-----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, JxNwqAX6S+tLy7C4KuSMIt5cmLa6VjgudCfIcxQy320y3MFU+QhEgChRu65F2hBX bDk034Ss2/7HMYChK7rMPw== 0000950131-98-006062.txt : 19981116 0000950131-98-006062.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950131-98-006062 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENDOREX CORP CENTRAL INDEX KEY: 0000812796 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 411505029 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16929 FILM NUMBER: 98747829 BUSINESS ADDRESS: STREET 1: 900 NORTH SHORE DR CITY: LAKE STATE: IL ZIP: 60044 BUSINESS PHONE: 7012329575 MAIL ADDRESS: STREET 1: 3233 15TH STREET SOUTH CITY: FARGO STATE: ND ZIP: 58104 FORMER COMPANY: FORMER CONFORMED NAME: IMMUNOTHERAPEUTICS INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Quarterly Period Ended September 30, 1998 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ____________ to ____________ Commission File No. 1-14778 ENDOREX CORP. (Exact name of registrant as specified in its charter) DELAWARE 41-1505029 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 28101 BALLARD DRIVE, SUITE F, LAKE FOREST, IL 60045 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code (847) 573-8990 900 NORTH SHORE DRIVE, LAKE BLUFF, IL 60044 (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act during the past 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 [ ] At November 13, 1998 9,936,000 shares of the registrant's common stock (par value, $.001 per share) were outstanding. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] PART I. - FINANCIAL INFORMATION ITEM 1 - Financial Statements ENDOREX CORP. (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED BALANCE SHEET (UNAUDITED)
Sept 30, 1998 ASSETS Current assets: Cash and cash equivalents $14,103,207 Prepaid expenses 104,147 Deferred costs 1,580,000 ------------ Total current assets 15,787,354 Leasehold improvements and equipment, net of accumulated amortization of $916,110 429,294 Deferred costs 71,509 Patent issuance costs, net of accumulated amortization of $44,701 368,585 ------------ TOTAL ASSETS $16,656,742 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 687,984 Stockholders' equity: Preferred stock, $.05 par value, 300,000 shares authorized, none issued and outstanding Series B convertible preferred stock, $.05 par value, 200,000 shares authorized, 80,100 issued and outstanding at redemption and liquidation value 8,448,905 Common stock, $.001 par value, 50,000,000 shares authorized, 10,054,642 issued, 9,936,000 outstanding 10,055 Additional paid-in capital 33,683,075 Deficit accumulated during the development stage (25,729,527) ------------ 16,412,508 Less: Treasury stock, at cost, 118,642 shares (443,750) ------------ Total stockholders' equity 15,968,758 ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,656,742 ============
See accompanying condensed notes to financial statements. ENDOREX CORP. (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Cumulative from Nine Months February 15, 1985 Ended Sept. 30, (date of inception) 1998 1997 to Sept. 30, 1998 SBIR contract revenue $ -- $ -- $ 100,000 Expenses: SBIR contract research and development -- -- 86,168 Proprietary research and development 2,283,829 1,103,003 12,153,153 General and administrative 2,588,170 738,889 7,011,081 ------------- ------------ ------------- Total operating expenses 4,871,999 1,841,892 19,250,402 ------------- ------------ ------------- Loss from operations (4,871,999) (1,841,892) (19,150,402) Equity in loss from joint venture (8,010,000) (8,010,000) Other income -- -- 1,512 Interest income 629,962 19,597 1,636,559 Interest expense (13,483) (4,929) (207,196) ------------- ------------ ------------- Net loss $(12,265,520) $(1,827,224) $(25,729,527) ============= ============ ============= Basic and diluted net loss per share available to common stockholders $ (1.28) $ (1.36) $ (27.91) Basic and diluted weighted average common shares outstanding 9,943,532 1,329,322 937,651
See accompanying condensed notes to financial statements. ENDOREX CORP. (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Sept. 30, 1998 1997 Expenses: Proprietary research and development $ 854,367 $ 369,006 General and administrative 845,098 226,211 ----------- ---------- Total operating expenses 1,699,465 595,217 ----------- ---------- Loss from operations (1,699,465) (595,217) Interest income 182,964 11,648 Interest expense (3,074) (4,929) ----------- ---------- Net loss $(1,519,575) $ (588,498) =========== ========== Basic and diluted net loss per share available to common stockholders $ (0.17) $ (0.33) Basic and diluted weighted average common shares outstanding 9,936,000 1,810,230
See accompanying condensed notes to financial statements. ENDOREX CORP. (A DEVELOPMENT STAGE ENTERPRISE) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Cumulative from Nine Months February 15, 1985 Ended Sept. 30, (date of inception) 1998 1997 to Sept. 30, 1998 Net cash used in operating activities $(2,930,126) $(1,733,686) $(13,654,961) ----------- ----------- ------------ INVESTING ACTIVITIES: Patent issuance cost (89,396) (64,945) (516,446) Investment in joint venture (8,010,000) (8,010,000) Organizational costs incurred -- -- (135) Deposit on leasehold improvements -- -- (5,000) Purchase of leasehold improvements (237,375) -- (414,671) Purchases of office and lab equipment (149,865) (52,977) (936,885) Proceeds from assets sold -- 1,000 ----------- ------------ ------------ Net cash used in investing activities (8,486,636) (117,922) (9,882,137) ----------- ------------ ------------ FINANCING ACTIVITIES: Net proceeds from issuance of common stock and warrant 1,871,845 1,746,408 30,024,722 Proceeds from issuance of Series B Preferred 8,010,000 8,010,000 Proceeds from exercise of options 61,750 -- 200,986 Proceeds from borrowings from President -- -- 41,433 Repayment of borrowings from President -- -- (41,433) Proceeds from borrowings under line of credit -- 287,490 662,490 Repayment of borrowings under line of credit -- (287,490) (662,490) Proceeds from note payable to bank -- -- 150,000 Payments on note payable to bank -- -- (150,000) Proceeds from borrowings from stockholders -- -- 15,867 Repayment of borrowings from stockholders -- -- (15,867) Advances from parent company -- -- 135,000 Payments to parent company -- -- (135,000) Repayment of long- term note receivable -- -- 50,315 Repayment of note payable issued in exchange for legal service -- -- (71,968) Purchase of treasury stock (130,000) -- (573,750) ----------- ---------- ----------- Net cash provided by financing activities 9,813,595 1,746,408 37,640,305 ----------- ---------- ----------- Net increase (decrease) in cash and cash equivalents (1,603,167) (105,200) 14,103,207 Cash and cash equivalents at beginning of periods 15,706,374 905,907 -- ----------- ---------- ----------- Cash and cash equivalents at end of periods $14,103,207 $ 800,707 $14,103,207 =========== ========== ===========
See accompanying condensed notes to financial statements. ENDOREX CORP. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS The unaudited interim consolidated financial statements included herein are prepared under the rules and regulations for reporting on Form 10-QSB. Accordingly, certain information and footnote disclosures normally accompanying the annual financial statements have been omitted. The interim financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest annual report on Form 10-KSB. In the opinion of management, the consolidated financial statements include all adjustments necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods. All adjustments were of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results for the full fiscal year. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" as of January 1, 1998. Since the Company has no components of comprehensive income for the periods presented, there is no effect of the adoption reflected in the financial statements. JOINT VENTURE WITH ELAN CORPORATION On December 31, 1997, the Company executed a binding letter of intent with Elan Corporation, plc ("Elan"), to establish a joint venture for the exclusive research, development and commercialization of oral and mucosal vaccines. The closing of the transactions contemplated by the letter of intent occurred as of January 21, 1998. At the time of closing, the Company issued to Elan International Services, Ltd. ("EIS") for an aggregate purchase price of $2,000,000: (i) 307,692 shares of the Company's common stock ("Common Stock"), par value $.001 per share, at $6.50 per share and (ii) a nine-year warrant to purchase an additional 230,770 shares of Common Stock at an exercise price of $10.00 per share. The fair value allocated to the warrants at the grant date was $846,000, which has been recorded as a reclassification of additional paid-in capital. In addition, EIS purchased $8.01 million of Series B convertible preferred stock ("Series B Preferred") of the Company, which is convertible into Common Stock at a price of $7.50 per share. The Series B Preferred is voting and pays an 8% annual cumulative in-kind dividend. The joint venture is being conducted through Innovax Corporation ("Innovax"), which is initially owned 80.1% by the Company and 19.9% by EIS. Innovax has licensed certain technology from Elan and certain other technology from Orasomal Technologies, Inc. ("Orasomal"). The Company has invested $8.01 million in Innovax and Elan has invested $1.99 million. In consideration for oral vaccine rights to certain of Elan's proprietary technology, including patents and know how, Innovax paid Elan an initial $10 million license payment. Elan may receive future milestones and royalties based on Innovax's performance. Since the technology does not yet represent a commercial product, Innovax recorded an expense in the first quarter of 1998 for the initial license fee paid to Elan. The Company recorded its $8.01 million share of that expense and simultaneously recorded Elan's purchase of $8.01 million of the Series B Preferred. Orasomal sub-licensed to Innovax oral vaccine rights to its proprietary Orasome(TM) polymerized liposome technology exclusively licensed from Massachusetts Institute of Technology ("MIT"). In consideration of the license, Orasomal may receive milestone payments and royalties. The Joint Development and Operating Agreement between the Company and Elan provides for equal control of Innovax, including representation on the Board of Directors and agreement of both parties for budgets and material transactions. Therefore, the Company records Innovax's activities using the equity method of accounting. Elan and the Company will each fund R&D activities equally in the first year. Accordingly, the Company includes R&D expenses incurred in conducting such activities in the consolidated statement of operations. After the first year, the Company and Elan will fund future joint venture expenditures in proportion to their respective ownership levels. NET LOSS PER SHARE On October 1, 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Earnings per share ("EPS") have been presented on the Consolidated Statement of Operations in accordance with SFAS No. 128 for the current and prior periods. As operations resulted in a net loss for all periods presented, diluted earnings per share are the same as basic earnings per share due to the anti-dilutive effect of potential dilutive common shares. The net loss per share is computed by dividing the net loss by the weighted average number of shares outstanding during the period as follows:
NINE MONTHS ENDED SEPT. 30, 1998 ------------------ INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------ ----------------- --------- Net loss $(12,265,520) Less: Preferred stock dividends (438,905) ------------ BASIC AND DILUTED EPS Income available to common stockholders $(12,704,425) 9,943,532 $(1.28) ============ ================= ========= NINE MONTHS ENDED SEPT. 30, 1997 ----------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) -AMOUNT ------------ ----------------- --------- Net loss $ (1,827,224) Less: Preferred stock dividends -- ------------ BASIC AND DILUTED EPS Income available to common stockholders $ (1,827,224) 1,329,322 $(1.36) ============ ================= =========
THREE MONTHS ENDED SEPT. 30, 1998 ---------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- -------------- --------- Net loss $(1,519,575) Less: Preferred stock dividends (159,761) ----------- BASIC AND DILUTED EPS Income available to common stockholders $(1,679,336) 9,936,000 $(0.17) =========== ============== ========= THREE MONTHS ENDED SEPT. 30, 1997 ---------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- -------------- --------- Net loss $ (588,498) Less: Preferred stock dividends -- ----------- BASIC AND DILUTED EPS Income available to common stockholders $ (588,498) 1,810,230 $(0.33) =========== ============== =========
Options to purchase 1,483,172 shares of Common Stock at a weighted average exercise price of $3.199 and warrants to purchase 2,459,600 shares of Common Stock at a weighted average exercise price of $3.243, were outstanding but not included in the computation of diluted EPS because the effect of the securities was anti-dilutive. The Series B Preferred in-kind dividends were included in the computation of basic and diluted EPS. SUBSEQUENT EVENT On September 30, 1998, the Company executed a binding letter of intent with Elan to establish a second joint venture for the exclusive research, development and commercialization of products using Elan's Medipad/TM/ delivery system for two drugs in undisclosed fields. The closing of the transactions contemplated by the letter of intent occurred as of October 21, 1998. The second joint venture is initially owned 80.1% by the Company and 19.9% by EIS. The new Company has obtained an exclusive worldwide license to the Medipad /TM/ drug delivery system from Elan within the undisclosed fields. Medipad/TM/ is a lightweight, disposable drug delivery system, which combines the simplicity of a patch with the extensive delivery capabilities of an infusion pump. At the time of closing, the Company and EIS purchased $8,410,500 and $2,089,500 of the second joint venture's common stock, respectively. In addition, Elan purchased $8,410,500 of Series C exchangeable convertible preferred stock ("Series C Preferred") of the Company. The Series C Preferred pays a 7% annual in-kind dividend. The Series C Preferred plus accrued dividends is exchangeable at Elan's option for an additional 30.1% ownership interest of the second joint venture's common stock, or it may be converted into the Company's Common Stock at a price of $9.00 per share. At the time of closing, Elan received an initial $10 million license payment from the joint venture, and may receive future milestones and royalties based on the joint venture's performance. Since the technology does not yet represent a commercial product, the joint venture will record an expense in the fourth quarter of 1998 for the initial license fee paid to Elan. The Company will record its $8.01 million share of that expense and will simultaneously record EIS's $8.4 million purchase of Series C Preferred. Until December 31, 1999, EIS and the Company each will contribute equally towards funding the second joint venture's research and development activities, and each will fund subsequent years' expenditures in proportion to their respective ownership levels. In addition, during 2000 and 2001, the Company may require Elan to lend up to $4,806,000, pursuant to a convertible note, to fund the Company's portion of the second joint venture's research and development expenses. The note will bear interest at 7% per year, compounded semi-annually, and will be convertible into Common Stock at $5.70 per share. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion provides information which management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. The discussion should be read in conjunction with the Company's unaudited consolidated interim financial statements and notes thereto and the Company's Annual Report on Form 10-KSB. This report contains certain statements of a forward-looking nature relating to future events or the future financial performance of the Company. Investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, investors should carefully consider the various factors identified in this report, which could cause actual results to differ materially from those indicated from such forward-looking statements, including those set forth in Exhibit 99 "Certain Factors that May Affect Future Results, Financial Condition and the Market Price of Securities" of this Quarterly Report on Form 10-QSB. Material Changes in Results of Operations Net loss for the nine months ended Sept. 30, 1998 increased approximately $10.3 million as compared to the nine months ended Sept. 30, 1997, primarily due to equity loss from Innovax, which included the Company's 80.1% share of the $10 million license fee paid by Innovax to Elan. Net loss for the three months ended Sept. 30, 1998 increased $783,532, or 106%, as compared to the three months ended Sept. 30, 1997. The Company is a development stage enterprise and expects no significant revenue from the sale of products in the near future. Research and development expenditures for the nine and three months ended Sept. 30, 1998 increased $1,180,826, or 107%, and $485,361, or 132%, respectively, as compared to the corresponding periods ended Sept. 30, 1997. During the three months ended Sept. 30, 1998, the Company completed its new R&D center in Lake Forest, Illinois, dedicated to developing the Company's oral delivery technology for drugs and vaccines. The transfer of the research and development activities and personnel from Fargo, North Dakota resulted in non- recurring charges of approximately $120,000 during the first nine months. Additionally, during the first three quarters, the Company recruited new scientific personnel, adding 3 scientists to its staff to support Innovax's and the Company's other increased research activities. The resulting R&D salary expenses for the nine and three months ended Sept. 30, 1998 increased approximately $387,000, or 99%, and $150,000, or 106%, respectively, as compared to the corresponding periods ended Sept. 30, 1997. Due to the start of a new randomized Phase II clinical trial for the treatment of pediatric bone cancer with the Company's proprietary cancer drug, ImmTher(R), the evaluation in animals of the Orasome(TM) technology with selected hormones at Johns Hopkins Endocrinology Department and the initial startup of Innovax activities, consulting expenses, clinical supplies, and sponsored R&D expenses increased approximately $469,000, or 108% and $249,000, or 189%, respectively, for the nine and three months ended Sept. 30, 1998 as compared to the same periods ended Sept. 30, 1997. Additionally, the Company signed a research agreement with the University of Wisconsin-Madison to develop and evaluate other monoterpene analogs as cancer drug candidates. In August, the Company was issued a Japanese patent on ImmTher(R). The Company expects to incur increased research and development expenses associated with the second joint venture. General and administrative expenses for the nine and three months ended Sept. 30, 1998 increased $1,849,281, or 250%, and $618,887, or 274%, respectively, as compared to the nine and three months ended Sept. 30, 1997, mainly due to amortization of $1,180,000 and $398,000 respectively, in fair value of warrants issued in connection with the financial advisory agreement with Paramount Capital, Inc., and additional business development personnel and expenses related to expanded public and investor relations activities. Legal, accounting and public relations expenses also increased related to the initiation of the Company's listing on the American Stock Exchange. The Company began trading on the American Stock Exchange under its new symbol, DOR, on August 6, 1998. Interest income for the nine and three months ended Sept. 30, 1998 increased approximately $610,000 and $171,000, respectively, as compared to the nine and three months ended Sept. 30, 1997 as a result of investing cash proceeds from the Company's private placement in October 1997 and the sale of common stock to Elan in January 1998. Plan of Operation During the next twelve months, the Company will continue to conduct Phase II clinical trials for Perillyl alcohol ("POH") and ImmTher(R). During the three months ended Sept. 30, 1998, the Company expanded the clinical trial for ImmTher(R) in Ewings sarcoma to Memorial Sloan-Kettering, a major cancer center. The Company is also evaluating initiation of additional clinical trials with POH and/or ImmTher(R) in other types of cancer, and continues to conduct a sponsored research agreement with the University of Wisconsin-Madison to develop and evaluate other monoterpene analogs as cancer drug candidates. The Company continues pre-clinical development of its Orasome(TM) technology for the oral delivery of vaccines and drugs. This development includes ongoing work with Elan for vaccines and Johns Hopkins Endrocrinology Department for hormones. The first patent for this technology issued in June 1998. A new R&D center was completed in July for this development. The amortization and maintenance of leasehold improvements and related new equipment are not expected to have a material effect on results of operations or financial condition. During the three months ended Sept. 30, 1998, the Company received notice of issuance of a patent for its proprietary cancer drug ImmTher(R) for Japan. In addition, the FDA designated ImmTher(R) as an Orphan drug for two types of cancer, Ewings sarcoma and osteosarcoma. This will allow marketing exclusivity when the drug is approved for market, as well as tax credits. Additionally, the Company recruited new scientific personnel for Innovax, bringing total employees as of November 13, 1998 to sixteen, of which eight hold a Ph.D. and one holds an M.D. The Company does not plan to significantly increase employees in the next twelve months. On Sept. 30, 1998 and December 31, 1997, the Company had cash and cash equivalents of $14,103,207 and $15,706,374, respectively, and working capital of $13,519,370 and $15,212,680, respectively, exclusive of deferred costs. The Company's current level of activities requires the expenditure of approximately $400,000 per month, exclusive of costs associated with the second joint venture that have not yet been determined. Management of the Company believes that its current cash resources will be sufficient to support its currently planned operations for the next two to three years. However, the Company intends, from time to time in the future, to seek to expand its research and development activities into other technologies and/or products that it either may license from other persons or develop. Any such activities may require the expenditure of funds not presently available to the Company. The Company may seek to obtain these funds from possible future public or private sales of its securities or other sources. In October 1997, the Company completed a $20 million private placement. Net proceeds were $17.2 million after commissions and expenses. The Company used approximately $370,000 to repay a loan from two of its major stockholders. The remaining proceeds are being used to fund research and development activities, clinical trials, operations and the acquisition of new technologies. From October 1997 through Sept. 30, 1998, the Company has used approximately $3.5 million to fund research and development, including capital improvements and equipment, clinical trials and operations. In connection with the formation of Innovax in January 1998, the Company issued to EIS 307,692 shares of Common Stock and a warrant to purchase 230,770 shares of Common Stock for an aggregate purchase price of $2 million. In addition, the Company issued to EIS 80,100 shares of Series B Preferred for a purchase price of $8.01 million. The Company and Elan have invested $8.01 million and $1.99 million, respectively, in Innovax. Pursuant to a license agreement with Elan, Innovax paid Elan an initial payment of $10 million. In connection with the formation of the second joint venture with Elan in October 1998, the Company issued to EIS 84,105 shares of Series C Preferred for a purchase price of $8.4 million. The Company and Elan have invested $8.4 million and $2.1 million, respectively, in the second joint venture. Pursuant to a license agreement with Elan, the second joint venture paid Elan an initial payment of $10 million. Year 2000 The Company is aware of the issues associated with computer programming code and certain embedded computer chips used in computer systems as the Year 2000 approaches. Some systems may not be able to distinguish between the year 2000 and the year 1900. The Company utilizes personal computers, software packages developed by third party vendors, and a service bureau for payroll to manage its business. It has no internally developed software and does not sell any products that are derived from internally developed software. The Company is currently in the process of determining and coordinating the actions necessary to provide uninterrupted, normal operation of business- critical systems. There are four stages to the Year 2000 project: 1)awareness 2)vendor assessment 3)selection of new software, and 4) implementation. The Company has completed the first stage of the project plan. It has inventoried critical business systems and vendors and estimated the potential impact of problems should any of the systems be non-compliant. Management believes, that if necessary, the majority of the Company's systems can be replaced by another vendor or performed manually with minimal cost. The Company has cash equivalents which may be exposed to credit risk to the extent that investment companies are materially adversely affected by the Year 2000 issue. It is anticipated that any such impact would be short lived and would not impact the liquidity of the Company or its operating results. The Company will obtain written confirmation from its vendors regarding Year 2000 compliance. It is anticipated that the assessment will be completed by December 31, 1998, allowing adequate time to arrange alternative software and services, if necessary. Based on the initial review of its systems to date, management believes that the Year 2000 problem will not pose significant operational problems and that the total costs associated with the Year 2000 issues will not have a material effect on the consolidated results of the Company. These estimates and conclusions contain forward-looking statements and are based on management's best estimates of future events. Risks to completing the Year 2000 plan include the availability of alternative software, the Company's ability to discover and correct potential Year 2000 problems which might have a serious impact on operations, and liquidity issues surrounding securities investments. Impact of New Accounting Standards In February 1998 and June 1998, FASB issued SFAS No. 132 "Employers' Disclosure about Pensions and Other Post-retirement Benefits" and SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," respectively. The Company does not expect the effect of the adoption of these pronouncements to have a material effect on results of operations or financial condition. PART II. - OTHER INFORMATION ITEM 5 - OTHER INFORMATION As disclosed in the Company's latest proxy statement, the deadline for Submitting proposals to be considered for inclusion in the Company's Proxy Statement for the 1999 Annual Meeting is January 1, 1999. Pursuant to recent amendments to Rule 14a-4(c)(1) under the Securities Exchange Act of 1934, the Company will have discretionary voting authority if a proponent does not notify the Company by March 2, 1999 of their intent to present a proposal from the floor at the 1999 Annual Meeting of Stockholders or of their intent to commence a proxy solicitation for the 1999 Annual Meeting of Stockholders. