at its sole option and at its own expense. Each Party shall reasonably cooperate with the Party conducting the defense of the claim. Neither Party shall enter into any settlement that affects the other Party's rights or interests without such other Party's written consent, not to be unreasonably withheld. If Sanwa and Terrapin agree that payment must be made to a third party (the "Third Party Payment") to avoid infringement of such third party's patent, Sanwa may offset [ * ] of any Third Party Payment against royalties due Terrapin under Section 3.1; provided, however, that in no event shall the royalties under Section 3.1 otherwise due Terrapin in any quarter be reduced by more than [ * ]. Unused credits may be [ * ]. (c) Patent Marking. Sanwa shall mark, if necessary, all products manufactured, used or sold under the terms of this Agreement, or their containers, in accordance with the applicable patent marking laws, as required. ARTICLE 6 DOCUMENTATION OF LICENSE RIGHTS; CONFIDENTIALITY 6.1 Documentation of License Rights. From time to time, upon the reasonable request of Sanwa and notice to Terrapin, Terrapin shall disclose to Sanwa a complete and organized report of written materials embodying the Licensed Technology and additions or changes to such Licensed Technology. Terrapin shall provide such written materials in English. From time to time, Sanwa may request, orally or in writing, that Terrapin provide further explanations or supplements to the written materials, and Terrapin shall cause its technical personnel to respond promptly and fully to Sanwa's requests without additional charge to Sanwa. All disclosure from Terrapin to Sanwa under this Section 6.1 shall be deemed Confidential Information of Terrapin. 6.2 Confidentiality. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing by the Parties, the Parties agree that, for the term of this Agreement and for [ * ] after its expiration or termination, the receiving Party shall keep confidential and shall not publish or otherwise disclose and shall not use for any purpose other than as provided for in this Agreement any Confidential Information furnished to it by the other Party pursuant to this Agreement unless the receiving Party can demonstrate by competent written proof that such Confidential Information: (a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the other Party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of such Agreements; [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 7 (d) was disclosed to the receiving Party, other than under an obligation of confidentiality to a third party, by a third party who had no obligation to the disclosing Party not to disclose such information to others; or (e) was independently discovered or developed by the receiving Party without the use of Confidential Information belonging to the disclosing Party. 6.3 Authorized Disclosure. Each Party may disclose Confidential Information belonging to the other Party to the extent such disclosure is reasonably necessary in the following: (a) filing or prosecuting patents relating to Licensed Products; (b) regulatory filings; (c) prosecuting or defending litigation; (d) complying with applicable governmental regulations; (e) conducting preclinical or clinical trials of Licensed Products; (f) disclosure to Affiliates, sublicensees, employees, consultants, or agents each of whom prior to disclosure must be bound by similar obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Article 6; and (g) disclosure to investment bankers; provided, however, that no disclosure shall be made of Sanwa Confidential Information without its written consent, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, in the event a Party is required to make a disclosure of the other Party's Confidential Information pursuant to this Section 6.2 it will, except where impracticable, give reasonable advance notice to the other Party of such disclosure and use [ * ] to secure confidential treatment of such information. In any event, the Parties agree to take all reasonable action to avoid disclosure of confidential information hereunder. ARTICLE 7 REPRESENTATIONS AND WARRANTIES 7.1 Representations and Warranties. (a) Both Parties. Each Party represents and warrants to the other that: (i) Corporate Power. It is duly organized and validly existing under the laws of its state or country of incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 8 (ii) Due Authorization. It is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate action. (iii) Binding Agreement. This Agreement is legally binding upon it and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by it does not conflict with any agreement, instrument or understanding, oral or written, to which it is a Party or by which it may be bound, nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it. (iv) Validity. It is aware of no action, suit or inquiry or investigation instituted by any governmental agency which questions or threatens the validity of this Agreement. (v) Third Party Rights. To the best of its knowledge, it has all right, power and authority to perform its obligations under, and [ * ]. To the best of its