-----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, TZ7VDUpe9lHEBbs6iY2FWAh/zCFBu1uX38a8gzfIlcUSk3qhj8lnwQVxMnI6wcXO Qo11ebAqqKaiaqfR5KtYfw== 0000950135-95-002535.txt : 19951201 0000950135-95-002535.hdr.sgml : 19951201 ACCESSION NUMBER: 0000950135-95-002535 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951129 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENOME THERAPEUTICS CORP CENTRAL INDEX KEY: 0000356830 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 042297484 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10824 FILM NUMBER: 95597283 BUSINESS ADDRESS: STREET 1: 1OO BEAVER ST CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6178935007 MAIL ADDRESS: STREET 1: 100 BEAVER STREET CITY: WALTHAM STATE: MA ZIP: 02154 FORMER COMPANY: FORMER CONFORMED NAME: COLLABORATIVE RESEARCH INC DATE OF NAME CHANGE: 19920703 10-K 1 GENOME THERAPEUTICS CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES - ------ EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended: AUGUST 31, 1995 OR - ------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]. For the transition period from to . ---------- ---------------- Commission file number: 0-10824 GENOME THERAPEUTICS CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2297484 (State or other jurisdiction of incorporation (I.R.S. employer or organization) identification number) 100 BEAVER STREET, WALTHAM, MASSACHUSETTS 02154 (Address of principal executive offices) (Zip Code) Registrant's telephone number: (617) 893-5007 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK, $.10 PAR VALUE (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 2 registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K / / The aggregate market value of the voting stock held by non-affiliates of the registrant as of November 27, 1995 was approximately $86,753,315. The number of shares outstanding of the registrant's common stock as of November 27, 1995 was 13,695,085. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement for use at its Special Meeting of Shareholders in lieu of an Annual Meeting to be held on February 16, 1996 (the "Proxy Statement") are incorporated by reference into Part III of this Report. Exhibit Index appears on Page 48. 2 3 PART I Item 1. BUSINESS OVERVIEW Genome Therapeutics Corporation ("GTC" or "the Company") is a leader in the field of genomics--the sequencing, discovery and characterization of genes. The Company's objective is to identify gene targets which can be used to develop novel therapeutic, vaccine, and diagnostic products for commercially important diseases. The Company uses its proprietary high-throughput sequencing technology to sequence the genomes of infectious organisms and uses its positional cloning and cDNA sequencing technologies to discover and characterize genes that cause or predispose individuals to common diseases. The Company believes that the identification of biologically relevant genes from infectious organisms and the identification of human disease genes will facilitate the development of highly specific and effective antibiotics, therapeutics, diagnostics, and vaccines. The Company's current pathogen sequencing development programs include: Helicobacter pylori ("H. pylori"), Mycobacterium tuberculosis ("M. tuberculosis"), and Staphylococcus aureus ("Staph."). The Company has sequenced the genome of H. pylori, and in August 1995, the Company entered into a strategic alliance with Astra AB to develop pharmaceutical, vaccine, and diagnostic products effective against gastrointestinal infections or other disease caused by H. pylori. The Company also has development programs to identify and characterize the human disease genes associated with fascioscapulohumeral muscular dystrophy, prostate cancer, benign prostatic hypertrophy ("BPH"), and manic depression. The Company intends to leverage its genomic technologies -- high-throughput sequencing, positional cloning, cDNA comparative sequencing and bioinformatics -- to identify therapeutic, vaccine and diagnostic products for commercial development. The Company intends to focus its resources in two principal areas, the discovery and characterization of human disease genes, and the sequencing of the genomes of particular pathogens. The Company believes that there is a significant market opportunity for novel antibiotics, other therapeutic products, vaccines and diagnostics based on genetic targets identified through genomics. SCIENTIFIC BACKGROUND A genome is defined as the total genetic content of an organism and generally consists of DNA, a chemically complex material made-up of four different nucleotides, the building blocks of DNA. These nucleotides are: adenine (A), guanine (G), cytosine (C), and thymine (T). The sequence in which these nucleotides are linked together in a molecule of DNA determines the informational content of the genes, the elements which 3 4 define the inherited characteristics of an organism. The specific DNA sequence of a gene is generally translated through messenger RNA (mRNA), an intermediary molecule, into a protein product. A defect in a gene which leads to the over-production, improper function, or absence of a single protein molecule may cause an imbalance in the organism's complex cellular system and result in disease or death of that organism. The human genome consists of 23 pairs of DNA sequences or chromosomes. These chromosomes contain approximately 100,000 human genes spread over about three billion nucleotides. Human genes are found in the chromosomes as interrupted sequences, i.e, there are coding regions of DNA, called exons, which are separated from each other by non-coding regions of DNA called introns. The number of exons found in human genes can be quite large as can be the distance between exons. The DNA sequence of a human gene is transcribed into a mRNA molecule which is processed to contain only the uninterrupted exon sequences. The mRNA molecule is, in turn, translated into a protein product. The function of the majority of human DNA is unknown. By contrast, genomes of pathogenic bacteria generally consist of a single chromosome which contains several thousand genes spread over millions of nucleotides. With rare exceptions, the genes in pathogens are uninterrupted and their genomes consist mainly of genes and regulatory elements. There are various technologies used in the discovery of genes including: Sequencing Sequencing is the process of identifying genes through the determination of the order or sequence of nucleotides in DNA fragments. Sequencing the genome of a pathogen is an efficient and cost effective way of discovering all of the genes contained within that organism. However, given the size of the human genome and because only a small portion of the human genome contains gene sequences, large-scale sequencing of complementary copies of messenger RNA molecules made in a test tube (often referred to as cDNA), is a more practical way to identify human genes. Biology Knowing the DNA sequence of a gene allows one to predict the primary chemical sequence of the resulting protein molecule. Such information, however, does not necessarily allow one to identify the role or function that a given protein or gene plays in the biological processes of an organism. As a first approach to determining the function of a gene, databases are searched to determine whether proteins with similar sequences have been identified before and whether the function of such proteins is known. The presence of specific sequences within the gene and, hence, structural motifs within the gene product, also helps to indicate the function of the genes and resulting protein. Further experiments are generally needed to determine and confirm the function of a newly identified gene and 4 5 its protein product. Expression of the gene in a recombinant system and purification of the resulting protein product provide ample material for study in vitro and in vivo. With human genes, elimination of the homologous gene in an animal can create a model system for determining the biochemical role of the gene product and, if the gene is responsible for causing an important disease, the pathophysiology of the disease. Such animal models can also be used for testing possible pharmaceutical approaches for treating a disease in man. Bacterial pathogens are more amenable to such biological experiments since the total number of genes contained in their genomes is significantly less than that found in humans. Thus, knock-out experiments, in which the function of a particular gene is disrupted by the random or targeted interruption of the wild-type gene sequence, can be used to identify which genes are required for the survival of a pathogen within its human host. Such biologically relevant genes then become candidate targets for the development of therapeutic molecules for treating infections caused by the pathogen. Since there are approximately 100,000 genes in the human genome, biological evidence that a gene is involved in causing a disease must be obtained in a more efficient manner than is possible with bacterial pathogens. Such evidence is generally obtained by positional cloning. Positional Cloning In positional cloning, genetic mapping is first used to identify the region on a particular chromosome where the disease causing gene is located. Genetic mapping involves using genetic markers, called DNA probes, which detect regions of DNA that vary in sequence content from individual to individual. The position of these DNA sequences on a chromosome, as detected by the DNA probes, constitutes a genetic linkage map of that chromosome. By following the inheritance patterns of these DNA markers in families in which a particular disease is segregating and looking for the co-inheritance of DNA markers and the disease, the chromosomal location of a gene responsible for causing or predisposing an individual to that disease can be determined. Such a search is generally done genome-wide with a set of DNA markers that span the genome and are separated from each other by an approximately equal genetic distance. The regions which are initially examined generally are those regions which contain genes that are viewed as candidates for causing or predisposing an individual to the disease. Once specific chromosomal locations have been mapped, a physical map of the relevant chromosomal region(s) is constructed. Libraries containing random clones of large genomic DNA fragments are examined to find those clones which contain pieces of DNA fragments from each relevant chromosomal region. The aligning of these DNA clones, so that the resulting order represents how these DNA fragments are related to each other in the genome, is called physical mapping. These clones, which constitute the physical map, can then be used to identify the genes which are contained within that chromosomal region. These genes can be isolated in the form of cDNA clones by using 5 6 special cloning vectors which trap the exons contained within genomic DNA. Alternatively or in combination with exon trapping, the genomic DNA can be sequenced and computer algorithms used to predict the exons which are contained within that genomic DNA. Such information can then be used to search cDNA libraries for clones which contain these presumed exons. Each identified gene becomes a candidate for causing the disease. Proof of such involvement is sought by determining the sequence of such genes in individuals with the diseases and comparing it to the sequence of that gene from healthy individuals. DNA sequence differences, which are only found in individuals who have inherited the disease, are taken as proof that the gene which contains these differences is responsible for causing that disease. Bio-informatics The Company's gene discovery programs create significant challenges in data management, data analysis, data storage, data retrieval and data security. GTC has developed a proprietary bio-informatics system that integrates the vast amount of data generated in a manner in which the important scientific information can be distilled. Genetic Data are collected from various sources both within and outside the company and are configured in relational databases for use by the scientists. COMPANY TECHNOLOGY A genomic approach to drug discovery represents a change from traditional scientific approaches. Historically, most drug discovery has been based on random screening of candidate drug compounds to determine their impact on diseases. A molecular genetic approach allows scientists to first identify the genetic target causing a particular disease and then develop drugs to treat the root cause of the disease. In that process GTC uses the following genomic technologies: High-throughput Multiplex Sequencing Gene sequencing involves determining the order of the nucleotides in a DNA fragment. The increasing demand to sequence DNA can be best met by systems that are high-throughput and can be applied on a large scale. GTC uses a proprietary high-throughput sequencing process called "computer-assisted, multiplex sequencing". Multiplex sequencing is a sequencing process whereby individual DNA samples are mixed together and then processed as mixtures. At the end of the sequencing process, the individual sequences are decoded from this mixture by hybridizing with oligonucleotide probes that are complementary to the unique tags which surround each DNA sequence in the cloning vector. The Company used multiplex sequencing to sequence the H. pylori genome in 1994. The H. pylori genome is approximately 1.7 million nucleotides long. The Company is using multiplex sequencing to sequence other pathogens it believes offer commercial potential. 6 7 The Company has obtained an exclusive worldwide license from Harvard University to use the multiplex sequencing technology for commercial applications. Under this license, the Company paid Harvard a nonrefundable license fee of $100,000 and must pay Harvard royalties based on license fees, royalties and other income received by the Company in respect of sublicenses granted by the Company, products sold that include the multiplex sequencing technology, and services performed that utilize the multiplex sequencing technology. In addition, the Company must pay Harvard minimum annual royalties ranging from $5,000 in 1995 to $35,000 in 1998. Positional Cloning: The Company uses positional cloning in its efforts to discover human disease-related genes. Starting with a disease target, the Company identifies families in which the disease occurrence in individuals within a family is substantially higher than in the general population. Having identified such families, the Company begins collecting blood samples from the members of these families. Once the samples are collected, the Company uses its high-throughput, multiplex genotyping technology to facilitate the processing of the DNA samples. Genotyping is the process of using DNA probes to determine the genetic composition of specific regions on each chromosome of each family member. After the samples have been analyzed, linkage analysis is performed to determine which genetic marker(s) is inherited along with the disease which is segregating within the family. The product of that analysis is the determination of the specific chromosomal region(s) of the genome linked to the disease. Then, the Company constructs a physical map of that region and uses exon trapping and DNA sequencing technologies to clone the gene responsible for the disorder. cDNA Comparative Sequencing: The Company is also using cDNA sequencing to identify human disease genes. This technology is another means of identifying genes and involves the study of human diseased tissues at various stages of disease development in comparison to healthy tissues. Prior to sequencing genes, the Company first extracts expressed mRNA from tissues in normal and diseased states and then prepares a "library" which consists of cDNA derived from representative samples of the mRNA that is expressed from the genes of a particular tissue. Once the libraries are made, GTC uses its high-throughput sequencing capability to identify the genes expressed in those different samples. The Company supplements this technology with differential display technology in order to rapidly identify differently expressed genes. This technology is being used in the Company's prostate cancer and benign prostatic hypertrophy development projects. Bio-informatics: The rapid gene discovery capability of the Company is substantially enhanced by its expertise in bio- informatics. Bio-informatics is the use of computer software and complex databases to process, store, retrieve and analyze data that is generated in genetic mapping and large-scale DNA sequencing. The Company was a pioneer in developing rapid, efficient methods of organizing and analyzing the vast quantities of data obtained from constructing genetic linkage maps. The Company used 7 8 such software to develop the first genetic linkage map of the entire human genome which appeared in a landmark publication in the journal CELL in 1987. Computer-assisted multiplex sequencing allows the high-throughput sequencing of pieces of human genes as well as the subsequent computer analysis of each of these gene sequences so that they can be compared to genes with known functions in order to predict the biological function of the newly discovered gene. The Company's database and outside databases are checked to compare known sequences to the newly identified sequence in order to try to determine whether the newly identified sequence is similar to a known protein. If information is found in either database indicating that it does correspond to a known sequence, scientists may infer a likely function for the protein product of the newly discovered gene. The Company is continuing the refinement of its existing bio-informatics tools through the integration of new hardware and software. The Company is currently improving proprietary software to integrate GTC's database, outside gene databases, sequence data from production and biological experiments from the laboratory benches into a network which can provide interactive analysis for our scientists. This will enable our scientists to perform motif profile searches to define functional groupings and it will also help our scientists in the identification of transcriptionally coupled genes, operons, promoters, regulatory elements, etc. The Company is also using its interactive software to do real-time genomic subtraction. Genomic subtraction is the comparative analysis of genomes of different organisms in order to identify genes and protein sequences which are similar. STRATEGY The Company's objective is to identify gene targets which can be used to develop novel therapeutic, vaccine and diagnostic products for commerically important diseases. The Company intends to focus its resources in two principal areas, the discovery and characterization of human disease genes, and the sequencing of the genomes of particular pathogens. The Company intends to achieve its objective through the following strategies: Sequencing of Pathogens - In the pathogen area, the Company's development strategy is to identify and sequence the genomes of pathogens representing significant commercial opportunity. In particular, the Company believes that pathogens that have exhibited resistance to existing antibiotics may offer unique opportunities for new therapeutic and vaccine products based on the genomic information of such pathogens. The Company intends to enter into strategic partnerships with pharmaceutical companies in order to develop vaccine and therapeutic products based on the genomic information of the pathogens. The Company has recently sequenced the genome of the H. pylori bacterium and entered into a collaborative agreement with Astra Hassle AB for the development of therapeutic, diagnostic and vaccine products effective against gastrointestinal and any other disease caused by H. pylori. The Company believes its pathogen sequencing programs will 8 9 permit the Company to generate royalty revenue sooner than its human gene discovery efforts. Discovery of Human Disease Genes - In human gene discovery, the Company plans to obtain exclusive rights to collections of DNA samples from relevant family resources in order to identify and then characterize genes responsible for targeted human diseases. The Company intends to seek collaborations with clinicians and academic researchers in order to obtain these rights. Once the family resources are obtained, the Company believes its experience and its multiplex genotyping, multiplex sequencing and bio- informatics technology will permit the Company to speed the gene discovery process. The Company intends to seek strategic alliances in order to commercialize therapeutic products based on the human disease genes discovered. When appropriate, based on market size, projected development costs and other factors, the Company plans to retain certain rights related to the human disease genes the Company identifies. The Company plans to increase spending on its human gene discovery programs. Strategic Alliances - The Company's strategy is to seek pharmaceutical companies and other corporate partners active in the Company's areas of research for the development of therapeutic products and vaccines based on the Company's genomic discoveries. This strategy will allow the Company to focus its resources on its pathogen sequencing and human gene discovery efforts. If successful, this strategy will also permit the Company to benefit from the commercialization of the therapeutic products and vaccines developed, without expending the substantial costs required to develop and commercialize therapeutic and vaccine products. Typically, the Company will exclusively license to its partner all rights to therapeutic products and vaccines (and, depending upon the gene, diagnostic products) developed based on the particular genetic database licensed by the Company. In return, the Company will seek a combination of upfront license fees, research funding, milestone payments and royalty payments on product sales. Government Grants and Contracts - The Company also plans to continue to seek government grants and research contracts for research related to the Company's technology and its development programs. These research grants permit the Company to continue to improve its genomics technology and to develop an experienced labor pool. These grants also have the effect of lowering the Company's overhead expenses. 9 10 RESEARCH PROGRAMS Pathogen Programs Therapies for the treatment of infectious diseases represent a sizeable market opportunity. The Company believes that information derived from identifying and characterizing the genes of pathogens may lead to the development of antibacterial and antifungal products that can overcome the resistance exhibited by many pathogens to currently available therapies. The Company is currently conducting development programs targeted at H. pylori, M. tuberculosis, and Staph. The Company intends to initiate development programs against other pathogens depending upon such factors as projected commercial potential, effectiveness of current therapies, status of programs initiated by the Company's competitors and projected development costs, which are often directly related to the complexity of the genome of the target pathogen. Helicobacter pylori - H. pylori is the bacterium responsible for causing peptic ulcers in 80% of ulcer patients. H. pylori can cause an infection that leads to either a duodenal or gastric ulcer. Peptic ulcer disease is a chronic inflammatory condition of the stomach and duodenum that affects as many as 5% of the population of the world at some time in their lives. The disease has relatively low mortality but results in substantial human suffering and high economic costs. Studies have also linked H. pylori with development of certain stomach cancers. Using its proprietary high-throughout multiplex sequencing technology, the Company sequenced the genome of H. pylori. Under an agreement signed with Astra Hassle AB, the Company is identifying the genes critical to the survival of the organism and, through a research collaboration, is endeavoring to develop therapeutics to address the clinical need created by H. pylori infections. See "Collaborative Agreements -- Pharmaceutical Company Collaborations". Mycobacterium tuberculosis - M. tuberculosis is the pathogen responsible for causing tuberculosis. The bacteria attacks patches of tissue in the lungs, killing cells and making breathing difficult. Left untreated, the damage from infection prevents proper functioning of the lung and the patient suffocates. As strains of tuberculosis have become resistant to the drugs that have long controlled the infection, tuberculosis has once again become a deadly disease. There are approximately 10 million cases of active tuberculosis worldwide resulting in approximately 3 million deaths annually, the largest number of annual deaths caused by any single organism. Using its large-scale multiplex sequencing technology, the Company, with financial support from its DNA sequencing technology grant, has completed the sequencing of numerous, large contiguous segments of mycobacterial genomic DNA. Within the 1.6 million base-pairs of mycobacterial DNA sequenced, the Company has identified over 1200 full-length genes. The Company has filed patent applications for a broad family of related mycobacterial genes. 10 11 Staphylococcus aureus - Staph. is a bacterium involved in hospital acquired infections (nosocomial) and can enter a patient's blood stream through wounds, burns or surgical incisions. The antibiotic vancomycin is currently the only effective antibiotic for the treatment of methycilllin resistant Staph. infections. Between 60,000 and 80,000 patients in the United States die each year of causes related to infections they acquire in hospitals, and more than half of those deaths are connected with antibiotic-resistant bacteria. Using its high-throughput sequencing capability, the Company is currently sequencing the genome of the Staph. bacterium. Gene Discovery Programs GTC has initiated programs to identify genes that are responsible for human disorders either through positional cloning strategies or through a multifaceted approach incorporating both comparative gene sequencing and positional cloning. The Company's current human disease gene discovery programs include prostate cancer and benign prostatic hypertrophy, manic depressive illness, and fascioscapulohumeral muscular dystrophy ("FSHD"). The Company is also conducting preliminary research regarding osteoporosis and asthma. The Company's decision to initiate more significant research programs for these diseases, to undertake other gene discovery research programs will be based, among other factors, on the commercial opportunity, the availability of relevant DNA and family resources, the status of competitors' programs, and projected development costs. With the exception of FSHD, the Company currently targets common diseases with complex etiologies that are most likely due to defects in more than a single gene. The status of these programs are described below. FSHD - FSHD is a form of muscular dystrophy characterized by muscular weakness and atrophy initially concentrated in the face and shoulder girdle. It is a rare disease in that only one in 20,000 people is affected by this disorder. A single gene responsible for FSHD has been mapped to the tip of the long arm of chromosome 4. GTC has further refined this chromosomal region and has determined the DNA sequence of an approximately 60,000 base pair region that spans the disease locus. Based on the DNA sequence, several candidate genes have bene identified. Further efforts are underway to evaluate these candidates in affected individuals and normal controls. Prostate Cancer and Benign Prostatic Hypertrophy - Prostate cancer is the most commonly diagnosed cancer in males and the second most common cause of death. Approximately 200,000 new cases are diagnosed per year, with 40,000 deaths. BPH, a common disease in men, causes lower urinary tract obstructive symptoms and results from the slow growth of prostatic tissue. It is non- life threatening but can have a significant effect on the quality of life. GTC has initiated a multifaceted program to identify genes for these disorders including efforts to clone a tumor suppresser gene on chromosome 10, to develop gene expression profiles in normal and disease tissue, and to identify appropriate 11 12 families exhibiting early onset (<55 years of age) of prostate cancer for subsequent genetic mapping efforts. To date, a putative tumor suppressor gene for prostate cancer has been localized to a refined region on the long arm of chromosome 10 based on loss of heterozygosity observed in DNA isolated from tumors versus peripheral blood samples. A high resolution physical map of the region is currently being constructed. Using these developing resources, a large scale sequencing effort is in progress to determine the DNA sequence of a set of clones which span the region. In parallel experiments, several putative genes in the region have been identified through exon trapping techniques. Efforts to further characterize these genes are underway. Gene expression profiles have been initiated by constructing cDNA libraries from normal prostate, prostatic tumors, and from tissue exhibiting BPH. High throughput DNA sequencing efforts are in progress. GTC is also supplementing this approach with differential display technologies which utilize reverse transcription coupled with polymerase chain reaction to rapidly identify differentially expressed genes. Manic depressive illness - Manic depressive illness is a serious neuropsychiatric disorder characterized by alternating mood swings of mania and depression. It affects approximately one percent of the United States population. GTC has been collaborating with key academic researchers at the National Institute of Mental Health to conduct a genome wide search for DNA markers associated with this disorder in several Old Order Amish pedigrees. This population is especially valuable since it represents a relatively genetically isolated community with a small number of founders in the 1800's. Strict pressures against substance abuse also facilitate accurate disease diagnoses. The Company has completed a genome wide scan at 15-20 cM intervals and three candidate regions have been identified. Further efforts to evaluate and refine these candidate regions for subsequent gene identification efforts are in progress. COLLABORATIVE AGREEMENTS Pharmaceutical Company Collaborations Astra AB - In August 1995, the Company entered into a collaboration agreement with Astra Hassle AB ("Astra") to develop pharmaceutical, vaccine and diagnostic products effective against gastrointestinal infection or any other disease caused by H. pylori. Under the terms of the agreement, the Company granted Astra exclusive access to its H. pylori genomic sequence database and agreed to undertake certain research efforts in exchange for a minimum of approximately $11 million and up to $22 million in license fees, expense allowances, research funding and milestone payments. The agreement grants Astra exclusive worldwide rights to make, use and sell products based on the Company's H. pylori technology and requires Astra to provide research funding to the Company over 12 13 a period of two and one-half years to further develop and annotate the Company's H. pylori genomic sequence database, identify therapeutic and vaccine targets and develop appropriate biological assays. Research under the agreement will be directed by a Joint Management Committee and a Joint Research Committee, each consisting of representatives from both parties. The Company has received approximately $5 million in license fees, expense allowances and research funding under the Astra agreement through November 1995. The Company will also be entitled to receive royalties on Astra's sale of any products (i) protected by the claims of patents licensed exclusively to Astra by the Company pursuant to the agreement, or (ii) the discovery of which was enabled in a significant manner by the genomic data base licensed to Astra by the Company. Government Collaboration The Company has a number of grants and contracts from various agencies of the Federal government which represent an important element of the Company's research and development programs. These research grants permit the Company to continue to improve its genomics technology and to develop an experienced labor pool. These grants also have the effect of lowering the Company's overhead expenses. Under the agreements, the Company has exclusive rights to any commercial applications of technology developed, including all gene discoveries, inventions, and technology improvements created or discovered under such research. However, the government retains certain rights to practice such technology. See "Patent and Proprietary Rights". The scope of the research covered by the grants and contracts encompasses technology development, sequencing production, technology automation projects and positional cloning projects. Since 1990, the Company has received over $37 million in funding from the government. Listed below are the major grants and contracts on which the Company is currently working:
Term Award of Project Date Project Value ------- ---- ------- ----- Genome Sequencing Center August, 1994 3 yrs. $10.4M Microbial Genome Sequencing December, 1994 3 yrs. $3.0M Physical Map of Chromosome 10 May, 1994 3 yrs. $1.9M Gene Expression (NINDS) December, 1993 3 yrs. $1.5M FSHD September, 1994 3 yrs. $1.0M