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: 10.21 Securities Purchase Agreement, dated as of October 21, 1998, between the Company and Elan International Services, Ltd. 10.22 Registration Rights Agreement, dated as of October 21, 1998, between the Company and Elan International Services, Ltd. 10.23* License Agreement, dated as of October 21, 1998, between the Company, Elan Corporation, plc, Endorex Newco, Ltd. and Elan Medical Technologies Ltd. 10.24* Joint Development and Operating Agreement, dated as of October 21, 1998, between the Company, Elan Corporation, plc, Elan International Services, Ltd. and Endorex Newco, Ltd. 27 Financial Data Schedule 99 Certain Factors that May Affect Future Results, Financial Condition, and the Market Price of Securities ____________________ * The Company has applied for confidential treatment of portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. b) Reports on Form 8-K: None. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ENDOREX CORP. /s/ Michael S. Rosen Michael S. Rosen President and Chief Executive Officer (principal executive officer) /s/ David G. Franckowiak David G. Franckowiak Vice President, Finance and Administration (principal financial and accounting officer) November 13, 1998 EX-10.21 2 SECURITIES PURCHASE AGREEMENT EXHIBIT 10.21 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT dated as of October 21, 1998 between ENDOREX CORP., a Delaware corporation (the "Company"), and ELAN INTERNATIONAL SERVICES, LTD., a Bermuda corporation ("EIS"). R E C I T A L S: A. The Company desires to issue and sell to EIS, and EIS desires to purchase from the Company, on the date hereof, as provided herein, 84,105 shares of Series C Convertible Preferred Stock (the "Series C Preferred Stock"), which shall be issued to EIS pursuant to the Certificate of Designations in the form attached hereto as Exhibit A (the "Certificate of Designations"), for aggregate --------- consideration of $8,410,500. B. The Company may hereafter issue a new series of convertible indebtedness, to be evidenced by a promissory note with a maximum permitted borrowing amount of $4,806,000 and otherwise in the form attached hereto as Exhibit B (the "Convertible Note"; together with the Series C Preferred Stock, - --------- the "Securities"), which EIS agrees to purchase in accordance with and subject to the terms and conditions contained herein, as requested by the Company. C. The Company and EIS have caused to be formed Endorex Newco, Ltd., a Bermuda corporation ("Newco"), for the purpose of researching, developing and commercializing certain technologies relating to certain intellectual property to be licensed to Newco as of the date hereof by an affiliate of EIS. The initial stockholders in Newco shall be the Company and EIS. The parties intend, as provided herein, that the proceeds of the issuance of the Series C Preferred Stock shall be applied by the Company solely to fund the Company's initial investment in Newco. D. The Company and EIS are executing and delivering on the date hereof a Registration Rights Agreement in the form attached hereto as Exhibit C --------- (the "Registration Rights Agreement"; together with this Agreement, the Securities, and each other document or instrument executed and delivered in connection with the transactions contemplated hereby, including in connection with the initial formation and capitalization of Newco, the "Transaction Documents") in respect of the common stock of the Company, par value $.001 per share (the "Common Stock"), underlying the Series C Preferred Stock and in respect of the shares of Common Stock into which the Convertible Note may be converted. A G R E E M E N T: The parties agree as follows: SECTION 1. Closings. -------- (a) Time and Place. The closing of the transactions contemplated -------------- hereby (the "Closing") shall occur on the date hereof (the "Closing Date"), at such place as the parties may agree. (b) Issuance of Securities. At the Closing, the Company shall issue ---------------------- and sell to EIS, and EIS shall purchase from the Company the Series C Preferred Stock for an aggregate purchase price of $8,410,500. (c) Execution of Convertible Note. At the Closing, the Company and ----------------------------- EIS shall enter into and execute the Convertible Note. (d) Delivery. At the Closing, EIS shall pay the purchase price for -------- the Series C Preferred Stock by wire transfer of immediately available funds to an account or accounts designated by the Company and the parties hereto shall execute and deliver to each other, as applicable: (i) a certificate or certificates for the shares of the Series C Preferred Stock; (ii) the Convertible Note; (iii) certificates as to the incumbency of the officers executing this Agreement and each of the other documents or instruments executed in connection herewith; and (iv) each of the other documents or instruments executed in connection herewith. In addition, at the Closing, the Company shall cause to be delivered to EIS an opinion of counsel in form attached hereto as Exhibit D. - --------- (e) Exemption from Registration. The Securities will be issued under --------------------------- an exemption or exemptions from registration under the Securities Act of 1933, as amended; accordingly, the certificates evidencing the Securities shall, upon issuance, contain the following legend: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR ANY APPLICABLE STATE SECURITIES LAWS. (f) Registration Rights Agreement. On the date hereof, the Company ----------------------------- and EIS are each executing and delivering the Registration Rights Agreement, covering the shares of any Common Stock issuable upon conversion, exercise or exchange of any of the Securities. SECTION 2. Representations and Warranties of the Company. The --------------------------------------------- Company hereby represents and warrants to EIS as follows: (a) Organization and Qualification. The Company is duly organized, ------------------------------ validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and lease its properties, to carry on its business as presently conducted and as proposed to be conducted and to consummate the transactions contemplated hereby. The Company is qualified and in good standing to do business in jurisdictions set forth on Schedule 2(a), which constitute all of the jurisdictions in which the - ------------- 2 nature of the business conducted or the property owned by it requires such qualification, except where the failure to so qualify would not have a Material Adverse Effect (as defined below) on the business, prospects, properties or condition (financial or otherwise) of the Company. (b) Capitalization. -------------- (i) The authorized capital stock of the Company as of September 30, 1998 consisted of 50,000,000 shares of Common Stock, of which 9,936,110 were issued and outstanding, and 500,000 shares of Preferred Stock, of which (A) 100,000 are designated as Series A Junior Participating Preferred Stock, none of which were issued or outstanding, and (B) 200,000 are designated as Series B Convertible Preferred Stock, of which 80,100 shares were issued and outstanding. (ii) Except as listed in Schedule 2(b) and in the Company's ------------- filings with the Securities and Exchange Commission on or prior to the date hereof (the "SEC Filings"), as of the Closing Date there are no options, warrants or other rights outstanding to purchase, subscribe for or otherwise acquire, or any securities convertible into, any of the Company's authorized capital stock. Other than as set forth in this Agreement and as described in Schedule 2(b), there are no agreements, arrangements or understandings - ------------- concerning the voting, acquisition or disposition of any of the Company's outstanding securities to which the Company is a party or of which it is otherwise aware, and, other than as set forth in Schedule 2(b) or in the ------------- Registration Rights Agreement, there are no agreements to register any of the Company's outstanding securities under the U.S. Federal securities laws. (iii) All of the outstanding shares of capital stock of the Company have been issued in accordance with applicable state and federal laws and regulations governing the sale and purchase of securities, all of such shares of have duly and validly issued and are fully paid and non-assessable, and none of such shares carries preemptive or similar rights. (c) Authorization of Transaction Documents. The Company has full -------------------------------------- corporate power and authority to execute and deliver this Agreement and each of the other Transaction Documents, and to perform its obligations hereunder and thereunder. The execution, delivery and performance by the Company of the Transaction Documents have been authorized by all requisite corporate actions by the Company; and the Transaction Documents have been duly executed and delivered by the Company, are the valid and binding obligations of the Company, and are enforceable against the Company in accordance with their respective terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the enforcement of creditors' rights generally, and except as enforcement of rights to indemnity and contribution hereunder and thereunder may be limited by U.S. Federal or state securities laws or principles of public policy. (d) No Conflicts. The execution, delivery and performance by the ------------ Company of the Transaction Documents, and compliance with the provisions thereof by the Company, will not (i) violate any provision of applicable law, statute, rule or regulation applicable to the Company or any ruling, writ, injunction, order, judgment or decree of any court, arbitrator, administrative agency or other governmental body applicable to the Company or any of their respective properties or assets or (ii) conflict with or result in a breach of any of the terms, 3 conditions or provisions of, or constitute (with notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, or result in the creation of, any Encumbrance (as defined below) upon any of the properties or assets of the Company under its Certificate of Incorporation, as amended, its Certificate of Designations (in the form to be filed as provided herein) or By-laws, or any material contract to which the Company is a party, except where such violation, conflict or breach would not, individually or in the aggregate, have a material adverse effect on the business, prospects, properties or condition (financial or otherwise) of the Company (a "Material Adverse Effect"). As used herein, "Encumbrance" shall mean any liens, charges, encumbrances, equities, claims, options, proxies, pledges, security interests, or other similar rights of any nature, except for such conflicts, breaches or defaults which would not, individually or in the aggregate, have a Material Adverse Effect. (e) Approvals. Except as set forth on Schedule 2(e), no material --------- ------------- permit, authorization, consent or approval of or by, or any notification of or filing with, any person or entity (governmental or otherwise) is required in connection with the execution, delivery or performance of the Transaction Documents by the Company. There is no approval of the Company's stockholders required under applicable laws in connection with the execution and delivery the Transaction Documents or the consummation of the transactions contemplated thereby, including the filing of the Certificate of Designations and the issuance of the Securities. (f) Filings, Taxes and Financial Statements. --------------------------------------- (i) The Company has filed its annual report on Form 10-KSB for the fiscal year ended December 31, 1997 (the "Annual Report"), its related proxy materials and the quarterly report on Form 10-QSB for the quarter ended June 30, 1998 (the "Quarterly Report,") with the Securities and Exchange Commission and any other required person or entity (governmental or otherwise) in a timely manner and as otherwise required by applicable laws and regulations, including the federal securities acts. The audited financial statements of the Company for the fiscal year ended December 31, 1997 included in the Annual Report (the "Audited Financial Statements"), and the Company's unaudited balance sheet for the period ending June 30, 1998, together with the accompanying statements of operations and cash flows including the notes thereto (the "June Financial Statements"; collectively, with the Audited Financial Statements, the "Financial Statements") are accurate and complete in all material respects and fairly present the financial condition of the Company as at the dates thereof and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated (except as may be otherwise indicated in such financial statements or the notes thereto), subject, in the case of the June Financial Statements, to normal year-end audit adjustments (which shall not be material in the aggregate) and the absence of footnote disclosures. (ii) The Company has filed in a timely manner all material federal, state, local and foreign tax returns, reports and filings (collectively, "Returns"), including income, franchise, property and other taxes, and has paid or accrued the appropriate amounts reflected on such Returns. None of the Returns have been audited or challenged, nor has the Company received any notice of challenge nor have any of the amounts or other data included in the Returns been challenged or reviewed by any governmental authority. 4 (iii) Except as listed in Schedule 2(f), which sets forth a true ------------- and accurate list and description of any such plans maintained or sponsored by the Company or to which the Company is required to make contributions, the Company does not maintain, sponsor, is not required to make contributions to or otherwise have any liability with respect to any pension, profit sharing, thrift or other retirement plan, employee stock ownership plan, deferred compensation, stock ownership, stock purchase, performance share, bonus or other incentive plan, severance plan, health or group insurance plan, welfare plan, or other similar plan, agreement, policy or understanding (whether written or oral), whether or not such plan is intended to be qualified under Section 401(a) of the Code, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, which plan covers any employee or former employee of the Company. (g) Absence of Changes. Except as set forth on Schedule 2(g), since ------------------ ------------- June 30, 1998, there has not been (a) any material adverse change in the business, properties, condition (financial or otherwise), operations or prospects of the Company; (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the business, properties, condition (financial or otherwise), operations or prospects of the Company; (c) any declaration, setting aside or payment of any dividend or other distribution or payment (whether in cash, stock or property) in respect of the capital stock of the Company, or any redemption or other acquisition of such stock by the Company; (d) any disposal or lapse of any trade secret, invention, patent, trademark, trademark registration, service mark, service mark registration, copyright, copyright registration, or any application therefor or filing in respect thereof; (e) loss of the services of any of the key officers or key employees of the Company; (f) any incurrence of or entry into any liability, mortgage, lien, commitment or transaction, including without limitation, any borrowing (or assumption or guarantee thereof) or guarantee of a third party's obligations, or capital expenditure (or lease in the nature of a conditional purchase of capital equipment) in excess of $50,000; or (g) any material change by the Company in accounting methods or principles or (h) any change in the assets, liabilities, condition (financial or otherwise), results or operations or prospects of the Company from those reflected on the Quarterly Report, except changes in the ordinary course of business that have not, individually or in the aggregate, had a Material Adverse Effect. (h) No Liabilities. Except as set forth in the SEC Filings or -------------- Schedule 2(h), the Company has not incurred or suffered any liability or - ------------- obligation, matured or unmatured, contingent or otherwise, except in the ordinary course of business, that has had, individually or in the aggregate, a Material Adverse Effect. (i) Properties and Assets; Etc. -------------------------- (i) The Company does not own any interest in real property, and (ii) the Company owns or has the right to use pursuant to license, sub- license, agreement or permission all Intellectual Property necessary for the operation of its business as presently conducted, including patents, patent applications, continuations, continuations-in-part, extensions, trademarks and trademark applications, know-how and other intellectual property, as reflected in the Financial Statements, subject in each case, to no Encumbrances required to be disclosed in the Financial Statements except as set forth therein. Except as set forth on Schedule 2(i), (A) all of the Company's patents, trademarks, ------------- service marks, trade names, and copyrights 5 which are owned by the Company are owned free and clear of all liens, claims and encumbrances and are valid and duly issued or existing; none of the Company's rights in or use of such patents, trademarks, service marks, trade names or copyrights has been or is currently being threatened to be, challenged; to the Company's knowledge, no current or currently planned product based upon the Company's intellectual property would infringe any patent, trademark, service mark, trade name or copyright of any other person or entity issued or pending on the Closing Date if the Company were to distribute, sell or manufacture such products; and the Company is not aware, after due inquiry, of any actual or threatened claim by any person or entity alleging any infringement by the Company of a patent, trademark, service mark, trade name or copyright possessed by such Person; (B) all of such patents, trademark registrations, service mark registrations, trade name registrations and copyrights and copyright registrations, whether foreign or domestic, have been duly issued and have not been canceled, abandoned, or otherwise terminated; and (C) all of the Company's patent applications, trademark applications, service mark applications, trade name applications and copyright applications have been duly filed. (ii) Each of the contracts listed as an exhibit to the Company's Annual Report (each, a "Contract") is a legal and valid agreement binding upon each of the parties thereto and is in full force and effect and, to the best knowledge of the Company, there is no breach or default by any party thereunder. Such Contracts constitute all material agreements, arrangements or understandings required to be included in such Annual Report under Securities and Exchange Commission regulations promulgated in connection therewith. (iii) The Company has and maintains adequate and sufficient insurance, including liability, casualty and products liability insurance, covering risks associated with its business, properties and assets, including insurance that is customary for companies similarly situated. (iv) The Company, its business and properties and assets are in compliance, in all material respects, with all applicable laws and regulations, including without limitation, those relating to (a) health, safety and employee relations, (ii) environmental matters, including the discharge of any hazardous or potentially hazardous materials into the environment, and (iii) the development, commercialization and sale of pharmaceutical and biotechnology products, including all applicable regulations of the U.S. Food and Drug Administration and comparable foreign regulatory authorities. (j) Legal Proceedings, etc. There is no legal, administrative, ---------------------- arbitration or other action or proceeding or governmental investigation pending or threatened against the Company, or any director, officer or employee of the Company, which is required to be described in the Company's SEC Filings and is not so described. The Company is not in violation of or default under, any material laws, judgments, injunctions, orders or decrees of any court, governmental department, commission, agency, instrumentality or arbitrator applicable to its business. (k) Disclosure. The Company's SEC Filings and the representations and ---------- warranties set forth herein and in the other Transaction Documents, when viewed collectively, do 6 not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained herein and therein not misleading. (l) Brokers or Finders. Other than as set forth on Schedule 2(l), the ------------------ ------------- Company has not retained any investment banker, broker or finder in connection with the transactions contemplated by the Transaction Documents; and the Company agrees to indemnify and hold EIS harmless against any liability, settlement or expense arising out of, or in connection with, any claims related thereto. SECTION 3. Representation and Warranties of EIS. EIS hereby ------------------------------------ represents and warrants to the Company as follows: (a) Organization. EIS is a corporation duly organized, validly ------------ existing and in good standing under the laws of Bermuda and has all requisite corporate power and authority to own and lease its properties, to carry on its business as presently conducted and as proposed to be conducted and to consummate the transactions contemplated hereby. EIS is qualified and in good standing to do business in each jurisdiction in which the nature of the business conducted or the property owned by it requires such qualification, except where the failure to so qualify would not reasonably be expected to have a material adverse effect on the business or condition (financial or otherwise) of EIS. (b) Authorization of Agreement. EIS has full legal right, power and -------------------------- authority to enter into this Agreement and each of the other Transaction Documents, to purchase and accept the Series C Preferred Stock, to enter into the Convertible Note, and to perform its obligations hereunder and thereunder, which have been duly authorized by all requisite corporate action. This Agreement and each of the other Transaction Documents are the valid and binding obligations of EIS, enforceable against them in accordance with their terms. (c) No Conflicts. The execution, delivery and performance by EIS of ------------ this Agreement and each of the other Transaction Documents, the purchase and acceptance of the Series C Preferred Stock and compliance with provisions hereof and thereof by EIS, will not (i) violate any provisions of applicable law, statute, rule or regulation applicable to EIS or any ruling, written, injunction, order, judgment or decree of any court, arbitration, administrative agency of other governmental body applicable to EIS of any of its properties or assets or (ii) conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute (with notice or lapse of time to both) a default (or give rise to any right of termination, cancellation or acceleration) under, or result in the creation of any Encumbrance upon any of the properties or assets of EIS under the Articles of Association or By-laws of EIS