knowledge, there are [ * ]. (vi) Accuracy of Information. All documentation and other information conveyed by one Party to another hereunder or in connection herewith, was, at the time it was conveyed or provided, accurate and complete in light of the purposes for which it was intended. (b) By Terrapin. (i) Grant of Rights; Maintenance of Agreements. It has not, and will not during this Agreement, grant any right to any third party which would conflict with the rights granted to the other Party hereunder. It has (or will have at the time performance is due) maintained and will maintain and keep in full force and effect all agreements necessary to perform its obligations hereunder. (ii) The compounds identified by Terrapin for use in the Research Program and described by Terrapin to Sanwa act at least in part through activation of the insulin signal transduction pathway. 7.2 Terrapin Disclaimer. EXCEPT AS SET FORTH IN SECTION 7.1 ABOVE, THE LICENSED TECHNOLOGY IS PROVIDED "AS IS" AND TERRAPIN EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR ARISING FROM A COURSE OF DEALING, USAGE OK TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO. Without limiting the generality of the foregoing, Terrapin expressly does not warrant (i) the success of any study or test commenced by Sanwa under this Agreement or (ii) the safety or usefulness for any purpose of the Licensed Technology. 7.3 Terrapin Grant of Rights. Terrapin has not, and will not during the term of this Agreement, grant any right to any third party which would conflict with the rights granted to [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 9 Sanwa hereunder. It has (or will have at the time performance is due) maintained and will maintain and keep in full force and effect all agreements necessary to perform its obligations hereunder. ARTICLE 8 INDEMNIFICATION 8.1 Indemnification. Each Party hereby agrees to save, defend and hold the other Party and its agents and employees harmless from and against any and all suits, claims, actions, demands, liabilities, expenses and/or loss, including reasonable legal expense and attorneys' fees, other than claims for infringement as provided in Section 5.4, (collectively, "Claims") resulting directly or indirectly from actions by the indemnifying Party, its Affiliates, agents or sublicensees in connection with the manufacture, use or sale of Licensed Products, but only to the extent such Claims result from the gross negligence or willful misconduct of the indemnifying Party or its employees and agents and only to the extent such Claims do not result from the negligence of the Party seeking indemnification. 8.2 Control of Defense. Any entity entitled to indemnification under this Article shall give written notice to the indemnifying Party of any Claims that may be subject to indemnification, promptly after learning of such Claim, and the indemnifying Parry shall assume the defense of such Claims with counsel reasonably satisfactory to the indemnified Party. If such defense is assumed by the indemnifying Party with counsel so selected, the indemnifying Party will not be subject to any liability for any settlement of such Claims made by the indemnified Party without its consent (but such consent will not be unreasonably withheld or delayed), and will not be obligated to pay the fees and expenses of any separate counsel renamed by the indemnified Party with respect to such Claims. ARTICLE 9 COMPLIANCE WITH LAWS 9.1 Compliance with Laws. Sanwa and Terrapin shall review in good faith and cooperate in taking actions to ensure the compliance of this Agreement with all applicable laws. Sanwa and Terrapin shall each provide the other Party with such reasonable assistance as may be required for the Party requesting such assistance to comply with all laws, ordinances, rules, regulations and the like of all governmental units or agencies having jurisdiction pertaining to this Agreement, including without limitation, obtaining all import, export and other permits, certificates, licenses or the like required by such laws, ordinances, rules, regulations and the like, necessary to permit the Parties to perform hereunder and to exercise their respective rights hereunder. ARTICLE 10 TERM AND TERMINATION OF AGREEMENT [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 10 10.1 Term. Except as provided under Section 10.2 below, the term of this Agreement shall commence upon the Effective Date and shall expire, on a country- by-country basis, on the expiration date of the last to expire royalty obligation contained herein in such country. Upon expiration of this Agreement with respect to a given country in the Sanwa Territory, Sanwa shall have a fully paid, non-exclusive license, under the Licensed Technology, to develop, have developed, make, have made, use, sell, offer for sale, and import the Licensed Product in such country. 