These grants and research contracts are subject to appropriation by Congress each year. 13 14 PATENTS AND PROPRIETARY TECHNOLOGY The Company's commercial success will be dependent in part on its ability to obtain patent protection on genes, or products based on genes, discovered by it. The current criteria for obtaining patent protection for partially sequenced genes and for genes whose functions have not been characterized are unclear. The Company's current strategy is to apply for patent protection upon the identification of a gene and to apply for expanded patent protection once the function of the gene has been characterized. However, there can be no assurance that the Company will be able to obtain patent protection on such genes, and even if such patents are issued, the scope of the coverage or protection provided by any such patents is uncertain. In addition, there can be no assurance that any patents, if issued, will provide protection against any competitors, will provide the Company with competitive advantages, or will not be challenged by others. The Company has filed patent applications with respect to a number of genes of the H. pylori and M. tuberculosis bacteria, however, there is no assurance that any patents will issue in respect of such applications. The Company has not yet filed any patent applications on human genes. There are an estimated 100,000 genes in the human genome and the Company believes that virtually all such genes will be identified, albeit largely without known function, within two to three years. A number of groups are attempting to rapidly identify and patent gene fragments and full length genes whose functions have not been characterized, as well as fully characterized genes. There is substantial uncertainty regarding the patentability of gene fragments and genes without known function. There have been recent proposals for review of the appropriateness of patents on gene fragments and genes. The Congressional Office of Technology Assessment has announced that it is conducting a review of this area with a particular focus on the patentability of gene fragments. The United States Patent and Trademark Office initially rejected a patent application by the National Institutes of Health on certain partial gene sequences. To the extent any patents issue on such partial or full length genes, the risk increases that the potential products of the Company or its strategic partners may give rise to claims that such products infringe the patents of others. Such groups could bring legal actions against the Company or its strategic partners claiming damages and seeking to enjoin drug development efforts or the manufacturing or marketing of the affected products. If any such actions are successful, in addition to any potential liability for damages, the Company or its strategic partners could be required to obtain a license in order to continue to manufacture or market the affected products. These can be no assurance that the Company or its strategic partners would prevail in any such action or that any license required under any such patent would be made available upon commercially acceptable terms. The Company believes that there may be significant litigation in the industry regarding patent and other intellectual property rights. If the Company becomes involved in such litigation, it could consume a substantial portion of the Company's management and financial resources. 14 15 In addition, publication of information concerning genes prior to the time the Company applies for patent protection based on the full-length gene could adversely affect the Company's ability to obtain patent protection with respect to genes identified by it. Washington University is currently identifying genes through partial sequencing pursuant to funding provided by Merck & Co., Inc. and depositing the partial sequences identified in a public database. Under the Company's government grants and research contracts, the government has a statutory right under certain circumstances (including inaction on the part of the Company or its licensees to achieve practical application of the invention or a need to alleviate public health or safety concerns not reasonably satisfied by the Company or its licensees) to grant to other parties licenses under any inventions developed based on research funded by the government. The Company also relies on trade secret protection for its confidential and proprietary information. The Company believes it has developed proprietary technology for gene discovery, including proprietary multiplex sequencing technology, multiplex genotype technology and its bio-informatics system. The Company has not sought patent protection for this technology although the Company's licensor with respect to the multiplex sequencing technology has filed for patent protection of such technology. Additionally, the Company is developing a database of DNA samples that it has analyzed. The Company has taken security measures to protect its data and is in the process of exploring ways to further enhance the security for its data. There can be no assurance that such measures will provide adequate protection for the Company's trade secrets or other proprietary information. In addition, while the Company has entered into proprietary information agreements with its employees, consultants and advisors, there can be no assurance that these agreements will provide meaningful protection for the Company's proprietary information in the event of unauthorized use or disclosure of such information. In addition, there can no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's trade secrets or disclose such technology, or that the Company can meaningfully protect its trade secrets. COMPETITION Competition among entities attempting to identify the genes responsible for human diseases is intense and is expected to increase. The Company will face competition from pharmaceutical and biotechnology companies both in the United States and abroad. In addition, significant research to identify and sequence genes is being conducted by universities, other non-profit research institutions and United States and foreign government-sponsored entities. A number of entities are attempting to identify rapidly and patent randomly sequenced human genes and the genome of other organisms. Certain entities are utilizing positional cloning to identify and characterize genes. Any one of these companies or other entities may discover and establish a competitive advantage in one or 15 16 more development programs which the Company has commenced. The Company also faces competition from these and other entities in gaining access to DNA samples used in its research and development programs. The Company believes that its ability to compete is dependent, in part, upon its ability to create and maintain scientifically advanced technology, the speed with which it can identify and characterize the genes involved in targeted complex diseases, its ability to rapidly sequence the genomes of selected pathogens, its strategic partners' ability to develop and commercialize pharmaceutical products based upon the Company's gene discoveries, as well as its ability to attract and retain qualified personnel, obtain patent protection or otherwise develop proprietary technology or processes and secure sufficient capital resources for the expected substantial time period between technological conception and commercial sales of products based upon the Company's gene discoveries. Many of the Company's competitors have substantially greater research and product development capabilities and financial, scientific, marketing and human resources than the Company. These competitors may succeed in identifying genes or developing products earlier than the Company or its strategic partners, obtaining authorization from the FDA for such products more rapidly than the Company or its strategic partners, or developing products that are more effective than those proposed to be developed by the Company or its strategic partners. Any potential products based on genes identified by the Company will face competition both from companies developing gene-based products and from companies developing other forms of treatment for particular diseases targeted by the Company. Certain of the Company's and its strategic partners' competitors may be further advanced than the Company in identifying genes and developing potential products that may compete with potential products of the Company or its strategic partners. There can be no assurance that research and development by others will not render the products which the Company or its strategic partners may seek to develop obsolete or uneconomical or result in treatments or cures superior to any other therapy developed by the Company or its strategic partners, or that any therapy developed by the Company or its strategic partners will be preferred to any existing or newly developed technologies. GOVERNMENT REGULATION Regulation by governmental entities in the United States and other countries will be a significant factor in the production and marketing of any pharmaceutical products which may be developed by the Company or a strategic partner of the Company. The nature and the extent to which such regulation may apply to the Company or its strategic partners will vary depending on the nature of any such pharmaceutical products. Virtually all of the Company's or its strategic partners' pharmaceutical products will require regulatory approval by governmental agencies prior to commercialization. In particular, human pharmaceutical therapeutic products are subject to rigorous preclinical 16 17 and clinical testing and other approval procedures by the FDA in the United States and similar health authorities in foreign countries. Various federal and, in some cases, state statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of such pharmaceutical products. The process of obtaining these approvals and the subsequent compliance with appropriate federal and foreign statutes and regulations are time consuming and require the expenditure of substantial resources. Generally, in order to gain FDA pre-market approval, a company first must conduct pre-clinical studies in the laboratory and in animal model systems to gain preliminary information on an agent's efficacy and to identify any safety problems. The results of these studies are submitted as a part of an investigational new drug application ("IND"), which the FDA must review before human clinical trials of an investigational drug can start. In order to commercialize any products, the Company or its strategic partner will be required to sponsor and file an IND and will be responsible for initiating and overseeing the clinical studies to demonstrate the safety, efficacy and potency that are necessary to obtain FDA approval of any such products. Clinical trials are normally done in three phases and generally take two to five years, but may take longer, to complete. After completion of clinical trials of a new product, FDA marketing approval must be obtained. If the product is classified as a new drug, the Company or its strategic partner will be required to file a New Drug Application ("NDA") and receive approval before commercial marketing of the drug. The testing and approval processes require substantial time and effort and there can be no assurance that any approval will be granted on a timely basis, if at all. NDAs submitted to the FDA can take, on average, two to five years to receive approval. If questions arise during the FDA review process, approval can take more than five years. Even if FDA regulatory clearances are obtained, a marketed product is subject to continual review, and later discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. For marketing outside the United States, the Company will also be subject to foreign regulatory requirements governing human clinical trials and marketing approval for pharmaceutical products. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. The specific regulatory requirements with which the Company or its strategic partners will have to comply may change due to the matters of therapies based on genome information. The Company also intends to develop diagnostic products based upon genes that it identifies. The diagnostic products to be developed by the Company or its strategic partners are likely to be regulated by the FDA as devices rather than drugs. The nature of the FDA requirements applicable to such diagnostic devices depends on their classification by the FDA. A diagnostic device developed by the Company or a strategic partner would most likely be classified as a Class III device, requiring pre-market 17 18 approval. Obtaining pre-market approval involves the costly and time-consuming process, comparable to that for new drugs, of conducting pre-clinical studies, obtaining an investigational device exemption to conduct clinical tests, filing a pre-market approval application, and obtaining FDA approval. Guidelines for the regulation of recombinant DNA research have been adopted by the City of Waltham, Massachusetts, where the Company's recombinant DNA research and development activities are currently conducted. Under the ordinance, which was passed by the Waltham City Council in 1981, a private company engaged in recombinant DNA research must agree to abide by guidelines promulgated by the National Institutes of Health for recombinant DNA research and must provide Waltham with certain additional information. The Company's research and development activities involve the controlled use of hazardous materials, chemicals and various radioactive materials. The Company is subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of such materials and certain waste products. Although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result and any liability could exceed the resources of the Company. HUMAN RESOURCES As of August 31, 1995, the Company had 105 full-time employees, of whom 93 were engaged in research, development and production activities, and 12 in general and administrative functions. Eighteen of the Company's employees hold Ph.D. degrees and 25 others hold other advanced degrees. The Company provides its employees with opportunities for internal and external interaction with scientific professionals through consultation with scientific advisory consultants, technical meetings and scientific collaborations and publications in leading scientific journals. None of the Company's employees are covered by a collective bargaining agreement, and the Company considers its relations with its employees to be excellent. The Company believes that its compensation and other employee benefit plans are competitive, and key scientific and management personnel have been or will be offered an equity participation opportunity which the Company believes to be necessary to attract and retain such personnel. Item 2. PROPERTIES 18 19 The Company's research and development activities are conducted at facilities located at 100 Beaver Street and 1365 Main Street, Waltham, Massachusetts. The Company has leased approximately 14, 000 square feet of space at 1365 Main Street under a lease expiring December 31, 1997 with the option for a five-year renewal. The Company's executive offices and additional labs are located at 100 Beaver Street, Waltham, Massachusetts, where the Company has leased approximately 23,305 square feet of space under a lease expiring July 1999 with the option for a five-year renewal. During fiscal 1995, the Company incurred aggregate rental costs, excluding maintenance, taxes and utilities, for all facilities of approximately $411,000. The aggregate minimum rental cost to be paid in fiscal 1996 is expected to be approximately $411,000. Item 3. LEGAL PROCEEDINGS None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 19 20 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's common stock is traded on the NASDAQ National Market System (ticker symbol "GENE"). The table below sets forth the range of high and low quotations for each fiscal quarter of the Company during 1995 and 1994 as furnished by the National Association of Securities Dealers Quotation System.
1995 1994 High Low High Low ---- --- ---- --- First Quarter 2 11/16 1 13/16 2 7/16 1 1/4 Second Quarter 2 7/8 1 1/2 5 1/8 2 Third Quarter 6 1/4 2 1/2 3 1/8 1 3/4 Fourth Quarter 8 5/8 5 1/8 3 1 3/4
As of November 27, 1995 there were approximately 1,489 shareholders of record of the Company's Common Stock. The Company has not paid any dividends since its inception and presently anticipates that all earnings, if any, will be retained for development of the Company's business and that no dividends on its Common Stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, the operating and financial condition of the Company, its capital requirements and general business conditions. 20 21 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
For the Year Ended August 31, 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- Revenues: Government Research $ 7,014,280 $ 6,077,346 $ 5,021,975 Contract Research, License Fees and Royalties 3,923,944 314,428 361,494 Product and Service 37,217 85,559 893,083 Total $ 11,207,103 $ 6,618,917 $ 6,450,340 Net Income ( Loss) $ 585,204 $ (1,078,718) $ (3,481,857) Per Common Share $ 0.05 $ (0.10) $ (0.33) Weighted Average Common and Common Equivalent Shares 12,961,734 11,097,224 10,668,628 Cash, Cash Equivalents and Short-term Investments $ 8,226,776 $ 4,122,506 $ 3,915,306 Working Capital 5,498,782 3,244,260 3,264,454 Total Assets 11,528,674 5,910,682 5,288,691 Shareholders' Equity $ 7,238,503 $ 4,224,555 $ 3,676,333 For the Year Ended August 31, 1992 1991 - -------------------------------------------------------------------------------------------- Revenues: Government Research $ 4,210,053 $ 2,193,245 Contract Research, License Fees and Royalties 121,348 22,720 Product and Service 792,225 6,763,636 Total $ 5,508,336 $ 9,119,707 Net Income ( Loss) $ (2,078,711) $ (1,687,095) Per Common Share $ (0.19) $ (0.16) Weighted Average Common and Common Equivalent Shares 10,662,551 10,659,249 Cash, Cash Equivalents and Short-term Investments $ 7,144,140 $ 9,040,913 Working Capital 5,768,331 8,779,828 Total Assets 9,354,613 10,790,253 Shareholders' Equity $ 7,081,311 $ 9,109,330
No dividends on Common Stock have been declared or paid by the Company since its organization 21 22 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Genome Therapeutics Corporation ("GTC" or "the Company") is a leader in the field of genomics--the sequencing, discovery and characterization of genes. The Company's objective is to identify gene targets which can be used to develop novel therapeutic, vaccine, and diagnostic products for commercially important diseases. The Company uses its proprietary high-throughput sequencing technology to sequence the genomes of infectious organisms and uses its positional cloning and cDNA sequencing technologies to discover and characterize genes that cause or predispose individuals to common diseases. The Company believes that the identification of biologically relevant genes from infectious organisms and the identification of human disease genes will facilitate the development of highly specific and effective antibiotics, therapeutics, diagnostics, and vaccines. The Company's current pathogen sequencing development programs include: H. pylori, M. tuberculosis, and Staph. The Company has sequenced the genome of H. pylori, and in August 1995, the Company entered into a strategic alliance with Astra AB to develop pharmaceutical, vaccine, and diagnostic products effective against gastrointestinal infections or other disease caused by H. pylori. The Company also has development programs to identify and characterize the human disease genes associated with fascioscapulohumeral muscular dystrophy, prostate cancer, BPH, and manic depression. In connection with the Astra agreement, the Company received a $3.5 million nonrefundable payment on August 31, 1995. The Company has incurred significant losses since inception. The results of operations have fluctuated from period to period and may continue to fluctuate in the future based upon the timing and composition of funding under existing and new collaborative agreements. The Company is subject to risks common to companies in its industry including development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, and compliance with FDA government regulations and the need for additional funding. Results of Operations REVENUE Total revenues increased 69% from $6,619,000 in fiscal 1994 to $11,207,000 in fiscal 1995 and increased 3% from $6,450,000 in fiscal 1993 to $6,619,000 in fiscal 1994. Government research revenue increased 15% from $6,077,000 in fiscal 1994 to $7,014,000 in fiscal 1995 and increased 21% from $5,022,000 in fiscal 1993 to $6,077,000 in fiscal 1994. The increase in government research revenue in fiscal 1995 is primarily attributable to a 3-year $10 million grant from the National Institutes of Health 22 23 awarded in August 1994 as well as increased levels of funding under existing government grants and contracts. The Company's government grants and contracts research funding as of August 31, 1995 was $5,400,000. These grants are typically funded annually and are subject to appropriation by Congress each year. Contract research, license fees and royalties increased from $314,000 in fiscal 1994 to $3,924,000 in fiscal 1995 primarily due to a $3.5 million payment received from Astra AB in August 1995. Contract research, license fees and royalties remained relatively unchanged in fiscal 1994 as compared to fiscal 1993. Product and service revenue significantly decreased after fiscal 1993 due to the sale by the Company of its diagnostic testing business in June 1993. Interest income increased 64% from $142,000 in fiscal 1994 to $232,000 in fiscal 1995, and interest income decreased 19% from $174,000 in fiscal 1993 to $142,000 in fiscal 1994. The changes in interest income reflect the fluctuations in interest rates as well as the increase in funds available for investment in fiscal 1995 as a result of the Company's sale of common stock in a private placement in March 1995. COSTS AND EXPENSES Total costs and expenses increased 38% from $7,698,000 in fiscal 1994 to $10,622,000 in fiscal 1995 and decreased 22% from $9,932,000 in fiscal 1993 to $7,698,000 in fiscal 1994. Cost of government and contract research includes primarily payroll and related costs, laboratory supplies and overhead expenses which include facilities and equipment expenses. The cost of government research increased 25% from $5,144,000 in fiscal 1994 to $6,414,000 in fiscal 1995 and increased 14% from $4,528,000 in fiscal 1993 to $5,144,000 in fiscal 1994. The increase in cost of government research in fiscal 1995 and 1994 is due primarily to increases in payroll and related costs associated with the increase in government research revenue as well as an increase in overhead expenses associated with the expansion of the Company's facilities. Cost of government research, as a percentage of government contract revenue, was 91% in fiscal 1995, 85% in fiscal 1994 and 90% in fiscal 1993. Cost of government research, as a percentage of government research revenue fluctuates based upon the nature of the government contracts and grants as well as changes in the Company's overhead structure. Cost of contract research increased from $89,000 in fiscal 1994 to $231,000 in fiscal 1995 and decreased from $197,000 in 1993 to $89,000 in fiscal 1994. The changes in cost of contract research are primarily due to fluctuations in the level of contract research activity. Cost of product and service significantly decreased after fiscal 1993 due to the sale of the diagnostic testing business in June 1993. Research and development expenses increased 350% from $276,000 in fiscal 1994 to $1,244,000 in fiscal 1995 and increased 22% from $226,000 in fiscal 1993 to $276,000 in 23 24 fiscal 1994. The increase in research and development expenses in fiscal 1995 and 1994 is primarily related to expenses incurred to sequence H. pylori, prior to entering into the strategic alliance with Astra AB in August 1995. The increase consisted primarily of payroll and related expenses, laboratory supplies, and overhead expenses. The Company expects to increase investment in company sponsored research and development in fiscal 1996, particularly with respect to its human gene discovery programs. Selling general and administrative expenses increased 25% from $2,176,000 in fiscal 1994 to $2,730,000 in fiscal 1995 and decreased 22% from $2,802,000 in fiscal 1993 to $2,176,000 in fiscal 1994. The increase in selling, general and administrative expenses in fiscal 1995 is primarily due to increases in payroll and related expenses, facilities expenses and other corporate expenses. The decrease in selling, general and administrative expenses in fiscal 1994 is due primarily to the sale of the diagnostics business in 1993 and cost cutting actions taken by the Company in 1994 to preserve cash resources. The Company sold all of the assets used in its diagnostics testing business to Dianon Systems, Inc. in 1993 for $1.0 million. The Company recorded a loss of $637,000 in fiscal 1993 on the sale of this business. Liquidity and Capital Resources The Company has funded its operation primarily through cash flows from operations (including deferred contract revenue and accrued expenses), borrowings under capital leases, the sale of equity securities, the utilization of tax net operating loss carryforwards, and from existing cash resources. In March 1995, the Company received net proceeds of approximately $2,403,000 from the private sale of common stock and warrants and the exercise of stock options. During fiscal 1994, the Company received net proceeds of approximately $1,601,000 from the private sale of common stock and the exercise of certain stock options. In fiscal 1995, the Company utilized approximately $1,100,000 of net operating loss carryforwards. As of August 31, 1995, the Company had cash, cash equivalents, short term investments and restricted cash of approximately $9,011,000 (of which approximately $784,000 is restricted in connection with certain capital lease obligations) and working capital of approximately $5,499,000. The Company has various capital lease line arrangements under which it can finance up to $2,500,000 of certain office and laboratory equipment and leasehold improvements. The Company is required to maintain certain financial ratios, including minimum levels of tangible net worth, debt to tangible net worth, maximum loss, and minimum restricted cash balances. At August 31, 1995, the Company had approximately $494,000 available under its capital lease arrangements. The Company's operating activities provided cash of approximately $2,693,000 in fiscal 1995. The Company's operating activities utilized cash of approximately $639,000 and 24 25 $3,252,000 in fiscal 1994 and 1993, respectively. Net cash provided in fiscal 1995 was composed primarily of deferred contract revenue, accrued expenses, and operating income. Cash utilized in fiscal 1994 and 1993 was composed primarily of the Company's operating loss. Deferred revenue represents amounts received in advance of revenue recognition by the Company and may fluctuate based upon the timing of the achievement of certain milestones by the Company and payments from customers. The Company's investing activities provided cash of approximately $6,000 in fiscal 1995. The Company's investing activities have used cash of approximately $1,550,000 in each of the fiscal years 1994 and 1993 to fund cash used for operating activities. Financing activities provided approximately $2,074,000 and $1,410,000 in fiscal 1995 and 1994, respectively, primarily due to the proceeds from the sale of equity securities and warrants, net of payments of capital lease obligations. Financing activities used approximately $451,000 in fiscal 1993 primarily due to the payment of capital lease obligations. The Company currently anticipates $1,500,000, of capital equipment purchases during fiscal 1996 consisting primarily of bioinformatics hardware, lab equipment and general equipment. Capital expenditures totaled $1,438,000 during fiscal 1995. The Company expects to increase its internally funded research and development in fiscal 1996. The Company believes that its capital resources are adequate to meet its working capital needs through fiscal 1997. There can be no assurance, however, that changes in the Company's plans or other events affecting the Company's operations will not result in accelerated or unexpected expenditures. The Company expects to seek additional funding through public or private financing or collaborative or other arrangements with corporate partners. There can be no assurance, however, that additional financing will be available from any of these sources or will be available on terms acceptable to the Company. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data required by Item 8 are set forth at the pages indicated in Item 14 (a) below. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 25 26 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is included under the captions "Election of Directors" and "Executive Officers" in the Proxy Statement, and is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION The information required by Item 11 is included under the caption "Executive Compensation" in the Proxy Statement, and is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is included under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement, and is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is included under the caption "Certain Transactions" in the Proxy Statement, and is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS REPORTS ON FORM 8-K (a) (1) (2) Financial Statements and Financial Statement Schedule See "Index to Consolidated Financial Statements and Financial Statement Schedule" appearing on page 32. (3) Exhibits
Exhibit No. Description - ----------- ----------- 3 Restated Articles of Organization and By-laws (1) 3.1 Amendment dated January 5, 1982 to Restated Articles of Organization (2)
26 27 3.2 Amendment dated January 24, 1983 to Restated Articles of Organization (3) 3.3 Amendment dated January 17, 1984 to Restated Articles of Organization (4) 3.4 Amendment dated October 20, 1987 to the By-laws (8) 3.5 Amendment dated December 9, 1987 to Restated Articles of Organization (9) 3.6 Amendment dated October 16, 1989 to the By-laws (11) 3.7 Amendment dated January 24, 1994 to Restated Articles of Organization (15) 3.8 Amendment dated August 31, 1994 to Restated Articles of Organization (15) 4 Series B Restricted Stock Purchase Plan (3) 10.1 Research Agreement with The Dow Chemical Company dated May 21, 1980 (1) 10.2 Research Agreement with The Dow Chemical Company dated August 19, 1981 (1) 10.3 1981 Amended Stock Option Plan and Form of Stock Option Certificate (1) 10.4 Incentive Stock Option Plan and Form of Stock Option Certificate (1) 10.5 1984 Stock Option Plan and Form of Stock Option Certificate (5) 10.6 Collaborative Research Incentive Savings Plan (6) 10.7 Amendment dated November 4, 1986 to the Collaborative Research Incentive Savings Plan dated March 1, 1985 (7) 10.8 Stock Option Agreement with Mr. Lawrence Levy (8) 10.9 Form of Amendment to the 1981 Incentive Stock Option Plan (8) 10.10 Stock Option Agreement with Mr. Mark Friedman (10) 10.11 1988 Stock Option Plan and Form of Stock Option Certificate (10) 10.12 Stock Option Agreement with Dr. Rothchild (11)
27 28 10.13 Agreement with Health Sciences Research Institute (Hoken Kagaku Kenkyojyo) (12) 10.14 1991 Stock Option Plan and Form of Stock Option Certificate (13) 10.15 Lease dated November 17, 1992 relating to certain property in Waltham, Massachusetts (14) 10.16 Lease dated June 3, 1993 relating to certain property in Waltham, Massachusetts (14) 10.17 License Agreement with President and Fellows of Harvard College (14) 10.18 Agreement with Becton Dickinson and Company (14) 10.19 Employment Agreement with Robert J. Hennessey (14) 10.20 Agreement with Immuno-Cor Inc. dated September 13, 1993 (14) 10.21 Agreement with DIANON Systems, Inc. (14) 10.22 Lease Amendment dated August 1, 1994 relating to certain property in Waltham, MA (15) 10.23 Consulting Agreement with Dr. Philip Leder (15) 10.24 1993 Stock Option Plan and Form of Stock Option Certificate (15) 10.25 Stock and Warrant Purchase Agreement among the Company and certain purchasers named therein dated March 20, 1995 (16) 10.26 Registration Rights Agreement among the Company and certain purchasers named therein dated March 20, 1995 (16) 10.27 Form of Warrant Certificate issued pursuant to the Stock and Warrant Purchase Agreement (16) 10.28 Agreement between the Company and Astra Hassle AB dated August 31, 1995 (16) 23. Consent of Independent Public Accounts (16)
28 29 FOOTNOTES (1) Filed as exhibits to the Company's Registration Statement on Form S-1 (No. 2-75230) and incorporated herein by reference. (2) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 27, 1982 and incorporated herein by reference. (3) Filed as exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended February 26, 1983 and incorporated herein by reference. (4) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 25, 1984 and incorporated herein by reference. (5) Filed as exhibits to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1984 and incorporated herein by reference. (6) Filed as exhibits to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1985 and incorporated herein by reference. (7) Filed as exhibits to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1986 and incorporated herein by reference. (8) Filed as exhibits to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1987 and incorporated herein by reference. (9) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended November 28, 1987 and incorporated herein by reference. (10) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988 and incorporated herein by reference. (11) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1989 and incorporated herein by reference. (12) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1990 and incorporated herein by reference. (13) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1992 and incorporated herein by reference. (14) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1993 and incorporated herein by reference. 29 30 (15) Filed as an Exhibit of the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1994 and incorporated herein by reference. (16) Filed herewith. (b) Reports on Form 8-K No reports filed on Form 8-K during the quarter ended August 31, 1995. 30 31 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Genome Therapeutics Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 28, 1995. GENOME THERAPEUTICS CORPORATION By /s/ ROBERT J. HENNESSEY ----------------------- Robert J. Hennessey Chief Executive Officer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of November 28, 1995.