or any material contract to which EIS is party, except where such violation conflict or breach would not, individually or in the aggregate, have a Material Adverse Effect on EIS. (d) Approvals. No permit, authorization, consents or approval of or --------- by, or any notification of or filing with, any person or entity (governmental or otherwise) is required in connection with the execution, delivery or performance of this Agreement or the Note (including the funding and acceptance thereof) by EIS. 7 (e) Investment Representations. -------------------------- (i) EIS is sophisticated in transactions of this type and capable of evaluating the merits and risks of the transactions described herein and in the other Transaction Documents, and has the capacity to protect its own interests. EIS has not been formed solely for the purpose of entering into the transactions described herein and therein and is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with the view to, or for sale in connection with, any distribution of any part thereof; provided, that EIS shall be permitted to convert or exchange such Securities and/or transfer them as permitted herein and under applicable law. (ii) Nothing contained in this Section 3(e) shall limit any of the Company's representations or warranties or limit EIS's recourse in respect thereof. (iii) Other than as set forth on Schedule 3(e)(iii), EIS has not ------------------ retained any investment banker, broker or finder in connection with the transactions contemplated by the Transaction Documents; and EIS agrees to indemnify and hold the Company harmless against any liability, settlement or expense arising out of, or in connection with, any claims related thereto. (f) Standstill. EIS shall not, for a period of two years from the ---------- Closing Date, without the prior written approval of the Company's board of directors, (i) acquire any of the Company's Common Stock (or securities exchangeable, convertible or exercisable therefor) other than as contemplated herein, (ii) enter into any merger, consolidation or similar transaction with the Company, (iii) otherwise attempt to influence such board of directors or the Company's stockholders to effect a merger, consolidation, sale of all or substantially all of the Company's assets or business or (iv) make any public announcement relating to (i), (ii) or (iii) above; provided, that the foregoing shall not be applicable in the event that any person or group not affiliated with EIS (as defined in the regulations under the Securities Exchange Act of 1934) (A) acquires 5% or greater of the Company's Common Stock (or any such exchangeable, convertible or exercisable securities) or (B) otherwise attempts to influence the board of directors of Endorex with respect to a merger, consolidation, asset sale or similar transaction or (C) indicates publicly its intention to effect any transaction in (A) or (B). SECTION 4. Covenants. --------- (a) Fully-diluted Stock Ownership. Notwithstanding any other ----------------------------- provision of this Agreement, in the event that EIS shall have determined that at any time it (together with its Affiliates, if applicable) holds or has the right to receive Common Stock (or securities or rights, options or warrants exercisable, exchangeable or convertible for or into Common Stock) representing in the aggregate in excess of 19.9% of the Company's outstanding Common Stock on a fully-diluted basis (i.e. assuming the exercise, exchange or conversion of those securities beneficially owned by EIS or its Affiliates, but not the exercise, exchange or conversion of any other similar securities), EIS shall have the right, in its sole discretion, rather than acquiring such securities from the Company, to exchange such number of securities, as are necessary to bring its holdings to below 19.9% of the voting securities of the Company, for non-voting, liquidation preference equity securities of the Company (which shall be reasonably satisfactory to each of 8 the Company and EIS), which equity securities shall be entitled to all of the other rights and benefits of the Common Stock. In the event that EIS shall undertake to exercise such right, EIS shall retain the additional right to exchange such new class of equity security for Common Stock, in its discretion. (b) Use of Proceeds. The Company shall use the proceeds of (i) the --------------- sale of the Series C Preferred Stock solely to meet its capitalization and funding requirements to Newco, and (ii) the disbursements under the Convertible Note (if any) solely to meet its development funding obligations to Newco. (c) Further Assurances. From and after the date hereof, each of the ------------------ parties hereto agrees to do or cause to be done such further acts and things and deliver or cause to be delivered to each other such additional assignments, agreements, powers and instruments, as each may reasonably require or deem advisable to carry into effect the purposes of the Transaction Documents or to better to assure and confirm unto each other their respective rights, powers and remedies hereunder and thereunder. SECTION 5. Entire Agreement. This Agreement and the other ---------------- Transaction Documents contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings among the parties with respect thereto; provided, that Section 6 of the letter agreement dated September 30, 1998 (the "Letter Agreement") between Elan Corporation, plc, an Irish public limited company and EIS, on the one hand, and the Company, on the other hand, shall survive the execution and delivery hereof and be subject to the provisions of Section 6 hereof. SECTION 6. Survival and Indemnification. ---------------------------- (a) Survival Period. The representations and warranties of the --------------- Company contained herein shall survive for a period of three years after the date hereof. (b) Indemnification. In addition to all rights and remedies available --------------- to the parties hereunder at law or in equity, the Company shall indemnify EIS, and its respective affiliates, and their respective stockholders, officers, directors, employees, agents, representatives, successors and assigns (collectively, the "Indemnified Person"), and save and hold each Indemnified Person harmless from and against and pay on behalf of or reimburse each such Indemnified Person, as and when incurred, for any and all loss, liability, demand, claim, action, cause of action, cost, damage, deficiency, tax, penalty, fine or expense, whether or not arising out of any claims by or on behalf of such Indemnified Person or any third party, including interest, penalties, reasonable attorneys' fees and expenses and all amounts paid in investigation, defense or settlement of any of the foregoing (collectively, "Losses"), that any such Indemnified Person may suffer, sustain incur or become subject to, as a result of, in connection with, relating or incidental to or by virtue of: (i) any misrepresentation or breach of warranty on the part of the Indemnifying Party under Section 2 of this Agreement or Section 4 of the Letter Agreement; or 9 (ii) any nonfulfillment, default or breach of any covenant or agreement on the part of the Indemnifying Party under Section 4 of this Agreement. (c) Maximum Recovery. The maximum recovery of EIS under this Section ---------------- 6 shall not exceed the sum of (x) $8,410,500 and (y) the amount outstanding (if any) under the Convertible Note at the time of any claim for indemnity hereunder. No Indemnified Person shall assert any such claim unless Losses in respect thereof incurred by any Indemnified Person, when aggregated with all previous Losses hereunder, equal or exceed $50,000, and the obligation of the Company to indemnify shall not apply to the first $50,000 of losses to the Indemnified Person. (d) Exception. Notwithstanding the foregoing, and subject to the --------- following sentence, upon judicial determination that is final and no longer appealable, that the act or omission giving rise to the indemnification set forth above resulted primarily out of or was based primarily upon the Indemnified Person's negligence (unless such Indemnified Person's negligence was based upon the Indemnified Person's reliance in good faith upon any of the representations, warranties, covenants or promises made by the Company herein), the Company shall not be responsible for any Losses sought to be indemnified in connection therewith, and the Company shall be entitled to recover from the Indemnified Persons all amounts previously paid in full or partial satisfaction of such indemnity, together with all costs and expenses (including reasonable attorneys fees) of the Company reasonably incurred in connection with the Indemnified Person's claim for indemnity, together with interest at the rate per annum publicly announced by Morgan Guaranty Trust Company as its prime rate from the time of payment of such amounts to the Indemnified Person until repayment to the Company. (e) Investigation. All indemnification rights hereunder shall survive ------------- the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby to the extent provided in Section 6(b) above, irrespective of any investigation, inquiry or examination made for or on behalf of, or any knowledge of the Indemnified Persons or the acceptance of any certificate or opinion. (f) Contribution. If the indemnity provided for the this Section 6 ------------ shall be, in whole or in part, unavailable to any Indemnified Person, due to Section 6(b) being declared unenforceable by a court of competent jurisdiction based upon reasons of public policy, so that Section 6(b) shall be insufficient to hold each such Indemnified Person harmless from Losses which would otherwise be indemnified hereunder, then the Company and the Indemnified Person shall each contribute to the amount paid or payable for such Loss in such proportion as is appropriate to reflect not only the relative benefits received by the Company on the one hand and the Indemnified Person on the other, but also the relative fault of the Company and be in addition to any liability that the Company may otherwise have. Subject to Section 6(h) hereunder, the indemnity, contribution and expense reimbursement obligations that the Company has under this Section 6 shall survive the expiration of the Transaction Documents. The parties hereto further agree that the indemnification and reimbursement commitments set forth in this Agreement shall apply whether or not the Indemnified Person is a formal part to any such lawsuit, claims or other proceedings. 10 (g) Limitation. No claim shall be brought by an Indemnified Person in ---------- respect of any misrepresentation or breach of warranty under this Agreement after three years from and after the date hereof unless written notice thereof shall have been provided prior to such three year period, in which case surviving claims shall be limited to those in such notice; and any claim for nonfulfillment, default or breach of any covenant shall be brought within one year of the date of that such Indemnified Person became aware or should have become aware of the nonfulfillment, default or breach, unless written notice thereof shall have been provided prior to such one-year period, in which case such surviving claims shall be limited to those in such notice. Except as set forth in the previous sentence and in Section 6(c) above, this Section 6 is not intended to limit the rights or remedies otherwise available to any party hereto with respect to this Agreement or the Transaction Documents. SECTION 7. Notices. All notices, demands and requests of any kind to ------- be delivered to any party in connection with this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally-recognized overnight courier or by registered or certified airmail, return receipt requested and postage prepaid, addressed as follows: (i) if to the Company, to: Endorex Corp. 900 Lake Shore Drive Lake Bluff, Illinois 60044 Attn: President with a copy to: Brobeck, Phleger & Harrison LLP 1633 Broadway, 47/th/ Floor New York, New York 10019 Attention: Nigel L. Howard, Esq. (ii) if to EIS, to: Elan International Services, Ltd. 102 St. James Court Flatts, Smiths Parish Bermuda FL04 Attention: Director with a copy to: Brock Silverstein McAuliffe LLC 153 East 53rd Street, 56/th/ Floor New York, New York 10022 Attention: David Robbins, Esq. 11 or to such other address as the party to whom notice is to be given may have furnished to the other party hereto in writing in accordance with provisions of this Section 7. Any such notice or communication shall be deemed to have been received (i) in the case of personal delivery, on the date of such delivery, (ii) in the case nationally-recognized overnight courier, on the second business day after the date when sent and (iii) in the case of mailing, on the fifth business day following that day on which the piece of mail containing such communication is posted. Notice hereunder may be given on behalf of the parties by their respective attorneys. SECTION 8. Amendments. This Agreement may not be modified or ---------- amended, or any of the provisions hereof waived, except by written agreement of the Company and EIS. SECTION 9. Counterparts and Facsimile. The Transaction Documents may -------------------------- be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute one agreement. Each of the Transaction Documents may be signed and delivered to the other party by facsimile transmission; such transmission shall be deemed a valid signature. SECTION 10. Headings. The section and paragraph headings contained -------- in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of the Agreement. SECTION 11. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of New York, without giving effect to the principles thereof relating to conflicts of laws. SECTION 12. Expenses. Each of the parties shall be responsible for -------- its own costs and expenses incurred in connection with the transactions contemplated hereby and by the other Transaction Documents. SECTION 13. Public Releases; Etc. Neither the Company nor EIS shall, -------------------- except as required by applicable law or judicial or administrative process or pursuant to arrangements with financial, accounting or legal advisors, disclose to any person or entity, publicly or privately, this Agreement or the substance of the transactions contemplated hereby, without the prior written consent of the other party. Prior to issuing any press release or public disclosure in respect of this Agreement or the transactions contemplated hereby, the party proposing such issuance shall obtain the consent of the other party to the contents thereof, which consent shall not be unreasonably withheld or delayed; it being understood that if such second party shall not have responded to such consent request within one business day, such consent shall be deemed given. SECTION 14. Schedules, etc. All statements contained in any exhibit -------------- or schedule delivered by or on behalf of the parties hereto, or in connection with the transactions contemplated hereby, are an integral part of this Agreement and shall be deemed representations and warranties hereunder. SECTION 15. Assignments. This Agreement and all of the provisions ----------- hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement, the other Transaction Documents, and the Securities 12 may be transferred by EIS to affiliates and subsidiaries without restriction or other entities in which any affiliates of EIS may have a contractual or equity interest (so long as EIS acts as agent or nominee for determinations hereunder); provided, however, that EIS shall remain liable for its obligations hereunder after any such assignment. Other than as set forth above, no party shall transfer or assign this Agreement or the other Transaction Documents or any interest therein without the prior written consent of the other party. [Signature page follows] 13 IN WITNESS WHEREOF, each of the undersigned has duly executed this Securities Purchase Agreement as of the date first written above. Endorex Corp. By:/s/ David G. Franckowiak ------------------------------------------------ Name: David G. Franckowiak Title: Vice President, Finance and Administration Elan International Services, Ltd. By:/s/ Kevin Insley ------------------------------------------------ Name: Kevin Insley Title: President and Chief Financial Officer 14 Schedule 2(a) ------------- to the Securities Purchase Agreement Organization and Qualification ------------------------------ Delaware Illinois i Schedule 2(b) ------------- to the Securities Purchase Agreement Capitalization -------------- (a) Warrants. As described in the Company's SEC filings, there are outstanding warrants (i) to purchase up to 66,668 shares of the Company's Common Stock at $2.3125 per share exercisable until April 16, 2002, (ii) to purchase 2,162,162 shares of the Company's Common Stock at $2.54375 per share exercisable from April 16, 1998 until April 16, 2003 and (iii) to purchase 230,770 shares of the Company's Common Stock at $10.00 per share exercisable until January 20, 2004. (b) Options. Pursuant to the Company's Amended and Restated 1995 Omnibus Incentive Plan, which authorizes the grant of options to purchase up to 2,000,000 shares of the Company's Common Stock, there are outstanding options to purchase 1,483,172 shares of Common Stock. (c) Registration Rights. Pursuant to agreements dated as of March 1, 1996 and June 26, 1996, the holders of approximately 666,667 shares of the Company's Common Stock are entitled to certain demand, piggyback and S-3 registration rights. Pursuant to various Subscription Agreements dated as of July 16, 1997, October 10, 1997 and October 17, 1997 and a Placement Agency Agreement dated July 1, 1997, the Company filed a registration statement on Form S-2 (the "Registration Statement") to register 10,655,202 shares of the Company's Common Stock. The Registration Statement was declared effective on August 5, 1998. Pursuant to a Registration Rights Agreement, dated as of January 21, 1998, between the Company and EIS, EIS is entitled to certain demand and piggyback registration rights with respect to (i) certain shares of Common Stock issued pursuant to a Stock Purchase Agreement dated as of January 21, 1998, (ii) Common Stock issued or issuable upon conversion of certain shares of Series B convertible preferred stock and (iii) Common Stock issued or issuable upon exercise of a warrant to purchase 230,770 shares of Common Stock. ii Schedule 2(e) ------------- to the Securities Purchase Agreement Approvals --------- None. iii Schedule 2(f) ------------- to the Securities Purchase Agreement Filings, Taxes and Financial Statements --------------------------------------- Amended and Restated 1995 Omnibus Incentive Plan. iv Schedule 2(g) ------------- to the Securities Purchase Agreement Absence of Changes ------------------
Capital Expenditures: Leasehold Improvements $ 113,222 Lab Equipment $ 37,960 --------- Total Capital Expenditures $ 151,182 =========
v Schedule 2(h) ------------- to the Securities Purchase Agreement No Liabilities -------------- None. vi Schedule 2(i) ------------- to the Securities Purchase Agreement Intellectual Property --------------------- None. vii Schedule 2(j) ------------- to the Securities Purchase Agreement Brokers or Finders ------------------ (a) The Company and Paramount Capital, Inc. ("Paramount") have entered into a financial advisory agreement (the "Financial Advisory Agreement"), dated October 16, 1997, whereby Paramount acts as the Company's non-exclusive financial advisor for a minimum period of 24 months. viii EXHIBIT A CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK OF ENDOREX CORP. The undersigned officers of Endorex Corp., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), do hereby certify that, pursuant to authority conferred by the Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation"), and pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation adopted a resolution adopting a Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock (this "Certificate of Designations") providing for certain designations, powers, number, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of 200,000 shares of Series C Convertible Preferred Stock, par value $.05 per share, which resolution is as follows: RESOLVED: That pursuant to Article Fourth of the Certificate of Incorporation, as amended, of this Corporation, the Board of Directors hereby establishes the following series of Preferred Stock, par value $.05 per share (the "Preferred Stock"), of the Corporation having the designations, powers, number, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof set forth below: 1. Designation. 200,000 shares of the Preferred Stock shall be ----------- designated and known as the "Series C Convertible Preferred Stock." Such number of shares may be increased or decreased by resolution of the Board of Directors after obtaining the consent of a majority in interest of the then outstanding shares of Series C Convertible Preferred Stock; provided, however, that no decrease shall reduce the number of shares of Series C Convertible Preferred Stock to a number less than the number of shares then outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. 2. Dividend Provisions. ------------------- (a) Subject to the prior and superior rights of any series of Preferred Stock which may from time to time come into existence, the holders of shares of Series C Convertible Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible solely into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation) on the Common Stock of the Corporation, at the rate of seven percent (7%) per annum. Such dividends shall be cumulative and accrue annually on the last day of December (except that if any such date is a Saturday, Sunday or legal holiday, then such dividend shall be payable on the next day that is not a Saturday, Sunday or legal holiday), in each year, commencing on December 31, 1998, for each full year and each portion of a year that the share entitled to such dividend is outstanding. (b) Such dividends shall be payable in shares (but not fractional shares) of Series C Convertible Preferred Stock. (c) In addition, when and if the Board of Directors shall declare a dividend or distribution payable with respect to the then outstanding shares of Common Stock of the Corporation (other than a dividend payable solely in shares of Common Stock), the holders of the Series C Convertible Preferred Stock shall be entitled to the amount of dividends per share as would be payable on the largest number of whole shares of Common Stock into which each share of Series C Convertible Preferred Stock could then be converted pursuant to Section 5 hereof (such number to be determined as of the record date for the determination of holders of Common Stock entitled to receive such dividend). 3. Liquidation Preference. ---------------------- (a) In the event of any liquidation, dissolution or winding-up of the affairs of the Corporation, whether voluntary or involuntary (collectively, a "Liquidation"), before any payment of cash or distribution of other property shall be made to the holders of the Common Stock (the "Common Stockholders") or any other class or series of stock subordinate in Liquidation Preference to the Series C Convertible Preferred Stock, the Series C Convertible Preferred Stockholders shall be entitled to receive out of the assets of the Corporation legally available for distribution to its stockholders, an amount equal to the sum of (i) the Original Purchase Price per share (as appropriately adjusted for any combinations or divisions or similar recapitalizations affecting the Series C Convertible Preferred Stock after issuance) (the "Series C Liquidation Preference"), out of funds legally available therefor, and (ii) an amount equal to any declared but unpaid dividends thereon. As used herein, the "Original Purchase Price" is $100 per share. (b) If, upon any Liquidation, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the Series C Convertible Preferred Stockholders the full amounts to which they shall be entitled, the Series C Convertible Preferred Stockholders shall share ratably in any distribution of assets in proportion to the respective amounts which would be payable to them in respect of the shares held by them if all amounts payable to them in respect of such were paid in full pursuant to Section 3(a). (c) After the distributions described in subsection (a) above have been paid, subject to the rights of other series of Preferred Stock which may from time to time come into existence, the remaining assets of the Corporation available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held by each. (d) For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but, excluding any 2 merger effected exclusively for the purpose of changing the domicile of the Corporation), unless the Corporation's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition (by virtue of securities issued as consideration for the Corporation's acquisition) hold at least 50% of the voting power of the surviving or acquiring entity; or (B) a sale of all or substantially all of the assets of the Corporation. (i) In any of such events, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value, which shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below: (1) If traded on a securities exchange or through Nasdaq (as defined below), the average of the closing prices of the securities on such exchange during the thirty (30) day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (3) If there is no active public market, the fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Series C Convertible Preferred Stock. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of such Preferred Stock. (ii) In the event the requirements of this subsection 3(d) are not complied with, the Corporation shall forthwith either: (A) cause such closing to be postponed until such time as the requirements of this Section 3 have been complied with; or (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series C Convertible Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 3(d)(iii) hereof. (iii) The Corporation shall give each holder of record of Series C Convertible Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) 3 days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 3, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such Preferred Stock. 4. Exchange. -------- (a) At any time on or after the date upon which any shares of Series C Convertible Preferred Stock were first issued (the "Purchase Date"), each holder of record of Series C Convertible Preferred Stock may, at its option, on one occasion, exchange (the "Exchange Right") the Series C Convertible Preferred Stock for shares of common stock, par value $1.00 per share, of Endorex Newco, Ltd., a Bermuda corporation ("Newco"), formed by the Corporation and Elan International Systems, Ltd., such that the aggregate percentage ownership of all holders of record of Series C Convertible Preferred Stock becomes fifty percent (50%) of the then outstanding shares of Newco common stock (the "Newco Common Stock"), provided that all holders of record of Series C Convertible Preferred Stock shall elect to exercise the Exchange Right at the same time and shall have not exercised any portion of the Conversion Rights (as defined herein). (b) To exercise the Exchange Right under this Paragraph 4, each holder of record of Series C Convertible Preferred Stock, not more than ninety (90) nor less than forty-five (45) days prior to the date on which the Exchange Right is to be exercised (the "Exchange Date"), shall give notice by first class mail, postage prepaid, to the Corporation. Each such notice of exchange shall specify the Exchange Date; the place or places for delivery; that accrued but unpaid dividends to the Exchange Date are to be paid on the Exchange Date; and that on and after the Exchange Date, such shares of Series C Convertible Preferred Stock shall be surrendered and extinguished, and all rights whatsoever with respect to such shares, including any rights of conversion, shall terminate. On or after the Exchange Date, as stated in such notice, each holder of the shares of Series C Convertible Preferred Stock shall surrender the certificate evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive such number of shares of Newco Common Stock so as to increase the aggregate percentage ownership of all holders of record of Series C Convertible Preferred Stock to 50% of the then outstanding shares of Newco Common Stock. (c) Neither the Corporation nor Newco shall be liable to pay any tax which may become due or payable in respect of any transfer involved in the issue and delivery upon exchange of the Series C Convertible Preferred Stock for the Newco Common Stock in a name other than that of the record holder of the shares of the Series C Convertible Preferred Stock being exchanged. In addition, neither the Corporation nor Newco shall be required to issue or deliver any such shares unless and until the person or persons requesting the issuance thereof shall have (i) paid to the Corporation or Newco the amount of any such tax, (ii) 4 established to the satisfaction of the Corporation or Newco that such tax has been paid or (iii) agreed in writing to indemnify the Corporation and Newco from and against any liability arising from a failure to pay or withhold such tax, as well as any interest and penalty related thereto. 5. Conversion. The holders of the Series C Convertible Preferred ---------- Stock shall have conversion rights (the "Conversion Rights") as follows: (a) Right to Convert. Each share of Series C Convertible ---------------- Preferred Stock shall be convertible, at the option of the holder thereof, at any time two years after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series C Liquidation Preference by the conversion price applicable to such share (the "Conversion Price"), determined as hereafter provided, in effect on the date the certificate is surrendered for conversion; provided, however, that in no event shall any holder of Series C Convertible Preferred Stock be entitled to convert his, her or its shares of Series C Convertible Preferred Stock in excess of that number of Series C Convertible Preferred Stock which, upon giving effect to such conversion, would cause the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates to exceed nineteen and nine- tenths percent (19.9%) of the outstanding shares of Common Stock following such conversion. For purposes of the foregoing provision, the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series C Convertible Preferred Stock with respect to which the determination of such provision is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted shares of Series C Convertible Preferred Stock beneficially owned by the holder and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the holder and its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 5(a), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. The initial Conversion Price per share for shares of Series C Convertible Preferred Stock shall be $9.00; provided, however, that the Conversion Price for the Series C Convertible Preferred Stock shall be subject to adjustment as set forth in subsection 5(d). (b) Automatic Conversion. Each share of Series C Convertible -------------------- Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series C Convertible Preferred Stock immediately upon the earlier of (i) October 21, 2002 and (ii) the Corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, the public offering price of which is not less than $9.00 per share (adjusted to reflect subsequent stock dividends, combinations, splits or recapitalization) and with aggregate gross proceeds of not less than $10,000,000 (a "Qualified Public Offering"). (c) Mechanics of Conversion. Before any holder of Series C ----------------------- Convertible Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series C Convertible Preferred Stock, and shall 5 give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series C Convertible Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series C Convertible Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with a Qualified Public Offering, the conversion may, at the option of any holder tendering Series C Convertible Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Series C Convertible Preferred Stock shall not be deemed to have converted such Series C Convertible Preferred Stock until immediately prior to the closing of such sale of securities. (d) Conversion Price Adjustments of Preferred Stock for Certain ----------------------------------------------------------- Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series - ------------------------------------------- C Convertible Preferred Stock shall be subject to adjustment from time to time as follows: (i) (A) If the Corporation shall issue, after the Purchase Date, any Additional Stock (as defined below) without consideration or for a consideration per share less than the Closing Price on such date, the Conversion Price for such series in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this clause (i)) be adjusted to a price equal to a price determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the sum of (w) the number of shares of Common Stock outstanding immediately prior to such issuance (assuming the conversion of all then outstanding shares of Series C Convertible Preferred Stock and including shares issued or issuable pursuant to Section 5(d)(ii)(B)) and (x) the number of shares of Common Stock that the aggregate consideration received by the Corporation for such issuance would purchase at such Conversion Price; and the denominator of which shall be the sum of (y) the number of shares of Common Stock outstanding immediately prior to such issuance (assuming the conversion of all then outstanding shares of Series C Convertible Preferred Stock and including shares issued or issuable pursuant to Section 5(d)(ii)(B)) and (z) the number of shares of such Additional Stock. (B) No adjustment of the Conversion Price for the Series C Convertible Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three (3) years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three (3) years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this subsection 5(d)(i) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. 6 (C) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. (D) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors irrespective of any accounting treatment. (E) In the case of the issuance (whether before, on or after the applicable Purchase Date) of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this subsection 5(d)(i) and subsection 5(d)(ii): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (to the extent then exercisable) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subsections 5(d)(i)(C) and (d)(i)(D)), if any, received by the Corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (to the extent then convertible or exchangeable) for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections 5(d)(i)(C) and (d)(i)(D)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price of the Series C Convertible Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. 7 (4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price of the Series C Convertible Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to subsections 5(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either subsection 5(d)(i)(E)(3) or (4). (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to subsection 5(d)(i)(E)) by the Corporation after the Purchase Date to Affiliates of the Corporation or directors, officers, employees or agents of such Affiliates, other than shares of Common Stock issuable or issued to employees, consultants or directors of the Corporation directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of the Corporation (provided that the sum of such number of shares of Common Stock issuable or issued pursuant to such stock option plan or restricted stock plan shall in no event represent more than fifteen percent (15%) of the authorized number of shares of Common Stock). "Affiliates" shall mean, with respect to any party, any entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such party. For purposes of this definition, "control" means the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract or otherwise. (iii) In the event the Corporation should at any time or from time to time after the Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series C Convertible Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in subsection 5(d)(i)(E). 8 (iv) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series C Convertible Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. (e) Other Distributions. In the event the Corporation shall declare a ------------------- distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 5(d)(iii), then, in each such case for the purpose of this subsection 5(e), the holders of the Series C Convertible Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series C Convertible Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. (f) Recapitalizations. If at any time or from time to time there ----------------- shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 5 or Section 3) provision shall be made so that the holders of the Series C Convertible Preferred Stock shall thereafter be entitled to receive upon conversion of the Series C Convertible Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of the Series C Convertible Preferred Stock after the recapitalization to the end that the provisions of this Section 5 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series C Convertible Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (g) No Impairment. The Corporation will not, by amendment of its ------------- Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, 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 to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series C Convertible Preferred Stock against impairment. (h) No Fractional Shares and Certificate as to Adjustments. ------------------------------------------------------ (i) No fractional shares shall be issued upon the conversion of any share or shares of the Series C Convertible Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series C Convertible Preferred Stock the holder is at the time converting 9 into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series C Convertible Preferred Stock pursuant to this Section 5, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series C Convertible Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series C Convertible Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of Series C Convertible Preferred Stock. (i) Notices of Record Date. In the event of any taking by the ---------------------- Corporation 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 (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series C Convertible Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (j) Reservation of Stock Issuable Upon Conversion. The Corporation --------------------------------------------- shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series C Convertible Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series C Convertible Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation, as amended. (k) Notices. Any notice required by the provisions of this Section 5 ------- to be given to the holders of shares of Series C Convertible Preferred Stock shall be deemed given (i) on the date of service if served personally on the party to whom notice is to be given, or (ii) on the date of transmittal of such notice if sent via telecopy to the party to whom notice is to be given and addressed to each holder of record at his address appearing on the books of the Corporation, or (iii) two business days following the date of mailing if such notice is sent by recognized overnight courier or by regular postal service. 10 6. Voting Rights. In any vote by the holders of the Series C ------------- Convertible Preferred Stock acting as a class, each holder of Series C Convertible Preferred Stock shall be entitled to one (1) vote for each share of Series C Convertible Preferred Stock. 7. Protective Provisions. Subject to the rights of any series of --------------------- Preferred Stock which may from time to time come into existence, so long as any shares of Series C Convertible Preferred Stock are outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series C Convertible Preferred Stock, voting separately as a class: (i) increase or decrease the authorized or outstanding number of the shares of Series C Convertible Preferred Stock, respectively, so as to affect adversely the shares; or (ii) authorize or issue any other equity security, or security convertible into or exercisable for any equity security, having a preference over, or being on a parity with, the Series C Convertible Preferred Stock with respect to voting, dividends, liquidation or redemption, respectively. 8. Status of Converted or Exchanged Stock. In the event any shares of -------------------------------------- Series C Convertible Preferred Stock shall be exchanged pursuant to Section 4 or converted pursuant to Section 5 hereof, the shares so exchanged or converted shall be cancelled and shall not be reissuable by the Corporation. The Certificate of Incorporation, as amended, of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 11 EXHIBIT A IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations, Preferences and Rights to be duly executed by its President and Chief Executive Officer and attested to by its Secretary this 20th day of October, 1998. ENDOREX CORP. By: /s/ Michael S. Rosen -------------------- Name: Michael S. Rosen Title: President and Chief Executive Officer ATTEST: By: /s/ David G. Franckowiak ------------------------ Name: David G. Franckowiak Title: Secretary EXHIBIT B NEITHER THIS CONVERTIBLE PROMISSORY NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS NOTE OR OF ANY SHARES OF COMMON STOCK ISSUED PURSUANT HERETO MAY BE EFFECTED WITHOUT (I) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR (II) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED. ENDOREX CORP. CONVERTIBLE PROMISSORY NOTE MAXIMUM U.S. $4,806,000 OCTOBER 21, 1998 NEW YORK, NEW YORK The undersigned, ENDOREX CORP., a Delaware corporation with offices at 900 North Shore Drive, Lake Bluff, Illinois 60044 ("Endorex"), unconditionally promises to pay to ELAN INTERNATIONAL SERVICES, LTD., a Bermuda corporation ("EIS"), or any of its successors or assigns or any other holder of this Note (collectively, the "Holder"), on December 31, 2005 (the "Maturity Date"), at such place as may be designated by the Holder to Endorex, the principal amount outstanding hereunder (not to exceed U.S.$4,806,000), together with interest thereon accrued at a rate per annum equal to the lesser of (x) 7% and (y) the maximum rate of interest permitted by applicable law, from and after the date of the initial disbursement of funds (the "Original Issue Date"), compounded on a semi-annual basis, the initial such compounding to take place on the date which is six months from and after the Original Issue Date (each such date, a "Compounding Date"). SECTION 1. SECURITIES PURCHASE AND JOINT DEVELOPMENT AND OPERATING ------------------------------------------------------- AGREEMENTS; DISBURSEMENTS ------------------------- (a) This Note is issued pursuant to a securities purchase agreement dated as of the date hereof by and between Endorex and EIS (the "Securities Purchase Agreement"). This Note is the Promissory Note referred to in the Securities Purchase Agreement and the Holder is intended to be afforded the benefits thereof, including the representations and warranties set forth by Endorex therein. Endorex shall use the proceeds of the issuance and sale of this Note solely in accordance with the provisions set forth in that certain Joint Development and Operating Agreement, dated as of the date hereof, by and among Elan Corporation, plc, EIS, Endorex and Endorex Newco, Ltd. ("Newco") (the "Joint Development and Operating Agreement"), and as described in Section 5 below. (b) Disbursements shall be made to Endorex hereunder in minimum increments of $500,000 (except in the event that an amount less than $500,000 shall be remaining and available for funding hereunder, in which case such lesser amount may be funded hereunder) as follows: (X) from January 1, 2000 until December 31, 2000, up to a maximum of $3,204,000, and (Y) from January 1, 2001 until December 31, 2001, up to a maximum of an additional $1,602,000. The Holder shall not be required to make more than one disbursement per calendar quarter. (c) The Holder shall not be obliged to disburse more than an aggregate principal amount of $4,806,000 hereunder. (d) In order to receive a disbursement hereunder, Endorex shall provide notice thereof to the Holder in the form attached hereto as Exhibit A --------- (the "Disbursement Notice"); the Holder shall, subject to the terms and conditions hereof, fund such amount within five business days of the receipt of such notice. SECTION 2. PAYMENTS -------- (a) Unless earlier converted in accordance with the terms of Section 3 below, canceled in accordance with Section 4 below, or prepaid in accordance with the terms hereof, the entire outstanding principal amount of this Note, together with any accrued and unpaid interest thereon, shall be due and payable on the Maturity Date. (b) Accrued interest hereon shall not be paid in cash, but shall be capitalized and added to principal amount outstanding hereunder on each Compounding Date. (c) Any disbursements, together with accrued and unpaid interest thereon, under this Note may be prepaid by Endorex at any time, in whole or in part, upon five days written notice to the Holder. SECTION 3. CONVERSION ---------- (a) From and after the Original Issue Date and until this Note is repaid in full, the Holder shall have the right from time to time, in its sole discretion, to convert the outstanding principal amount and accrued and unpaid interest then-outstanding hereunder into shares of the common stock of Endorex, par value $.001 per share (the "Common Stock"), at a conversion price of $5.70 per share, subject to appropriate adjustment for stock splits, reverse stock splits and recapitalizations. Any principal amount outstanding hereunder which is converted into shares of Common Stock pursuant to the previous sentence shall at all times (i) be deemed borrowings hereunder for purposes of calculating the maximum principal amount of borrowings permitted hereunder of $4,806,000 and (ii) be deemed repaid for all other purposes. (b) The Holder shall be entitled to exercise the rights of conversion as described in this Section 3 upon 30 days notice to Endorex, such notice to be in the form attached hereto as Exhibit B. --------- SECTION 4. CONDITIONS TO FUNDING --------------------- It shall be a condition of the Holder's funding obligations hereunder that at any time Endorex shall present a Disbursement Notice to the Holder, Endorex shall not be in default or breach in any material respect under (a) Section 7 hereof, (b) Section 2 or 4 of the Securities Purchase Agreement or (c) any section of license agreement dated as of the date hereof between Endorex and Newco. 2 SECTION 5. CANCELLATION ------------ (a) In the event that EIS shall exercise its right of exchange in respect of the Series C Preferred Stock issued by the Company to EIS pursuant to the terms of the Securities Purchase Agreement, as such right is described therein, an amount outstanding hereunder equal to the sum of (X) an amount necessary to make the amount of Development Funding provided by each of the parties to Newco in accordance with the terms of the Joint Development and Operating Agreement equal, and (Y) 3.5% of the amount determined in accordance with clause (X) above, shall be canceled upon the closing of such exchange. (b) In no event shall the amount determined in accordance with subsection (a) above exceed the aggregate principal amount issued hereunder and accrued interest thereon. SECTION 6. USE OF PROCEEDS --------------- Endorex shall use the proceeds of this Note solely to fund its obligations to Newco in accordance with a duly authorized Newco Research and Development Plan, as described in the Joint Development and Operating Agreement. SECTION 7. EVENTS OF DEFAULT ----------------- The occurrence of any of the following events shall constitute an event of default (an "Event of Default"): (a) a default in the payment of the principal amount of this Note, when and as the same shall become due and payable; (b) a default in the payment of any accrued and unpaid interest on any Note, when and as the same shall become due and payable; (c) a default in the performance, or a breach of any other covenant or agreement of Endorex contained in this Note, and continuance of such default or breach for a period of 10 days after the Holder has notified Endorex of its occurrence; (d) any representation, warranty or certification made by Endorex pursuant to this Note, or any other Transaction Document shall prove to have been false or misleading as of the date made in any material respect and EIS has asserted a claim for indemnity in respect thereof; (e) (i) the entry of a decree or order by a court having jurisdiction adjudging Endorex bankrupt or insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of or in respect of Endorex, under United States bankruptcy or insolvency law, as now or hereafter constituted, and the continuance of any such decree or order unstayed and in effect for a period of 120 days; (ii) the commencement by Endorex of a voluntary case under United States bankruptcy law, as now or hereafter constituted, or the consent by Endorex to the institution of bankruptcy or insolvency proceedings against it; (iii) the filing by Endorex of a petition or answer or consent seeking reorganization or relief under United States bankruptcy law; (v) the appointment of a receiver, liquidator, assignee, trustee, or similar official of Endorex or of any substantial part of its property which is not discharged within 120 3 days; (vi) the making by Endorex of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by Endorex in furtherance of any such action; or (f) a material default by Endorex under any of the Transaction Documents and continuance of such default for a period of 30 days after the Holder has notified Endorex of its occurrence. SECTION 8. REMEDIES IN THE EVENT OF DEFAULT -------------------------------- (a) In the case of any Event of Default by Endorex, the aggregate amount of funds advanced to Endorex under this Note and outstanding hereunder and accrued and unpaid interest thereon shall, in addition to all other rights and remedies of the Holder hereunder and under applicable law, be and become immediately due and payable upon written notice delivered by Holder to Endorex. (b) Endorex hereby waives demand and presentment for payment, notice of nonpayment, protest and notice of protest, diligence, filing suit, and all other notice and promises to pay the Holder its costs of collection of all amounts due hereunder, including reasonable attorneys' fees. (c) In the case of any Event of Default or breach of this Note by Endorex this Note shall continue to bear interest after such default or breach at the interest rate otherwise in effect hereunder plus 3% per annum (but in any event not in excess of the maximum rate of interest permitted by applicable law). SECTION 9. SENIORITY --------- This Note shall constitute senior indebtedness of Endorex, and Endorex shall not incur any indebtedness for money borrowed which shall rank senior to this Note without the prior consent of the Holder; provided, that (i) nothing contained herein shall be construed as to prevent Endorex from (a) incurring and paying obligations in the ordinary course of business, in accordance with past practice or (b) incurring any obligations which rank pari passu with the obligations evidenced hereby and (ii) Endorex may incur up to $1,000,000 aggregate principal amount of senior indebtedness, equipment financing and mortgages incurred in connection with the acquisition of assets that may be senior to this Note, provided that in the case of equipment financing and mortgages the fair market value of the relevant assets acquired exceeds the outstanding principal amount of such indebtedness at the time the indebtedness is to be incurred. SECTION 10. MISCELLANEOUS ------------- (a) EIS may assign or transfer this Note to its affiliates or other entities in which any affiliates of EIS may have a contractual or equity interest (so long as EIS acts as agent or nominee for determinations hereunder); provided, however, that EIS shall remain liable for its obligations hereunder after any such assignment. This Note and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that EIS and Endorex shall remain liable for their respective obligations hereunder after any such assignment or transfer. 