10.2 Termination for Material Breach. Each Party shall have the right to terminate this Agreement after [ * ] prior written notice to the other that the other Party has committed a material breach of the Agreement unless the other Party cures (to the extent practicable) the material breach within such period of time. 10.3 Accrued Rights; Surviving Obligations. Termination of this Agreement shall not affect any accrued rights of either Party. The terms of Articles 6 and 8 of this Agreement shall survive termination of this Agreement. The terms of Article 4 shall survive as pertains to any accrued obligations owed by Sanwa at the time termination. Promptly after termination of this Agreement each Party shall return or dispose of any know how of the other in the accordance with the instructions of the other, including without limitation any compounds, assays or other biological or chemical materials. ARTICLE 11 Governing LAW; DiSpUTE rESOLUTION 11.1 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of California, (i) without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of California, and (ii) except that the rights of the parties to resolve by arbitration any dispute arising between them regarding the subject matter of this Agreement shall not be governed by the California arbitration act or international arbitration act (Cal. Code of Civ. Proc. (S) 1280 et seq. and 1297.11 et seq.) but rather by the United States Arbitration Act (9 U.S.C. (S)(S) 1-14, 201-208). 11.2 Dispute Resolution. In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, the Parties shall try to settle their differences amicably and in good faith between themselves first, by referring the disputed matter to the respective heads of research of each Party and, if not resolved by the research heads, by referring the disputed matter to the respective Chief Executive Officers of each Party. In the event such executives are unable to resolve such dispute within such thirty (30) day period, either Party may invoke the provisions of Section 11.3. 11.3 Arbitration. Upon failure to resolve any controversy or claim arising out of, relating to or in connection with any provision of this Agreement using the dispute resolution procedure described in Section 11.2, such controversy or claim shall be finally settled by arbitration. Arbitration shall be held in Honolulu, Hawaii in the English language and conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 11 The decision of such arbitration shall be conclusive and binding upon both Parties. If a Party commences any action or proceeding against the other Party to enforce this Agreement or any rights related thereto, the prevailing Party in such action shall be entitled to recover from the other Party the reasonable attorneys' fees and other reasonable costs and expenses incurred by that prevailing Party in connection with such action or proceeding and in connection with enforcing any judgment, award or order thereby obtained. ARTICLE 12 GENERAL PROVISIONS 12.1 Notices. All notices required or permitted to be given under this Agreement shall be in writing and shall be mailed by registered or certified mail, postage prepaid, addressed to the signatory to whom such notice is required or pertained to be given and transmitted by facsimile to the number indicated below. All notices shall be deemed to have been given when mailed, as evidenced by the postmark at the point of mailing, or faxed. All notices to Sanwa shall be addressed as follows: Sanwa Kagaku Kenkyusho Co., Ltd. 35 Higashi Sotobori-cho Higashi-ku Nagoya, 461 Japan Attention: President Fax: 011-81-52-9571067 Graham & James LLP One Maritime Plaza San Francisco, California 94111 U.S.A. Attention: Michael R. Moyle, Esq. Facsimile: (650) 391-2493 All notices to Terrapin shall be addressed as follows: Terrapin Technologies, Inc. 750 Gateway Boulevard South San Francisco, California 94080 U.S.A. Attention: President Fax: (650) 244- 9388 with a copy to: Cooley Godward LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, California 94306 [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 12 Attn.: Brian C. Cunningham, Esq. Fax: (650) 857 0663 Any Party may, by written notice to the other, designate a new addressee, address or facsimile number to which notices to the Party giving the notice shall thereafter be mailed or faxed. 12.2 Notices. Force Majeure. No Party shall be liable for any delay or failure of performance to the extent such delay or failure is caused by circumstances beyond its reasonable control and that by the exercise of due diligence it is unable to prevent, provided that the Party claiming excuse uses its best efforts to overcome the same. 12.3 Entirety of Agreement. This Agreement embodies the entire, final and complete agreement and understanding between the Parties and replaces and supersedes all prior discussions and agreements between them with respect to its subject matter. No modification or waiver of any terms or conditions hereof shall be effective unless made in writing and signed by a duly authorized officer of each Party. 12.4 Non-Waiver. The failure of a Party in any one or more instances to insist upon strict performance of any of the terms and conditions of this Agreement shall not constitute a waiver or relinquishment, to any extent, of the right to assert or rely upon any such terms or conditions on any future occasion. 