Signature Title - ---------------------- ----- /s/ROBERT J. HENNESSEY Chairman, President; Chief - ---------------------- Executive Officer Robert J. Hennessey /s/ORRIE M. FRIEDMAN Director - ---------------------- Orrie M. Friedman /s/PHILIP LEDER Director - ---------------------- Philip Leder /s/LAWRENCE LEVY Director - ---------------------- Lawrence Levy /s/DONALD J. MCCARREN Director - ---------------------- Donald J. McCarren Director - ---------------------- Steven M. Rauscher /s/FENEL M. ELOI Vice President, Treasurer; and Chief - ---------------------- Financial Officer (Principal Financial Fenel M. Eloi and Accounting Officer)
31 32 GENOME THERAPEUTICS CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements and Financial Statement Schedules
Page Report of Independent Public Accountants 33 Consolidated Financial Statements: Consolidated Balance Sheets as of August 31, 1995 and 1994 34 Consolidated Statements of Operations for the years ended 35 August 31, 1995, 1994 and 1993 Consolidated Statements of Shareholders' Equity for the years ended August 31, 1995, 1994, and 1993 36 Consolidated Statements of Cash Flows for the years ended August 31, 1995, 1994, and 1993 37 Notes to Consolidated Financial Statements 38 Financial Statement Schedules: Schedule II: Valuation and Qualifying Accounts 47
Schedules not included herein are omitted for the reason that they are not applicable or that the required information appears in the Consolidated Financial Statements or Notes thereto. 32 33 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Genome Therapeutics Corporation: We have audited the accompanying consolidated balance sheets of Genome Therapeutics Corporation (a Massachusetts corporation) and subsidiaries as of August 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended August 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Genome Therapeutics Corporation and subsidiaries as of August 31, 1995, and 1994, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 1995, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts, October 4, 1995 33 34 CONSOLIDATED BALANCE SHEETS
August 31, -------------------------------- 1995 1994 - ------------------------------------------------------------------------------------------------------------------ ASSETS: Current Assets: Cash and Cash Equivalents $ 5,886,184 $ 1,114,162 Short-term Investments 2,340,592 3,008,344 Accounts Receivable (less allowances for doubtful accounts of $-0- and $229,000 in 1995 and 1994, respectively) 360,793 391,151 Unbilled Costs 259,005 229,045 Prepaid Expenses and Other Current Assets 50,140 22,386 ------------ ------------ Total Current Assets 8,896,714 4,765,088 ------------ ------------ Equipment and Leasehold Improvements, at Cost: Laboratory and Scientific Equipment 1,464,987 752,482 Leasehold Improvements 1,597,069 1,446,236 Office Equipment and Furniture 903,946 532,656 Construction in Progress 206,103 173,186 ------------ ------------ 4,172,105 2,904,560 Less Accumulated Depreciation 2,451,632 2,120,146 ------------ ------------ 1,720,473 784,414 Restricted Cash 784,471 94,674 Other Assets 127,016 266,506 ------------ ------------ TOTAL ASSETS $ 11,528,674 $ 5,910,682 ============ ============ - ------------------------------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY: Current Liabilities: Accounts Payable $ 409,282 $ 450,854 Accrued Expenses 1,736,569 838,595 Deferred Contract Revenue 774,048 37,991 Current Maturities of Capital Lease Obligations 478,033 193,388 ------------ ------------ Total Current Liabilities 3,397,932 1,520,828 ------------ ------------ Capital Lease Obligations, Net of Current Maturities 892,239 165,299 Commitments (Note 6) Shareholders' Equity: Common Stock, $.10 Par Value ---Authorized--- 35,000,000 shares; Issued and Outstanding--- 13,476,135 shares in 1995 and 11,778,946 in 1994 1,347,613 1,177,894 Series B Restricted Stock, $.10 Par Value - Issued and Outstanding ---- 57,512 shares in 1995 and 1994 5,751 5,751 Additional Paid-in Capital 41,138,147 38,905,080 Accumulated Deficit (35,174,225) (35,759,429) Deferred Compensation (1,817) (27,775) Installment Receivable from Sale of Series B Restricted Stock (76,966) (76,966) ------------ ------------ Total Shareholders' Equity 7,238,503 4,224,555 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,528,674 $ 5,910,682 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 34 35 CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended August 31, --------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------- REVENUES: Government Research $ 7,014,280 $ 6,077,346 $ 5,021,975 Contract Research, License Fees and Royalties 3,923,944 314,428 361,494 Interest Income 231,662 141,584 173,788 Product and Service 37,217 85,559 893,083 --------------------------------------------------- Total Revenues 11,207,103 6,618,917 6,450,340 --------------------------------------------------- COSTS AND EXPENSES: Cost of Government Research 6,414,148 5,144,071 4,527,595 Cost of Contract Research 231,174 89,184 196,788 Research and Development 1,244,427 276,024 225,747 Selling, General and Administrative 2,729,504 2,175,910 2,801,633 Cost of Product and Service 2,646 12,446 1,543,407 Loss on Sale of Diagnostics Business 0 0 637,027 --------------------------------------------------- Total Costs and Expenses 10,621,899 7,697,635 9,932,197 --------------------------------------------------- Net Income (Loss) $ 585,204 ($ 1,078,718) ($ 3,481,857) =================================================== NET INCOME (LOSS) PER COMMON SHARE: Primary $ 0.05 ($ 0.10) ($ 0.33) =================================================== Fully Diluted $ 0.04 -- -- =================================================== WEIGHTED AVERAGE NUMBER OF COMMON AND AND COMMON EQUIVALENT SHARES OUTSTANDING: Primary 12,961,734 11,097,224 10,668,628 =================================================== Fully Diluted 13,036,741 -- -- ===================================================
The accompanying notes are an integral part of the consolidated financial statements. 35 36 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Series B Additional Common Stock Restricted Stock Paid-in Shares Amount Shares Amount Capital - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- Balance at August 31, 1992 10,664,166 $1,066,416 57,512 $5,751 $37,440,631 Exercise of Stock Options 29,000 2,900 2,900 Amortization of Deferred Compensation Cancellation of Stock Options (30,469) Net Loss - ---------------------------------------------------------------------------------------------------------- Balance at August 31, 1993 10,693,166 1,069,316 57,512 5,751 37,413,062 Exercise of Stock Options 84,276 8,428 138,779 Amortization of Deferred Compensation Sale of Common Stock and Warrants 1,001,504 100,150 1,353,239 Net Loss - ---------------------------------------------------------------------------------------------------------- Balance at August 31, 1994 11,778,946 1,177,894 57,512 5,751 38,905,080 Exercise of Stock Options 244,166 24,417 394,982 Amortization of Deferred Compensation Sale of Common Stock and Warrants 1,453,023 145,302 1,838,085 Net Income - ---------------------------------------------------------------------------------------------------------- Balance at August 31, 1995 13,476,135 $1,347,613 57,512 $5,751 $41,138,147 - ---------------------------------------------------------------------------------------------------------- Installment Receivable Total Accumulated Deferred From Sale Shareholders' Deficit Compensation of Stock Equity - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ Balance at August 31, 1992 $(31,198,854) $(155,667) $(76,966) $7,081,311 Exercise of Stock Options 5,800 Amortization of Deferred Compensation 71,079 71,079 Cancellation of Stock Options 30,469 0 Net Loss (3,481,857) (3,481,857) - ------------------------------------------------------------------------------------------------------ Balance at August 31, 1993 (34,680,711) (54,119) (76,966) 3,676,333 Exercise of Stock Options 147,207 Amortization of Deferred Compensation 26,344 26,344 Sale of Common Stock and Warrants 1,453,389 Net Loss (1,078,718) (1,078,718) - ------------------------------------------------------------------------------------------------------ Balance at August 31, 1994 (35,759,429) (27,775) (76,966) 4,224,555 Exercise of Stock Options 419,399 Amortization of Deferred Compensation 25,958 25,958 Sale of Common Stock and Warrants 1,983,387 Net Income 585,204 585,204 - ------------------------------------------------------------------------------------------------------ Balance at August 31, 1995 $(35,174,225) $(1,817) $(76,966) $7,238,503 - ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 36 37 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended August 31, ------------------------------------------------- 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 585,204 $(1,078,718) $(3,481,857) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities: Loss on Sale of Assets 0 0 637,027 Depreciation and Amortization 350,230 205,889 325,591 Deferred Compensation 25,958 26,344 49,306 Changes in Assets and Liabilities: Accounts Receivables 30,358 223,233 (141,691) Unbilled Costs (29,960) (86,281) 25,284 Prepaid Expenses (30,854) 36,077 6,338 Other Assets 3,100 34,650 (39,200) Accounts Payable 124,568 176,178 (127,331) Accrued Expenses 897,974 (128,912) (197,305) Deferred Contract Revenue 736,057 (47,289) (308,537) ----------- ----------- ----------- Total Adjustments 2,107,431 439,889 229,482 ----------- ----------- ----------- Net Cash Provided by (Used in) Operating Activities 2,692,635 (638,829) (3,252,375) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Short-term Investments (5,332,248) (4,985,970) (5,422,374) Proceeds from Short-term Investments 6,000,000 4,000,000 3,400,000 Increase in Restricted Cash (689,797) (94,674) 0 Purchases of Equipment and Leasehold Improvements (97,016) (191,907) (158,657) (Increase) Decrease in Other Assets 124,687 (277,398) 0 Payments for Net Assets Acquired 0 0 (268,500) Proceeds from Sale of Assets 0 0 901,297 ----------- ----------- ----------- Net Cash Provided by (Used in) Investing Activities 5,626 (1,549,949) (1,548,234) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Sale of Common Stock and Warrants 1,983,387 1,453,389 0 Proceeds from Exercise of Stock Options 419,399 147,207 5,800 Payments on Capital Lease Obligations (329,025) (190,588) (456,399) ----------- ----------- ----------- Net Cash Provided by (Used in) Financing Activities 2,073,761 1,410,008 (450,599) ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents 4,772,022 (778,770) (5,251,208) Cash and Cash Equivalents at Beginning of Year 1,114,162 1,892,932 7,144,140 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,886,184 $ 1,114,162 $ 1,892,932 =========== =========== =========== Supplemental Disclosure of Cash Flow Information: Interest Paid during Period $ 85,759 $ 19,482 $ 44,100 =========== =========== =========== Supplemental Schedule of Non-cash Investing Activities: Property and Equipment Acquired under Capital Leases $ 1,340,611 $ 264,379 $ 318,151 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 37 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Genome Therapeutics Corporation (the Company) was formerly known as Collaborative Research, Inc. Its mission is to translate the discoveries of the Human Genome Project into significant commercial breakthroughs in human medicine. The Company is devoting substantially all of its efforts towards research and development and raising capital. The Company is subject to risks common to companies in its industry including development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, and compliance with FDA government regulations and the need for additional funding. The accompanying consolidated financial statements reflect the application of certain accounting policies described in this note and elsewhere in the accompanying notes to the consolidated financial statements. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts have been eliminated in consolidation. REVENUE RECOGNITION Substantially all of the Company's research and contract revenues are derived from government grants and various contract arrangements. Research revenues are recognized as earned under grants, cost plus fixed fee contracts and fixed price contracts. Milestone payments from collaborative research and development arrangements are recognized when they are achieved. License fees are recognized as earned. Unbilled costs represent revenue recognized prior to billing. Deferred contract revenue represents amounts received prior to revenue recognition. Royalty revenue is recorded as earned. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements are depreciated over their estimated useful lives using the straight-line method. The estimated useful life for leasehold improvements is the lesser of the term of the lease or the estimated useful life of the assets. Equipment and all other depreciable assets' useful lives vary from three to ten years. 38 39 NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Net income per common and common equivalent share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the year using the treasury method. Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. RECLASSIFICATIONS The Company has reclassified certain prior year information to conform with the current year's presentation. 2. CASH EQUIVALENT AND SHORT-TERM INVESTMENTS: The Company applies Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). The Company considers all highly liquid investments with original maturities of three months or less at the time of acquisition to be cash equivalents . Cash equivalents consist of money market funds, repurchase agreements and debt securities at August 31, 1995. Cash equivalents consist of money market funds and repurchase agreements at August 31, 1994. The Company has $784,471 and $94,674 in restricted cash at August 31, 1995 and 1994, respectively, in connection with certain capital lease obligations. (See Note 7). The Company's portfolio of investments are marketable securities classified as held-to-maturity (recorded at amortized cost). Marketable securities consisted of commercial paper and medium-term notes at August 31, 1995 and 1994 with an average maturity of six months. Realized gains and losses on the sale of marketable securities for the year ended August 31, 1994 and 1995 were not material. 3. INCOME TAXES: The Company applies Statement of Financial Accounting Standard No. 109, ("SFAS 109"),"Accounting for Income Taxes". SFAS 109 requires the Company to recognize deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. SFAS 109 requires deferred tax assets and liabilities to be adjusted when the tax rates or other provisions of the income 39 40 tax laws change. The effect of the adoption of SFAS 109 was not material to the Company's financial statements. At August 31, 1995, the Company had net operating loss and tax credit carryforwards of approximately $35,007,000 and $1,120,000, respectively, available to reduce federal taxable income and federal income taxes, respectively, if any. Net operating loss carryforwards and credits are subject to review and possible adjustments by the Internal Revenue Service and may be limited in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%. In the year ended August 31, 1995, the Company utilized approximately $1,100,000 of net operating loss carryforwards to offset taxable income. The net operating loss carryforwards and tax credits expire approximately as follows:
Net Operating Research Tax Credit Investment Tax Expiration Date Loss Carryforwards Carryforwards Credit Carryforwards - --------------------------------------------------------------------------------------- 1997 $ - $ 80,000 $103,000 1998 6,108,000 208,000 90,000 1999 5,039,000 273,000 143,000 2000 3,829,000 84,000 75,000 2001 4,812,000 24,000 3,000 2002-2010 15,219,000 - 37,000 ---------------------------------------------------------- $35,007,000 $669,000 $451,000 ----------------------------------------------------------
The components of the deferred tax assets recognized in the Company's balance sheet at the respective dates are as follows:
August 31, 1995 1994 - --------------------------------------------------------------------------- Net operating loss carryforwards $ 12,699,000 $ 12,357,000 Research and development credits 669,000 669,000 Investment tax credits 451,000 414,000 Other, net 1,167,000 526,000 ------------------------------- $ 14,986,000 $ 13,966,000 Valuation allowance (14,986,000) (13,966,000) ------------------------------- $ -0- $ -0- -------------------------------
40 41 The valuation allowance has been provided due to the uncertainty surrounding the realization of the deferred tax assets. 4. OTHER ASSETS: Other assets consist of the following:
August 31, 1995 1994 - --------------------------------------------------------------------------------- Intangible assets (net of accumulated amortization of $25,695 and $10,892, respectively) $ 48,110 $105,525 Deposits 78,906 60,981 Other -0- 100,000 ---------------------- $127,016 $266,506 ----------------------
Intangible assets consist of licenses and patents. Intangible assets are recorded at cost and are amortized over their expected useful life of five years using the straight-line method. 5. ACCRUED EXPENSES: Accrued expenses consist of the following:
August 31, 1995 1994 - -------------------------------------------------------------------------------- Payroll and related expenses $ 630,290 $ 330,654 Severance 326,723 -0- Employee relocation 230,468 -0- License and other fees 283,971 227,391 All other 265,117 280,550 ----------------------------- $1,736,569 $ 838,595 -----------------------------
41 42 6. COMMITMENTS: At August 31, 1995, the Company has operating leases for office and laboratory facilities which expire on July 31, 1999. Minimum lease payments under the leases at August 31, 1995 are as follows:
1996 $ 613,094 1997 619,405 1998 567,499 1999 534,895 ---------- $2,334,893 ----------
Rental expense was approximately $411,000, $208,000, and $296,000 in the years ended August 31, 1995, 1994, and 1993, respectively. Rental expense for the year ended August 31, 1994 was offset by approximately $100,000 of sublease rental income. 7. CAPITAL LEASE OBLIGATIONS: The Company has various capital lease line arrangements under which it can finance up to $2,500,000 of certain office and laboratory equipment. These leases are payable in thirty-six monthly installments. The interest rate ranges from prime (8.75% at August 31, 1995) plus 1.5% to 11.42%. The Company is required to maintain certain restricted cash balances, as defined (see Note 2). In addition, the Company is required to maintain certain financial ratios pertaining to minimum cash balances, tangible net worth, debt to tangible net worth and maximum loss. The Company has $493,711 available under these various capital lease agreements at August 31, 1995. Additionally, in connection with its facilities lease, the Company issued a $100,000 note payable in September 1994 to its lessor to finance leasehold improvements. The note bears interest at 9% and is payable in sixty monthly payments of $2,076. 42 43 Future minimum lease commitments at August 31, 1995, are as follows: 1996 $ 589,644 1997 587,276 1998 354,272 1999 40,135 ---------- Total minimum lease payments 1,571,327 Less-Amount representing interest (201,055) ---------- Present value of total minimum lease payments 1,370,272 Less-Current portion (478,033) ---------- $ 892,239 ----------
8. SHAREHOLDERS' EQUITY: PRIVATE PLACEMENT On March 20 1995, the Company completed a private placement of 850,000 shares of common stock at $2.43 per share resulting in proceeds of approximately $2,000,000 net of issuance costs. In connection with the private placement, the Company issued warrants to purchase 1,020,000 shares of common stock at a exercise price of $2.43 per share. These warrants were exercised on July 18, 1995 and resulted in the net issuance of 603,023 shares of common stock. The net issuance represents the excess fair market value of the shares purchasable pursuant to the warrants on the date of exercise over the total exercise price of such warrants. SERIES B RESTRICTED STOCK The Company has designated 625,000 shares of common stock as Series B Restricted Stock ("Series B Stock") and issued 57,512 shares of Series B Stock in exchange for a subscription receivable. In the event of liquidation, holders of common stock are entitled to receive, prior to and in preference to any distribution of the Company's assets to the holders of Series B Stock, the greater of: (a) $5.00 per share; or (b) an amount per share equal to ten (10) times the amount which, after such distribution, would remain available for distribution to holders of the Series B Stock. After such preferential distribution, the remaining assets, if any, of the Company would be distributed ratably to the holders of common stock and Series B Stock. 43 44 STOCK OPTIONS The Company adopted the 1988, 1991 and 1993 stock option plans for key employees and consultants. Under these plans, the stock option committee may grant options to purchase up to 1,750,000 of the Company's common shares. The purchase price and vesting schedule applicable to each option grant is determined by the stock option committee. Under separate agreements, the Company has granted directors and certain consultants of the Company options to purchase common stock. In addition, the Company has granted stock options under the 1981 and 1984 stock option plans, and non-statutory stock option plan. No further options may be granted under any of these plans. The Company records deferred compensation when stock options are granted at an exercise price per share which is less than the fair market value of the grant. Deferred compensation is recorded in an amount equal to the excess of the fair value per share over the exercise price times the number of options granted. Deferred compensation will be recognized as an expense over the vesting period of the underlying options. Compensation expense included in the statement of operations was approximately $26,000, $26,000 and $71,000 for the year ended August 31, 1995, 1994 and 1993, respectively. There were 139,650 common shares available for future grants at August 31, 1995 under existing stock option plans. The following is a summary of all stock option activity .