4 (b) All notices, demands and requests of any kind to be delivered to any party in connection with this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally- recognized overnight courier or by registered or certified airmail, return receipt requested and postage prepaid, addressed as follows: (i) if to Endorex: Endorex Corp. 900 North Shore Drive Lake Bluff, Illinois 60044 Attn: President with a copy to: Brobeck, Phleger & Harrison LLP 1633 Broadway, 47/th/ Floor New York, New York 10019 Attention: Nigel L. Howard, Esq. (ii) if to EIS, to: Elan International Services, Ltd. 102 St. James Court Flatts, Smiths Parish Bermuda SL04 Attention: Director with a copy to: Brock Silverstein McAuliffe LLC 153 East 53rd Street New York, New York 10022 Attention: David Robbins, Esq. Each party, by written notice given to the other in accordance with this Section 10(b) may change the address to which notices, other communication or documents are to be sent to such party. All notices, other communications or documents shall be deemed to have been duly given when received. Any such notice or communication shall be deemed to have been received (iv) in the case of personal delivery, on the date of such delivery, (v) in the case of nationally- recognized overnight courier, on the second business day after the date when sent and (vi) in the case of mailing, on the fifth business day following that day on which the piece of mail containing such communication is posted. Notice hereunder may be given on behalf of the parties by their respective attorneys. (c) This Note may not be modified or amended, or any of the provisions hereof waived, except by written agreement of the Company and EIS. 5 (d) This Note shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the principles thereof relating to conflicts of laws. [Signature page follows] 6 IN WITNESS WHEREOF, Endorex and EIS have executed this Note on the date first above written. Endorex Corp. By: /s/ David G. Franckowiak ------------------------ Name: David G. Franckowiak Title: Vice President, Finance and Administration ELAN INTERNATIONAL SERVICES, LTD. By: /s/ Kevin Insley ---------------- Name: Kevin Insley Title: President and Chief Financial Officer 7 EXHIBIT A NOTICE OF REQUEST FOR DISBURSEMENT Date: To: Elan International Services, Ltd. From: Endorex Corp. Re: Disbursement Request ________________________________________________________________________________ Pursuant to the terms of the Convertible Promissory Note issued by Endorex Corp. ("Endorex") to Elan International Services, Ltd. ("EIS"), dated October 21, 1998, Endorex hereby notifies EIS of its request for a disbursement thereunder in the amount of $__________. Please provide funding in the requested amount to Endorex in accordance with the following wire instructions: [ ] Sincerely, ENDOREX CORP. By:_____________________________________ Name: Title: EXHIBIT B NOTICE OF ELECTION TO EXERCISE THE CONVERSION RIGHT --------------------------------------------------- Date: To: Endorex Corp. From: Elan International Services, Ltd. Re: Exercise of the Conversion Right ________________________________________________________________________________ Pursuant to the terms of the Convertible Promissory Note (the "Note") issued by Endorex Corp. ("Endorex") to Elan International Services, Ltd. ("EIS"), dated October 21, 1998, specifically Section 3 thereof, EIS hereby notifies Endorex of its intention to exercise its right of conversion. Pursuant to Section 3 of the Note, EIS hereby elects to convert the principal and all accrued and unpaid interest on the Note for shares of the common stock of Endorex, par value $.001 per share, based upon a conversion rate of $5.70 per share. We have instructed our attorneys to contact Endorex to discuss the timing and documentation of the conversion. Sincerely, ELAN INTERNATIONAL SERVICES, LTD. By:___________________________________ Name: Title: EX-10.22 3 ENDOREX CORP. REGISTRATION RIGHTS EXHIBIT 10.22 ENDOREX CORP. REGISTRATION RIGHTS AGREEMENT ----------------------------- THIS REGISTRATION RIGHTS AGREEMENT is made as of October 21, 1998 by and among ENDOREX CORP., a Delaware corporation (the "Company"), and ELAN INTERNATIONAL SERVICES, LTD., a Bermuda corporation ("EIS"). R E C I T A L S: A. Pursuant to a securities purchase agreement dated as of the date hereof by and between the Company and EIS (the "Securities Purchase Agreement"), EIS has (x) acquired certain shares of Series C preferred stock (the "Preferred Stock"), which Preferred Stock is convertible and may be converted into shares of common stock, par value $.001 per share (the "Common Stock") of the Company, and (y) entered into a promissory note (the "Convertible Note"), all or a portion of the principal amount of which may be converted into shares of Common Stock. B. The execution of the Securities Purchase Agreement has occurred on the date hereof; it being a condition to the closing of the transactions contemplated thereby that the parties execute and deliver this Agreement. C. The parties desire to set forth herein their agreement related to the granting of certain registration rights to the Holders (as defined below) of any Common Stock or securities convertible, exercisable or exchangeable for or into Common Stock. A G R E E M E N T: The parties hereto agree as follows: 1. Certain Definitions. As used in this Agreement, the following ------------------- terms shall have the following respective meanings: "Affiliate" of any Person shall mean any other Person controlling, controlled by or under common control with such particular Person. In the case of a natural Person, his Affiliates include members of such Person's immediate family, natural lineal descendants of such Person or a trust for the exclusive benefit of such Person and his immediate family and natural lineal descendants. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Holders", "holders" or "Holders of Registrable Securities" shall mean EIS and any Person who shall have acquired Registrable Securities from EIS as permitted herein, either individually or jointly as the case may be. "Person" shall mean an individual, a partnership, a company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental quasi-governmental entity or any department, agency or political subdivision thereof. "Registrable Securities" means (i) any Common Stock issued or issuable upon conversion of or in connection with the holding of the Preferred Stock or the Convertible Note, and (ii) any Common Stock issued or issuable in respect of the securities referred to in clause (i) above upon any stock split, stock dividend, recapitalization or similar event; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction (including a transaction pursuant to a registration statement under this Agreement and transaction pursuant to Rule 144 promulgated under the Securities Act) in which registration rights are not transferred pursuant to Section 9 hereof. The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses, other than Selling Expenses, incurred by the Company in complying with Sections 2 or 3 hereof, including without limitation, all registration, qualification and filing fees, exchange listing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration and the reasonable fees and disbursements, not to exceed $10,000 in the aggregate, of one counsel for the Holders, such counsel to be selected by Holders holding a majority of the Registrable Securities held by the Holders and included in such registration. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and the costs of any accountants, counsel or other experts retained by the Holders. 2. Demand Registrations. -------------------- (a) Requests for Registration. Any Holder or Holders who ------------------------- collectively hold Registrable Securities representing at least 25% of the Registered Securities then outstanding shall have the right at any time from time to time, to request registration under the Securities Act of all or part of their Registrable Securities on Form S-1, S-2 or S-3 (if available) or any similar registration (each, a "Demand Registration"), such form to be selected by the Company. Each written request for a Demand Registration shall specify the approximate number of Registrable Securities requested to be registered. Within 10 days after receipt of any such request, the Company will give written notice of such requested registration to all other 2 Holders of Registrable Securities and, if they request to be included in such registration, the Company shall include such Holders' Registrable Securities in such offering if they have responded affirmatively within 10 days after the receipt of the Company's notice. The Holders in aggregate will be entitled to request two Demand Registrations. A registration will not count as one of the permitted Demand Registration until it has become effective (unless such Demand Registration has not become effective due solely to the fault of the Holders requesting such registration, including a request by such Holders that such registration be withdrawn). The Company will pay all Registration Expenses in connection with any Demand Registration whether or not such Demand Registration has become effective; provided, that the Company shall not be obligated to pay such Registration Expenses if the Demand Registration has not become effective due to the fault of the Holders requesting such registration. (b) Priority on Demand Registrations. If a Demand Registration -------------------------------- is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering, exceeds the number of Registrable Securities and other securities, if any, which can be sold in such offering without adversely affecting the marketability of the offering, the Company will include in such registration: (i) first, the Registrable Securities requested to be included in such registration by the Holders (or, if necessary, such Registrable Securities pro rata among the Holders thereof based upon the number of Registrable Securities owned by each such Holder) together with any securities held by third parties holding a similar, previously granted right to be included in such registration; and (ii) thereafter, other securities requested to be included in such registration. (c) Restrictions on Demand Registrations. The Company may ------------------------------------ postpone for up to six months in any 12 month period, the filing or the effectiveness of a registration statement for a Demand Registration if the Company determines in good faith that such Demand Registration would reasonably be expected to have a material adverse effect on any proposal or plan by the Company to engage in any financing, acquisition or disposition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or similar transaction or would require disclosure of any information that the board of directors of the Company determines in good faith the disclosure of which would be detrimental to the Company; provided that in such event, the Holders initially requesting such Demand Registration will be entitled to withdraw such request and, if such request is withdrawn, such Demand Registration will not count as one of the permitted Demand Registrations hereunder and the Company will pay any Registration Expenses in connection with such registration. (d) Selection of Underwriters. The Holders will have the right ------------------------- to select the investment banker(s) and manager(s) to administer an offering pursuant to a Demand Registration, subject to the Company's approval, which will not be unreasonably withheld. (e) Other Registration Rights. Except as provided in this ------------------------- Agreement, so long as any Holder owns any Registrable Securities, the Company will not grant to any 3 Persons the right to request the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, which is in conflict with the rights granted to the Holders hereunder, without the prior written consent of the Holders of at least 50% of the Registrable Securities held by the Holders; it being understood that the Company may grant rights to other Persons to (i) participate in Piggyback Registrations so long as such rights are subordinate or pari passu to the rights of the holders of Registrable Securities with respect to such Piggyback Registrations and (ii) demand registrations so long as the Holders of Registrable Securities are entitled to participate in any such registrations with such Persons pro rata on the basis of the number of shares owned by each such Holder. 3. Piggyback Registrations. ----------------------- (a) Right to Piggyback. At any time the Company shall propose to ------------------- register Common Stock under the Securities Act (other than in a registration on Form S-3 relating to sales of securities to participants in a Company dividend reinvestment plan, S-4 or S-8 or any successor form or in connection with an acquisition or exchange offer or an offering of securities solely to the existing stockholders or employees of the Company) (each, a "Piggyback Registration"), the Company will give prompt written notice to all Holders of Registrable Securities of its intention to effect such a registration and, subject to Section 3(b) and the other terms of this Agreement, will include in such registration all Registrable Securities which are permitted under applicable securities laws to be included in the form of registration statement selected by the Company and with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company's notice. (b) Priority on Piggyback Registrations. If a Piggyback ----------------------------------- Registration is an underwritten registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company will include in such registration: (i) first, the securities the Company proposes to sell; (ii) any securities having the right to be included in such registration prior to the securities of the Holders; (iii) the Registrable Securities requested to be included in such registration by the Holders and any securities requested to be included in such registration by any other Person, pro rata among the Holders of such Registrable Securities and such other Persons, on the basis of the number of shares owned by each of such Holders; and (iv) thereafter, other securities requested to be included in such registration. The Holders of any Registrable Securities included in such a registration must execute an underwriting agreement in form and substance satisfactory to the managing underwriters. 4 (c) Right to Terminate Registration. If, at any time after ------------------------------- giving written notice of its intention to register any of its securities as set forth in Section 3(a) and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company may, at its election, give written notice of such determination to each Holder of Registrable Securities and thereupon be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith as provided herein). (d) Selection of Underwriters. The Company will have the right ------------------------- to select the investment banker(s) and manager(s) to administer an offering pursuant to a Piggyback Registration. 4. Expenses of Registration. Except as otherwise provided herein, ------------------------ all Registration Expenses incurred in connection with all registrations pursuant to Sections 2 and 3 shall be borne by the Company. All Selling Expenses relating to securities registered on behalf of the Holders of Registrable Securities shall be borne by such holders. 5. Holdback Agreements. ------------------- (a) The Company agrees (i) not to effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and during the 90-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, and (ii) to use reasonable efforts to cause each holder of at least 5% (on a fully-diluted basis) of its Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, purchased from the Company at any time after the date of this Agreement (other than in a registered public offering) to agree not to effect any public sale or distribution (including sales pursuant to Rule 144) of any such securities during such periods (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree. (b) Each Holder agrees, if requested by the managing underwriter or underwriters in an underwritten offering of securities of the Company, not to effect any offer, sale, distribution or transfer of Registrable Securities (other than transfers to an Affiliate of such Holder in accordance with the provisions of the Securities Purchase Agreement), including a sale pursuant to Rule 144 (or any similar provision then in effect) under the Securities Act (except as part of such underwritten registration), during the seven-day period prior to, and during the 180-day period (or such shorter period as may be agreed to by the parties hereto) following the effective date of such Registration Statement to the extent timely notified in writing by the Company or Newco or the managing underwriter or underwriters. 6. Registration Procedures. Whenever the Holders of Registrable ----------------------- Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company will use its best efforts to effect the registration and the sale of such Registrable 5 Securities in accordance with the intended method of distribution thereof, and pursuant thereto the Company will as expeditiously as possible: (a) subject to Section 2(c) hereof, prepare and file with the Commission a registration statement on any form for which the Company qualifies with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company will (i) furnish to the counsel selected by the Holders copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel, and (ii) notify each holder of Registrable Securities covered by such registration of any stop order issued or threatened by the Commission); (b) subject to Section 2(c) hereof, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period equal to the shorter of (i) six months and (ii) the time by which all securities covered by such registration statement have been sold, and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdiction as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 6(d), (ii) subject itself to taxation in any jurisdiction or (iii) consent to general service of process in any such jurisdiction); (e) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company will prepare a supplement of amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; provided that the Company shall not be required to amend the registration statement or supplement the Prospectus for a period of up to six months if the board of directors determines in good faith that to do so would reasonably be expected to have a material adverse effect on any 6 proposal or plan by the Company to engage in any financing, acquisition or disposition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or similar transaction or would require the disclosure of any information that the board of directors determines in good faith the disclosure of which would be detrimental to the Company, it being understood that the period for which the Company is obligated to keep the Registration Statement effective shall be extended for a number of days equal to the number of days the Company delays amendments or supplements pursuant to this provision. Upon receipt of any notice pursuant to this Section 6(e) Holders shall suspend all offers and sales of securities of the Company and all use of any prospectus until advised by the Company that offers and sales may resume, and shall keep confidential the fact and content of any notice given by the Company pursuant to this section 6(e). (f) cause all such Registrable Securities to be listed on each securities exchange or quotation system on which similar securities issued by the Company are then listed; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including without limitation, effecting a stock split or a combination of shares); (i) make available for inspection by a representative of the Holders of Registrable Securities included in the registration statement, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonable requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (j) otherwise use its reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (k) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any common stock included in such registration statement for sale in any jurisdiction, use its reasonable best efforts promptly to obtain the withdrawal of such order; and 7 (l) obtain a so-called "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters. 7. Indemnification. --------------- (a) The Company agrees to indemnify, to the fullest extent permitted by applicable law, each Holder of Registrable Securities, its officers and directors and each Person who controls such Holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities, expenses or any amounts paid in settlement of any litigation, investigation or proceeding commenced or threatened (collectively, "Claims") to which each such indemnified party may become subject under the Securities Act insofar as such Claim arose out of (i) any untrue or alleged untrue statement of material fact contained, on the effective date thereof, in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering, the Company will indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities. (b) In connection with any registration statements in which a holder of Registrable Securities is participating, each such Holder will furnish to the Company in writing such customary information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus (the "Seller's Information") and, to the fullest extent permitted by applicable law will indemnify the Company , its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any and all Claims to which each such indemnified party may become subject under the Securities Act insofar as such Claim arose out of (i) any untrue or alleged untrue statement of material fact contained, on the effective date thereof, in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any violations by such Person of any federal, state or common law rule or regulation applicable to such Person and relating to action required of or inaction by such Person in connection with any such registration; provided that with respect to a Claim arising pursuant to clause (i) or (ii) above, the material misstatement or omission is contained in such Seller's Information; provided, further, that the obligation to indemnify will be individual to each Holder and will be limited to the net amount of proceeds received by such Holder from the sale of Registrable Securities pursuant to such registration statement. (c) Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (but the failure to provide such notice shall not release the indemnifying party of 8 its obligation under paragraphs (a) and (b), unless and then only to the extent that, the indemnifying party has been prejudiced by such failure to provide such notice) and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (d) The indemnifying party shall not be liable to indemnify an indemnified party for any settlement, or consent to judgment of any such action effected without the indemnifying party's consent (but such consent will not be unreasonably withheld). Furthermore, the indemnifying party shall not, except with the approval of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to each indemnified party of a release from all liability in respect to such claim or litigation without any payment or consideration provided by each such indemnified party. (e) If the indemnification provided for in this Section 7 is unavailable to an indemnified party under clauses (a) and (b) above in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect not only the relative benefits received by the Company, the underwriters, the sellers of Registrable Securities and any other sellers participating in the registration statement from the sale of shares pursuant to the registered offering of securities to which indemnity is sought but also the relative fault of the Company , the underwriters the sellers of Registrable Securities and any other sellers participating in the registration statement in connection with the statement or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, the underwriters, the sellers of Registrable Securities and any other sellers participating in the registration statement shall be deemed to be based on the relative relationship of the total net proceeds from the offering (before deducting expenses) to the Company, the total underwriting commissions and fees from the offering (before deducting expenses) to the underwriters and the total net proceeds from the offering (before deducting expenses) to the sellers of Registrable Securities and any other sellers participating in the registration statement. The relative fault of the Company, the underwriters, the sellers of Registrable Securities and any other sellers participating in the registration statement shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by registration statement and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (f) The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the 9 indemnified party or any officer, director or controlling person of such indemnified party and will survive the transfer of securities. 