12.5 Disclaimer of Agency. Neither Party is, nor will be deemed to be, the legal representative or agent of the other, nor shall either Party have the right or authority to assume, create, or incur any third party liability or obligation of any kind, express or implied, against or in the name of or on behalf of another except as expressly set forth in this Agreement. 12.6 Severability. If a court of competent jurisdiction declares any provision of this Agreement invalid or unenforceable, or if any government or other agency having jurisdiction over either Terrapin or Sanwa deems any provision to be contrary to any laws, then that provision shall be severed and the remainder of the Agreement shall continue in full force and effect. To the extent possible, the Parties shall revise such invalidated provision in a manner that will render such provision valid without impairing the Parties' original interest. 12.7 Assignment 12.7.1 General. Except as otherwise provided in Section 12.7.2 or 12.7.3, neither party may assign its rights or obligations under this Agreement without the prior written consent of the other party. This Agreement shall be binding upon the permitted successors and permitted assigns of the Parties. Any attempted delegation or assignment not in accordance with this Section 12.7 shall be of no force and effect. 12.7.2 Permitted Assignment by Sanwa. Sanwa may assign its rights or obligations under this Agreement to a third party in connection with the merger, consolidation, reorganization or acquisition of stock or assets affecting substantially all of the assets or actual voting control of Sanwa. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 13 12.7.3 Permitted Assignment by Terrapin. Upon the written consent of Sanwa, such consent not to be unreasonably withheld or delayed, Terrapin may assign its rights or obligations under this Agreement to a third party in connection with the merger, consolidation, reorganization or acquisition of stock or assets affecting substantially all of the assets or actual voting control of Terrapin. Sanwa may only withhold its consent under the preceding sentence if (a) such third party is [ * ] according to the terms of the Collaboration Agreement or (b) such third party is [ * ]. 12.8 Headings. The headings contained in this Agreement have been added for convenience only and shall not be construed as limiting. 12.9 Limitation of Liability. No Party shall be liable to another for indirect, incidental, consequential or special damages, including but not limited to lost profits, arising from or relating to any breach of this Agreement, regardless of any notice of the possibility of such damages. Nothing in this Section is intended to limit or restrict the indemnification rights or obligations of any Party. 12.10 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which shall constitute together the same document. 12.11 English Language. This Agreement has been prepared in the English language and shall be construed in the English language. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 14 IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement.
TERRAPIN TECHNOLOGIES, INC. SANWA KAGAKU KENKYUSHO CO., LTD. By: /s/ Clifford Orent By: /s/ Keiji Tanimoto ------------------ ------------------ Name: Clifford Orent Name: Keiji Tanimoto Title: Chairman, President and Chief Title: President and Chief Executive Officer Executive Officer
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. [SIGNATURE PAGE] EXHIBIT 1 TO LICENSE AGREEMENT CLINICAL CANDIDATES [INTENTIONALLY LEFT BLANK] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. E-1 EXHIBIT 2 TO LICENSE AGREEMENT ADDITIONAL COUNTRIES AND ROYALTY RATES FOR SANWA TERRITORY With respect to any Licensed Product, Sanwa shall pay royalty to Terrapin as follows: COUNTRY ROYALTY RATE Japan [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. E-2. FIRST AMENDMENT TO LICENSE AGREEMENT This First Amendment to License Agreement (this "First Amendment") is made and dated October 29, 1998 (the "First Amendment Effective Date"), by and between Sanwa Kagaku Kenkyosho Co., Ltd., a Japanese corporation ("Sanwa") and Telik, Inc. (formerly Terrapin Technologies, Inc.), a Delaware corporation. Recitals -------- A. Sanwa and Telik are parties to that License Agreement dated as of September 24, 1997 (the "License Agreement") pursuant to which Telik granted Sanwa a license in relation to the Licensed Products (as defined therein). B. Sanwa and Telik are entering into a Series J Preferred Stock Purchase Agreement of even date herewith (the "Stock Purchase Agreement") in connection with which, as one of the conditions to Sanwa consummating the transactions contemplated by the Stock Purchase Agreement, the parties have agreed to execute and deliver this First Amendment. NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereby agree as follows: AGREEMENT --------- 1. Amendments. The License Agreement is hereby amended as follows: ---------- (a) Each reference in the License Agreement to "Terrapin Technologies, Inc." is amended and replaced by "Telik, Inc." Each reference in the License Agreement to "Terrapin" is amended and replaced by "Telik". (b) Section 2.3 is amended in its entirety as follows: Sanwa is responsible for [ * ] the preclinical and clinical development plan for the Licensed Products in the Sanwa Territory. (c) Section 2.4 is amended in its entirety as follows: 2.4 Obligation to inform and Share Data; Collaborative Development. (a) Obligation to Inform and Share Data. Sanwa agrees to keep Telik fully informed on a reasonable basis of the development and commercialization of all Licensed Products for which [ * ], including but not limited to providing [ * ] in the Sanwa Territory. In addition to the foregoing, Sanwa will make available to Telik any preclinical and clinical data it creates or obtains with respect to the Licensed Products for which [ * ]. Telik may make such data available to a Third Party Licensee (as defined below) outside of the Sanwa Territory [ * ] to the [ * ] pursuant to the [ * ]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 1 (b) Collaborative Development [ * ]. Telik covenants that [ * ] or a [ * ] to [ * ], in countries outside the Sanwa Territory any Clinical Candidates (as such term is defined in the Collaboration Agreement) [ * ] into a [ * ] or [ * ] which would [ * ] that [ * ] will (i) [ * ] and [ * ] for such Clinical Candidates, (ii) [ * ] covering such Clinical Candidates, (iii) [ * ] with respect to the Clinical Candidates [ * ] unless otherwise [ * ] and (iv) [ * ] an appropriate [ * ]"). Telik further agrees to use all reasonable efforts to facilitate and assist [ * ] and [ * ]. If after good faith efforts, Telik has been unable to [ * ] containing the [ * ] enter into [ * ] then Sanwa and Telik shall meet and jointly decide how to proceed. If Sanwa transfers all or substantially all control, [ * ] Sanwa's rights to develop Clinical Candidates for commercialization in Japan to a third party, Telik [ * ] with the [ * ]. For purposes of the preceding sentence, Sanwa shall not be deemed to have transferred control of Sanwa's rights to develop Clinical Candidates for commercialization by entering into any joint [ * ] or similar arrangement. (c) Sanwa's Collaborative Development [ * ]. Given continuing developments concerning the harmonization of regulatory approval processes within the Sanwa Territory [ * ] the parties recognize that it may be in the parties', [ * ] best interest for certain pre- clinical and/or clinical studies to be [ * ], then: (i) if Sanwa desires to conduct any such study [ * ] to [ * ] or [ * ] Clinical Candidates [ * ] then any such study shall be [ * ], and the RMC shall be responsible for [ * ] any protocols for such studies as well as [ * ] shall be [ * ] and (ii) if Sanwa desires to conduct any such study [ * ] to [ * ] or [ * ] Clinical Candidates [ * ] then any such study shall be [ * ] to the [ * ] and [ * ]. 2. Defined Terms; Incorporation. Unless otherwise expressly provided herein, ---------------------------- defined terms used in this First Amendment shall have the same meaning as set forth in the License Agreement, and all terms herein shall be incorporated into the License Agreement. From and after the First Amendment Effective Date, all reference to the "License Agreement" in all other documents delivered in connection with the License Agreement shall refer to the License Agreement, as amended hereby. 3. Counterparts: Facsimile. This First Amendment may be executed in ----------------------- counterparts and by facsimile. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 2. IN WITNESS WHEREOF, the parties have executed this First Amendment effective as of the date first set forth above. TELIK, INC. SANWA KAGAKU KENKYUSHO CO., LTD. By: /s/ Clifford Orent By: /s/ Keiji Tanimoto ------------------ -------------------------------------- By: Clifford Orent By: Keiji Tanimoto Its: Chairman and Its: President and Chief Executive Officer Chief Executive Officer [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 3 EX-23.1 6 0006.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Selected Financial Data" and "Experts" and to the use of our report dated February 25, 2000, in Amendment No. 3 to the Registration Statement (Form S-1, No. 333- 33868) and related Prospectus of Telik, Inc. for the registration of 5,750,000 shares of its common stock. /s/ Ernst & Young LLP Palo Alto, California August 4, 2000 EX-27 7 0007.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS 12-MOS DEC-31-2000 DEC-31-1999 JAN-01-2000 JAN-01-1999 JUN-30-2000 DEC-31-1999 1,728 1,950 7,709 5,606 0 0 0 0 0 0 10,718 7,893 5,664 5,636 (4,719) (4,439) 11,743 9,170 3,371 3,957 0 0 0 0 22 10 23 22 70,568 56,742 11,743 5,130 0 0 1,330 4,237 0 0 9,708 11,699 0 0 0 0 (251) (398) (12,794) (7,064) 0 0 (12,794) (7,064) 0 0 0 0 0 0 (12,794) (7,064) (5.75) (3.21) (5.75) (3.21)
EX-27.1 8 0008.txt FINANCIAL DATA SCHEDULE
5 1,000 12-MOS 12-MOS DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 DEC-31-1998 DEC-31-1997 2,196 805 12,206 9,887 0 0 0 0 0 0 14,899 10,917 5,396 5,096 3,830 3,232 16,586 12,902 3,984 3,667 0 0 0 0 10 8 22 22 56,465 46,149 12,177 12,902 0 0 3,194 1,652 0 0 10,101 10,560 0 0 0 0 (328) (290) (6,579) (8,618) 0 0 0 0 0 0 0 0 0 0 (6,579) (8,618) $(3.00) $(3.95) $(3.00) $(3.95)
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