1995 1994 1993 - -------------------------------------------------------------------------------- Options shares: Granted 355,275 970,100 1,791,350 Exercised (244,166) (84,276) (29,000) Cancelled (70,624) (108,288) (157,798) ---------- ---------- ----------- Outstanding at August 31 3,540,187 3,499,702 2,722,166 ---------- ---------- ----------- Price range of outstanding options at end of period $.20-$8.00 $.20-$8.00 $.20-$11.94 Price range of exercised options during period $.81-$4.00 $.88-$2.94 $.20
44 45 9. INCENTIVE SAVINGS PLAN 401(k): The Company maintains an incentive savings plan (the "Plan") for the benefit of all employees, as defined. Matching contributions are made to the Plan by the Company at a rate of 50% for the first 2% of salary and 25% for the next 4% of salary, limited to the first $50,000 of annual salary. On November 4, 1986, the Company granted to each active employee one hundred (100) shares, or a pro rated amount, of its common stock. The Company contributed $43,533, $43,233 and $36,315 to the Plan for 1995, 1994 and 1993, respectively. 10. COLLABORATION AGREEMENT Astra AB - In August 1995, the Company entered into a collaboration agreement with Astra Hassle AB ("Astra") to develop pharmaceutical, vaccine and diagnostic products effective against gastrointestinal infection or any other disease caused by H. pylori. Under the terms of the agreement, the Company granted Astra exclusive access to its H. pylori genomic sequence database and agreed to undertake certain research efforts in exchange for a minimum of approximately $11 million and up to $22 million in license fees, expense allowances, research funding and milestone payments. The agreement grants Astra exclusive worldwide rights to make, use and sell products based on the Company's H. pylori technology and requires Astra to provide research funding to the Company over a period of two and one-half years to further develop and annotate the Company's H. pylori genomic sequence database, identify therapeutic and vaccine targets and develop appropriate biological assays. Research under the agreement will be directed by a Joint Management Committee and a Joint Research Committee, each consisting of representatives from both parties. In August 1995, the Company received $4,269,000, of which $3,500,000 was recorded as a nonrefundable license fee and capital allowance which is included in contract research, license fees and royalties on the accompanying consolidated statement of operations and $769,000 was recorded as deferred revenue on the accompanying consolidated balance sheet. The Company will also be entitled to receive royalties on Astra's sale of any products (i) protected by the claims of patents licensed exclusively to Astra by the Company pursuant to the agreement, or (ii) the discovery of which were enabled in a significant manner by the genomic data base licensed to Astra by the Company. 11. LOSS ON SALE OF DIAGNOSTIC TESTING BUSINESS: On June 27, 1993, the Company sold all of the assets of its diagnostic testing business to Dianon Systems, Inc. for $1.0 million. The transaction resulted in a non-recurring loss of $.6 million. 45 46 12. HARVARD LICENSE AGREEMENT: On November 12, 1993, the Company entered into an agreement with Harvard Medical School for an exclusive worldwide license for commercial applications of their patented multiplex sequencing technology. Under this agreement, the Company had paid a nonrefundable license fee of $100,000, of which $50,000 can be credited against future royalties. In addition, the Company must pay minimum royalties ranging from $5,000 in 1995 to $35,000 in 1998. During 1995, the Company incurred a royalty expense of $100,000, of which $50,000 was credited against prepaid royalties. The Company may terminate this agreement upon 90 days notice. 46 47 Schedule II Genome Therapeutics Corporation and Subsidiaries Valuation and Qualifying Accounts For the Years Ended August 31, 1995, 1994 and 1993 Reserves for Doubtful Accounts Balance, August 31, 1992 $ 74,390 Additions charged to expense 124,992 Write-off of uncollecticible accounts, net (20,800) --------- Balance, August 31, 1993 $ 178,582 ========= Additions charged to expense 59,102 Write-off of uncollecticible accounts, net (8,418) --------- Balance, August 31, 1994 $ 229,266 ========= Additions charged to expense 0 Write-off of uncollecticible accounts, net (229,266) --------- Balance, August 31, 1995 $ 0 =========
47 48 EXHIBIT INDEX
Exhibit No. Description Page No. - ----------- ----------- -------- 10.25 Stock and Warrant Purchase Agreement among the Company and certain purchasers of the Company's Common Stock and warrants dated March 20, 1995 10.26 Registration Rights Agreement among the Company and certain purchasers named therein dated March 20, 1995 10.27 Form of Warrant issued pursuant to the Stock and Warrant Purchase Agreement 10.28 Agreement between the Company and Astra Hassle AB dated August 31, 1996 23 Consent of Arthur Anderson LLP 27 Financial Data Schedule
EX-10.25 2 STOCK AND WARRANT PURCHASE AGREEMENT 1 EXHIBIT 10.25 GENOME THERAPEUTICS CORP. STOCK AND WARRANT PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (the "Agreement") is made this 20th day of March, 1995 by and among Genome Therapeutics Corp., a Massachusetts corporation (the "Company") and the persons whose names are set forth on Schedule I hereto (the "Investors"). THE PARTIES HERETO AGREE AS FOLLOWS: 1. Purchase and Sale of Stock and Warrants. 1.1. Authorization of Shares. The Company has authorized the issue and sale of (i) 850,000 shares of Common Stock, $.10 par value (the "Common Stock"), of the Company to be issued under this Agreement and (ii) warrants representing the right to purchase an additional 1,020,000 shares of Common Stock at an exercise price of $2.43 per share. 1.2. Purchase and Sale of the Common Stock and Warrants. Subject to the terms and conditions of this Agreement and on the basis of the representations and warranties set forth herein, the Company agrees to issue and sell to the Investors and each of the Investors agree, severally and not jointly, to purchase from the Company (i) the number of shares of Common Stock set forth opposite such investor's name on Schedule I (the "Shares") and (ii) the number of Warrants set forth opposite such investor's name on Schedule I (collectively, the "Warrants") at a purchase price of $2.30 for each share of Common Stock and $0.10833 for each warrant or $2.43 for each "unit" of one share of Common Stock and one and two-tenths (1.20) Warrants (the "Units"). The Company and Investors agree that, notwithstanding any appraisal or other valuation to the contrary, for income tax and other purposes each shall use only the separate value of a share of the Common Stock and a Warrant set forth above as the true value of a share of Common Stock and a Warrant and the purchase price for each Unit shall be allocated in a similar manner among the share of Common Stock and the Warrants included in each Unit. The rights, privileges and terms of the Warrants are as set forth in the form of Warrant attached hereto as Exhibit A. - 1 - 2 1.3. The Closing. Subject to the other terms and conditions of this Agreement, the purchase and sale of the Units (the "Closing") will take place on March 20, 1995, at 10:00 a.m. Boston time, at the offices of Ropes & Gray, One International Place, Boston, Massachusetts, or at such other time or such other place as the parties shall mutually agree. At the Closing, the Company will deliver to each of the respective Investors (i) a certificate or certificates, registered in such Investor's name, representing the Shares to be acquired by such Investor and (ii) a certificate substantially in the form of Exhibit A hereto, registered in such Investor's name, representing the Warrants to be acquired by such Investor, pursuant to this Agreement at such Closing, against payment of the purchase price thereof in lawful money of the United States of America by wire transfer payable to the Company. 2. Representations and Warranties of the Company Regarding the Company and the Units. In order to induce the Investors to enter, severally and not jointly, into this Agreement and to acquire the Units hereunder, the Company hereby represents and warrants to the Investors with regard to the Company and its subsidiaries and affiliates: 2.1. Organization and Authority. The Company is a corporation duly organized and validly existing under the laws of Massachusetts and has full corporate power, right and authority to own its property, to carry on its business as presently conducted or contemplated to be conducted and, subject to necessary shareholder approval, to enter into and carry out the transactions contemplated by this Agreement. The Company is duly qualified to transact business as a foreign corporation and is in good standing in each of the other jurisdictions in which the ownership or leasing of its properties or the conduct of its business requires such qualification. The Company has full corporate power and authority and all necessary governmental authorizations to own or lease its properties and assets and to carry on its business as now being conducted. Except as set forth in Exhibit 22 of its 1994 Annual Report on Form 10-K, the Company does not control any corporation or other entity and each such entity or corporation listed on such Form 10-K is currently inactive. - 2 - 3 2.2. Authorization. The Company has full legal right, power, capacity and authority to execute and deliver this Agreement and each of the other agreements contemplated hereby, to consummate the transactions contemplated hereby and to comply with the terms, conditions and provisions hereof. This Agreement and each of the other agreements contemplated hereby have been duly authorized, executed and delivered by the Company and are the legal, valid and, assuming due execution and delivery by the parties thereto, binding obligation of the Company, enforceable in accordance with their terms. The execution, delivery and performance of this Agreement and each of the other agreements contemplated hereby will have been duly authorized and approved by all necessary corporate action of the Company and does not require any further authorization or consent of the Company or any other person. 2.3. Validity of Shares and Warrants. The Shares and Warrants, when issued and the consideration therefor received by the Company, will be validly issued, fully paid and non-assessable. The Company has the full corporate power, right and authority, to issue and sell to the Investors at the Closing the Shares and the Warrants, as contemplated herein and upon consummation of the transactions contemplated by this Agreement, each of the Investors will have acquired good and marketable title to the Shares and the Warrants, as the case may be, free and clear of any claims, liens, restrictions on transfer or voting or encumbrances other than those arising under the federal and state securities laws of the United States of America. 2.4. Capitalization. (a) The authorized capital stock of the Company consists solely of 35,000,000 shares of Common Stock. As of the date hereof, and before giving effect to the transactions contemplated hereby, of the 35,000,000 authorized shares of Common Stock, 11,778,946 shares are issued and outstanding, zero shares are held by the Company as treasury shares, an aggregate of 38,075 shares of Common Stock are reserved under the warrants set forth in Schedule 2.4 (the "Existing Warrants"), an aggregate of 3,940,502 shares of Common Stock are reserved under the Company's plans (the "Plans") set forth on Schedule 2.4, of which options to purchase the number of shares of Common Stock set forth opposite each such plan are currently outstanding (vested/unvested) at the respective prices shown on Schedule 2.4 and additional options to purchase shares - 3 - 4 of the Common Stock may be issued only under certain of such plans as indicated on Schedule 2.4 (collectively, the "Existing Options"), and no other shares have been reserved for issuance for any other purpose. (b) As of the date hereof there are no securities outstanding (other than the Existing Warrants and the Existing Options) that are convertible into or exchangeable for (upon the occurrence of any event or condition or otherwise) any shares of the Company's capital stock, nor will there be any outstanding subscription agreements, warrants, options, preemptive rights, rights of first offer or refusal or other rights (contingent or otherwise) to purchase any shares of capital stock of the Company or any such convertible or exchangeable securities other than the Existing Options and the Existing Warrants. Except as described on Schedule 2.4, as of the date hereof there exists no (i) agreement or understanding to which the Company or any affiliate is a party under which the Company or such affiliate will be obligated, contingently or otherwise, to purchase or redeem any capital stock of the Company, any securities that are convertible into or exchangeable for (upon the occurrence of any event or condition or otherwise) any shares of the Company's capital stock or any subscription agreements, warrants, options, preemptive rights or other rights (contingent or otherwise) to purchase any shares of capital stock of the Company or any such convertible or exchangeable securities, (ii) agreement or understanding to which the Company or any affiliate is a party pursuant to which the Company or such affiliate is obligated (contingently or otherwise) to register any securities under the Securities Act of 1933, as amended (the "1933 Act"), or any state securities laws, other than the Registration Rights Agreement), (iii) voting agreement, voting trust, irrevocable proxy or any other agreement or instrument in effect to which any securities holder of the Company (to the knowledge of the Company) is a party relating to the voting rights of any securities of the Company or (iv) put option, right of first offer or refusal, tag-along, drag-along or co-sale agreement or other agreement or understanding pursuant to which (to the knowledge of the Company) any Person other than the Company has the right (contingent or otherwise) to sell or purchase any capital stock of the Company, any securities that are convertible into or exchangeable for (upon the occurrence of any event or condition or otherwise) any shares of the Company's capital stock or any subscription agreements, warrants, options, - 4 - 5 preemptive rights or other rights (contingent or otherwise) to purchase any shares of capital stock of the Company or any such convertible or exchangeable securities. (c) As of the date hereof, all outstanding securities of the Company have been duly authorized and validly issued without violation of any preemptive rights, are fully paid and non-assessable, and have been offered and issued without violation of the 1933 Act or any applicable state securities laws. 2.5. No Defaults. The Company is not in default on the Company's properties or assets or the business of the Company, as presently conducted or proposed to be conducted, (a) under its charter documents or its By-Laws or any note, indenture, mortgage, lease, agreement, contract, purchase order or other instrument, document or agreement to which it is a party or by which it or any of its property is bound or affected or (b) with respect to any order, writ, injunction or decree of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. To the knowledge of the Company, there exists no condition, event or act which after notice, lapse of time, or both, is reasonably likely to constitute a default by the Company which would have a material adverse impact on the Company's properties or assets or the business of the Company as presently conducted or proposed to be conducted. To the Company's knowledge, no third party is in default under any agreement, contract or other instrument, document, or agreement to which the Company or any subsidiary is a party or by which any of them or any of their property is affected, which default would have a material adverse impact on the Company's properties or assets. 2.6. Effect of Transactions. The execution, delivery and performance of this Agreement, the Registration Rights Agreement, and any other agreements, instruments, or documents contemplated hereby, the issuance, sale and delivery of the Shares and the Warrants and compliance with the provisions hereof and thereof by the Company, do not and will not, with or without the passage of time or the giving of notice or both (a) violate any provision of law, statute, rule or regulation or any ruling, writ, injunction, order, judgment or decree of any court, administrative agency or other governmental body, or (b) conflict with or result in any - 5 - 6 breach of any of the terms, conditions or provisions of, or constitute a default (or give rise to any right of termination, cancellation or acceleration) under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under its charter or bylaws or under any note, indenture, mortgage, lease, license agreement, contract, purchase order or other instrument, document or agreement to which the Company is a party or by which it or any of its property is bound or affected which would have a material adverse effect on the Company's properties or assets or the business of the Company as presently conducted or as proposed to be conducted. 2.7. Litigation. There is no action, suit, proceeding or investigation at law or equity or before or by any governmental commission, board or other administrative agency pending or, to the knowledge of the Company, threatened against or affecting the Company which questions the validity of this Agreement, the Registration Rights Agreement, any other agreements, instruments or documents entered into by the Company pursuant to this Agreement or the Registration Rights Agreement, the right of the Company to enter into them or to consummate the transactions contemplated hereby or thereby, or which might result, either individually or in the aggregate, in any material adverse effect upon the business, assets, conditions, operations, certificate of convenience and necessity, profits, condition (financial or other), affairs or, in the reasonable business judgment of the Company, prospects of the Company, financial or otherwise, or any change in the current equity ownership of the Company. There is no action, suit or proceeding by the Company currently pending or which the Company presently intends to initiate. There is no action, suit or proceeding pending against, or to the knowledge of the Company, threatened against or affecting, the Company or any of its properties before any court or arbitrator or any governmental body, agency or official which in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated hereby. 2.8. SEC Filings and Reports. The Company has filed with the Securities and Exchange Commission ("SEC") all required reports, schedules, forms, statements and other documents for the preceding three years. As of its filing date, each such report, proxy or information statement (as amended or supplemented, if - 6 - 7 applicable), filed pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") and all registration statements and other materials filed with the SEC under the 1933 Act, complied in all material respects with the applicable rules and regulations of the SEC thereunder, and did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 2.9. Reports. The Company has heretofore furnished to BVF Partners, L.P. ("BVF") copies of (i) the Company's Annual Report on Form 10-K for the year ended August 31, 1994, (ii) the Company's Quarterly Report on Form 10-Q for the quarter ended November 26, 1994, (iii) the Company's Proxy Statement dated December 23, 1994 relating to its 1995 Annual Meeting of Shareholders and (iv) the Company's 1994 Annual Report to Shareholders (such annual reports, quarterly report and proxy statement being hereinafter called collectively the "Reports"). All financial statement contained in the Reports present fairly the financial position of the Company at the respective dates thereof and the results of its operations for the periods covered thereby in conformity with generally accepted accounting principles applied on a consistent basis. The Company has filed no reports on Form 8- K since November 26, 1994 The Company has no known liabilities, contingent or otherwise, as of the date hereof not disclosed in the financial statements included in the Reports, or in the notes thereto or elsewhere herein, that materially affects or may (so far as the Company can now foresee) in the future materially affect the financial position of the Company. 2.10. Material Adverse Changes. Since November 26, 1994, there has been no material adverse change in the business, operations, assets, properties, profits or condition, financial or other, of the Company, and neither its properties nor business has been adversely affected in any material manner as the result of any fire, windstorm, explosion, accident, flood, drought, blight, earthquake, strike, embargo, lockout, riot, sabotage, or confiscation, condemnation or purchase of any property by governmental authority, activities or armed forces or acts of God or the public enemy, or other similar event, condition or development; provided, however, that the Company expects to - 7 - 8 report in its February 28, 1995 quarterly report on Form 10-Q a net loss of approximately $456,000 and a reduction in its cash position of approximately $409,000 since November 26, 1994. 2.11. Taxes. The Company has filed all federal, state, local and other tax returns required by law to be filed by it, and all taxes shown to be due and all additional assessments, fees, governmental charges, interest and penalties have been paid. The federal income tax liabilities of the Company for the fiscal year 1993 and for all prior years, have been determined or accepted by the Internal Revenue Service and paid. No objection to any return or claim for additional taxes is currently being asserted against the Company and the Company does not know of any proposed additional tax assessment against the Company. The Company believes all filed returns were prepared in accordance with applicable statutes and generally accepted principles applicable to taxation. 2.12. Limitations. There are no limitations in the Company's By-laws or in any indenture, deed of trust or other agreement or instrument to which the Company is a party with respect to the issuance and sale of the Shares or Warrants as the case may be, or with respect to the payment or accumulation of dividends on the Shares and Warrants, except in each such case those contained in the Company's Restated Articles of Organization. 2.13. Use of Proceeds. The Company will use the proceeds from the sale of the Shares and Warrants only for working capital purposes and not use such proceeds contrary to any federal, state or local law, rule, regulation, guideline, requirement, order, directive or other mandatory proscription or authority. The Company will not use any part of the proceeds from the sale of the Shares and Warrants, directly or indirectly, to purchase or carry any "margin security," as such term is defined in Regulation G of the Board of Governors of the Federal Reserve System, as amended (12 C.F.R., Part 207), or to reduce or retire any indebtedness originally incurred to purchase or carry any such security. None of the transactions contemplated by this Agreement, including, without limitation, the issue and sale of the Shares and Warrants and the application of the proceeds thereof, will violate or result in a violation of Section 7 of the Securities Exchange Act, or any regulations issued pursuant - 8 - 9 thereto, including without limitation Regulation G, T, and X of the Board of Governors of the Federal Reserve System. 2.14. H. Pylori. The Company has successfully sequenced substantially all of the genome Helicobacter pylori and is currently in the process of negotiating licensing and collaboration agreements with various drug manufacturers with respect thereto. 2.15. Government Grants and Contracts. Schedule 2.15 sets forth each current government grant or contract valued in excess of $500,000 that the Company has been awarded. The Company is not aware of any government grant or contract that the Company was awarded, including those grants or contracts set forth on Schedule 2.15, which has been or is to be terminated or withdrawn. The Company is not in possession of any material information not generally available to the public that would indicate that any of such grants or contracts that are subject to annual funding authorization are not likely to be so reauthorized. 2.16. Key Employees. The Company has heretofore delivered to BVF true and correct copies of employment contracts, as heretofore amended, entered into between the Company and each of Robert J. Hennessey and Philip Leder, M.D., the Chief Executive Officer and the Chairman of the Scientific Advisory Committee, respectively, of the Company. The Company is not aware, has no reason to believe and has not received any indication that any of such officers or consultants intends to resign from or terminate his relationship with the Company. 2.17. Harvard License Agreement. The Company has provided to BVF a true and correct copy of the Company's agreement, as heretofore amended, with Harvard Medical School ("HMS") for an exclusive worldwide license for commercial applications for HMS's patented multiplex sequencing technology. Such agreement has not been terminated and the Company has received no notice or communication from HMS that the Company is in default thereunder. 2.18. Registration. It is not necessary in connection with the purchase, sale or exchange contemplated hereby, in the manner - 9 - 10 contemplated hereby, to register the Shares or the Warrants under the 1933 Act. 2.19. Brokerage. There are no claims for brokerage commission or finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of the Company, and the Company agrees to indemnify and hold each Investor harmless against any damages incurred as a result of any such claims. 2.20. Performance. The Company has performed and complied with all agreements, obligations, and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 3. Representations and Warranties and other Agreements of the Investors. 3.1. Representations and Warranties. Each of the Investors hereby represents and warrants, severally and not jointly, to the Company that: (a) Authorization. Such Investor has full power and authority to execute, deliver and perform this Agreement and to acquire the Shares and the Warrants, as contemplated herein; this Agreement constitutes the valid and legally binding obligation of such Investor, enforceable against the Investor in accordance with its terms. (b) Purchase Entirely for Own Account. The Shares and Warrants to be received by such Investor as contemplated by this Agreement will be acquired for investment for such Investor for its own account, not as a nominee or agent and not with a view to the distribution of any part thereof. Such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. Such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participation to such person or to any third person, with respect to the Shares. (c) Restricted Securities. Such Investor understands that the Shares and the Warrants may not be - 10 - 11 sold, transferred, or otherwise disposed of without registration under the 1933 Act, or an exemption therefrom, and that, in the absence of an effective registration statement covering the Shares or the Warrants, as the case may be, or an available exemption from registration under the 1933 Act, the Shares and the Warrants must be held indefinitely. In the absence of an effective registration statement covering the Shares or the Warrants, as the case may be, such Investor will sell, transfer, or otherwise dispose of the Shares or the Warrants, as the case may be, only in a manner consistent with its representations and agreements set forth herein and the terms and conditions set forth in the Registration Rights Agreement. (d) Suitability. Such Investor is an "accredited investor" as such term is defined in Rule 501(a) promulgated pursuant to the 1933 Act; provided, however, that Julian Baker is not an "accredited investor" but has been furnished with all information regarding the Company necessary to make an informed investment decision. (e) Financial Condition. Such Investor's financial condition is such that it is able to bear the risk of holding the Shares for an indefinite period of time and can bear the loss of its entire investment in the Shares. (f) Experience. Such Investor has such knowledge and experience in financial and business matters and in making high risk investments of this type that it is capable of evaluating the merits and risks of the purchase of the Shares. (g) Brokerage. There are no claims for brokerage commissions or finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of such Investor, and such Investor agrees to indemnify and hold the Company harmless against any damages incurred as a result of any such claims. 3.2. Legends. It is understood that the certificates evidencing the Shares will bear substantially the following legends: - 11 - 12 (a) "These securities have not been registered under the Securities Act of 1933. They may not be sold, offered for sale, pledged or hypothecated (i) in the absence of a registration statement in effect with respect to the securities under such Act, (ii) or an opinion of counsel satisfactory to the Corporation that such registration is not required or (iii) unless sold pursuant to an exemption from registration under such Act." (b) Any legend required by the Registration Rights Agreement or the laws of any other applicable jurisdiction. 4. Conditions to the Investors' Obligations at the Closing. The obligations of each of the Investors, severally and not jointly, under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions unless waived by each of the Investors in accordance with Section 9.5 hereof: 4.1. Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true and correct on and as of the date of the Closing. 4.2. Proceedings; Documents; Officer's Certificate. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to each of the Investors and such Investor's counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 4.3. Other Agreements. The Registration Rights Agreement substantially in the form of Exhibit B attached hereto shall have been executed and delivered by the Company. 4.4. Opinion. The Investors shall have received from Ropes & Gray, counsel for the Company, an opinion dated the Closing Date, in form and substance satisfactory to the Investors and their counsel, to the effect set forth in Exhibit C. 5. Conditions to the Company's Obligations at the Closing. - 12 - 13 The obligations of the Company under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions unless waived by the Company in accordance with Section 9.5 hereof: 5.1. Representations and Warranties. The representations and warranties of the Investors contained in Section 3 shall be true and correct on and as of the date of such Closing. 5.2. Payment of Purchase Price. The Investors shall have delivered payment of the aggregate purchase price of the Units to be purchased by them at the Closing as set forth in Section 1.3. 5.3. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company and Company's counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 6. Affirmative Covenants of the Company. 6.1. Information and Reports to be Furnished by the Company/Inspection. The Company will deliver to each Investor, so long as such Investor holds the Shares or the Warrants or securities exchanged or converted therefor: (a) As soon as available after the close of each of the first three fiscal quarters in each of the Company's fiscal years, the Quarterly Report on Form 10-Q as filed with the SEC. (b) As soon as available, after the end of each fiscal year of the Company, the Company's Annual Report on Form 10-K as filed with the SEC. (c) Promptly upon the sending, making available or filing of the same, all such reports, financial statements and registration statements (other than on Form S-8) as the Company or any subsidiary shall (i) send or make available to its shareholders or to any holder of its long-term indebtedness for borrowed money or (ii) file with the SEC or - 13 - 14 any governmental agency succeeding to the functions of such Commission or with any national securities exchange. (d) Promptly after receipt of any filing made by any third Person with the SEC with respect to the Company, the company shall send a copy of such filing to each Investor. (e) The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act, whether or not it shall be required to do so pursuant to such Sections, and shall comply with all other public information reporting requirements of the SEC from time to time in effect necessary for the availability for an exemption from the registration requirements of the 1933 Act for the sale of any Shares or Warrants, including Rule 144, Rule 144A or any other substituted or comparable rules or regulations. The Company shall also cooperate with each Investor and its successors and assigns in supplying such information as may be necessary to complete and file any information reporting forms currently or hereafter required by the SEC as a condition to the availability of an exemption from the 1933 Act for the sale of any Shares or Warrants. (f) The Company will make available from time to time, but not less frequently than once per month, the Chief Executive Officer and/or the Chief Financial Officer of the Company to respond telephonically or in person to any requests of the Investors regarding the Company's personnel, business, financial, legal, compensation and other data and information concerning the Company. 6.2. Maintenance of Public Market. The Company will not proceed with a program of acquisition of its own Common Stock, initiate a corporate reorganization or recapitalization, or authorize or consent to any action which would have the effect of: (a) removing the Common Stock of the Company from registration with the SEC under the Exchange Act, or -14- 15 (b) reducing substantially or eliminating the public market for shares of Common Stock of the Company, as such public market existed on the date of this Agreement. 7. Termination. 7.1. Events of Termination. This Agreement may be terminated as follows: (a) By mutual written consent of Company and each of the Investors; (b) By either Company or any of the Investors if the Closing does not occur on or before March 20, 1995. 8. Miscellaneous. 8.1. Certain Defined Term. As used in this Agreement, the term "Person" shall mean an individual, corporation, trust, partnership, joint venture, unincorporated organization, government agency or any agency or political subdivision thereof, or other entity. 8.2. Survival of Covenants; Assignability of Rights. All covenants, agreements, representations and warranties of the Company made herein and in the certificates, lists, exhibits, schedules or other written information delivered or furnished to the Investors in connection herewith shall be deemed material and to have been relied upon by the Investors, and shall survive the Closing hereunder and shall bind the Company and its successors and assigns, whether so expressed or not, and, except as provided otherwise in this Agreement, all such covenants, agreements, representations and warranties shall inure to the benefit of each of the Investor's successors and assigns and to transferees of the Shares and Warrants, whether so expressed or not. 8.3. Incorporation by Reference. All exhibits and schedules appended to this Agreement are herein incorporated by reference and made a part hereof. 8.4. Parties in Interest. All covenants, agreements, representations, warranties and undertakings in this Agreement 16 made by and on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. 8.5. Amendments and Waivers. Except as set forth in this Agreement, changes in or additions to this Agreement may be made, or compliance with any term, covenant, agreement, condition or provision set forth herein may be omitted or waived (either generally or in a particular instance and either retroactively or prospectively), upon the written consent of the Company and each of the Investors. 8.6. Governing Law. This Agreement shall be deemed a contract made under the laws of The Commonwealth of Massachusetts and, together with the rights of obligations of the parties hereunder, shall be construed under and governed by the internal laws of such Commonwealth. 8.7. Notices. All notices, requests, consents and demands shall be in writing and shall be personally delivered, mailed, postage prepaid, telecopied or telegraphed, to the Company at: Genome Therapeutics Corp. 100 Beaver Street Waltham, MA 02154 with a copy to: Ropes & Gray One International Place Boston, Massachusetts 02110 Attn: David C. Chapin, Esq. or to the Investors at the addresses set forth below each Investor's name on Schedule I with a copy to: Sidley & Austin One First National Plaza Chicago, IL 60603 Attn: David R. Sawyier, Esq. 17 or such other address as may be furnished in writing to the other parties hereto. All such notices, requests, demands and other communication shall, when mailed (registered or certified mail, return receipt requested, postage prepaid), personally delivered, or telegraphed, be effective three business days after deposit in the mails, when personally delivered, or when delivered to the telegraph company, respectively, addressed as aforesaid, unless otherwise provided herein and, when telecopied, shall be effective upon actual receipt. 8.8. Effect of Headings. The section and paragraph headings herein are for convenience only and shall not affect the construction hereof. 8.9. Entire Agreement. This Agreement and the Exhibits and Schedules hereto, together with any other agreement referred to herein (the "Additional Agreements"), constitute the entire agreement among the Company and the Investors with respect to the subject matter hereof. This Agreement and such Additional Agreements supersede all prior agreements between the parties with respect to the shares purchased hereunder and the subject matter hereof. 8.10 Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. 8.11 Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one and the same instrument. 8.12 Expenses. Each of the parties hereto shall bear and pay its own expenses incurred in connection with the negotiation, preparation and execution of, and the consummation of the transactions contemplated by this Agreement; provided, however, that the Company will reimburse the Investors for not more than $15,000 of the Investor's documented fees and expenses incurred in connection with the transactions contemplated by this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. GENOME THERAPEUTICS CORP. -17- 18 By --------------------------------- Title: BIOTECHNOLOGY VALUE FUND, L.P. By: BVF Partners, L.P., its general partner By: BVF Inc., its general partner By: -------------------------------- Mark N. Lambert, President INVESTMENT 10 L.L.C. By: Grosvenor Multi-Strategy Fund, L.P., Member By: Grosvenor Capital Management, L.P., its general partner By: Grosvenor Capital Management, Inc., its general partner By: -------------------------------- Michael Sacks, Vice President BIOTECH 1 INVESTMENT L.L.C. By: -------------------------------- -18- 19 Michael Sacks, Manager BIOTECH 2 INVESTMENT L.L.C. By: -------------------------------- Michael Sacks, as Custodian for Matthew Sacks, Manager FOUR PARTNERS By --------------------------------- Thomas J. Tisch, as Trustee for The Thomas J. Tisch 1991 Trust, General Partner ----------------------------------- JULIAN C. BAKER -19- 20 Schedule I List of Investors