8. Participation in Underwritten Registrations. No Person may ------------------------------------------- participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements, (b) as expeditiously as possible notifies the Company of the occurrence of any event as a result of which such prospectus contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (c) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Transfer of Registration Rights. The rights granted to any Person ------------------------------- under this Agreement may be assigned to a transferee or assignee who is an Affiliate of such Person in connection with any transfer or assignment of Registrable Securities by a Holder; provided, that: (a) such transfer may otherwise be effected in accordance with applicable securities laws, (b) if not already a party hereto, the assignee or transferee agrees in writing prior to such transfer to be bound by the provisions of this Agreement applicable to the transferor, (c) such transferee shall own Registrable Securities representing at least 1,000,000 shares of Common Stock (subject to the Anti-dilution Adjustments), and (d) EIS shall act as agent and representative for such Holder for the giving and receiving of notices hereunder. 10. Information by Holder. Each Holder shall furnish the Company --------------------- such written information regarding such Holder and any distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration qualification or compliance referred to in this Agreement. 11. Exchange Act Compliance. The Company shall comply with all of ----------------------- the reporting requirements of the Exchange Act applicable to them and shall comply with all other public information reporting requirements of the Commission which are conditions to the availability of Rule 144 for the sale of the Registrable Securities. The Company shall cooperate with each Purchaser in supplying such information as may be necessary for such Purchaser to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of Rule 144. 12. Limitation on Registration. The Company shall not be obligated -------------------------- to effect a registration of any Holder's Registrable Securities pursuant to Sections 2 or 3 hereof if all of the Registrable Securities have been sold under Rule 144, Regulation S or similar provision under the Securities Act so that there is no further restriction on the transfer by the transferee. The Company shall not be required to include any Registrable Securities of a Holder in a registration if all of such Holder's Registrable Securities could be sold within a three month period pursuant to Rule 144 or other similar rule or regulation. 10 13. Miscellaneous. ------------- (a) No Inconsistent Agreements. The Company will not hereafter -------------------------- enter into any agreement with respect to their securities which is inconsistent with or violates the rights granted to the Holders of Registrable Securities in this Agreement without the prior written consent of a majority in interest of such Registrable Securities. (b) Remedies. Any Person having rights under any provision of -------- this Agreement will be entitled to enforce such rights specifically to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or other security) for specific performance and for other injunctive relief in order to enforce or prevent violation of the provisions of this Agreement; provided that in no event shall any Holder have the right to enjoin or interfere with any offering of securities by the Company. (c) Amendments and Waivers. Except as otherwise provided herein, ---------------------- the provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and Holders of at least 50% of the Registrable Securities; provided, that without the prior written consent of all the Holders, no such amendment or waiver shall reduce the foregoing percentage. (d) Successors and Assigns. All covenants and agreements in this ---------------------- Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of Holders of Registrable Securities are also for the benefit of, and enforceable by, any permitted transferee of Registrable Securities. (e) Severability. Whenever possible, each provision of this ------------ Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. (f) Counterparts. This Agreement may be executed simultaneously ------------ in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Agreement. (g) Descriptive Headings. The descriptive headings of this -------------------- Agreement are inserted for convenience only and do not constitute a part of this Agreement. (h) Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of New York, without giving effect to the principles thereof relating to conflicts of laws. 11 (i) Notices. All notices, demands and requests of any kind to be ------- delivered to any party in connection with this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally-recognized overnight courier or by registered or certified airmail, return receipt requested and postage prepaid, addressed as follows: (i) if to the Company, to: Endorex Corp. 900 Lake Shore Drive Lake Bluff, Illinois 60044 Attn: President with a copy to: Brobeck, Phleger & Harrison LLP 1633 Broadway, 47th Floor New York, New York 10019 Attention: Nigel L. Howard, Esq. (ii) if to EIS, to: Elan International Services, Ltd. 102 St. James Court Flatts, Smiths Parish Bermuda FL04 Attention: Director with a copy to: Brock Silverstein McAuliffe LLC 153 East 53rd Street, 56th Floor New York, New York 10022 Attention: David Robbins, Esq. or to such other address as the party to whom notice is to be given may have furnished to the other party hereto in writing in accordance with provisions of this Section 7. Any such notice or communication shall be deemed to have been received (i) in the case of personal delivery, on the date of such delivery, (ii) in the case nationally-recognized overnight courier, on the second business day after the date when sent and (iii) in the case of mailing, on the fifth business day following that day on which the piece of mail containing such communication is posted. Notice hereunder may be given on behalf of the parties by their respective attorneys. (j) Termination. This Agreement shall terminate on the date as ----------- of which each Holder has sold all remaining Registrable Securities in a transaction or transactions of the type described in Section 12 hereof. [Signature page follows] 12 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. Endorex Corp. By: /s/ David G. Franckowiak ---------------------------------------- Name: David G. Franckowiak Title: Vice President, Finance and Administration Elan International Services, Ltd. By: /s/ Kevin Insley ---------------------------------------- Name: Kevin Insley Title: President and Chief Financial Officer 13 EX-10.23 4 LICENSE AGREEMENT DATED OCT. 21, 1998 EXHIBIT 10.23 CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS EXHIBIT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED THIS AGREEMENT is made the 21 October, 1998 BY AND BETWEEN ELAN CORPORATION, PLC An Irish company, of Lincoln House, Lincoln Place, Dublin 2, Ireland ENDOREX CORPORATION A Delaware corporation of Lake Bluff, Illinois, USA ENDOREX NEWCO, LTD. A Bermudan corporation, of Clarendon House, 2 Church St, Hamilton, Bermuda AND ELAN MEDICAL TECHNOLOGIES LIMITED An Irish company, of Monksland, Athlone, Co. Westmeath, Ireland LICENSE AGREEMENT TABLE OF CONTENTS
CLAUSE NO. CLAUSE - --------------------------------------------------------------------- 1 Definitions - --------------------------------------------------------------------- 2 Grant of Rights - --------------------------------------------------------------------- 3 Third Party Technology/Substitute Compound - --------------------------------------------------------------------- 4 Improvements - --------------------------------------------------------------------- 5 Intellectual Property Rights - --------------------------------------------------------------------- 6 Exploitation of Licensed Technology - --------------------------------------------------------------------- 7 Financial Provisions - --------------------------------------------------------------------- 8 Right of Audit and Inspection - --------------------------------------------------------------------- 9 Patents - --------------------------------------------------------------------- 10 Confidential Information - --------------------------------------------------------------------- 11 Trademarks - --------------------------------------------------------------------- 12 Term and Termination - --------------------------------------------------------------------- 13 Warranties/Indemnities - --------------------------------------------------------------------- 14 Insurance - --------------------------------------------------------------------- 15 Impossibility of Performance - Force Majeure - --------------------------------------------------------------------- 16 Settlement of Disputes; Proper Law - --------------------------------------------------------------------- 17 Assignment - --------------------------------------------------------------------- 18 Notices - --------------------------------------------------------------------- 19 Miscellaneous Clauses - ---------------------------------------------------------------------
i WHEREAS - ------- A. Elan is knowledgeable in the discovery, research, development, manufacture and marketing of pharmaceutical formulations and devices capable of delivering drugs, including the Medipad System. Elan owns or has licensed the Elan Technology either itself or through EMT (defined below). Elan also owns and uses certain trademarks in connection with the manufacture, marketing and sale of the Medipad System, including the Elan Trademarks. Elan Medical Technologies Ltd. is a wholly owned Subsidiary of Elan. B. Endorex has proprietary know-how and expertise relating to, inter alia, the research, development and commercialization of pharmaceutical formulations capable of delivering drugs. C. Elan and Endorex have agreed to co-operate in the establishment and management of the Company, the business of which will be to research and develop certain Elan Royalty Products incorporating the technologies developed and/or to be developed by Elan and to commercialize such Elan Royalty Products throughout the world. D. Simultaneously herewith, Elan and Endorex are entering into the Development Agreement for the purpose of recording the terms and conditions of the joint venture and to regulate their relationship with each other and certain aspects of the affairs of and their dealings with the Company. E. The Company desires to enter into this Agreement with Elan so as to (a) permit the Company to utilize the Elan Patents, the Elan Know-How and the Elan Trademark in the research, development, manufacture, distribution and sale of the Elan Royalty Products in the Field and (b) to permit Elan to utilise the Company Technology in connection with (i) Elan's research and development work on behalf of the Company and (ii) Elan's manufacturing and supplying the Company or its designee(s) with the Elan Royalty Products. NOW IT IS HEREBY AGREED AS FOLLOWS: 1. DEFINITIONS 1.1. In this present Agreement, including the Recitals, Schedules and Appendices, the following definitions shall prevail unless the context otherwise requires: "AFFILIATE" means any corporation or entity other than the Company controlling, controlled or under the common control of Elan or the Company as the case may be. For the purpose of this definition "control" shall mean direct or indirect ownership of fifty percent (50%) or more of the stock or shares entitled to vote for the election of directors. "AGREEMENT" means this agreement (which expression shall be deemed to include the Recitals, the Schedules and Appendices hereto). "COMPETITION" means on [****] The determination that Competition exists in any country in any calendar quarter shall be deemed conclusive if a mutually agreed reputable organization such as IMS has made such determination based on its conduct of a market share study in such country during such calendar quarter, provided the existence of such level of sales of competing products may also be established by other reasonable evidence. Once a determination is made that Competition exists for the Elan Royalty Product in any country, such determination shall be made again by the Parties each calendar quarter for so long as the Elan Royalty Product is marketed in that country. "COMPANY" means Endorex Newco, Ltd. "COMPANY means (i) the [****] compounds made, invented, COMPOUND(S)" acquired, developed or licensed by the Company and, (ii) if applicable, any Substitute Compound. "COMPANY means all Know-How, knowledge, information, trade KNOW-HOW" secrets, data (including all clinical data) and expertise which is not generally known to the public, developed, acquired or licensed by the Company or to be developed, acquired or licensed by the Company before or during the Term relating to the Company Compounds (but excluding any such knowledge, information, trade secrets, data and expertise insofar as the same relates to the Medipad System), whether or not covered by any patent, copyright, design, trademark or other industrial or intellectual property rights. "COMPANY PATENTS" means all granted patents and patent applications owned by, or licensed by the Company relating to the Company Compounds (but excluding any granted patents and patent applications relating to the Medipad System). Company Patents shall also include all continuations, continuations-in-part, divisionals, re-issues and re- examinations of such patents and patent applications and any patents issuing thereon and extensions of any patents licensed hereunder and all foreign counterparts thereto. Company Patent Rights shall further include any patents or patent applications covering any improvements to the Company Compounds or manufacture or use thereof by the Company during the term of this Agreement. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 2 "COMPANY means the Company Patents, the Company Know-How and/or TECHNOLOGY" the Intellectual Property Rights in the Third Party Technology, the Substitute Compound and the Substitute Product which are made, invented, acquired, developed or licensed by the Company, but for the avoidance of doubt excluding any technology relating to the Medipad System. "COMPANY means the Subscription and Stockholders' Agreement of SUBSCRIPTION Endorex Newco, Ltd., made by and between EIS, Endorex AGREEMENT" and the Company as of the date hereof. "DEVELOPMENT means the Joint Development and Operating Agreement AGREEMENT" of even date entered into between, Elan, EIS, Endorex and the Company. "EFFECTIVE DATE" means the date hereof. "EIS" means Elan International Services, Ltd. "ELAN" means Elan Corporation, plc (Elan is acting through its division Elan Pharmaceutical Technologies). "ELAN KNOW-HOW" means all Know-How, knowledge, information, designs and expertise owned, developed or otherwise possessed by Elan or to be owned, developed, or otherwise possessed by Elan and/or EMT during the Term relating specifically to the Medipad System, whether in conjunction with a pharmaceutical compound(s) or otherwise (but excluding any such knowledge, information and expertise insofar as the same relates specifically to the Company Compounds), whether or not covered by any patent, copyright, design right, trademark, trade secrets or other industrial or Intellectual Property Rights. Elan Know-How shall exclude the Acquired Technology defined in Clause 4.3. "ELAN PATENTS" means all granted patents and pending patent applications owned by, or licensed or developed by Elan and/or EMT relating to the Medipad System, the current status of which is set forth in Schedule 1 and any other Intellectual Property Rights owned by, licensed or developed by Elan and/or EMT relating to the Medipad System. Elan Patent shall also include all continuations, continuations-in-part, divisionals, re- issues and re-examinations of such patents and patent applications and any patents issuing thereon and extensions of any patents licensed hereunder and all foreign counterparts thereto. Elan Patents shall further include any design rights, patents or patent 3 applications and any other Intellectual Property Rights owned by, licensed or developed by Elan and/or EMT relating to the Medipad System covering any improvements to the Medipad System or methods of making or using the Medipad System, made, invented or developed by Elan and/or EMT during the term of this Agreement. Elan Patents shall exclude the Acquired Technology defined in Clause 4.3. "ELAN ROYALTY means a Medipad(TM) System based on, using and/or PRODUCT" incorporating the Elan Technology and containing a Company Compound, and, if applicable, any Substitute Product. "ELAN TECHNOLOGY" means the Elan Patents and/or the Elan Know-How. For the avoidance of doubt, (i)Elan Technology shall include any patents and/or any know-how owned, licensed or controlled by EMT, NanoSystems and Sano Corporation relating specifically to the Medipad System but shall exclude any patents and/or any know-how [****] or [****] including, but not limited to, [****] and (ii) Elan Technology shall exclude the Acquired Technology defined in Clause 4.3. "ELAN TRADEMARKS" means the trademark "Medipad(TM)" and the trademark "Elan(R)", the current status of which are set forth in Schedule 2. "EMT" means Elan Medical Technologies Ltd. "ENDOREX" means Endorex Corporation. "EXPERT" shall have the meaning assigned to such term in Clause 15 of the Development Agreement. "EXCHANGE RIGHT" has the meaning as defined in the Development Agreement. "FIELD" means the research, development, and commercialization of (i) [****] or (ii) the Substitute Compounds. "INDEPENDENT means any person other than the Company, Elan, Endorex THIRD PARTY" or any of their respective Affiliates. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 4 "INITIAL FUNDING" has the meaning as such term is defined in the Company Subscription Agreement. "IN-MARKET" means [****] (or where applicable by [****] to an [****] such as a [****] and shall exclude [****]. "INTELLECTUAL shall mean Patents, copyrights, design rights, PROPERTY RIGHTS" trademarks, trade secrets, database rights, know-how and any other applicable intellectual property rights. "KNOW-HOW" means all trade secrets, confidential scientific, technical and medical information and expertise, technical data and marketing information, studies and data including, but not limited to, unpatented inventions, discoveries, designs, theories, plans, ideas (whether or not reduced to practice). "MANAGEMENT means the management committee appointed by the COMMITTEE" directors of the Company pursuant to the Development Agreement. "MEDIPAD SYSTEM" means Elan's ambulatory, subcutaneous, micro-infusion pump device and related technology. "NANO" OR means NanoSystems L.L.C. "NANOSYSTEMS" "NET SALES" means [****]. "PANEL" shall have the meaning assigned to such term in Clause 15 of the Development Agreement. "PARTIES" means Elan, Endorex and the Company. "PATENTS" means all and any patents, and any applications therefor in the Territory (including any and all divisions, continuations, continuations-in-part, extensions, additions or reissues thereto or thereof). "PERSON" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, or other entity of whatever nature. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 5 "PLAN" shall have the meaning as such term is defined in the Development Agreement. "PROJECT" means all activity as undertaken by Elan, Endorex, and/or the Company in order to develop the Elan Royalty Products in accordance with the Plan. "RELEVANT EVENT" has the meaning set forth in Clause 12. "REGULATORY means any regulatory application or any other APPLICATION" application for marketing approval for an Elan Royalty Product, but not the Medipad System alone, which the Company will file in any country of the Territory, including any supplements or amendments thereto. "REGULATORY means the final approval to market an Elan Royalty APPROVAL" Product, but not the Medipad System alone, in any country of the Territory, including pricing and reimbursement approval and any other approval which is required to launch the Elan Royalty Product in the normal course of business. "RESEARCH AND means the program of research and development work DEVELOPMENT being conducted or to be conducted for and on behalf PROGRAM of the Company which have been devised by the R&D Committee and approved by the Management Committee; "R&D COMMITTEE" shall have the meaning as such term is defined in the Development Agreement. "RHA" means any relevant government health authority (or successor agency thereof) in any country of the Territory whose approval is necessary to market an Elan Royalty Product in the relevant country of the Territory. "SANO" OR "SANO means Elan Transdermal Technologies, Inc, formerly Sano CORPORATION" Corporation. "SUBSIDIARY" of any Person means any other Person, (i) of which (or in which) greater than 50% of (A) the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such second Person, if a corporation, (B) the interest in the capital or profits of such second Person, if a partnership or other entity, or (C) the beneficial interest of such trust or estate, if a trust or estate, is at the time directly or indirectly owned by such first Person, by such first Person and one or more other Subsidiaries of such first Person, or by one or more other Subsidiaries of such first Person; (ii) which is otherwise effectively controlled by such first Person or any 6 other Subsidiary of such first Person, pursuant to contract, arrangement, understanding or otherwise; or (iii) or any other corporation, association or other business entity that is required by GAAP to be combined or consolidated with such Person. "SUBSISTING" means valid, enforceable and unexpired. "SUBSTITUTE means the substitute compound described in Clause 3. COMPOUND" "SUBSTITUTE means a Medipad System based on, using and/or PRODUCT" incorporating the Elan Technology and/or the Company Technology and containing a Substitute Compound, including but not limited to patents and know-how that may be acquired by or on behalf of the Company. "TECHNOLOGIES" means collectively, the Company Technology and the Elan Technology. "TERM" shall mean the term of this Agreement, as set out in Clause 12. "TERRITORY" means [****]. "THIRD PARTY means the technology of Independent Third Parties TECHNOLOGY" described in Clause 3. "TECHNOLOGICAL means a Type I Technological Competitor or a Type II COMPETITOR" Technological Competitor. "TYPE I means [****]. TECHNOLOGICAL COMPETITOR" "TYPE II shall mean [****]. TECHNOLOGICAL COMPETITOR" "UNITED STATES means the lawful currency for the time being of the DOLLAR", "US$" United States of America. AND "$" _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 7 1.2. Words importing the singular shall include the plural and vice versa. 1.3. Unless the context otherwise requires, reference to a recital, article, paragraph, provision, clause or schedule is to a recital, article, paragraph, provision, clause or schedule of or to this Agreement. 1.4. Reference to a statute or statutory provision includes a reference to it as from time to time amended, extended or re-enacted. 1.5. The headings in this Agreement are inserted for convenience only and do not affect its construction. 1.6. Unless the context or subject otherwise requires, references to words in one gender include references to the other genders. 1.7. References to "include" or "including" shall be construed as examples only, and in no way be read as limiting. 2. GRANT OF RIGHTS 2.1. Subject to the terms of this Agreement, under all of the existing and future Elan Patents and Elan Technology, Elan and EMT hereby grant to the Company for the Term an exclusive licence to the Elan Technology for all research, development, and commercial purposes solely in the Field, but not beyond the Field. All proprietary rights and rights of ownership with respect to the Elan Technology shall at all times remain solely with Elan or EMT, or where applicable with Elan's licensor. 