PURCHASER AMOUNT STOCK WARRANTS Biotechnology Value Fund, L.P $ 635,425.00 261,490 313,788 One Sansome Street San Francisco, CA Investment 10 L.L.C $ 272,325.00 112,070 134,484 333 W. Wacker Dr. #1600 Chicago, IL 60606 Biotech 1 Investment L.L.C $ 859,187.24 373,560 0 333 W. Wacker Dr. #1600 Chicago, IL 60606 Biotech 2 Investment L.L.C $ 48,562.76 0 448,272 333 W. Wacker Dr. #1600 Chicago, IL 60606 Four Partners $ 225,000.00 92,590 111,108 667 Madison Ave New York, NY Julian Baker $ 25,000.00 10,290 12,348 667 Madison Ave New York, NY ------------- ------- --------- TOTAL: $2,065,500.00 850,000 1,020,000
EX-10.26 3 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.26 GENOME THERAPEUTICS CORP. REGISTRATION RIGHTS AGREEMENT This AGREEMENT (the "Agreement") is made as of March 20, 1995 by and among Genome Therapeutics Corp., a Massachusetts corporation (the "Company") and the persons whose names are set forth on Schedule I hereto (the "Investors"). WHEREAS, the Investors have purchased, and the Company has issued and sold to the Investors, (i) 850,000 shares (the "Shares") of the Company's Common Stock, $.10 par value (the "Common Stock"), (ii) warrants to purchase 1,020,000 shares of Common Stock; such warrants ("Warrants") entitle their holder to purchase one share (subject to adjustment) of Common Stock for the price of $2.43 upon exercise of each such Warrant; NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. Registration Rights. 1.1. Definitions. (a) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act of 1933, as amended (the "1933 Act"), and the automatic effectiveness or the declaration or ordering of effectiveness of such registration statement; (b) "Registrable Securities" means (i) the Common Stock issued or issuable upon conversion or exercise of the Warrants, whether or not such other shares of Common Stock are owned by the Investors, (ii) the Shares and all Common Stock now or hereafter owned by the Investors which are acquired otherwise than upon conversion or exercise of Warrants so long as such shares or other shares of Common Stock are held by the Investors, and (iii) any shares of Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, option, right, or 2 other security which is issued as) a stock dividend, stock split or other distribution with respect to, or in exchange for or in replacement of, the shares described in (i) and (ii) above; provided, however, that shares of Common Stock shall only be treated as Registrable Securities if and so long as they have not been (x) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (y) sold in a transaction exempt from the registration and prospectus delivery requirements of the 1933 Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect to such Common Stock are removed upon the consummation of such sale. (c) The number of shares of Registrable Securities outstanding at any time shall be determined by adding the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which upon issuance would be, Registrable Securities; (d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.12 hereof; (e) The terms "Form S-1," "Form S-3," "Form S-4" and "Form S-8" mean such respective forms under the 1933 Act as in effect on the date hereof or any successor registration forms to Form S-1, Form S-3, Form S-4 and Form S-8, respectively, under the 1933 Act subsequently adopted by the Securities and Exchange Commission ("SEC"). 1.2. Request for Registration. (a) If the Company shall receive a written request from the Holder or Holders of at least thirty percent (30%) of all Registrable Securities then outstanding that the Company effect the registration under the 1933 Act (including, if available, a registration pursuant to Rule 415 or a successor rule or regulation under the 1933 Act) of all or any portion of shares of Registrable Securities held by such requesting Holder or Holders, then the Company shall, within five days of the receipt thereof, give written -2- 3 notice of such request to all Holders and shall, subject to the limitations of this Section 1.2, use its best efforts to effect such a registration as soon as practicable and in any event to file within 90 days of the receipt of such request a registration statement under the 1933 Act covering all the Registrable Securities which the Holders shall in writing request (given within 20 days of receipt of the notice given by the Company pursuant to this Section 1.2(a)) to be included in such registration and to use its best efforts to have such registration statement become effective. (b) If the requesting Holder or Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in subsection 1.2(a). In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. The Holders of a majority of the shares of Registrable Securities to be sold in such offering shall select an underwriter or underwriters, subject to the approval of the Company, which approval shall not be unreasonably withheld. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(d)) enter into an underwriting agreement in customary form with the selected underwriter or underwriters. The Company shall be entitled to include in any Registration Statement referred to in this Section 1.2, for sale in accordance with the method of disposition specified by the requesting Holders, shares of Common Stock to be sold by the Company for its own account, except as and to the extent that, in the opinion of the managing underwriter, if any, such inclusion would adversely affect the marketing, including, without limitation, the price or timing of the sale, of the Registrable Securities to be sold. Notwithstanding any other provision of this Section 1.2, if, in the case of a registration requested pursuant to Section 1.2(a), the underwriter advises the Holders of Registrable Securities to -3- 4 be sold in the offering and the Company in writing that marketing factors require a limitation of the number of shares to be underwritten, then the number of Registrable Securities that may be included in the underwriting shall be allocated pro rata among all Holders thereof desiring to participate in such underwriting (according to the number of Registrable Securities requested to be included in such registration) except that, if the maximum number of Registrable Securities which such underwriter advises the Holders and the Company is limited to less than 80% of all Registrable Securities requested to be registered, the Holders desiring to participate in such underwriting may elect to abandon such registration and withdraw such request. Except for registration statements on Form S-4, S-8 or any successor thereto, the Company will not file with the SEC any other registration statement with respect to its Common Stock or securities convertible into or exchangeable for Common Stock, whether for its own account or that of other stockholders, for 180 days from the date of commencement of distribution of Registrable Securities pursuant to the Registration Statement. No Registrable Securities requested by a Holder to be included in a registration pursuant to Section 1.2(a) shall be excluded from the underwriting unless all securities other than Registrable Securities (including any proposed to be included by the Company) are first excluded. (c) The Company is obligated to effect only two registrations pursuant to Section 1.2(a); provided, however, that no registration of Registrable Securities which shall not have become and remained effective in accordance with Section 1.4 hereof shall be deemed to be a registration for any purpose of this sentence; provided further, however, that if a registration is withdrawn on the instructions of the Holders of a majority of the Registrable Securities in such registration, if such Registrable Securities are more than 80% of all Registrable Securities outstanding, it shall be deemed a registration for purposes of this sentence unless and until the Company is reimbursed in full for all of its expenses incurred in connection with such registration. -4- 5 (d) Notwithstanding the foregoing, (i) the Company shall not be obligated to effect the filing of a registration statement pursuant to this Section 1.2 during the 180 days following the effective date of a registration statement pertaining to the underwritten public offering of equity securities for the account of the Company, or (ii) the Company shall be entitled to postpone for up to 180 days the filing of any registration statement otherwise required to be prepared and filed pursuant to this Section 1.2, if the Board determines, in its good faith reasonable judgment (with the concurrence of the managing underwriter, if any), that such registration of Registrable Securities contemplated thereby would materially interfere with, or require premature disclosure of, any financing (including an underwritten public offering of equity securities or securities convertible into equity securities), acquisition or reorganization involving the Company or any of its wholly owned subsidiaries and the Company promptly gives the Holders requesting such registration notice of such determination; provided, however, that the Company may not utilize the right set forth in subsection (d)(ii) more than once in any twenty-four period. 1.3. Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its equity securities (or, in the case of a registration pursuant to Rule 415 under the 1933 Act, any securities) under the 1933 Act in connection with the public offering of such securities solely for cash (other than a registration on Form S-8 or any successor form relating solely to the sale of securities to participants in a Company stock plan, or a registration on Form S-4 or any successor form), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of any Holder given within 20 days after mailing of such notice by the Company the Company any shall, subject to the provisions of Section 1.8, use its best efforts to cause a registration statement covering all of the Registrable Securities that each such Holder has requested to be registered to become effective under the 1933 Act. The Company shall be under no obligation to complete any offering of its securities it proposes to make and shall incur no liability to any Holder for its failure to do so. -5- 6 1.4. Obligations of the Company. Whenever required under this Section 1 to use its best efforts to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to 180 days, or, in the case of a registration statement filed pursuant to Rule 415, or a successor rule or regulation, under the 1933 Act, up to two years, or until the Holders have informed the Company in writing that the distribution of their securities has been completed; and shall: (a) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement, and use its best efforts to cause each such amendment to become effective, as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such registration statement; (b) Furnish to the Holders such reasonable number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the 1933 Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them; (c) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdiction; (d) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing -6- 7 underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement, including furnishing any opinion of counsel concerning such Holder as is reasonably requested by the managing underwriter; (e) Notify each Holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto covered by such registration statement is required to be delivered under the 1933 Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and promptly file such amendments and supplements which may be required pursuant to subparagraph (a) of this Section 1.4 on account of such event and use its best efforts to cause each such amendment and supplement to become effective; (f) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters on the date that the registration statement with respect to such securities becomes effective, (i) an opinion or opinions, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given by company counsel to the underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountant of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities; -7- 8 (g) Apply for listing and use its best efforts to list the Registrable Securities being registered on any national securities exchange on which a class of the Company's equity securities is listed or, if the Company does not have a class of equity securities listed on a national securities exchange, apply for qualification and use its best efforts to qualify the Registrable Securities being registered for inclusion on the automated quotation system of the National Association of Securities Dealers, Inc.; and (h) Without in any way limiting the types of registrations to which this Section 1 shall apply, in the event that the Company shall effect a "shelf registration" under Rule 415 promulgated under the 1933 Act, the Company shall take all necessary action, including, without limitation, the filing of post-effective amendments, to permit the Holders to include their Registrable Securities in such registration in accordance with the terms of this Section 1. 1.5. Obligations of Holders. (a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 in respect of the Registrable Securities of any selling Holder that such selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. (b) The Holders of Registrable Securities included in any registration statement filed pursuant to this Section 1 will not (until further notice) effect sales thereof after receipt of telegraphic or written notice from the Company to suspend sales pursuant to such registration statement to permit the Company to correct or update such registration statement or prospectus, but the obligations of the Company with respect to maintaining any registration statement current and effective shall be extended by a period of days equal to the period such suspension is in effect. -8- 9 (c) At the end of any period during which the Company is obligated to keep any registration statement filed pursuant to this Section 1 current and effective pursuant to this Agreement, the Holders of Registrable Securities included in such registration statement shall discontinue sales of Registrable Securities pursuant to the registration statement upon receipt of written notice from the Company of its intention to remove from registration the Registrable Securities covered by such registration statement that remain unsold, and such Holders shall notify the Company of the number of Registrable Securities that remain unsold promptly after receipt of such notice from the Company. 1.6. Expenses of Demand Registration. All expenses other than underwriting discounts and commissions relating to Registrable Securities incurred in connection with each registration, filing or qualification pursuant to Section 1.2(a), including all registration, filing and qualification fees, printing and accounting fees, and fees and disbursements of counsel for the Company and one counsel for the Holders participating in such registration shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2(a) if the registration request is subsequently withdrawn at any time at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless (a) such registration request is withdrawn by Holders because the maximum number of Registrable Securities is limited by the underwriters to less than 80% of all Registrable Securities requested to be registered as permitted by Section 1.2(b), or (b) the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2(a); provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition (financial or other), business, properties, or prospects of the Company from that known to the Holders of a majority of the Registrable Securities then outstanding at the time of their request that makes the proposed offering unreasonable in the good faith judgment of the Holders of a majority of the Registrable Securities then the Holders shall not be required to pay any of such expenses and the right to one demand registration pursuant to Section 1.2(a) shall not be -9- 10 forfeited. Underwriting discounts and commissions relating to Registrable Securities will be borne and paid ratably by the Holders of such Registrable Securities. 1.7. Expenses of Company Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.13), including, without limitation, all registration, filing and qualification fees, printing and accounting fees, fees and disbursements of counsel for the Company and one counsel for the Holders participating in such registration. Underwriting discounts and commissions relating to Registrable Securities will be borne and paid ratably by the Holders of such Registrable Securities. 1.8. Underwriting Requirements. In connection with any offering involving an underwriting of securities being issued by the Company, the Company shall not be required under Section 1.3 to include any of the Holders' Registrable Securities in such underwriting unless such Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it. If the managing underwriter for the offering shall advise the Company in writing that the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities to be sold other than by the Company that can be successfully offered, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the managing underwriter believes will not jeopardize the success of the offering. The securities to be excluded shall be as follows: all securities other than those to be included by the Company for its own account and other than those which the Holders seek to include in the offering shall be excluded from the offering to the extent limitation on the amount of securities included in the underwriting is required. If further limitation on the amount of securities to be included in the underwriting is required, then the number of Registrable Securities held by Holders that may be included in the underwriting shall be reduced pro rata among the selling Holders in accordance with the number of Registrable -10- 11 Securities requested to be included in registration by such Holders. 1.9. Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) The Company will indemnify and hold harmless each Holder, the officers, directors, partners, agents and employees of each Holder, any underwriter (as defined in the 1933 Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the 1933 Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the 1933 Act, the 1934 Act or any state securities law in connection with any matter relating to such registration statement. The Company will reimburse each such Holder, officer, director, partner, agent, employee, underwriter or controlling person for any legal or other expenses reasonably incurred, and as incurred, by them in connection with investigating or defending any such loss, claim, damage, liability, or action. The indemnity agreement contained in this subsection 1.9(a) shall not apply to amounts paid in settlement of any loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be -11- 12 unreasonably withheld), nor shall the Company be liable to a Holder in any such case for any such loss, claim, damage, liability, or action (i) to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter or controlling person or (ii) in the case of a sale directly by a Holder of Registrable Securities (including a sale of such Registrable Securities through any underwriter retained by such Holder to engage in a distribution solely on behalf of such Holder), such untrue statement or alleged untrue statement or omission or alleged omission was contained either (i) in a document distributed by such Holder that was not authorized by the Company or (ii) in a preliminary prospectus and corrected in a final or amended prospectus, if such Holder failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the Registrable Securities to the person asserting any such loss, claim, damage or liability in any case where such delivery is required by the Securities Act; provided, however, that this indemnity shall not be deemed to relieve any underwriter of any of its due diligence obligations. (b) The Company may require, as a condition to including any Registrable Securities in any registration statement, that the Company shall have received an undertaking from the prospective selling Holder that such selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the 1933 Act, each agent and any underwriter for the Company, and any other Holder selling securities in such registration statement or any of its directors, officers, partners, agents or employees or any person who controls such Holder or underwriter, against any losses, claims, damages, or liabilities (joint or several) to which the Company or any such director, officer, controlling person, agent, or underwriter or controlling person, or other such Holder or director, officer or controlling person may become subject, under the 1933 Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities -12- 13 (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred, and as incurred, by the Company or any such director, officer, controlling person, agent or underwriter or controlling person, other Holder, officer, director, partner, agent, employee, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the liability of any Holder hereunder shall be limited to the amount of net proceeds (after deduction of all underwriters' discounts and commissions and all other expenses paid by such Holder in connection with the registration in question) received by such Holder, in the offering giving rise to the Violation; and provided further that the indemnity agreement contained in this subsection 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld nor, in the case of a sale directly by the Company of its securities (including a sale of such securities through any underwriter retained by the Company to engage in a distribution solely on behalf of the Company), shall the Holder be liable to the Company in any case in which such untrue statement or alleged untrue statement or omission or alleged omission was contained in a preliminary prospectus and corrected in a final or amended prospectus, and the Company failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the securities to the person asserting any such loss, claim, damage or liability in any case where such delivery is required by the 1933 Act. (c) Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the -13- 14 commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume and control the defense thereof with counsel mutually satisfactory to the parties; provided, however, that if the Indemnifying Party elects to assume and control the defense thereof, such Indemnifying Party shall be deemed to have assumed all liability with respect to such action and accepted all liability with respect to such claim thereunder; provided, further, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests, as reasonably determined by either party, between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.9 to the extent of such prejudice, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9. (d) If the indemnification provided for in this Section 1.9 is unavailable to a party that would have been an indemnified party under such Section in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each party that would have been an indemnifying party thereunder shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in -14- 15 respect thereof) in such proportion as is appropriate to reflect the relative fault of such indemnifying party on the one hand and such indemnified party on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof). The relative fault shall be determined by reference to, among other things, whether the Violation relates to information supplied by such indemnifying party or such indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Violation. The parties agree that it would not be just and equitable if contribution pursuant to this Section 1.9(e) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the preceding sentence. The amount paid or payable by a contributing party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 1.9(d) shall include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The liability of any Holder of Registrable Securities in respect of any contribution obligation of such Holder (after deduction of all underwriters' discounts and commissions and all other expenses paid by such Holder in connection with the registration in question) arising under this Section 1.9(e) shall not in any event exceed an amount equal to the net proceeds to such Holder from the disposition of the Registrable Securities disposed of by such Holder pursuant to such registration. 1.10. Reports Under 1934 Act. (a) Resales Under Rule 144; Form S-3 Registration. With a view to making available to the Holders the benefits of Rule 144 promulgated under the 1933 Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration, and with a view to making it possible for Holders to register the Registrable Securities pursuant to a registration on Form S-3, the Company agrees to: -15- 16 (i) use its best efforts to make and keep public information available, as those terms are understood and defined in Rule 144; (ii) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act; and (iii) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, or as to its qualification as a registrant whose securities may be resold pursuant to Form S-3, (ii) a copy of the most recent annual, quarterly and current reports of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any Registrable Securities without registration or pursuant to such form. 1.11. Lock-up Agreements. If requested by the Company and the managing underwriter, the Holders agree to enter into lock-up agreements pursuant to which they will not, for a specified period not to exceed 180 days following the effective date of a registration statement, offer, sell or otherwise dispose of the Registrable Securities, except the Registrable Securities sold pursuant to such registration statement, without the prior consent of the Company and the underwriter, provided that each officer and director of the Company enter such lock-up agreements for the same period and on the same terms. 1.12. Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned by any Holder to a permitted transferee, and by such transferee to a subsequent permitted transferee, but only if such rights are transferred (i) to an affiliate, partner or stockholder of such Holder or transferee or (ii) in connection with the sale or other transfer of Registrable Securities. Any transferee to whom rights under this Agreement are transferred shall (a) as a condition to such transfer, deliver to the Company a written instrument by which such transferee agrees to be bound by the obligations imposed upon Holders under this Agreement to the same extent as if she, he or it were a Holder under this Agreement -16- 17 and (b) be deemed to be a Holder hereunder. 2. Miscellaneous. 2.1. Legend. Each certificate representing Registrable Securities shall state therein: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF MARCH 20, 1995 BY AND AMONG THE CORPORATION AND THE INVESTORS NAMED THEREIN, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE CORPORATION. 2.2. Notices. All notices, requests, consents and demands shall be in writing and shall be personally delivered, mailed, postage prepaid, telecopied or telegraphed, to the Company at: Genome Therapeutics Corp. 100 Beaver Street Waltham, MA 02154 Attn: Mr. Fenel M. Eloi with a copy to: Ropes & Gray One International Place Boston, MA 02110-2624 Attn: David C. Chapin, Esq. If to the Investors, at the addresses set forth below their names on Schedule I hereto with a copy to: Sidley & Austin One First National Plaza Chicago, IL 60603 Attn: David R. Sawyier, Esq. -17- 18 or such other address as may be furnished in writing to the other parties hereto. All such notices, requests, demands and other communications shall, when mailed (registered mail, return receipt requested, postage prepaid), personally delivered, or telegraphed, be effective four days after deposit in the mails, when personally delivered, or when delivered to the telegraph company, respectively, addressed as aforesaid, unless otherwise provided herein and, when telecopied, shall be effective upon actual receipt. 2.3. Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the matters contemplated herein. This Agreement supersedes any and all prior understandings or agreements as to the subject matter of this Agreement. 2.4. Amendments, Waivers and Consents. Any provision in this Agreement to the contrary notwithstanding, changes in or additions to this Agreement may be made, and compliance with any covenant or provision herein set forth may be omitted or waived, if the Company (i) shall obtain consent thereto in writing from persons holding or having the right to acquire in the aggregate a majority of the Registrable Securities then outstanding and (ii) shall, in each such case, deliver copies of such consent in writing to any holders who did not execute the same. Notwithstanding the foregoing, any amendment to this Agreement which materially adversely affects the rights or substantially increases the obligations of any Holder of Registrable Securities and which does not also affect all other holders either to the same degree or in proportion to the amount of Registrable Securities held by each of them shall require the consent of such adversely affected Holder. 2.5. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the personal representatives, successors and permitted assigns of the respective parties hereto. The Company shall not have the right to assign its obligations hereunder or any interest herein without obtaining the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, provided in accordance with Section 2.4, other than in connection with the merger of the Company with or into another entity or the sale of all or substantially all of the Company's assets. -18- 19 2.6. General. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. In this Agreement the singular includes the plural, the plural, the singular, the masculine gender includes the neuter, masculine and feminine genders. This Agreement shall be governed by and construed under the internal laws of The Commonwealth of Massachusetts. 2.7. Severability. If any provisions of this Agreement shall be found by any court of competent jurisdiction to be invalid or unenforceable, the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable. Such provision shall, to the maximum extent allowable by law, be modified by such court so that it becomes enforceable, and, as modified, shall be enforced as any other provision hereof, all the other provisions hereof continuing in full force and effect. 2.8. Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one and the same instrument. 2.9. Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least a majority of the then outstanding Registrable Securities enter into any agreement with any holder or prospective holder of any securities of the Company which would: (i) allow such holder or prospective holder to include such securities in any registration filed under Section 1.2(a) hereof if such inclusion would adversely affect the rights of any Holder of Registrable Securities hereunder; or (ii) permit such holder or prospective holder pursuant to Section 1.3 to "piggyback" on a senior basis on a registration statement filed with respect to the Company's securities. 2.10. Remedies. Each Holder of Registrable Securities, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the -19- 20 defense in any action for specific performance that a remedy of law would be adequate. -20- 21 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer, and the Investors have duly executed this Agreement (or has caused it to be executed by a duly authorized officer, partner, trustee or agent, as the case may be), as of the date first above recited. GENOME THERAPEUTICS CORP. By: --------------------------------------------- Robert J. Hennessey, President and Chief Executive Officer BIOTECHNOLOGY VALUE FUND, L.P. By: BVF Partners, L.P., its general partner By: BVF Inc., its general partners By: --------------------------------------------- Mark N. Lampert, President INVESTMENT 10 L.L.C. By: Grosvenor Multi-Strategy Fund, L.P., Member By: Grosvenor Capital Management, L.P., its general partner By: Grosvenor Capital Management, Inc., its general partner By: --------------------------------------------- Michael Sacks, Vice President 22 BIOTECH 1 INVESTMENT L.L.C. By: --------------------------------------------- Michael Sacks, Manager BIOTECH 2 INVESTMENT L.L.C. By: --------------------------------------------- Michael Sacks, as Custodian for Matthew Sacks, Manager FOUR PARTNERS By: --------------------------------------------- Thomas J. Tisc, as Trustee for The Thomas J. Tisch 1991 Trust, General Partner ------------------------------------------------ Julian C. Baker 23 Schedule I List of Investors
PURCHASER AMOUNT STOCK WARRANTS Biotechnology Value Fund, L.P $ 635,425.00 261,490 313,788 One Sansome Street San Francisco, CA Investment 10 L.L.C $ 272,325.00 112,070 134,484 333 W. Wacker Dr. #1600 Chicago, IL 60606 Biotech 1 Investment L.L.C $ 859,187.24 373,560 0 333 W. Wacker Dr. #1600 Chicago, IL 60606 Biotech 2 Investment L.L.C $ 48,562.76 0 448,272 333 W. Wacker Dr. #1600 Chicago, IL 60606 Four Partners $ 225,000.00 92,590 111,108 667 Madison Ave New York, NY Julian Baker $ 25,000.00 10,290 12,348 667 Madison Ave New York, NY ------------- ------- --------- TOTAL: $2,065,500.00 850,000 1,020,000
EX-10.27 4 FORM OF WARRANT 1 EXHIBIT 10.27 Form of Stock Purchase Warrant This Warrant and any shares acquired upon the exercise of this Warrant have not been registered under the Securities Act of 1933, as amended, and may not be transferred, sold, offered for sale, hypothecated or otherwise disposed of (i) in the absence of a registration statement in effect with respect to the securities under such Act, or (ii) an opinion of counsel satisfactory to the Company that such registration is not required or (iii) pursuant to an exemption from registration under said Act. This Warrant and any shares acquired upon the exercise of this warrant are subject to the provisions of a Registration Rights Agreement dated as of March 20, 1995 by and among the Company and the investors named therein, a copy of which is on file at the offices of the Company. GENOME THERAPEUTICS CORP. Common Stock Purchase Warrant No. W-___ March 20, 1995 GENOME THERAPEUTICS CORP., a Massachusetts corporation (the "Company"), for value received, hereby certifies that __________________________________________ the "Investor") or registered and permitted assigns, is entitled to purchase from the Company ______________ duly authorized, validly issued, fully paid and nonassessable shares of Common Stock, $.10 par value per share (the "Common Stock"), of the Company at the purchase price per share of $2.43 (the "Initial Warrant Price"), at any time or from time to time prior to 5:00 P.M., New York City time, on 2 March 20, 2000 (the "Expiration Date"), all subject to the terms, conditions and adjustments set forth below in this Warrant. This Common Stock Purchase Warrant is issued pursuant to the Stock and Warrant Purchase Agreement dated as of March 20, 1995 between the Company and the Investor. Certain capitalized terms used in this Warrant are defined in Section 10 hereof. 1. EXERCISE OR CONVERSION OF WARRANT. 1.1. Manner of Exercise or Conversion; Payment. 1.1.1. Exercise. This Warrant may be exercised by the holder hereof, in whole or in part, during normal business hours on any business day on or prior to the Expiration Date, by surrender of this Warrant to the Company at its office maintained pursuant to Section 9.2(a) hereof, accompanied by an exercise notice in substantially the form attached to this Warrant (or a reasonable facsimile thereof) duly executed by such holder and accompanied by payment, in cash or by check payable to the order of the Company, in the amount obtained by multiplying (a) the number of shares of Common Stock designated in such subscription by (b) the Warrant Price (as defined in Section 2.1 hereof), and such holder shall thereupon be entitled to receive the number of shares of Common Stock determined as provided in Section 2 hereof. 1.1.2. Conversion. This Warrant may be converted by the holder hereof, in whole or in part, into shares of Common Stock, during normal business hours on any business day on or prior to the Expiration Date, by surrender of this Warrant to the Company at its office maintained pursuant to Section 9.2(a) hereof, accompanied by a conversion notice in substantially the form attached to this Warrant (or a reasonable facsimile thereof) duly executed by such holder, and such holder shall thereupon be entitled to receive the same number of shares of Common Stock that such holder would receive if the Warrant were being exercised pursuant to Section 1.1.1 for the number of shares designated in the -2- 3 conversion notice minus a number of shares equal to (x) the Warrant Price multiplied by (y) the number of shares designated in the conversion notice divided by (z) the Current Market Price. For all purposes of this Warrant (other than this Section 1.1), any reference herein to the exercise of this Warrant shall be deemed to include a reference to the conversion of this Warrant into Common Stock in accordance with the terms of this Section 1.1.2. 1.2. When Exercise Effective. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the business day on which this Warrant shall have been surrendered to the Company as provided in Section 1.1 hereof, and at such time the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such exercise as provided in Section 1.3 hereof shall be deemed to have become the holder or holders of record thereof. 1.3. Delivery of Stock Certificates, etc. As soon as practicable after each exercise of this Warrant, in whole or in part, and in any event within five business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof or, subject to Section 7 hereof, as such holder (upon payment by such holder of any applicable transfer taxes) may direct: (a) a certificate or certificates for the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock to which such holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash in an amount equal to the same fraction of the Market Price per share on the business day next preceding the date of such exercise; and (b) in case such exercise is in part only, a new Warrant or Warrants of like tenor, dated the date hereof and calling in the aggregate on the face or faces thereof for the number of shares of Common Stock equal (without giving -3- 4 effect to any adjustment thereof) to the number of such shares called for on the face of this Warrant minus the number of such shares designated by the holder upon such exercise as provided in Section 1.1 hereof. 2. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE. 2.1. General; Number of Shares; Warrant Price. The number of shares of Common Stock which the holder of this Warrant shall be entitled to receive upon each exercise hereof shall be determined by multiplying the number of shares of Common Stock which would otherwise (but for the provisions of this Section 2) be issuable upon such exercise, as designated by the holder hereof pursuant to Section 1.1 hereof, by the fraction of which (a) the numerator is the Initial Warrant Price and (b) the denominator is the Warrant Price in effect on the date of such exercise. The "Warrant Price" shall initially be the Initial Warrant Price, shall be adjusted and readjusted from time to time as provided in this Section 2 and, as so adjusted or readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by this Section 2. 2.2. Adjustment of Warrant Price. Except as provided in Section 2.6, in case the Company at any time or from time to time after the date hereof shall issue or sell Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 2.3 or 2.4 hereof) without consideration or for a consideration (determined pursuant to Section 2.5 hereof) per share less than the lesser of (i) the Warrant Price in effect immediately prior to such issue or sale or (ii) the Current Market Price, then, and in each such case, subject to Section 2.8 hereof, such Warrant Price shall be reduced, concurrently with such issue or sale, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Warrant Price by a fraction: (a) the numerator of which shall be (i) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (ii) the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of such Additional Shares of Common Stock so issued or sold would purchase at such Warrant Price -4- 5 or Current Market Price, as the case may be; and (b) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale. 2.3. Treatment of Options and Convertible Securities. Except as provided in Section 2.6, in case the Company at any time or from time to time after the date hereof shall issue, sell, grant or assume, or shall fix a record date for the determination of holders of any class of securities entitled to receive any Options or Convertible Securities, then, and in each such case, the maximum number of Additional Shares of Common Stock (as determined in accordance with the instrument(s) and other documents relating thereto) at any time issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue, sale, grant or assumption or, in case such a record date shall have been fixed, as of the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading); provided, however, that such Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 2.5 hereof) of such shares would be less than the lesser of (i) the Warrant Price then in effect or (ii) the Current Market Price on the date of and immediately prior to such issue, sale, grant or assumption or immediately prior to the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), as the case may be; and provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued: (a) no further adjustment of the Warrant Price shall be made upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consequent issue or sale of Convertible Securities or shares of Common Stock; (b) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for -5- 6 any increase in the consideration payable to the Company, or decrease in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Warrant Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, which are outstanding at such time; (c) upon the expiration (or purchase by the Company and cancellation or retirement) of any such Options which shall not have been exercised, or the expiration of any rights of conversion or exchange under any such Convertible Securities which (or purchase by the Company and cancellation or retirement of any such Convertible Securities the rights of conversion or exchange under which) shall not have been exercised, the Warrant Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon (and effective as of) such expiration (or such cancellation or retirement, as the case may be), be recomputed as if: (i) in the case of Options or Convertible Securities, the only Additional Shares of Common Stock issued or sold were the Additional Shares of Common Stock, if any, actually issued or sold upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company for (A) the issue, sale, grant or assumption of all such Options, whether or not exercised, plus the consideration actually received by the Company upon such exercise, or for (B) the issue or sale of all such Convertible Securities which were actually converted or exchanged, plus the additional -6- 7 consideration, if any, actually received by the Company upon such conversion or exchange, and (ii) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued or sold upon the exercise of such Options were issued at the time of the issue, sale, grant or assumption of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have then been issued was the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Company (pursuant to Section 2.5 hereof) upon the issue or sale of such Convertible Securities with respect to which such Options were actually exercised; and (d) no readjustment pursuant to clause (b) or (c) above (either individually or cumulatively together with all prior readjustments as made in respect of such Options or Convertible Securities) shall have the effect of increasing the Warrant Price to a price higher than the Warrant Price that would have been in effect if such Options or Convertible Securities had never been issued, and in any event no such readjustment shall have the effect of increasing the Warrant Price to an amount greater than the Initial Warrant Price. If the consideration provided for in any Option or the additional consideration, if any, payable upon the conversion or exchange of any Convertible Security shall be reduced, or the rate at which any Option is exercisable or any Convertible Security is convertible into or exchangeable for shares of Common Stock shall be increased, at any time under or by reason of provisions with respect thereto designed to protect against dilution, by agreement of the parties or otherwise, then, effective concurrently with each such change, the Warrant Price then in effect shall first be adjusted to eliminate the effects (if any) of the issuance (or deemed issuance) of such Option or Convertible Security on the Warrant Price and then readjusted as if such Option or Convertible Security had been issued on the date of such change with the terms in effect after such change, but only -7- 8 if as a result of such adjustment the Warrant Price then in effect hereunder is thereby reduced. 2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the Company at any time or from time to time after the date hereof shall declare or pay any dividend on the Common Stock payable in Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then, and in each such case, Additional Shares of Common Stock shall be deemed to have been issued (a) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective. 2.5. Computation of Consideration. For the purposes of this Section 2: (a) the consideration for the issue or sale of any Additional Shares of Common Stock shall, irrespective of the accounting treatment of such consideration: (i) insofar as it consists of cash, be computed at the amount of cash paid for such Additional Shares of Common Stock, without deduction for any expenses paid or incurred by the Company or any commissions or compensations paid or concessions or discounts allowed to underwriters, dealers or others performing similar services in connection with such issue or sale; (ii) insofar as it consists of property (including securities) other than cash actually received by the Company, be computed at the fair value thereof at the time of such issue or sale, as determined in good faith by the Board of Directors of the Company; (iii) insofar as it consists neither of cash nor of other property, be computed as having no value; and -8- 9 (iv) in case Additional Shares of Common Stock are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be the portion of such consideration so received, computed as provided in clauses (i), (ii) and (iii) above, allocable to such Additional Shares of Common Stock, all as determined in good faith by the Board of Directors of the Company; Whenever the Board of Directors of the Company shall be required to make a determination in good faith of any allocation or the fair value of any item under this Section 2.5(a), such determination may be challenged in good faith by the holder of any Warrant, and any dispute shall be resolved by an investment banking or appraisal firm of recognized national standing selected by the Company and acceptable to the holders of Warrants representing a majority of the number of shares of Common Stock issuable upon all such Warrants. The decision of such investment banking or appraisal firm shall be binding on the Company and all holders of Warrants. The fees and expenses of such investment bank or appraisal firm shall be borne one-half by the Company and one-half by the holders of the Warrants challenging such good faith determination. (b) Additional Shares of Common Stock deemed to have been issued pursuant to Section 2.3 hereof shall be deemed to have been issued for a consideration per share determined by dividing: (i) the total amount of cash and other property, if any, received and receivable by the Company as direct consideration for the issue, sale, grant or assumption of the Options or Convertible Securities in question, plus the minimum aggregate amount of additional consideration (as determined in accordance with the instrument(s) and other documents relating thereto) payable to the Company upon the exercise in full of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, in each case computing such consideration as provided in the -9- 10 foregoing clause (a), by (ii) the maximum number of shares of Common Stock (as determined in accordance with the instrument(s) and other documents relating thereto) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities; and (c) Additional Shares of Common Stock deemed to have been issued pursuant to Section 2.4 hereof shall be deemed to have been issued for no consideration. 2.6. Company Benefit Plans. No adjustment in the Warrant Price shall be made pursuant to this Section 2 in connection with the issuance or sale of Additional Shares of Common Stock, Options or Convertible Securities to employees or directors of, or consultants to, the Company or any of its subsidiaries in connection with their employment or their provision of services to the Company or any of its Subsidiaries; provided that: (i) such Additional Shares of Common Stock, Options or Convertible Securities are issued pursuant to stock based incentive plans or agreements approved by the Board of Directors and shareholders of the Company and (ii) immediately following the issuance of any such Additional Shares of Common Stock, Options and Convertible Securities the sum of (A) the total number of Additional Shares of Common Stock issued pursuant to this Section 2.6 or to which this Section 2.6 would have applied if this Warrant had been outstanding at the time of issuance thereof (including any shares of Common Stock issued upon exercise of any Options or Convertible Securities issued pursuant to this Section 2.6 or to which this Section 2.6 would have applied if this Warrant has been outstanding at the time of issuance of such Options or Convertible Securities) and (B) the maximum number of shares of Common Stock issuable upon exercise of any Options or Convertible Securities issued pursuant to this Section 2.6 or to which this Section 2.6 would have applied if this Warrant had been outstanding at the time of issuance of such Options and Convertible Securities that are still outstanding at the time of determination will not exceed 4,000,000 shares (subject to adjustment for any stock dividend, stock split, reverse split or similar combination or subdivision of the Common Stock subsequent -10- 11 to March 15, 1995). 2.7. Adjustments for Combinations, etc. In case the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Warrant Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. 2.8. Minimum Adjustment of Warrant Price. If the amount of any adjustment of the Warrant Price required pursuant to this Section 2 would be less than one-tenth (1/10) of one percent (1%) of the Warrant Price in effect at the time such adjustment is otherwise so required to be made, such amount shall be carried forward and adjustment with respect thereto made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least one tenth (1/10) of one percent (1%) of such Warrant Price. 2.9. Shares Deemed Outstanding. For all purposes of the computations to be made pursuant to this Section 2, (i) there shall be deemed to be outstanding all shares of Common Stock issuable pursuant to the exercise of Options and conversion of Convertible Securities outstanding upon the Closing (including without limitation this Warrant, or any Options or Convertible Securities outstanding after the Closing and referred to in Section 2.6), but only to the extent that the exercise price of such Options or the conversion price of such Convertible Securities is less than or equal to the Market Price then in effect, (ii) immediately after any Additional Shares of Common Stock are deemed to have been issued pursuant to Section 2.3 or 2.4 hereof, such Additional Shares shall be deemed to be outstanding if the result of such deemed issuance was a reduction in the Warrant Price then in effect (provided that if such reduction is subsequently reversed pursuant to Section 2.3(b) or (c), such Additional Shares of Common Stock shall thereafter no longer be deemed to be outstanding under this clause (ii)), (iii) treasury shares shall not be deemed to be outstanding and (iv) no adjustment shall be made in the Warrant Price upon the issuance of shares of Common Stock pursuant to Options and Convertible Securities so deemed to be outstanding, but this -11- 12 Section 2.9 shall not prevent other adjustments in the Warrant Price arising by virtue of such outstanding Options or Convertible Securities pursuant to the provisions of Section 2.3 hereof; provided, however, that, for purposes of calculating adjustments to the Warrant Price, there shall be deemed to be outstanding (subject to the limitations set forth in clauses (i) and (ii) above) immediately after giving effect to any issuance of shares of Common Stock, Options or Convertible Securities all shares of Common Stock issuable upon the exercise of Options and conversion of Convertible Securities then outstanding (including without limitation the Warrants) after giving effect to antidilution provisions contained in all such outstanding Options and Convertible Securities which cause an adjustment in the number of shares of Common Stock so issuable, either by virtue of such issuance of shares of Common Stock, Options or Convertible Securities or by virtue of the operation of such antidilution provisions. 2.10. Other Dilutive Events. In case any event shall occur as to which the other provisions of this Section 2 are not strictly applicable but as to which the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles hereof (including, without limitation, the issuance of securities other than Common Stock which have the right to participate in distributions to the holders of Common Stock, or the granting of "phantom stock" rights or "stock appreciation rights"), then, in each such case, the holders of Warrants representing a majority of the number of shares of Common Stock issuable upon exercise of all such Warrants may appoint an independent investment bank or firm of independent public accountants reasonably acceptable to the Company, which shall give their opinion as to the adjustment, if any, on a basis consistent with the essential intent and principles established herein, necessary to preserve the purchase rights represented by the Warrants. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the holder of this Warrant and shall make the adjustments described therein. The fees and expenses of such investment bank or independent public accountants shall be borne one-half by the Company and one-half by the holders of the Warrants requesting such opinion. 3. CONSOLIDATION, MERGER, ETC. In case the Company after the -12- 13 date hereof (a) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (b) shall permit any other Person to consolidate with or merge into the Company and the Company shall be the continuing or surviving Person but, in connection with such consolidation or merger, the Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (c) shall transfer all or substantially all of its properties or assets to any other Person, or (d) shall effect a capital reorganization or reclassification of the Common Stock (other than a capital reorganization or reclassification to the extent that such capital reorganization or reclassification results in the adjustment in the Warrant Price as provided in Section 2.2 hereof), then, and in the case of each such transaction, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Warrant, the holder of this Warrant, upon the exercise hereof at any time at or prior to the consummation of such transaction, shall be entitled to receive (at the aggregate Warrant Price in effect at the time of such consummation, for all Common Stock issuable upon such exercise immediately prior to such consummation in each case after giving effect to the resulting adjustment under Section 2 above), in lieu of the Common Stock issuable upon such exercise, the greatest amount of securities, cash or other property to which such holder would actually have been entitled as a stockholder of record of the Company with respect to such transaction. 4. NO IMPAIRMENT. The Company will not, by amendment of its articles of organization or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against dilution or other impairment. 5. REPORT AS TO ADJUSTMENTS. In each case of any adjustment or readjustment in the Warrant Price and/or in the shares of Common Stock issuable upon the exercise of this Warrant, the Company at its expense will promptly compute such adjustment or readjustment -13- 14 in accordance with the terms of this Warrant and prepare a report setting forth such adjustment or readjustment and showing in reasonable detail the method of calculation thereof and the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Warrant Price in effect immediately prior to such issue or sale and as adjusted and readjusted (if required by Section 2 hereof) on account thereof. The Company will forthwith mail a copy of each such report to the holder of this Warrant and will, upon the written request at any time of any holder of this Warrant, furnish to such holder a like report setting forth the Warrant Price at the time in effect and showing in reasonable detail how it was calculated. The Company will also keep copies of all such reports at its office maintained pursuant to Section 9.2(a) hereof and will cause the same to be available for inspection at such office during normal business hours by any holder of this Warrant or any prospective purchaser of a Warrant designated by the holder thereof. 6. NOTICES OF CORPORATE ACTION. In the event of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger involving the Company and any other Person or any transfer of all or substantially all the assets of the Company to any other Person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, the Company will mail to each holder of a Warrant a notice specifying (i) the date or expected date on which any such record -14- 15 is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right and (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, the time, if any such time is to be fixed, as of which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up and a description in reasonable detail of the transaction. Such notice shall be mailed to the extent practicable at least 15 days prior to the date therein specified. 7. RESTRICTIONS ON TRANSFER. 7.1. Restrictive Legends. Except as otherwise permitted by this Section 7, each certificate for Common Stock issued upon the exercise of any Warrant, each certificate issued upon the direct or indirect transfer of any such Common Stock, each Warrant issued upon direct or indirect transfer or in substitution for any Warrant pursuant to Section 9 hereof shall be transferable only upon satisfaction of the conditions specified in this Section 7 and shall be stamped or otherwise imprinted with legends in substantially the form appearing at the beginning of this Warrant. 7.2. Notice of Proposed Transfer; Opinion of Counsel. Prior to any transfer of any Restricted Securities, the holder thereof will give written notice to the Company of such holder's intention to effect such transfer and to comply in all other respects with this Section 7.2. Each such notice shall describe the manner and relevant circumstances of the proposed transfer. If in the opinion of counsel for the holder, which opinion is reasonably acceptable to the Company and its counsel, the proposed transfer may be effected without registration of such Restricted Securities under the Securities Act, such holder shall thereupon be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by such holder to the Company. 7.3. Termination of Restrictions. Except as set forth in -15- 16 the proviso to this sentence, the restrictions imposed by this Section 7 upon the transferability of Restricted Securities shall cease and terminate as to any particular Restricted Securities (a) when such Restricted Securities shall have been effectively registered under the Securities Act, or (b) when, in the opinion of counsel for the holder thereof, which opinion is reasonably acceptable to the Company and its counsel, such restrictions are no longer required in order to insure compliance with the Securities Act. Whenever any restrictions on transferability imposed by this Section 7 shall cease and terminate as to any Restricted Securities, the holder thereof shall be entitled to receive from the Company, without expense (other than applicable transfer taxes, if any), new securities of like tenor not bearing the applicable legend or legends required by Section 7.1 hereof. 8. RESERVATION OF STOCK, ETC. The Company will at all times reserve and keep available, solely for issuance and delivery upon exercise of this Warrant, the number of shares of Common Stock from time to time issuable upon exercise of this Warrant. All shares of Common Stock issuable upon exercise of this Warrant shall be duly authorized and, when issued upon such exercise, shall be validly issued and, in the case of shares, fully paid and nonassessable with no liability on the part of the holders thereof. At any such time as the Common Stock is listed on any national securities exchange or NASDAQ, the Company will, at its expense, obtain promptly and maintain the approval for listing on each such exchange or NASDAQ, upon official notice of issuance, the shares of Common Stock issuable upon exercise of this Warrant and maintain the listing of such shares after their issuance. 9. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS. 9.1. Ownership of Warrants. The Company may treat the person in whose name this Warrant is registered on the register kept at the office of the Company maintained pursuant to Section 9.2(a) hereof as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary. 9.2. Office; Transfer and Exchange of Warrants. (a) The Company will maintain an office (which may be an agency maintained at a bank) at 100 Beaver Street, Waltham, MA 02154 where notices, presentations and demands -16- 17 in respect of this Warrant may be made upon it. Such office shall be maintained at until such time as the Company shall notify the holder of this Warrant of any change of location of such office. (b) The Company shall cause to be kept at its office maintained pursuant to Section 9.2(a) hereof a register for the registration and transfer of this Warrant. The name and address of the holder of this Warrant, the transfers thereof and the names and addresses of transferees of this Warrant shall be registered in such register. (c) Upon the surrender of this Warrant, properly endorsed, for registration of transfer or for exchange at the office of the Company maintained pursuant to Section 9.2(a) hereof, the Company at its expense will (subject to compliance with Section 7 hereof, if applicable) execute and deliver to or upon the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered. 9.3. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of indemnity reasonably satisfactory to the Company in form and amount or, in the case of any such mutilation, upon surrender of this Warrant for cancellation at the office of the Company maintained pursuant to Section 9.2(a) hereof, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor and dated the date hereof. 9.4. Division or Combination. This Warrant may be divided or combined with other Warrants upon presentation hereof at the office of the Company maintained pursuant to Section 9.2(a) hereof, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the holder hereof or its agent or attorney. Subject to compliance with the provisions of this Warrant as to any transfer -17- 18 which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 10. DIVIDENDS. In the event that the Company at any time or from time to time after March 20, 1995 shall declare, order, pay or make a dividend or distribution in respect of its Common Stock, whether payable in cash, evidences of indebtedness or other securities or property (other than a stock dividend subject to the provisions of Section 2.4 above), then upon any exercise of this Warrant the Company shall pay to the holder hereof the amount of cash, and shall deliver to the holder hereof in kind the evidences of indebtedness, securities or other property, that would have been payable or deliverable with respect to each share of Common Stock being purchased upon such exercise (including, in the event of a conversion of this Warrant pursuant to Section 1.1.2 above, any shares of Common Stock being subtracted from the number of shares that would otherwise be issuable upon exercise hereof) if such shares of Common Stock had been outstanding as of the record date for such dividend or distribution. In connection with the delivery to the holder hereof of any such evidences of indebtedness, securities or other property, the Company shall also pay or deliver to such holder any interest, dividends or other payments that the holder of this Warrant would have received had such holder continuously held such evidences of indebtedness, securities or other property from the date of the related dividend payment or distribution until the date of exercise of this Warrant. 11. DEFINITIONS. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: Additional Shares of Common Stock: All shares (including treasury shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4 hereof, deemed to be issued) by the Company after the date hereof, whether or not subsequently reacquired or retired by the Company, other than the shares of Common Stock issued upon the exercise of this Warrant. Closing: The time of the closing of the purchase by the Investor of this Warrant and 850,000 shares of the Common Stock -18- 19 of the Company as provided in that certain Stock and Warrant Purchase Agreement dated as of March 20, 1995 between the Company and the Investor. Common Stock: As defined in the introduction to this Warrant, such term includes any stock into which such Common Stock shall have been changed or any stock resulting from any reclassification of such Common Stock. Common Stock will include any stock and other securities of the Company or any other Person which the holder of this Warrant at any time shall be entitled to receive, or shall have received, upon the exercise of this Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock pursuant to Section 3 hereof or otherwise. Company: Genome Therapeutics Corp., a Massachusetts corporation. Convertible Securities: Any evidences of indebtedness, shares of stock (other than Common Stock) or other securities directly or indirectly convertible into or exchangeable for Additional Shares of Common Stock. Current Market Price: On any date specified herein, the average daily Market Price during the period of the most recent 30 trading days, ending on such date, except that if no class of the Common Stock is then listed or admitted to trading on any national securities exchange or quoted in the over-the-counter market, the Current Market Price shall be the Market Price on such date. Expiration Date: As defined in the introduction to this Warrant. Investors: Those persons identified as investors on Schedule I hereto. Market Price: On any date specified herein, the amount per share of Common Stock equal to (a) the last sale price of Common Stock, regular way, on such date or, if no such sale takes place on such date, the average of the closing bid and asked prices thereof on such date, in each case as officially reported on the -19- 20 principal national securities exchange on which Common Stock is then listed or admitted to trading, or (b) if Common Stock is not then listed or admitted to trading on any national securities exchange but is designated as a national market system security by the NASD, the last trading price of Common Stock on such date, or (c) if there shall have been no trading on such date or if Common Stock is not so designated, the average of the closing bid and asked prices of Common Stock on such date as shown by the NASD automated quotation system, or (d) if Common Stock is not then listed or admitted to trading on any national exchange or quoted in the over-the-counter market, the fair value thereof determined in good faith by the Board of Directors of the Company as of the date as of which the determination is to be made; provided that such determination of fair value may be challenged in good faith by the holder of any Warrant, and any dispute shall be resolved by an investment banking or appraisal firm of recognized national standing selected by the Company and acceptable to the holders of Warrants representing a majority of the number of shares of Common Stock issuable upon all such Warrants. The decision of such investment banking or appraisal firm shall be binding on the Company and all holders of Warrants. The fees and expenses of such investment bank or appraisal firm shall be borne one-half by the Company and one-half by the holders of the Warrants challenging such good faith determination. NASD: The National Association of Securities Dealers, Inc. Options: Rights, options or warrants to subscribe for, purchase or otherwise acquire either Additional Shares of Common Stock or Convertible Securities. Person: A corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency. Restricted Securities: All of the following: (a) any Warrant bearing the applicable restricted securities legend referred to in Section 7.1 hereof, (b) any shares of Common Stock which have been issued upon the exercise of any Warrant and which are evidenced by a certificate or certificates bearing the applicable restricted securities legend referred to in such Section, (c) unless the context otherwise requires, any shares of -20- 21 Common Stock which are at the time issuable upon the exercise of any Warrant and which, when so issued, will be evidenced by a certificate or certificates bearing the applicable restricted securities legend referred to in such Section. Securities Act: The Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder of the Securities and Exchange Commission or any successor federal agency, all as the same shall be in effect at the time. Warrant Price: As defined in Section 2.1 hereof. Warrants: This Warrant and any warrant of like tenor issued pursuant to the Purchase Agreement, upon partial exercise of any such Warrant in accordance with Section 1.3 hereof, upon transfer or exchange of any such Warrant in accordance with Section 9.2 hereof or upon replacement of any such Warrant in accordance with Section 9.3 hereof. 12. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof any rights as a stockholder of the Company or as imposing any obligation on such holder to purchase any securities or as imposing any liabilities on such holder as a stockholder of the Company, whether such obligation or liabilities are asserted by the Company or by creditors of the Company. 13. NOTICES. Any notice or other communication in connection with this Warrant shall be deemed to be delivered if in writing (or in the form of a telex or telecopy) addressed as hereinafter provided and if either (x) actually delivered at said address (evidenced in the case of a telex by receipt of the correct answerback) or (y) in the case of a letter, three business days shall have elapsed after the same shall have been deposited in the United States mails, postage prepaid and registered or certified: (a) if to any holder of this Warrant, at the registered address of such holder as set forth in the register kept at the office of the Company maintained pursuant to Section 9.2(a) hereof; or (b) if to the Company, to the attention of its President at its office maintained pursuant to Section 9.2(a) hereof; provided, however, that the exercise of this Warrant shall be effective in the manner provided in -21- 22 Section 1 hereof. [Remainder of page intentionally left blank]. -22- 23 14. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of The Commonwealth of Massachusetts. The section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof. IN WITNESS WHEREOF, GENOME THERAPEUTICS CORP. has caused this Common Stock Purchase Warrant to be signed by its duly authorized officer under its corporate seal. GENOME THERAPEUTICS CORP. By: -------------------------------------- Title: 24 Schedule I List of Investors
PURCHASER WARRANTS Biotechnology Value Fund, L.P 313,788 One Sansome Street San Francisco, CA Investment 10 L.L.C 134,484 333 W. Wacker Dr. #1600 Chicago, IL 60606 Biotech 1 Investment L.L.C 0 333 W. Wacker Dr. #1600 Chicago, IL 60606 Biotech 2 Investment L.L.C 448,272 333 W. Wacker Dr. #1600 Chicago, IL 60606 Four Partners 111,108 667 Madison Ave New York, NY Julian Baker 12,348 667 Madison Ave New York, NY --------- TOTAL: 1,020,000
25 FORM OF EXERCISE NOTICE [To be executed only upon exercise of Warrant] To GENOME THERAPEUTICS CORP. The undersigned registered holder of the within Warrant hereby irrevocably exercises such Warrant for, and purchases thereunder, __________(1) shares of the Common Stock covered by the within Warrant and herewith makes payment in full therefor of $_____ per share or $_______ in the aggregate, and requests that the certificates for such shares be issued in the name of, and delivered to , whose address is Dated: ----------------------------------------- (Name) ----------------------------------------- (Title) ----------------------------------------- (Corporation) ----------------------------------------- (Street Address) - -------------- (1) Insert here the number of shares called for on the face of this Warrant (or, in the case of a partial exercise, the portion thereof as to which this Warrant is being exercised), in either case without making any adjustment in the number of shares (or securities, cash or property) to be delivered upon exercise pursuant to the adjustment provisions of this Warrant. In the case of a partial exercise, a new Warrant or Warrants will be issued and delivered, representing the unexercised portion of the Warrant, to the holder surrendering the Warrant. 26 ----------------------------------------- (City) (State) (Zip Code) 27 FORM OF CONVERSION NOTICE [To be executed only upon conversion of Warrant] To GENOME THERAPEUTICS CORP. The undersigned registered holder of the within Warrant hereby irrevocably converts such Warrant with respect to __________(1) shares of the Common Stock covered by the within Warrant which such holder would be entitled to receive upon the exercise hereof, and requests that the certificates for such shares be issued in the name of, and delivered to , whose address is Dated: ----------------------------------------- (Name) ----------------------------------------- (Title) ----------------------------------------- (Corporation) ----------------------------------------- (Street Address) ----------------------------------------- (City) (State) (Zip Code) - -------------- (1) Insert here the number of shares called for on the face of this Warrant (or, in the case of a partial conversion, the portion thereof as to which this Warrant is being converted), in either case without making any adjustment in the number of shares (or securities, cash or other property) to be delivered upon conversion pursuant to the adjustment provisions of this Warrant. In the case of a partial conversion, a new Warrant or Warrants will be issued and delivered, representing the unconverted portion of the Warrant, to the holder surrendering the Warrant. 28 FORM OF ASSIGNMENT [To be executed only upon transfer of Warrant] For value received, the undersigned registered holder of the within Warrant hereby sells, assigns and transfers unto the right represented by such Warrant to purchase __________(1) shares of Common Stock of GENOME THERAPEUTICS CORP. to which such Warrant relates, and appoints Attorney to make such transfer on the books of GENOME THERAPEUTICS CORP. maintained for such purpose, with full power of substitution in the premises. Dated: ----------------------------------------- (Street Address) ----------------------------------------- (City) (State) (Zip Code) Signed in the presence of: ----------------------------------------- (Name) - -------------------------- ----------------------------------------- (Title) ----------------------------------------- (Corporation) - -------------- (1) Insert here the number of shares called for on the face of this Warrant (or, in the case of a partial assignment, the portion thereof as to which this Warrant is being assigned), in either case without making any adjustment in the number of shares (or securities, cash or other property) to be delivered upon assignment pursuant to the adjustment provisions of this Warrant. In the case of a partial assignment, a new Warrant or Warrants will be issued and delivered, representing the unassigned portion of the Warrant, to the holder surrendering the Warrant. EX-10.28 5 AGREEMENT WITH ASTRA HASSLE AB 1 * Confidential Treatment Requested EXHIBIT 10.28 AGREEMENT Agreement dated as of August 31, 1995 by and between ASTRA HASSLE AB, Karragatan 5, S-431 83 Molndal, Sweden (hereinafter referred to as "ASTRA") and GENOME THERAPEUTICS CORPORATION, 100 Beaver Street, Waltham, MA 02154 USA (hereinafter referred to as "GTC"). 1. BACKGROUND 1.1 ASTRA is the inventor of, and possesses, patents and other rights referable to a pharmaceutical speciality with the non proprietary name OMEPRAZOLE for the treatment of acid related diseases, such as ulcer. Observations have been made that there is a connection between ulcer disease and Helicobacter Spp. ASTRA is engaged in research seeking development of eradication therapies for Helicobacter spp and is in possession of certain genomic sequence information related to Helicobacter SPP. 1.2 GTC is involved in Helicobacter spp research, and has developed a Helicobacter Data Base and GTC Helicobacter Technology (as those terms are defined below). 1.3 ASTRA and GTC desire to enter into a collaboration based on the Helicobacter Data Base of GTC and on GTC Helicobacter Technology to develop a pharmaceutical product and/or Vaccine and/or diagnostic product effective against gastrointestinal infection or any other disease caused by Helicobacter spp. For the purpose of this collaboration ASTRA and GTC have jointly agreed upon a research plan, attached hereto as Exhibit 1. 2. DEFINITIONS 2.1 The terms "ASTRA" and "GTC" as used in this Agreement shall include any corporation or other entity worldwide directly or indirectly controlled by, controlling, or under common control with, ASTRA and GTC, respectively, and for such purpose control shall mean the direct or indirect ownership of at least fifty percent (50%) of the voting interest in such corporation or other entity or the power to direct the management of such corporation or other entity. 2 * Confidential Treatment Requested 2.2 The term "CPI" as used in this Agreement shall mean the Consumer Price Index for all Urban Consumers (1982-1984=100) issued by the Bureau of Labor Statistics of the United States Department of Labor or its successor index. 2.3 The term "Effective Date" as used in this Agreement shall mean the date first above written. 2.4 The term "GTC Helicobacter Technology" as used in this Agreement shall have the meaning set forth in Article 5. 2.5 The term "Helicobacter Data Base" as used in this Agreement shall mean GTC's Helicobacter Spp DNA sequence data base and any and all electronic and hard copy data related thereto. 2.6 The terms "Pharmaceutical Product", "Vaccine Product" and "Diagnostic Product", as used in this Agreement shall have the meanings set forth in Article 4.5. 2.7 The term "Product" as used in this Agreement shall mean collectively Pharmaceutical Product, Vaccine Product and Diagnostic Product or any one or more of them and Pharmaceutical Product, Vaccine Product and Diagnostic Product shall each be a "Product Category". 2.8 The term "Research Collaboration" as used in this Agreement shall mean the collaboration to be performed under the Research Plan. 2.9 The term "Research Plan" as used in this Agreement shall mean the research plan attached hereto as Exhibit 1, hereto, as subsequently amended, improved or modified from time to time. 2.10 The term * as used in this Agreement shall have the meaning set forth in Article 6. 2.11 The term "Resulting Technology" as used in this Agreement shall have the meaning set forth in Article 6. 2.12 The term "Software Technology" as used in this Agreement shall have the meaning set forth in Article 7. 2.13 The term "Vaccine" as used in this Agreement shall mean an infectious agent or component(s) thereof administered to a human being or other mammals in order to elicit a protective or therapeutic specific immune response against an infectious agent; such agent or component(s) does also include synthetic or recombinantly produced antigens or epitopes or genetic material encoding corresponding antigens or epitopes. 2.14 The grant of a license on an exclusive basis means that the licensor may not use or exploit the licensed technology itself nor grant a third party such rights. 2 3 * Confidential Treatment Requested 3. RESEARCH COLLABORATION 3.1 GTC undertakes to use all reasonable efforts to perform the tasks assigned to it according to the Research Plan. 3.2 For the purpose of the Research Collaboration , the parties shall establish: a A JOINT MANAGEMENT COMMITTEE responsible for the management and coordination of the Research Collaboration consisting of two representatives of senior management from each party. The chairman will be designated by ASTRA from among the four representatives. Decisions will be taken by majority vote except that in the case of a deadlock the Chairman shall cast the deciding vote. Material changes in the Research Plan shall be subject to the approval of the Joint Management Committee. In the event the Joint Management Committee shall approve a change of direction and/or scope of the Research Collaboration and such change would in the absence of additional funding have an adverse economic impact upon GTC, the parties agree to negotiate in good faith an increase in the funding to be provided hereunder by ASTRA so as to avoid such adverse economic impact upon GTC and GTC shall not be required to incur any additional expense until such agreement is in place. b A JOINT RESEARCH COMMITTEE responsible for the day to day activities consisting of three representatives from each party with the possibility to call in additional members on an ad hoc basis. In case it is not possible to reach consensus, the issue will be decided by the Joint Management Committee. 3.3 During the term of this Agreement, GTC shall not, * , without ASTRA's prior written consent given at its own discretion. However, GTC may search and otherwise access all its databases including Helicobacter spp and utilize information with respect thereto in its other research programs provided (i) GTC * and (ii) * . 3.4 ASTRA has disclosed to GTC prior to the execution of this Agreement certain ongoing research collaborations with third parties involving Helicobacter spp. ASTRA may enter into further collaborations related to Helicobacter spp with other parties and GTC is prepared to collaborate with such parties, reasonably acceptable to GTC, on behalf of ASTRA. 3 4 * Confidential Treatment Requested 4. REMUNERATION 4.1 As the entire consideration of all services rendered and rights granted under this Agreement, ASTRA shall pay to GTC the compensation specified in this Article 4. 4.2 a) A non-refundable license fee of * to be paid upon the Effective Date of this Agreement in same day federal funds * payable to GTC hereunder. b) A non-accountable non-refundable allowance of * in reimbursement of capital and other expenditures incurred, or to be incurred, by GTC in connection with the Research Collaboration payable upon the Effective Date of this Agreement in same day federal funds. c) A research incentive fee of * to be paid within thirty (30) days after GTC shall have notified ASTRA that scientists of GTC engaged in the Research Collaboration have devoted not less than * man-years to such research but in no event earlier than * . 4.3 a) Research support of * per man-year in reimbursement of scientists of GTC actually engaged in the Research Collaboration payable in advance of each quarter to which the same is attributable based upon reasonable estimates (but after giving effect to any debit or credit balance at the end of the prior period). Within thirty (30) days following the end of each quarter, GTC shall provide ASTRA with a written statement specifying the scientists performing Research Collaboration and the time devoted thereto by each of them during the preceding quarter and a calculation of the amount due for such quarter and the debit or credit balance at the end of such quarter. GTC will provide, and ASTRA will support, a minimum of * scientist man- years for the first twelve (12) month period following the Effective Date, a minimum of * scientist man-years for the ensuing twelve (12) month period and a minimum of * scientist man-years for the subsequent six (6) month period. The number of scientist man-years in excess of the minimum shall be subject to the approval of ASTRA. The scientific man-years for any period specified above or subsequently agreed upon, if any, shall be spread during the period in such manner as may be reasonably required by the normal course of the Research Collaboration. It is the expectation of the parties that approximately * of the scientist man-years for any such period shall be in relation to * . b) ASTRA shall reimburse GTC for each scientist engaged in the Research Collaboration terminated by GTC for customary out of pocket severance expense for a period not exceeding six (6) months incurred by GTC as a result of any reduction requested by ASTRA in 4 5 * Confidential Treatment Requested the number of man-years required under this Agreement provided that ASTRA's responsibility for severance for each twelve (12) month period following the Effective Date shall not exceed a number of scientists equal to the aggregate decrease in the number of scientist man-years for such year and further provided that ASTRA shall have no responsibility for the first three scientists terminated during such year. In order to avoid scientist being terminated by GTC as aforesaid GTC shall use all reasonable efforts to find other tasks for scientists detached from the Research Collaboration. c) In order to make possible the control of the calculations and payments provided for in this 4.3, the records of the scientist performing Research Collaboration are open to inspection within two (2) years after the end of each calendar year by an independent certified public accountant engaged and paid by ASTRA and to whom GTC shall have no reasonable objection. Such accountant shall either confirm the accuracy of the statement by GTC or provide the necessary correction thereto but he shall not otherwise disclose any records or other information. In the event that any such inspection shows an over- reporting and overpayment GTC shall repay any additional sum that would not have been payable had GTC reported correctly, plus interest at the rate of 1.5% per month and, if such overpayment is in excess of five percent (5%) for any twelve (12) month period, GTC shall pay the cost of such examination as well. 4.4 MILESTONE PAYMENTS if and when the following events occur payable within thirty (30) days after occurrence of the respective event. However in relation to items a) (i)-(ii) below ASTRA shall pay the respective amount thirty (30) days following the receipt by ASTRA of a written statement from GTC confirming the occurrence of the event, supported by adequate documents reflecting the results of such events in reasonable detail.
a) Pharmaceutical Vaccine Product Product *
5 6 * Confidential Treatment Requested * b) Diagnostic Product *
6 7 * Confidential Treatment Requested *
For the purpose of 4.4 b) * . 4.5 (a) "PHARMACEUTICAL PRODUCT" shall mean only such pharmaceutical product (whether related to Helicobacter Spp or not) as (i) * described under Article 4.4 a) (i) above or (ii) satisfies the definition set forth in (d) below. (b) "VACCINE PRODUCT" shall mean only such Vaccine (whether related to Helicobacter Spp or not) as (i) * under Article 4.4 a) (ii) above or (ii) satisfies the definition set forth in (d) below. "Therapeutic Vaccine Product" shall mean a Vaccine Product documented for therapeutic use. "Prophylactic Vaccine Product" shall mean a Vaccine Product documented for prophylactic use. (c) "DIAGNOSTIC PRODUCT" shall mean only such diagnostic product (whether related to Helicobacter Spp or not) as (i) * specified in Article 4.4 b) (i)-(iii) or (ii) satisfies the definition set forth in (d) below. (d) In addition to the above items (a) - (c) the terms Pharmaceutical Product, Vaccine Product and Diagnostic Product shall comprise any product (whether related to Helicobacter Spp or not) (i) protected by the claims of (x) a valid product patent of GTC * where such patent has been licensed to ASTRA under this Agreement on an exclusive basis or (y) other patent of GTC covering any technology licensed to ASTRA under this Agreement * or (ii) containing * in the case of a Pharmaceutical Product or * in the case of a Vaccine Product or Diagnostic Product * 7 8 * Confidential Treatment Requested * The milestone payments set forth in 4.4 a) (i) through (v) shall be payable only once in each Product Category. The milestone payments set forth in 4.4 b) (i) through (iii), shall be payable * . All other milestone payments shall be payable * A Product shall be different from another Product if its mechanism of action is different and/or it is covered by a different product patent. 4.6 (a) ASTRA shall pay to GTC a royalty on Net Sales of: (i) each Pharmaceutical Product and each Therapeutic Vaccine Product sold in the amount of * for cumulative Net Sales of less than * and * of cumulative Net Sales of * or more, and * (ii) each Diagnostic Product and Prophylactic Vaccine Product sold in the amount of * for cumulative Net Sales of less than * and * of cumulative Net Sales of * * or more. The above Net Sales amounts shall be cumulative so long as a royalty is payable hereunder with respect to each Product. Commencing on the first anniversary of the Effective Date the above amounts of * and * and all amounts payable to GTC hereunder after the first anniversary of the Effective Date shall be adjusted annually by multiplying such amounts by the fraction CPI current / CPI 1995 where CPI current equals the CPI most recently published prior to anniversary of the Effective Date in the applicable year, and CPI 1995 equals the CPI for the month in which the Effective Date shall occur. (b) In the event that ASTRA is (i) paying a royalty to a third party with respect to the sale of a Product * (ii) * then Net Sales of such Product for the purpose of computing royalties shall be reduced by * provided that reduction of Net Sales because of payment of a royalty shall not result in a reduction of the royalty otherwise payable 8 9 * Confidential Treatment Requested to GTC in an amount in excess of the royalty to the third party and further provided that any such reduction shall continue only so long as such royalty is being paid. (c) In the event ASTRA should grant a sublicense for a Product to a third party, ASTRA shall pay to GTC * (i) * of payments from such sublicensee (net of withholding taxes to the extent ASTRA receives no credit therefor) in the nature of license fees, milestone payments, royalties or otherwise in consideration of the sublicense which can be in cash as well as property (tangible or intangible) and/or services to the extent it represents the excess over the then fair market value of the property (tangible or intangible) and/or services exchanged therefore. In the event that ASTRA is (x) paying a royalty to a third party with respect to the sale of a Product * (y) * then the payment to GTC under (i) shall be * of the payment from such sublicense; provided that reduction of the amount payable to GTC because of payment of a royalty shall not exceed the royalty actually paid to the third party and further provided that any such reduction shall continue only so long as such royalty is being paid. * (ii) the royalty amount that would have been payable hereunder on the Net Sales of such sublicensee if its sales of the Product had been sold by ASTRA. For the purpose of (ii) the Net Sales of a licensee shall be cumulative with the Net Sales of ASTRA for the same Product and the royalty reduction provisions of 4.6(b) shall apply. 9 10 * Confidential Treatment Requested Payment to GTC shall be made within forty-five (45) days after receipt by ASTRA of the payment from the sublicensee to which the same is attributable and adjustments, if necessary, shall be made when the Net Sales of the sublicensee have been determined. ASTRA shall furnish GTC with a complete and accurate copy of each sublicense-contract regarding technology licensed hereunder by GTC to ASTRA not less than ten (10) days after the execution thereof. With respect to each such sublicense, ASTRA shall furnish to GTC the same reports that ASTRA receives from such sublicensee regarding any payment from such sublicensee to ASTRA with respect to which GTC is entitled to a payment from ASTRA hereunder. GTC agrees to keep each sublicense-contract and the related reports confidential and use the same only for the purpose of verifying the accuracy of payments made by ASTRA to GTC hereunder. If a sublicensee is compensating ASTRA in other than cash then the payment to GTC shall be based upon the then fair market value thereof. (d) The term "Net Sales" as used herein shall mean the actual gross selling prices charged by ASTRA for the Products in bona fide sales to third parties as per invoices covering the sales of such Products less only the deductions taken by ASTRA to determine its net sales for purposes of the Group Consolidated Statement of Earnings of Astra AB disseminated to its shareholders and the public generally. (e) ASTRA shall for each calendar quarter following the launch of a Product, no later than sixty (60) days following each quarter prepare and mail a statement showing the total Net Sales in respect of which royalties according to this Article 4. are payable. Payments of such royalties shall be effected simultaneously with mailing the statement. Such statements shall contain at least the following information: (i) the number of packages of each Product sold by ASTRA in each country; (ii) the Net Sales and (iii) the amount of royalty due. Such statement shall be certified as by an officer of ASTRA. If no royalties are due to GTC for any reporting period, the written report shall so state. (f) Upon GTC's request ASTRA shall for each Product furnish GTC with a supplement to the statement required in (e) above with respect to the U.S. and one other country to be specified by GTC in its notice of request to ASTRA setting forth each category (eg. freight, insurance, etc.) of the deductions taken by ASTRA from the actual gross selling prices charged by ASTRA for the Products to determine Net Sales to the extent consistent with the then existing bookkeeping for such country and stating the total amount of deductions for each such category. GTC may only make such request once in any twelve month period. Specification by GTC of a particular country in one twelve month period shall not preclude the specification of the same or a different country in another twelve month period. 10 11 * Confidential Treatment Requested (g) ASTRA's obligation to pay royalty and other remunerations set out above in this Article 4.6 shall for each country and each separate Product remain in force for so long as ASTRA is the holder of a valid product patent protecting the respective Product or in case of a Product not protected by a valid product patent of ASTRA until * following the commercial launch of the Product in each country. (h) All payments due hereunder shall be payable in United States dollars. Conversion of foreign currency to U.S. dollars shall be made at the conversion rate existing in the United States (as reported by the Wall Street Journal) on the last working day of each royalty period. Such payments shall be without deduction of exchange, collection or other charges except charges of receiving bank * Late payments shall be subject to an interest charge of one and one half percent (1.5%) per month. (i) If transfer to U.S. dollars is subject to administrative authorization, ASTRA undertakes to file the transfer application with the competent authorities supported by all requisite documentation, and to apply its reasonable efforts to obtain such authorization and effect the remittance within the period laid down above. ASTRA further agrees to effect the transfer within thirty (30) days following the date on which authorization shall have been granted, provided that ASTRA shall not be obligated to pay before the date stipulated above. (j) If for any reason beyond the control of ASTRA the transfer of payments under this Section 4 are not effected within the period hereinabove provided or within such further period of time that GTC may allow, ASTRA shall settle such payments as soon as the impediment has ceased to exist. (k) In order to make possible the control of the calculations and payments provided for in this 4.6, the records of sales of Products entitling GTC to royalty and other payments under this 4.6 are open to inspection within two (2) years after the end of each calendar year by an independent certified public accountant engaged and paid by GTC and to whom ASTRA shall have no reasonable objection. Such accountant shall either confirm the accuracy of the statement by ASTRA or provide the necessary correction thereto but he shall not otherwise disclose any records or other information. In the event that any such inspection shows an under-reporting and underpayment ASTRA shall pay any additional sum that would have been payable to GTC had ASTRA reported correctly, plus interest at the rate of 1.5% per month and, if such underpayment is in excess of five percent (5%) for any twelve (12) month period, ASTRA shall pay the cost of such examination as well 4.7 ASTRA shall pay to GTC within thirty (30) days following the * and each subsequent anniversary of the Effective Date the sum of * as LICENSE MAINTENANCE FEE for the year of the term of this Agreement except that no such payment shall be required for any such year in which (a) 11 12 * Confidential Treatment Requested a milestone payment of at least * is also payable (if a lesser or no milestone is payable, ASTRA may satisfy this condition by paying the difference) or (b) ASTRA is supporting at least * man-years at GTC engaged in the research under this Agreement. In case termination of this Agreement shall become effective on a date not being the anniversary of the Effective Date the above sum of * shall be pro-rated. 4.8 Except as otherwise specifically provided herein, ASTRA shall not be obligated to pay any remuneration to, or to absorb any cost or expenses of, GTC. 5. GTC HELICOBACTER TECHNOLOGY 5.1 GTC hereby grants to ASTRA, and ASTRA accepts, subject to the terms and conditions hereof, under GTC's patents and other intellectual property rights from time to time an exclusive worldwide perpetual, sublicensable license to use and exploit GTC's existing and future (to the extent not included in the Resulting Technology with respect to which ASTRA will * ) Helicobacter spp inventions (patentable or not), products, formulae, processes, techniques, discoveries, improvement, information, data and knowledge, as amended, improved or modified from time to time (herein collectively referred to as "GTC Helicobacter Technology") to develop, research, manufacture, use, sell and distribute pharmaceutical products, Vaccines and diagnostic products (whether related to Helicobacter Spp or not) including, without limitation, Pharmaceutical Products, Vaccine Products and Diagnostic Products. The term GTC Helicobacter Technology shall include, but not be limited to, the Helicobacter Data Base and the elements described in Exhibit 2 hereto. 6. RESULTING TECHNOLOGY 6.1 * any and all inventions (patentable or not), products, formulae; processes, techniques, discoveries, improvements, information, data and knowledge and any other results conceived, developed or generated under the Research Collaboration, as exemplified in Exhibit 3 hereto, (whether related to Helicobacter Spp or not), and all intellectual property and other rights related thereto hereinafter collectively referred to as "Resulting Technology". Although * is "whether related to Helicobacter Spp or not", the parties acknowledge that GTC's obligations with respect to the Research Collaboration are limited to * Helicobacter Spp. Without affecting * to the Resulting Technology the inventorship of all inventions included in Resulting Technology shall be determined in accordance with the patent laws of the United States. * GTC shall be the owner of * and ASTRA shall have under GTC's patents and other intellectual property rights from time to time a non-exclusive * license (but without the right to grant sublicenses * ) to use and exploit the * conceived, developed or generated by GTC as a result of the 12 13 * Confidential Treatment Requested research to be performed under this Agreement to develop, research, manufacture, use, sell and distribute pharmaceutical products, Vaccines and diagnostic products (whether related to Helicobacter Spp or not) including, without limitation, Pharmaceutical Products, Vaccine Products and Diagnostic Products. * 7. ACCESS TO RESULTING TECHNOLOGY AND GTC HELICOBACTER TECHNOLOGY 7.1 Software and components thereof, either existing or developed, needed to pursue searches in the Helicobacter Data Base and to process, interpret or analyze the data therefrom including reconstruction of gene components is herein collectively referred to as "Software Technology". Software Technology does not include any software used in the creation of, as opposed to access to or analysis, processing and interpretation of the Helicobacter Data Base. To the extent Software Technology is proprietary to GTC, ASTRA shall have a non-exclusive, perpetual, worldwide license (but without the right to grant sublicenses * ) to use the same for access to, and analysis, processing and interpretion of, the Helicobacter Data Base and for no other purpose. The Software Technology which is not proprietary to GTC and the Software Technology which is in the public domain is listed in Exhibit 5 hereto. GTC has * ASTRA shall obtain licenses to Software Technology which is not proprietary to GTC at no expense to GTC. 7.2 Promptly following the Effective Date, GTC shall deliver to ASTRA electronic and hard copies of the annotated Helicobacter Data Base as well as an outline of the methodologies and procedures used to obtain data and for sequence analysis. Current updates will be furnished to ASTRA periodically not less than on a monthly basis provided there is information that requires updating. 7.3 ASTRA will also have direct access to raw sequence data via GTC and to other work resulting from the collaboration under this Agreement including, but not limited to, targeted sequencing data, comparative sequence data, gene mapping data, representational difference analysis data, structural modelling data, gene expression and protein expression data, gene mutation data, molecular genetic methodologies and technologies, protein purification procedures, and biochemical and screening assay methodologies. 13 14 * Confidential Treatment Requested 7.4 Upon request and from time to time, ASTRA will also have access to the * conceived, developed or generated by GTC as a result of the research to be performed under this Agreement, the GTC Helicobacter Technology and the Resulting Technology, including, without limitation, (i) samples of all plasmids/E. coli strains carrying these plasmids which have been sequenced and used to construct the Helicobacter Data Base, (ii) provisions of strain which has been sequenced, and access to other Helicobacter strains in GTC collection and (iii) all gene libraries, mutants and vectors constructed, genes subcloned, amplified PCR products, proteins purified under work described in Exhibit 1 "Research Plan" or other work resulting from the collaboration. 7.5 To the extent practicable, ASTRA's access as contemplated by this Article 7 will at all times be via computer network with 24 hours accessibility except for downtime required to maintain or otherwise service the database. Except for access via computer network, ASTRA's access will be during normal business hours and upon reasonable notice granting ASTRA treatment and priority not less favorable than granted to GTC's other collaborators. 8. INTELLECTUAL PROPERTY RIGHTS 8.1 Each party agrees to use all reasonable efforts to see to it that all its employees and other persons engaged by it, are committed in such a way that the rights to the GTC Helicobacter Technology, * Software Technology, to the extent proprietary to GTC, and the Resulting Technology are secured to the effect described in Articles 5.1 and 6.1. 8.2 The procurement, maintenance, defense and actions for infringement of patents and other intellectual property rights related to Resulting Technology and (for so long as ASTRA's license according to Article 5 is on an exclusive basis) GTC Helicobacter Technology, excluding * (the "IP-Rights") are the concern of ASTRA. ASTRA shall handle such matters at its own cost and discretion subject to Articles 8.3 - 8.4: 8.3 GTC shall at ASTRA's expense cooperate fully in the preparation, filing, prosecution, maintenance, defense and actions for infringement of the IP-Rights, executing all papers and instruments and taking other reasonable measures or requiring members of GTC to execute such papers and instruments or to take other reasonable measures so as to enable ASTRA to accomplish the foregoing, Article 8.2, in its own name in any country. Each party shall provide to the other prompt notice as to all substantial matters which come to its attention and which relates to the preparation, filing, prosecution maintenance, defense or infringement of the IP-Rights. 8.4 If ASTRA or its sublicensee elects to commence an action for infringement and GTC is a legally indispensable party to such action, GTC shall have the right to assign to ASTRA all of GTC's right, title and interest in each patent which is the subject of such action. In the event that GTC makes such an assignment, such assignment shall be irrevocable, and such action by 14 15 * Confidential Treatment Requested ASTRA on that patent or patents shall thereafter be brought or continued without GTC as a party. Notwithstanding any such assignment to ASTRA by GTC and regardless of whether GTC is or is not an indispensable party, GTC shall cooperate fully with ASTRA in connection with any such action. In the event that any patent is assigned to ASTRA by GTC, pursuant to this paragraph, such assignment shall require ASTRA to continue to meet its obligations under this Agreement as if the assigned patent or patent application were still licensed to ASTRA. 8.5 No settlement, or consent judgment of any suit to which GTC is a party may be entered into without the consent of GTC, which consent shall not be unreasonably withheld. No consent shall be required if the relief against GTC is solely monetary and ASTRA agrees to hold GTC harmless therefrom. 8.6 Recoveries or reimbursements from actions for infringement as contemplated by this Article 8 shall first be applied to reimburse ASTRA and GTC for litigation costs. Recoveries or reimbursements representing lost sales or profits of a Product shall be shared by ASTRA * and GTC * . Any remaining recoveries or reimbursements representing infringement of GTC Helicobacter Technology shall be shared by ASTRA * and GTC * . Any remaining recoveries or reimbursements representing infringement of Resulting Technology shall be retained by ASTRA. 8.7 In the event that a declaratory judgment action alleging invalidity of any of the GTC Helicobacter Technology shall be brought against ASTRA or GTC, GTC at its sole option, shall have the right to intervene at its own expense subject to ASTRA's right to control the process. 8.8 ASTRA may, at its own discretion, renounce its claims to certain rights included in the IP-Rights, whereupon ASTRA shall have no responsibilities or liabilities in relation to such IP-Rights. ASTRA shall promptly notify GTC of any such renouncement and GTC shall have the option of acquiring such IP-Rights without paying any compensation to ASTRA. 9 CONFIDENTIALITY 9.1 Each party hereby agrees and undertakes to hold and maintain in strict confidence and not disclose to any third party for any reason any information of a confidential nature about the other party's or its collaborators research, development, use manufacture, sale or distribution of products which a party may learn in connection with the activities contemplated by this Agreement and not to use such information for other purposes than performing the Research Collaboration and pursuing to the terms and conditions of this Agreement. Furthermore, ASTRA agrees and undertakes (except with regard to bona fide collaborators bound by obligations of confidentiality similar to those contained herein) to hold and maintain in strict confidence and not disclose to any third party for any reason any information about * . 15 16 * Confidential Treatment Requested The restrictions of confidentiality and use set forth above in this Article 9.1 shall not apply to information: a) which at the time of disclosure is in the public domain; b) which after disclosure becomes part of the public domain by publication or otherwise except by breach of the undertakings hereunder by the receiving party; c) which the receiving party can establish by competent proof was in its possession at the time of disclosure and was not acquired, directly or indirectly, from the disclosing party; d) which the receiving party can establish by competent proof was subsequently developed by the receiving party without access to information of the disclosing party; or e) which the receiving party can establish by competent proof was lawfully received from a third party without restriction on confidentiality. 9.2 * GTC agrees and undertakes to * pursuing to the terms and conditions of this Agreement. 9.3 It is understood that ASTRA shall * if and when GTC should terminate this Agreement pursuant to Article 10.2, 10.3 or 10.7 then ASTRA shall * in accordance with the rules set out in Article 9.1. 9.4 In order to secure the obligations set forth in Article 9 the parties agree to exercise every reasonable precaution to prevent and restrain the unauthorized disclosure and use of information subject to confidentiality, including restricting access to such information to such of its employees as are bound to keep such information confidential and need to have such access for the purpose of this Agreement. 9.5 The undertakings set forth in this Article 9 shall be valid during the term of this Agreement and * years thereafter. 16 17 * Confidential Treatment Requested 10. TERM 10.1 (a) This Agreement shall become effective as of the date first above written and shall, remain in force until terminated as herein provided. This Agreement shall terminate automatically when ASTRA cease to be under an obligation to effect the royalty payments specified in Article 4.6. (b) The Research Collaboration shall become effective as of the date first above written and shall remain in force for a period of * years, provided that ASTRA shall have the right to terminate the Research Collaboration by * prior written notice to GTC given at any time after the * anniversary of the date hereof. Termination of the Research Collaboration contemplated by this Agreement shall have no effect on the term of this Agreement. 10.2 In the event ASTRA fails to make payments due hereunder, GTC shall have the right to terminate this Agreement upon sixty (60) days written notice specifying such failure and its claim of right to terminate, unless ASTRA makes such payments plus interest within the sixty (60) days notice period. If payments are not so made GTC may immediately terminate this Agreement. 10.3 In the event that either party shall be in default in the performance of any of its material obligations under this Agreement (other than as provided in 10.2 above which shall take precedence over any other default), and if the default has not been remedied within ninety (90) days after the date of notice in writing specifying such default and its claim of right to terminate, the other may terminate this Agreement by written notice in addition to any other remedies available to it by law or equity. 10.4 Notwithstanding Articles 10.2 and 10.3 a party shall not have the right to terminate this Agreement in the event the other party has initiated a procedure pursuant to Article 12 to resolve the dispute for which termination is being sought. 10.5 (a) In the event ASTRA any time following the * anniversary of the Effective Date upon request by GTC is unable to reasonably demonstrate that it or its collaborators are [actively] engaged in research, development or commercialization of the GTC Helicobacter Technology or the Resulting Technology, GTC may terminate this Agreement by written notice with the consequences elaborated under Article 11.1 . In making this determination there shall be taken into account the normal course of such programs conducted with sound and reasonable business practices and judgment which have had commercial success. 17 18 * Confidential Treatment Requested (b) Notwithstanding, the diligence required by 10.5 (a) shall not apply for any year of the term of this Agreement in which a milestone payment of at least * is also payable (if a lesser or no milestone is payable, ASTRA may satisfy this condition by paying the difference or all, as the case may be) or ASTRA is supporting at least * man-years at GTC engaged in the research under this Agreement. (c) In the event ASTRA any time following the * anniversary of the Effective Date upon request by GTC is unable to reasonably demonstrate that it or its collaborators are actively engaged in research, development or commercialization of the GTC Helicobacter Technology or the Resulting Technology in Pharmaceutical Products or Vaccine Products, GTC may terminate this Agreement by written notice, with the consequences elaborated under Article 11.1. In making this determination there shall be taken into account the normal course of such programs conducted with sound and reasonable business practices and judgment which have had commercial success. (d) In the event ASTRA any time following the * anniversary of the Effective Date upon request by GTC is unable to reasonably demonstrate that it or its collaborators are actively engaged in research, development or commercialization of the GTC Helicobacter Technology or the Resulting Technology in Diagnostic Products, GTC may convert the licenses granted to ASTRA under this Agreement into non-exclusive licenses with respect to diagnostic products by written notice, with the consequences elaborated under Article 11.2. In making this determination there shall be taken into account the normal course of such programs conducted with sound and reasonable business practices and judgment which have had commercial success. (e) Notwithstanding, the diligence required by Article 10.5 (c) shall not apply for any year of the term of this Agreement in which milestone payments of at least * are also payable (if a lesser or no milestone is payable, ASTRA may satisfy this condition by paying the difference or all, as the case may be). (f) Notwithstanding, the diligence required by 10.5 (d) shall not apply for any year of the term of this Agreement in which a milestone payment of at least * is also payable (if a lesser or no milestone is payable, ASTRA may satisfy this condition by paying the difference or all, as the case may be) or ASTRA is supporting at least * man-years at GTC engaged in the research under this Agreement. 10.6 ASTRA may, at its own discretion, terminate this Agreement by * prior written notice to GTC given at any time after the sixth anniversary of the Effective Date. 18 19 * Confidential Treatment Requested 10.7 In the event that either party shall become insolvent, shall make an assignment for the benefit of creditors, or shall have a petition in bankruptcy filed for or against it, the other shall have the right to terminate this entire Agreement immediately upon giving such party written notice of such termination. 11. CONSEQUENCES OF TERMINATION 11.1 In the event this Agreement is terminated pursuant to Article 10.1 (a), 10.5 (a) or (c) or 10.6 (a) ASTRA s exclusive license of the GTC Helicobacter Technology contemplated by Article 5 will be converted into a non-exclusive license all other term and conditions remaining unchanged. (b) With respect to IP-Rights included in the Resulting Technology, (i) ownership of all patents invented solely by GTC shall be assigned to GTC and GTC shall be deemed to have granted ASTRA a non-exclusive license thereto on the same terms and conditions as with regard to the GTC Helicobacter Technology, and (ii) ownership of all patents invented solely by ASTRA or jointly with GTC shall * and, except for IP-Rights representing ASTRA's proprietary interest in a Product, * . Invented solely by a party means not invented jointly with the other party or a collaborator of the other party. (c) ASTRA's non-exclusive license of the * conceived, developed or generated by GTC as a result of the research to be performed under this Agreement contemplated by Article 6 will remain unchanged. (d) ASTRA's non-exclusive license of the Software Technology which is proprietary to GTC contemplated by Article 7 will remain unchanged. (e) Notwithstanding the above, in the event this Agreement is terminated pursuant to Article 10.5 (c) and ASTRA or its collaborators are engaged in research, development or commercialization of the GTC Helicobacter Technology or Resulting Technology in Diagnostic Product, ASTRA's exclusive license of the GTC Helicobacter Technology, * and Software Technology shall remain unchanged as far as concerns diagnostic products and IP-Rights included in the Resulting Technology relating to diagnostic products shall remain with ASTRA and being subject to no right of GTC. 19 20 * Confidential Treatment Requested 11.2 In the event GTC should convert ASTRA's exclusive license under this Agreement with respect to diagnostic products into a non-exclusive license pursuant to Article 10.5 (d) by reason of ASTRA being unable to reasonably demonstrate that it or its collaborators are actively engaged in research, development or commercialization of the GTC Helicobacter Technology or the Resulting Technology with respect to Diagnostic Products, then this Agreement shall nevertheless remain in effect in accordance with the terms hereof except that ASTRA shall no longer have an exclusive license under the GTC Helicobacter Technology, Software Technology which is proprietary to GTC or the * conceived, developed or generated by GTC as a result of the research to be performed under this Agreement with respect to diagnostic products and * under the Resulting Technology. 11.3 The * under 11.1 (b)(ii) and 11.2 above shall not apply to Resulting Technology arising out of BONA FIDE collaborations by * with third parties if and to the extent * by undertakings to third parties resulting from such collaboration and not primarily for the purpose of * . 11.4 If this Agreement is terminated by GTC pursuant to Articles 10.2 , 10.3 or 10.7 and without limiting any remedies which GTC may have at law or in equity by reason of such termination: (a) the license of the GTC Helicobacter Technology, the * conceived, developed or generated by GTC as a result of the research to be performed under this Agreement and the Software Technology which is proprietary to GTC will terminate and ASTRA will have no license with respect thereto (b) GTC will be the owner of all patents and IP-Rights included in the Resulting Technology whether or not invented by GTC and ASTRA will have no license with respect thereto, and (c) except for the technology covered by such patents and IP-Rights with respect to which GTC will thereupon have exclusive rights, * . 11.5 In the event this Agreement is terminated by ASTRA pursuant to Article 10.3 or 10.7 and without limiting any remedies which ASTRA may have at law or in equity by reason of such termination: a) GTC shall be deemed to have assigned to ASTRA all its rights, titles and interest in and to the GTC Helicobacter Technology, and 20 21 * Confidential Treatment Requested b) ASTRA will * the Resulting Technology. c) GTC shall be deemed to have granted to ASTRA in perpetuity, a non-exclusive worldwide, sublicensable, royalty free, license under the * conceived, developed or generated by GTC as a result of the research to be performed under this Agreement and Software Technology proprietary to GTC. 11.6 Upon termination, each party undertakes to execute all documents and to take all reasonable actions necessary or advisable to carry out the foregoing and to procure its employees and other persons engaged by it to do so. 11.7 The obligation of ASTRA to pay royalties and milestones hereunder shall survive termination except for termination by ASTRA pursuant to Articles 10.1, 10.3 and 10.7. Termination shall not affect financial obligations hereunder accruing prior thereto. 12. GOVERNING LAW AND ARBITRATION 12.1 This Agreement shall be governed and interpreted in accordance with the law of the Commonwealth of Massachusetts applicable to agreements executed and to be performed therein. 12.2 Subject to the limitation stated in the final sentence of this section, any dispute, controversy or claim arising out of or in connection with this Agreement, or the breach, termination or invalidity thereof, shall be exclusively settled under the then rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with the said Rules. The demand for arbitration shall be filed within 180 days after the controversy or claim has arisen. Such arbitration shall be held in London, England. The award through arbitration shall be final and binding. Each party may enter any such award in a court having jurisdiction or may make application to such court for judicial acceptance of the award and an order of enforcement, as the case may be. Notwithstanding the foregoing, either party may, without recourse to arbitration, assert against the other party a third-party claim or cross-claim in any action brought by a third party, to which the subject matter of this Agreement may be relevant. 13 WARRANTIES AND REPRESENTATIONS 13.1 Each party hereby represents and warrants to the other as follows: (a) It is a corporation duly organized, validity existing and is in good standing under the laws of the jurisdiction of its incorporation, is qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification and has all 21 22 * Confidential Treatment Requested requisite power and authority, corporate or otherwise, to conduct its business as now being conducted, to own, lease and operate its properties and to execute, deliver and perform this Agreement. (b) The execution, delivery and performance by it of this Agreement (including the grant of the rights and licenses referable to GTC Helicobacter Technology and * conceived, developed or generated by GTC as a result of the research to be performed under this Agreement and Software Technology which is proprietary to GTC ) has been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of its stockholders, (ii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to it or any provision of its charter or by-laws, or (iii) result in a breach or constitute a default under any agreement, mortgage, lease, license, permit, patent or other instrument or obligation to which it is a party or by which it or its assets may be bound or affected. (c) No authorization, consent, approval, license, exemption of, or filing or registration with, any court or governmental authority or regulatory body is required for the due execution, delivery or performance by it of this Agreement (including the grant of the rights and licenses by GTC referable to GTC Helicobacter Technology and * conceived, developed or generated by GTC as a result of the research to be performed under this Agreement and Software Technology which is proprietary to GTC) (d) This Agreement is a legal, valid and binding obligation of such party, enforceable against it in accordance with its terms and conditions. It is not under any obligation to any person, contractual or otherwise, that is conflicting or inconsistent in any respect with the terms of this Agreement (including the grant of the rights and licenses by GTC referable to GTC Helicobacter Technology and * and Software Technology which is proprietary to GTC) or that would impede the diligent and complete fulfillment of its obligations hereunder. (e) It is not debarred or suspended from receiving contracts from the United States, or Swedish government or other governmental authority or agency. (f) Each party has disclosed to the other in good faith any and all material information relevant to the subject matter of this Agreement to such party's ability to observe and perform its obligations hereunder, * 22 23 * Confidential Treatment Requested * 13.2 GTC represents and warrants to ASTRA that, to the best of the information, knowledge and belief of GTC's officers: (a) * (b) GTC has the right to grant the license of GTC Helicobacter Technology and, to the extent proprietary to GTC, Software Technology, (c) GTC has not granted any license or sublicense or other rights to the GTC Helicobacter Technology * (d) Without prejudice to the generality of the forgoing, * (e) * GTC and, when ASTRA has * ASTRA will, subject to the terms and conditions of * all rights conferred upon it under this Agreement including but not limited to, * GTC except as set forth in * above and except that GTC shall * except to the extent that * , and * (f) Subject only to ASTRA * under this Agreement in accordance with the terms and provisions set forth herein excluding * 23 24 * Confidential Treatment Requested * to ASTRA. GTC undertakes * excluding any * ASTRA. * The foregoing representations in 13.2 shall not survive termination of this Agreement if terminated by GTC pursuant to 10.2, 10.3 and 10.7. 14. MISCELLANEOUS 14.1 The parties agree to comply with all applicable laws and regulations. In particular, it is understood and acknowledged that the transfer of certain commodities and technical data is subject to United States laws and regulations controlling the export of such commodities and technical data, including all Export Administration Regulations of the United States Department of Commerce. These laws and regulations, among other things, prohibit or require a license for the export of certain types of technical data to certain specified countries. ASTRA hereby agrees and gives written assurance that it will comply with all United States laws and regulations controlling the export of commodities and technical data, that it will be solely responsible for any violation of such by ASTRA or sublicensees, and that it will defend and hold GTC harmless in the event of any legal action of any nature occasioned by such violation. 14.2 EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT GTC EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED OR EXPRESS WARRANTIES AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE GTC HELICOBACTER TECHNOLOGY, RESULTING TECHNOLOGY, * OR SOFTWARE TECHNOLOGY. 14.3 GTC acknowledges that ASTRA, in addition to the Research Collaboration, has, and will continue individually, and together with third parties, the research, development, manufacture, and sale of pharmaceutical products, vaccine products, and diagnostic products against i.a. gastrointestinal infection or other disease caused by Helicobacter Spp which (i) may * (ii) may * and (iii) for which * pursuant to this Agreement. 24 25 * Confidential Treatment Requested GTC further acknowledges and agrees that GTC will be entitled to milestone payments and Net Sales royalty only with respect to such Products as are defined as Pharmaceutical Products, Vaccine Products and Diagnostic Products hereunder. Neither party makes any representation or warranty to the other as to whether or not a Product will be developed under this Agreement. 14.4 (a) ASTRA shall indemnify, defend and hold harmless GTC and its current or former directors, governing board members, trustees, officers, faculty, medical and professional staff, employees, students and agents and their respective successors, heirs and assigns (the "Indemnities"), against any liability, damage, loss or expenses (including reasonable attorneys' fees and expenses of litigation) incurred by or imposed upon the Indemnities or any one of them in connection with any claims, suits, actions, demands or judgments arising out of any theory of product liability (including, but not limited to actions in the form of tort, warranty, or strict liability) concerning any product, process or service made, used or sold pursuant to any right or license granted under this Agreement provided, however that the Indemnitee gives reasonable notice to ASTRA of any such claim or action, tender the defense of such claim or action to ASTRA and assists ASTRA, at ASTRA s expense, in defending such claim or action and does not compromise or settle such claim or action without ASTRA s prior written consent, provided, however, that ASTRA s indemnification of the Indemnitee hereunder shall not extend to any cost, claim, suit, expense or damage which arises or results from negligence or intentional misconduct of the Indemnitee, or any third party for whom GTC is responsible. (b) ASTRA agrees, at its own expense, to provide attorneys reasonably acceptable to GTC to defend against any actions brought or filed against any party indemnified hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought. 14.5 This Agreement is nonassignable and any purported assignment hereof will be null and void without the prior written consent of the other except that either party may assign this Agreement to a transferee of all or substantially all of the business to which this Agreement relates. 14.6 Written notices required to be given under this Agreement shall be addressed as follows: If to GTC: GENOME THERAPEUTICS CORPORATION 100 Beaver Street Waltham, MA 02154 Attention: Vice President, Business Development 25 26 * Confidential Treatment Requested If to ASTRA: ASTRA RESEARCH CENTER BOSTON INC ------------------------------ ------------------------------ ------------------------------ Attention: Hans G. Nilsson, Ph.D. or such other address as either party may request in writing. 14.7 Should a court of competent jurisdiction later consider any provision of this Agreement to be invalid, illegal, or unenforceable, it shall be considered severed from this Agreement. All other provisions, rights and obligations shall continue without regard to the severed provision, provided that the remaining provisions of this Agreement are in accordance with the intention of the parties. 14.8 During the term of the research collaboration contemplated by this Agreement and for a period of * thereafter ASTRA HASSLE AB, including its Massachusetts research group, and GTC will not, directly or indirectly solicit or encourage any employee of the other party involved in the Research Collaboration to leave the employment of the other party. 14.9 GTC acknowledges that it is GTC's responsibility to attract and retain personnel qualified to perform its obligations under this Agreement and that such obligation is an essential part of this Agreement. In particular, during the term of the Research Collaboration GTC will use all reasonable efforts to * 14.10 All press or other announcements which may be made or sent out by ASTRA or GTC in respect of this Agreement or the collaboration contemplated thereby shall * . Exempted from the above are announcements which one party is required to make under the rules of the relevant stock exchanges or applicable laws and regulations in which case the one party shall consult with the other party if time permits and reasonably observe the comments of the other party given as soon as possible. The obligation to consult shall not apply to disclosures in respect of this Agreement or the collaboration contemplated thereby required in reports required to be filed with governmental authorities or submitted to shareholders provided that such disclosure substantially is in relation to information which have previously been announced after consultation with the other party. 26 27 * Confidential Treatment Requested 14.11 Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, employer, employee or joint venture relationship between the parties. Neither party shall incur any debts or make any commitments for the other. 14.12 No right, express or implied, is granted by this Agreement to use in any manner any trade name or trademark of GTC or ASTRA in connection with the performance of this Agreement or the exploitation of any license granted hereunder or otherwise; each party may make any legally required reference to the other in connection with such manufacture or sale of Product. 14.13 This Agreement, including the Exhibits attached hereto (which shall form an integral part of this Agreement), constitutes and contains the entire understanding and agreement of the parties, and cancels and supersedes any and all prior negotiations, correspondence and understandings and agreements, whether verbal or written, between the parties respecting the subject matter hereof. No waiver, modification or amendment of any provision of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each of the parties. -------------------------------------- In witness whereof, the parties hereto have executed this Agreement in two (2) copies on the date first above written. ASTRA HASSLE AB GENOME THERAPEUTICS CORPORATION By: /s/ Hakan Mogren By: /s/ Robert J. Hennessey ----------------------- --------------------------- Name: Hakan Mogren Name: Robert J. Hennessey Title: Group Chief Title: Chairman, Executive Officer Chief Executive Officer 27 28 * Confidential Treatment Requested EXHIBIT 1 "RESEARCH PLAN" I. DATABASE DEVELOPMENT AND ANNOTATION * II. IDENTIFICATION OF THERAPEUTIC AND VACCINE TARGETS * 29 * Confidential Treatment Requested * 30 * Confidential Treatment Requested * 31 * Confidential Treatment Requested * III. ANALYSIS OF GENETIC DIVERSITY * 32 * Confidential Treatment Requested * IV. DEVELOPMENT OF BIOASSAYS * 33 * Confidential Treatment Requested * 34 * Confidential Treatment Requested EXHIBIT 2 GTC Helicobacter Technology * 35 * Confidential Treatment Requested * 36 * Confidential Treatment Requested * 37 * Confidential Treatment Requested * 38 * Confidential Treatment Requested EXHIBIT 3 Resulting Technology Resulting Technology includes: * 39 * Confidential Treatment Requested EXHIBIT 4 * includes: * 1) * 2) * 40 * Confidential Treatment Requested EXHIBIT 5 Software Technology NON-PROPRIETARY * * * * PUBLIC DOMAIN: * homology searching; part of * * database searching * hypertext browser * finding 41 * Confidential Treatment Requested EXHIBIT 5 -cont- Software Technology Copies of Agreements [ * ] 42 * Confidential Treatment Requested EXHIBIT 6 * GTC Consultants * * related to patent applications * * * Third Party * * * * Persons retained by * EX-23 6 CONSENT OF ARTHUR ANDERSEN LLP 1 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Form S-8 Registration Statements No. 2-77846, No. 2-81123, No. 2-95446, No. 33-12633, No. 33-27885, No. 33-45432, No. 0-10824 and No. 03-361191. /s/ ARTHUR ANDERSEN LLP ----------------------- ARTHUR ANDERSEN LLP Boston, Massachusetts October 4, 1995 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARRY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GENOME THERAPEUTICS CORPORATION FOR THE YEAR ENDED AUGUST 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO. 1,000 U.S. DOLLARS YEAR AUG-31-1995 SEP-01-1994 AUG-31-1995 1 5,886 2,341 620 0 0 8,897 4,172 2,452 11,529 3,398 0 1,348 0 0 5,891 7,239 7,385 11,207 6,648 6,648 3,974 0 86 0 0 0 0 0 0 585 .05 .04
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