2.2. Subject to any restriction in any licenses or other agreements pursuant to which Elan licenses any of the Elan Trademarks, Elan hereby grants the Company for the Term a non-exclusive, royalty-free, fully paid-up license (or, if applicable, sublicense) to use the Elan Trademarks on the terms set forth in Clause 11 upon or in relation to the promotion, marketing, advertising, sale or offering for sale of the Elan Royalty Products. The Company shall be obliged to use the Elan Trademarks to acknowledge the incorporation of the Medipad System in the Elan Royalty Products in a manner to be mutually agreed by the parties. 2.3. Subject to the terms of this Agreement, the Company hereby grants to Elan for the Term a non-exclusive, royalty-free fully paid-up license to use the Company Technology and the Third Party Technology insofar as is necessary, in each case, solely to permit Elan to perform its obligations pursuant to the Development Agreement for the benefit of the Company, including, without limitation, (a) conducting research and development pursuant to the Project, and (b) developing, manufacturing and supplying the Elan Royalty Products and any other chemical or formulation components. All rights of ownership with respect to the Company Technology shall at all times remain solely with the Company. 8 2.4. The Company shall not be permitted to sublicense any of the rights granted to the Company by Elan pursuant to this Agreement without the prior written consent of Elan, which consent will not be unreasonably withheld or delayed; provided that such reasonableness standard in the case of Elan shall not be applicable in the case of a proposed sublicense to any Technological Competitor and the terms of any sub- licence to which Elan consents hereunder will require the prior approval in writing of Elan. Insofar as the obligations owed by the Company to Elan are concerned, the Company shall remain responsible for all acts and omissions of any sub-licensee, as if they were by the Company. In the event of a termination of this Agreement due to a breach by the Company, Elan shall have the right but not the obligation to assume any such sub-license. 2.5. Subject to the other provisions of this Agreement, [****] (a) for or on behalf of the Company, or (b) with the Company's prior written consent. For the avoidance of doubt the parties confirm that [****]. 2.6. Notwithstanding anything to the contrary in this Agreement, Elan shall have the right, outside of the Field, and subject to Clause 2.5, to fully exploit and grant licenses and sublicenses with respect to the Elan Technology and improvements to the Elan Technology that may be developed by Elan, Endorex or the Company or jointly by any combination of Elan, Endorex or the Company pursuant to the Project. 2.7. Elan shall also provide all reasonable assistance to the Company in delivering and enabling the Company to utilize the Company's license to the Elan Technology. 2.8. EMT acknowledges and agrees to be bound by the terms of this Agreement, including but not limited to the licenses granted hereunder and the provisions of Clause 2.5. 3. THIRD PARTY TECHNOLOGY/SUBSTITUTE COMPOUND 3.1. The Company will use its reasonable endeavours to acquire within 90 days of the Effective Date (by outright acquisition or license) rights related to a third party's [****] technology and any intellectual property related thereto (collectively, the "THIRD PARTY TECHNOLOGY"), upon terms and conditions approved by Elan, utilizing a mutually agreed portion of the proceeds of the Initial Funding. 3.2. In the event that notwithstanding its reasonable endeavours, the [****] the Company shall have [****] ("THE SUBSTITUTE COMPOUND"). _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 9 In the event that the Company exercises the foregoing option, the Parties shall negotiate in good faith such amendments as are required to this Agreement, such as amending the provisions regulating non- competition. 4. IMPROVEMENTS/ACQUIRED TECHNOLOGY 4.1. Except to the extent prohibited by any undertaking given to any Independent Third Party (provided that after the Effective Date each Party shall use all commercially reasonably efforts to exclude or minimise the extent of any such limitations or restrictions), the licenses to the Elan Technology granted by Elan and EMT pursuant to Clause 2 shall include any and all future improvements or modifications made, invented or developed by Elan or EMT relating to the Elan Technology and all Patents and other Intellectual Property Rights relating thereto provided that this Clause 4.1 shall not include any Acquired Technology as defined in Clause 4.3. 4.2. If Elan and/or EMT develops any improvements during the Term, Elan and/or EMT shall communicate to the Company such improvements and shall promptly inform the Company of such improvements so as to effectively enable the Company to fully utilise the improvements for the life of this Agreement. Such improvements shall automatically become part of the Elan Know-How or Elan Patents (as the case may be) and shall be subject to the provisions of this Agreement including the license provisions set forth in Clause 2.1 hereof. The Company shall not have any right to use such improvements outside the Field. 4.3. Subject to pre-existing contractual constraints, in the event that [****] proposes to [****] after the Effective Date [****] after the Effective Date pursuant to an agreement existing prior to the Effective Date [****] shall, for so long as it remains a stockholder of the Company, or may at its election, if it is no longer a stockholder of the Company, [****] such details as are required to [****] Subject to pre-existing contractual constraints, [****] shall have an [****] (the "FIRST RIGHT OF NEGOTIATION"). [****] shall on disclosing the details referred to above promptly and [****] in good faith with [****] as regards the application of the [****] for a period of [****] unless [****] gives [****] in question. The terms for the [****] shall be upon [****] to be mutually agreed in good faith, including terms covering the [****] in respect of such [****]. 4.4. In the event that the Company elects not to [****] (or subsequently discontinues the [****] shall thereafter be entitled to seek to enter into an agreement with the [****] the said [****] within the [****]. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 10 5. INTELLECTUAL PROPERTY RIGHTS 5.1. All Intellectual Property Rights relating to the Elan Technology shall be the property of, and held by Elan. Title to all [****], whether [****] pursuant to the Project or otherwise, or [****] a [****] pursuant to the Project shall be owned by [****]. 5.2. All Intellectual Property Rights relating to the Company Technology shall be the property of, and held by, the Company. Title to all [****] whether [****] pursuant to the Project or otherwise, or [****] or a [****] pursuant to the Project but specifically [****] shall be owned [****]. 6. EXPLOITATION OF LICENSED TECHNOLOGY 6.1. Except as provided for in this Agreement, the Company's obligations to exploit the Elan Technology shall be regulated by Clause 9 of the Development Agreement. The Parties recognize that the Company's obligations to commercialize the Elan Technology are subject to Elan first obtaining regulatory approval in the United States for the Medipad System. 6.2. The Company will diligently pursue the [****] as provided in the Plan. The Company shall exert its reasonable efforts to commercialise the Elan Royalty Product in each country of the Territory consistent with the market potential for the Elan Royalty Product in each country of the Territory determined in a commercially reasonable manner and with a view to achieving maximum benefit to the Parties. 6.3. The Company will be solely responsible for ensuring that the manufacture, promotion, distribution, marketing and sale of the Elan Royalty Products within each country of the Territory is in strict accordance with all the legal and regulatory requirements of each country of the Territory. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 11 6.4. All advertising, promotional materials and marketing costs needed to exploit the Elan Royalty Products are to be paid for by the Company. Any packaging for the Elan Royalty Products shall contain information to the effect that the Elan Royalty Product has been developed by Elan in conjunction the Company and is to be agreed upon by Elan in advance. Such acknowledgement shall take into consideration regulatory requirements and the Company's reasonable commercial requirements. The Company shall submit copies of all forms of trade package cartons and labels and other printed materials to Elan for approval before commercial sale of the Elan Royalty Product commences. If a change in such materials from that initially approved which would require regulatory approval or filing or any other material change is proposed, all such package cartons and labels and printed materials shall be resubmitted for approval before commercial use thereof. It shall be presumed that Elan approved of such use unless Elan provides written notice of disapproval of such use to the Company within ten (10) business days of delivery of such materials to Elan, such approval not to be unreasonably withheld. The further consent of Elan shall not be required where the format and content of such materials is substantively similar as the materials previously furnished to and approved by Elan. 7. FINANCIAL PROVISIONS 7.1. In consideration of the rights and licences in respect of the Elan Patents granted to the Company pursuant to this Agreement, the Company shall pay the following amounts to Elan in the manner and on the dates set forth below: 7.1.1. $10,000,000 upon execution of the Agreement by the Parties, the receipt and adequacy of which is hereby acknowledged; 7.1.2. [****] 7.1.3. [****] provided that in the case of the payments described in Clauses 7.1.2 ------------- and 7.1.3: (1) in the event that the Company has not entered into a licence agreement with a third party in respect of an Elan Royalty Product on the date the payment becomes payable hereunder, Elan shall permit the Company to defer actual payment until a licence agreement has been executed by the Company and a third party in respect of an Elan Royalty Product and the payment shall be paid by the Company to Elan within 30 days of receipt by the Company of income from the third party under such licence agreement; _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 12 (2) in the event that the Company has entered into a licence agreement with a third party in respect of an Elan Royalty Product on the date the payment becomes payable hereunder, but the income received by the Company from the third party under the licence agreement on that date is not sufficient to discharge in full the payment due to Elan, the Company shall apply the full amount of all income received from the third party under the licence agreement in partial discharge of the payment due to Elan and the Company shall pay to Elan the balance of the payment from any further sums received by the Company from one or more third parties, whatever the nature of the sum received. 7.2. In consideration of the rights and licences in respect of the Elan Patents granted to the Company pursuant to this Agreement, the royalty payable by the Company to Elan shall be as follows: 7.2.1. [****] 7.2.2. [****] provided that ------------- (1) the Company shall be obliged to pay royalties to Elan in respect of Net Sales in each country of the Territory at the applicable royalty rate set out above notwithstanding that there is no Subsisting patent claim covering the Elan Royalty Product in any such country where there is no Competition in the country concerned; (2) in the event that there is no Subsisting patent claim covering the Elan Royalty Product in any country of the Territory and there is Competition in the country concerned, the royalty payable by the Company to Elan in the circumstances set out in Clause 7.2.1 shall be reduced to [****] of Net Sales, or the royalty payable by the Company to Elan in the circumstances set out Clause 7.2.2, as applicable, shall be reduced to [****] of Net Sales. 7.3. Elan shall supply, or procure the supply of, Elan Royalty Products to the Company at [****] In advance of the first launch of an Elan Royalty Product, the Parties shall negotiate in good faith a supply agreement on pharmaceutical industry standard terms, including provisions as to product quality and supply. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 13 7.4. In the event that Elan shall cease to be a shareholder of the Company, the Parties shall negotiate in good faith such amendments to the Agreement as are equitable and applicable having regard to the fact that Elan no longer has any representation on the Board of Directors of the Company or the Management Committee and will no longer be providing support or funding to the Company provided that such negotiations shall not apply to the existence of the Agreement. 7.5. Payment of royalties shall be made quarterly within forty-five (45) days after the expiry of the calendar quarter. The method of payment shall be by way of wire transfer to an account specified by Elan. Each payment made to Elan shall be accompanied by a written report, prepared and signed by a senior financial officer of the Company. In addition the report shall clearly show the Net Sales for the months of the calendar quarter for which payment is being made on a country by country basis. In the event that no royalty is due to Elan for any calendar quarter, the senior financial officer shall so report. In addition to the written reports accompanying each payment, the Company shall notify Elan, within thirty (30) days of the end of each calendar quarter, of the Net Sales of the Elan Royalty Product(s) for that preceding quarter on a country by country basis. 7.6. The Company shall maintain and keep clear, detailed, complete, accurate and separate records so: 7.6.1. as to enable any royalties on Net Sales of a Elan Royalty Product which shall have accrued hereunder to be determined; and 7.6.2. that any deductions made in arriving at the Net Sales of a Elan Royalty Product can be determined. 7.7. All payments due hereunder shall be made in United States Dollars. Payments due on Net Sales of the Elan Royalty Product made in a currency other than United States Dollars shall first be calculated in the foreign currency and then converted to United States Dollars on the basis of the exchange rate in effect for the purchase of United States Dollars with such foreign currency quoted in the Wall Street Journal (or comparable publication if not quoted in the Wall Street Journal) with respect to the currency of the country of origin of such payment for the day prior to the date on which the payment by the Company is being made. 7.8. Subject to the provisions of Clauses 7.10 of this Agreement, the Company shall pay all royalties at the rates specified in this Clause 7. 7.9. Elan and the Company agree to co-operate in all respects reasonably necessary to take advantage of any double taxation agreements or similar agreements as may, from time to time, be available. 7.10. Any taxes payable by Elan on any payment made to Elan pursuant to this Agreement shall be for the account of Elan. If so required by applicable law any payment made pursuant to this Agreement shall be made by the Company after deduction of the appropriate withholding tax in which event the Company shall 14 co-operate to the extent reasonably necessary to obtain the appropriate tax credits as soon as is practicable. In the event of a credit, the Company shall forthwith forward copies of the credit documentation to Elan. 8. RIGHT OF AUDIT AND INSPECTION 8.1. [****] the Company shall permit Elan or its duly authorised representatives upon reasonable notice and at any reasonable time during normal business hours to have access to inspect and audit the accounts and records of the Company and any other book, record, voucher, receipt or invoice relating to the calculation of the royalty payments on Net Sales submitted to Elan and to the accuracy of the reports which accompanied them. Any such inspection of the Company's records shall be at the expense of Elan, except that if any such inspection reveals a deficiency in the amount of the running royalty actually paid to Elan hereunder in any calendar quarter of [****] or more of the amount of any running royalty actually due to Elan hereunder, then the expense of such inspection shall be borne solely by the Company. Any amount of deficiency shall be paid promptly to Elan. If such inspection reveals a surplus in the amount of running royalty actually paid to Elan by the Company, Elan shall promptly inform the Company of the existence of such surplus and shall reimburse the Company the surplus. The Company shall maintain the foregoing records for a period of at least five (5) years following the end of the calendar year to which they pertain. 8.2. In the event of any unresolved dispute regarding any alleged deficiency or overpayment of royalty payments hereunder, the matter will be referred to an independent firm of chartered accountants for a resolution of such dispute mutually acceptable to both parties. Any decision by the said firm of chartered accountants shall be binding on the Parties. 9. PATENTS 9.1. The Company shall permanently mark or otherwise cause any Independent Third Party to permanently mark all Elan Royalty Products with the patent number(s) in respect of the Elan Patents or otherwise provide notice of the existence of the Elan Patents for each country in the Territory where sales of the Elan Royalty Products are being made in a manner compliant with the applicable laws of such country and in such manner as Elan may reasonably request in writing prior to the sale or commercial use thereof. 9.2. Elan shall be obliged to disclose promptly to the Company inventions and discoveries made by or on behalf of Elan relating to the Medipad System and any patentable inventions and discoveries within the Elan Technology which relate to the Field. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 15 9.3. The following provisions shall apply to patent filing, prosecution and maintenance: 9.3.1. Elan, [****] shall have the right but shall not be obligated (a) to secure the grant of any patent from applications within the Elan Technology except those that relate exclusively outside the Field; (b) to file and prosecute patent applications on patentable inventions and discoveries within the Elan Technology except those that relate exclusively outside the Field and patentable improvements developed by or on behalf of Elan; (c) to defend all such applications against Independent Third Party oppositions and interferences; and/or (d) to maintain in force any issued letters patent within the Elan Technology except those that relate exclusively outside the Field (including any letters patent that may issue covering any improvements). Elan shall have the sole right in its reasonable business discretion to control such filing, prosecution, defence and maintenance; provided however, that the Company shall be provided with copies of all documents relating to such filing, prosecution, defence, and maintenance in sufficient time to review such documents and comment thereon prior to filing of such documents. 9.3.2. The Company shall have the right, but not the obligation, in the circumstances set out in Clauses 9.3.2(1), (2) and (3) below, [****] to file and prosecute patent application(s) described in Clause 9.3.1 in Elan's name and on Elan's behalf, and Elan upon written request from the Company shall execute all documents, forms and declarations and to do all things as shall be reasonably necessary to enable the Company to exercise such option and right: (1) Elan elects that it does not intend to file patent applications on patentable inventions and discoveries within the Elan Technology except those that relate exclusively outside the Field or patentable improvements developed by or on behalf of Elan in one or more countries in the Territory. Elan shall make such election and so notify the Company in writing at least 2 months prior to the expiration of any applicable time bar or other deadline. (2) Elan fails to file such an application within a reasonable period of time. Elan shall inform the Company of any applicable time bar or other deadline for each patentable invention at least 2 months prior to the expiration of such applicable time bar or other deadline. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 16 (3) Elan elects or fails to maintain or prosecute further any such pending application or issued patent then Elan shall so notify the Company in writing no less than 2 months prior to the expiration of any applicable due date or time bar, and after receipt of such notice. 9.3.3. In relation to the Company Technology, the Company, [****] shall have the right but shall not be obligated (a) to secure the grant of any patent from applications within the Company Technology; (b) to file and prosecute patent applications on patentable inventions and discoveries within the Company Technology; (c) to defend all such applications against Independent Third Party oppositions or interferences; and (d) to maintain in force any issued letters patent within the Company Technology (including any patents that issue on patentable inventions and discoveries within the Company Technology). The Company shall have the right to control such filing, prosecution, defence and maintenance; provided however, Elan shall be provided with copies of all documents relating to such filing, prosecution, defence, and maintenance in sufficient time to review such documents and comment thereon prior to filing of such documents. 9.3.4. In the event that the Company (i) elects that it does not intend to file patent applications on patentable inventions and discoveries within the Company Technology, (ii) fails to file such an application within a reasonable period of time or, (iii) elects or fails to maintain or prosecute further any such pending application or issued patent then the Company shall so notify Elan in writing no less than 2 months prior to the expiration of any applicable due date or time bar, and after receipt of such notice, Elan shall, insofar as it is necessary, have the right, but not the obligation [****] to file and prosecute such patent application(s) in the Company's name and on the Company's behalf and the Company upon written request from Elan shall execute all documents, forms and declarations and to do all things as shall be reasonably necessary to enable Elan to exercise such option and right. 9.4. Elan and the Company shall promptly inform the other in writing of any alleged infringement of any Elan Patents within the Elan Technology that relate to the Field or the Company Technology or any alleged misappropriation of trade secrets within the Elan Know-How that relate to the Field or the Company Know-How by an Independent Third Party of which it becomes aware and provide the other with any available evidence of such infringement or misappropriation. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 17 9.4.1. Except as provided in Clause 11.6, during the Term, the Company shall have the right but not the obligation to bring suit or otherwise take action [****] and for its own benefit any such alleged infringements of the Elan Patents or misappropriation of the Elan Know-How, insofar as such infringements or misappropriation relate to the Field or the sale, importation, manufacture or use of an infusion device for a compound within the Field. In the event that the Company takes such action, the Company shall do so [****]. At the Company's request, Elan will co- operate with such action insofar as the action relates to the Field or the sale, importation, manufacture or use of an infusion device for a compound within the Field [****] for the purpose of this Agreement and prior to commencing, or at an early stage in the proceedings, the Company and Elan shall agree upon [****]. The Company shall keep Elan fully informed of the infringement or misappropriation action and may not enter into any settlement agreement or make any formal written admissions in the course of such actions relating to the Elan Technology without Elan's prior written consent. Should the Company decide not to pursue such infringers, within a reasonable period but in any event within [****] after receiving written notice of such alleged infringement or misappropriation or (ii) [****] before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, including FDA regulations, to the extent applicable, whichever comes first, or if such alleged infringement or misappropriation does not relate to the Field, Elan may in its discretion initiate such proceedings in its own name, [****] and at Elan's request, the Company will co-operate with such action at Elan's sole cost and expense. In the alternative, the Parties may agree to institute such proceedings in their joint names and shall reach agreement as to the [****] Independent Third Party. If the infringement of the Elan Patents affects the Field as well as other products being developed or commercialised by Elan or its commercial partners outside the Field, the Parties shall agree as to the manner in which the proceedings should be instituted and shall reach agreement as to the [****] Independent Third Party. 9.4.2. During the Term, the Company shall have the sole right but not the obligation to bring suit or otherwise take action against any alleged infringement of the Company Patents or misappropriation of the Company Know-How. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 18 9.5. In the event that a claim or proceedings is brought against the Company by an Independent Third Party alleging that the sale, distribution or use of the Elan Royalty Product in the Territory solely because of the Company's use of the Elan Technology infringes the patent rights of such an Independent Third Party, the Company shall promptly advise Elan of such threat or suit. The Company shall not acknowledge in writing to the Independent Third Party or to any other person the validity of the patent rights of such Independent Third Party and shall not compromise or settle any claim or proceedings or make any formal written admissions in the course of proceedings relating thereto without the prior written consent of Elan. At its option, Elan may elect to take over the conduct of such proceedings from the Company at Elan's expense. 9.6. (a) Elan and/or EMT shall have no liability to the Company whatsoever or howsoever arising from any losses incurred by the Company as a result of having to cease selling Elan Royalty Product or having to defer the launch of selling Elan Royalty Product as a result of any infringement proceedings ("Loss of ERP Sales"), [****]. (b) Further, Elan and/or EMT shall have no liability for any enhanced damages awarded as a result of any wilful infringement on the part of the Company. (c) The liability of Elan and/or EMT to the Company shall not be limited in respect of any third party claim against the Company (including a claim for loss of profits or other consequential damages by the relevant third party included in such claim), including any suits or other proceedings by the relevant third party against the Company arising from such third party claim (and including reasonable attorney's fees and expenses), to the extent that such third party claim arises or results from, or constitutes a breach by Elan and/or EMT of any of the representations or warranties set forth in Clause 13.4. and provided that the Company has complied with the provisions of Clause 13.8. 10. CONFIDENTIAL INFORMATION 10.1. The Parties acknowledge that it may be necessary, from time to time, to disclose to each other confidential and/or proprietary information, including without limitation, the Technologies, improvements, Know-How and the Patents relating thereto, inventions, works of authorship, trade secrets, specifications, designs, data, know-how and other information relating to the Field, the terms of this Agreement and the Development Agreement, the Elan Royalty Products, processes and services, or the business of the disclosing Party ("CONFIDENTIAL INFORMATION"). _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 19 Confidential Information shall be deemed not to include: (i) information that is in the public domain; (ii) information which is made public by the disclosing Party; (iii) information which is independently developed by a Party without the aid or application of the Confidential Information; (iv) information that is published or otherwise becomes part of the public domain without any disclosure by a Party, or on the part of a Party's directors, officers, agents, representatives or employees; (v) information that becomes available to a Party on a non- confidential basis, whether directly or indirectly, from a source other than a Party, which source, to the best of the Party's knowledge, did not acquire this information on a confidential basis; or (vi) information which the receiving Party is required to disclose pursuant to: (A) a valid order of a court or other governmental body or any political subdivision thereof or otherwise required by law; or (B) other requirement of law; provided that if the receiving Party becomes legally required to disclose any confidential information, the receiving Party shall give the disclosing Party prompt notice of such fact so that the disclosing Party may obtain a protective order or other appropriate remedy concerning any such disclosure. The receiving Party shall fully co-operate with the disclosing Party in connection with the disclosing Party's efforts to obtain any such order or other remedy. If any such order or other remedy does not fully preclude disclosure, the receiving Party shall make such disclosure only to the extent that such disclosure is legally required. 10.2. Any Confidential Information revealed by a Party to another Party shall be used by the receiving Party exclusively for the purposes of fulfilling the receiving Party's obligations and rights under this Agreement and the Development Agreement and for no other purpose. 10.3. Each Party agrees to disclose Confidential Information of another Party only to those employees, representatives and agents requiring knowledge thereof in connection with their duties directly related to the fulfilling of the Party's obligations and rights under this Agreement. Each Party further agrees to inform all such employees, representatives and agents of the terms and provisions of this Agreement and their duties hereunder and to obtain their consent hereto as a condition of receiving Confidential Information. Each Party agrees that it will exercise the same degree of care, but in no event less than a reasonable degree, 20 and protection to preserve the proprietary and confidential nature of the Confidential Information disclosed by a Party, as the receiving Party would exercise to preserve its own proprietary and Confidential Information. Each Party agrees that it will, upon request of a Party, return all documents and any copies thereof containing Confidential Information belonging to or disclosed by, such Party. 10.4. Notwithstanding the above, each Party may use or disclose Confidential Information disclosed to it by another Party to the extent such use or disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, conducting clinical trials, or making a permitted sub-license or otherwise exercising its rights hereunder, provided that if a Party is required to make any such disclosure of the other Party's Confidential Information, other than pursuant to a confidentiality agreement, such Party shall inform the other Party, allow the other Party to participate in the process and generally limit disclosure to the greatest extent possible and seek confidential treatment or a protective order. 10.5. The provisions relating to confidentiality in this Clause 10 shall remain in effect during the Term, and for a period of [****] following the expiration or earlier termination of this Agreement. 10.6. The Parties agree that the obligations of this Clause 10 are necessary and reasonable in order to protect the Parties' respective businesses, and each Party expressly agrees that monetary damages may be inadequate to compensate a Party for any breach by the other Party of its covenants and agreements set forth herein. Accordingly, the Parties agree and acknowledge that any such violation or threatened violation may cause irreparable injury to a Party and that, in addition to any other remedies that may be available, in law and equity or otherwise, any Party shall be entitled to seek injunctive relief against the threatened breach of the provisions of this Clause 10, or a continuation of any such breach by the other Party, specific performance and other equitable relief to redress such breach together with its damages and reasonable counsel fees and expenses to enforce its rights hereunder. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 21 11. TRADEMARKS 11.1. The Company undertakes that all Elan Royalty Products and all materials utilised in connection with the provision, marketing, distribution, advertising and/or marketing thereof that bear or incorporate the Elan Trademark shall be of a consistent and high standard of quality, commensurate with the prestige of the Elan Trademark and that its use of the Elan Trademark shall conform to such reasonable standards as Elan shall from time to time specify. The Company shall co-operate fully with the reasonable instructions of Elan with respect to the maintenance of such standards. 11.2. The Company shall: 11.2.1. with reference to Clause 2.2, be obliged to use the Elan Trademarks in each country of the Territory to acknowledge the incorporation of the Medipad System in the Elan Royalty Products in a manner to be mutually agreed by the parties and provide proof of use of the Elan Trademarks if requested by Elan; 11.2.2. use the Elan Trademarks strictly in compliance with any applicable trademark and other laws and regulations and to use such legends, markings and notices in connection therewith as are required by law or otherwise reasonably required by Elan to protect Elan's rights therein; 11.2.3. do nothing to mislead the public as to the nature or quality of any Elan Royalty Product on which the Elan Trademarks are affixed nor use it on advertising or display materials which are unethical, immoral or offensive to good taste; 11.2.4. at Elan's reasonable request, supply samples of the Elan Royalty Products and any materials utilized in connection with the distribution, advertising and/or marketing thereof that bear or incorporate the Elan Trademarks for inspection by Elan; 11.2.5. not adopt or seek to register any trademark, design or logo confusingly similar to the Elan Trademarks without Elan's prior written consent; and 11.2.6. promptly notify Elan in writing if any alleged infringement or unauthorized use of the Elan Trademarks comes to the Company's attention. 11.3. The Company undertakes to use the Elan Trademarks in relation only to the Elan Royalty Products (or materials for advertising and promotion thereof), and in accordance with any reasonable specifications and directions given by Elan from time to time. In particular, but without limitation, the Company agrees to state on the Elan Royalty Products or materials for the advertising or promotion thereof that the Elan Trademarks are used under license from Elan. 22 11.4. The Company shall take no action which could prejudice the validity, re-registration or reputation of the Elan Trademarks or which could impair the reputation, business standing or prestige of Elan. 11.5. Elan shall remain the owner of the Elan Trademarks and the goodwill associated with the same and the Company agrees not to assert any ownership interest in the Elan Trademarks or the goodwill associated therewith. 11.6. Elan shall have the exclusive right to take such action in respect of the registration, defence, infringement and maintenance of the Elan Trademarks as Elan in its reasonable business judgement deems appropriate. The Company shall provide all such assistance and co- operation, including the furnishing of documents and information and the execution of registered user documentation or the like, as may be required to give effect to any action as may be taken, or required to be taken, by Elan. In taking any such action, Elan shall consider the legitimate commercial interests of the Company. 11.7. New trademarks used in relation to the Elan Technology and all registrations thereof and applications therefor shall be owned and registered by Elan and shall constitute Elan Trademarks. 12. TERM AND TERMINATION 12.1. This Agreement is concluded for a period commencing as of the Effective Date and expiring on a Elan Royalty Product by Elan Royalty Product basis and on a country by country basis on the later to occur of : 12.1.1. 15 years starting from the date of execution hereof; and 12.1.2. the date of expiration of the last to expire patent included in the Elan Patents that claims such Elan Royalty Product; (the "TERM"). 12.2. If this Agreement is not earlier terminated in accordance with this Clause 12, at the end of the Term for each country of the Territory, the Company shall have a paid-up non-exclusive licence to the Elan Technology for the Field in such country and the parties shall negotiate in good faith as to which of the terms of this Agreement shall continue in full force and effect, should the Company wish to continue to have rights hereunder, provided that the parties agree that Clauses 7.1, 7.2, 12.3.2, 12.4 and 12.5 shall not continue in force or effect. 12.3.1. For the purpose of this Clause 11.3, a "RELEVANT EVENT" is committed by Elan or the Company if: (i) it commits a material breach of one of its material obligations under this Agreement and fails to remedy such breach within 60 days of being specifically required in writing to do so by the other Party; provided, however, that if the breaching Party has proposed a course of action to rectify the breach and is acting in good faith and with due diligence to 23 rectify same but has not cured the breach by the 60th day, such rectifying period shall be extended by an amount of time as is reasonably necessary to permit the breach to be rectified; (ii) it ceases, wholly or substantially, to carry on its business, other than for the purpose of a reorganization, without the prior written consent of Elan in the case of the Company, or the Company in the case of Elan (such consent not to be unreasonably withheld); (iii) the voluntary appointment of a liquidator, receiver, administrator, examiner, trustee or similar officer over all or substantially all of its assets under the laws of its state or country of incorporation; or (iv) an application or petition for bankruptcy, corporate reorganization, composition, administration, examination, arrangement or any other procedure similar to any of the foregoing under the laws of its state or country of incorporation, is filed, and is not discharged within 90 days. 12.3.2. If Elan commits a Relevant Event, the Company shall have in addition to all other legal and equitable rights and remedies hereunder, the right to terminate this Agreement upon 30 days' written notice; provided, that such written notice be given within 60 days following the date that the Company becomes aware of the Relevant Event. If the Company commits a Relevant Event, Elan shall have in addition to all other legal and equitable rights and remedies hereunder, the right to terminate this Agreement upon 30 days' written notice; provided, that such written notice be given within 60 days following the date that Elan becomes aware of the Relevant Event. 12.4. In the event that a [****] shall, directly or indirectly[****] or otherwise [****] shall be entitled to forthwith [****] to [****]. 12.5. Upon a termination coming into effect after an exercise of those rights of termination as specified in this Clause 12 or elsewhere within the Agreement, this Agreement shall, subject to the other provisions of the Agreement, automatically terminate forthwith and be of no further legal force or effect. 12.6. Upon termination of the Agreement (but not for an expiration, for which Clause 12.2 shall apply) _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 24 12.6.1. except as expressly provided for under Clause 12.6.2 all rights, licenses and sublicenses granted in and pursuant to this Agreement shall cease for the Territory or for such particular country or countries in the Territory (as the case may be). Following such termination, the Company may not thereafter, except as expressly provided for in Clause 12.6.2, use in the Territory or in such particular country or countries in the Territory (as the case may be) (a) any Subsisting Elan Patents and improvements, (b) any Elan Know- How that remains confidential or otherwise proprietary to Elan, and/or (c) any Elan Trademark; and 12.6.2. the Company shall promptly make an accounting to Elan of the inventory of the Elan Royalty Product which it has in the Territory or for such particular country or countries in the Territory (as the case may be), if any, as of the date of such termination and the Company shall thereafter have the right for a period of six (6) months after said termination to sell such inventory of the Elan Royalty Product in the Territory or in such particular country or countries in the Territory (as the case may be) or, if appropriate and legally permissible, to transport such inventory of Elan Royalty Product for sale in another country or countries in the Territory within such six month period; provided that the Net Sales thereof shall be subject to the royalty provisions of Clause 7 and so payable to Elan. Thereafter, any remaining inventory of Elan Royalty Product shall be disposed of by mutual agreement of the Parties in accordance with regulatory requirements. 12.7. Upon expiration or termination of the Agreement: 12.7.1. any sums that were due from the Company to Elan on Net Sales in the Territory or in such particular country or countries in the Territory (as the case may be) prior to the expiration or termination of this Agreement as set forth herein shall be paid in full within 60 days of the expiration or termination of this Agreement for the Territory or for such particular country or countries in the Territory (as the case may be); 12.7.2. all confidentiality provisions set out herein shall remain in full force and effect; 12.7.3. the rights of inspection and audit set out in Clause 8 shall continue in force for a period of one year; 12.7.4. Elan shall retain all rights to the Elan Technology and improvements to the Elan Technology; 12.7.5. the Company shall retain all rights to the Company Technology and improvements to the Company Technology; 12.7.6. rights of permitted third party sublicensees in and to the Elan Technology and the Company Technology shall survive the termination of the license; 25 and Endorex and Elan shall in good faith agree upon the form most advantageous to Elan and Endorex in which the rights of the sublicensor under any such sublicenses are to be held (which form may include continuation of the Company solely as the holder of such licenses or assignment of such rights to a third party or parties, including an assignment to both Elan and Endorex). 12.7.7. the Company shall promptly make an accounting to Elan of the inventory of the Elan Royalty Product which it has in the Territory or for such particular country or countries in the Territory (as the case may be), if any, as of the date of such termination and the Company shall thereafter have the right for a period of six (6) months after said expiration or termination to sell such inventory of the Elan Royalty Product in the Territory or in such particular country or countries in the Territory (as the case may be) or, if appropriate and legally permissible, to transport such inventory of Elan Royalty Product for sale in another country or countries in the Territory within such six month period; provided that the Net Sales thereof shall be subject to the royalty provisions of Clause 7 and so payable to Elan. Thereafter, any remaining inventory of Elan Royalty Product shall be disposed of by mutual agreement of the Parties in accordance with regulatory requirements. 13. WARRANTIES/INDEMNITIES 13.1. Elan and EMT represents and warrants to the Company that to their respective best knowledge, after reasonable investigations:- 13.1.1. Elan and EMT have the right to grant the licenses and rights granted herein; 13.1.2. Schedule 1 contains a summary of the primary pending patent applications and issued patents comprising the Elan Patents existing as of the Effective Date; 13.1.3. there are no agreements between Elan, EMT, NanoSystems or Sano and any Independent Third Parties that conflict with the rights granted by Elan in or pursuant to this Agreement, 13.2. Elan represents and warrants to the Company that the Elan Patents listed in Schedule 1 are solely owned by Elan or EMT and are free and clear of encumbrances and liens. 13.3. The Company represents and warrants to Elan that it has the sole, exclusive and unencumbered right to grant the licenses and rights herein granted to Elan and that it has not granted any option, license, right or interest in or to the Company Technology to any Independent Third Party which would conflict with the rights granted by this Agreement. 26 13.4. Elan represents and warrants to the Company as of the date of the Effective Date:- 13.4.1. [****]; 13.4.2. [****]; and 13.4.3. [****]. 13.5. In addition to any other indemnifications provided for herein, Elan shall indemnify and hold harmless the Company and its Affiliates and their respective employees, agents, partners, officers and directors from and against any claims, losses, liabilities or damages (including reasonable attorney's fees and expenses) incurred or sustained by the Company arising out of or in connection with any breach of any representation, covenant, warranty or obligation by Elan or EMT hereunder. 13.6. In addition to any other indemnifications provided for herein, the Company shall indemnify and hold harmless Elan and its Affiliates and their respective employees, agents, partners, officers and directors from and against any claims, losses, liabilities or damages (including reasonable attorney's fees and expenses) incurred or sustained by Elan arising out of or in connection with any breach of any representation, covenant, warranty or obligation by the Company hereunder. 13.7. The Company shall assume the sole and entire responsibility and shall indemnify and save harmless Elan from any and all claims, liabilities, expenses, including reasonable attorney's fees, responsibilities and damages by reason of any claim, proceedings, action, liability or injury arising out of any faults of the Elan Royalty Products resulting from the transport, packaging, storage, handling, distribution, marketing or sale of the Elan Royalty Products by the Company, to the extent that it was caused by the negligence or wrongful acts or omissions on the part of the Company. 13.8. As a condition of obtaining an indemnity in the circumstances set out above, the Party seeking an indemnity shall: 13.8.1. fully and promptly notify the other Party of any claim or proceeding, or threatened claim or proceeding; 13.8.2. permit the indemnifying Party to take full care and control of such claim or proceeding; 13.8.3. co-operate in the investigation and defence of such claim or proceeding; _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 27 13.8.4. not compromise or otherwise settle any such claim or proceeding or make any formal written admission in the course of proceedings without the prior written consent of the other Party, which consent shall not be unreasonably withheld conditioned or delayed; and 13.8.5. take all reasonable steps to mitigate any loss or liability in respect of any such claim or proceeding. 13.9. [****] NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NONE OF THE PARTIES SHALL BE LIABLE TO THE OTHERS BY REASON OF ANY REPRESENTATION OR WARRANTY, CONDITION OR OTHER TERM OR ANY DUTY OF COMMON LAW, OR UNDER THE TERMS OF THIS AGREEMENT, FOR ANY CONSEQUENTIAL, INDIRECT OR INCIDENTAL LOSS OR DAMAGE (WHETHER FOR LOSS OF PROFIT OR OTHERWISE) AND WHETHER OCCASIONED BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES, THEIR EMPLOYEES OR AGENTS OR OTHERWISE. 14. INSURANCE 14.1. Elan shall maintain comprehensive general liability insurance, including product liability insurance on the Elan Royalty Products manufactured and/or sold by Elan in such prudent amount as shall be determined by the Management Committee. Elan shall provide the Company with a certificate from the insurance company verifying the above and undertakes to notify the Company directly at least 30 days prior to the expiration or termination of such coverage. Elan shall also provide the Company with a vendor's certificate substantially in a form to be agreed between the Parties. 14.2. The Company shall maintain comprehensive general liability insurance, including product liability insurance on Elan Royalty Products manufactured and/or sold by the Company that incorporate intellectual property licensed hereunder by Elan in such prudent amount as shall be determined by the Management Committee. The Company shall provide Elan with a certificate from the insurance company verifying the above and undertakes to notify Elan 30 days prior to the expiration or termination of such coverage. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 28 15. IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE 15.1. Neither Party to this Agreement shall be liable for delay in the performance of any of its obligations hereunder if such delay results from causes beyond its reasonable control, including, without limitation, acts of God, fires, strikes, acts of war, or intervention of a government authority, non availability of raw materials, but any such delay or failure shall be remedied by such Party as soon as practicable. 16. SETTLEMENT OF DISPUTES; PROPER LAW 16.1. The Parties will attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by negotiation between executives of the Parties, failing which the Parties shall invoke the dispute resolution provisions set forth in Clause 15 of the Development Agreement. 16.2. This Agreement shall be governed by and construed in accordance with the laws of New York and subject to the provisions of Clause 16.1, the Parties agree to submit to the jurisdiction of the courts of New York for the resolution of disputes hereunder, which the Parties have not otherwise agreed should be subject to the binding determination of an Expert or Panel, pursuant to the terms of this Agreement. 17. ASSIGNMENT 17.1. This Agreement may not be assigned by either Party without the prior written consent of the other, which consent in relation to the proposed assignment to an Affiliate of Elan or the Company, as the case may be, shall not be unreasonably withheld, conditioned or delayed. 18. NOTICES 18.1. Any notice to be given under this Agreement shall be sent in writing in English by registered mail, airmail, reputable courier or recorded delivery post, or telecopied (with a confirmation copy promptly sent by mail) to: if to Elan: Elan Corporation, plc Lincoln House Lincoln Place Dublin 2, Ireland Telecopier: 353 1 662 4960 Attention: Vice President & General Counsel Elan Pharmaceutical Technologies with a copy to: Brock Fensterstock Silverstein & McAuliffe LLC 153 East 53rd Street 56th Floor New York, New York 10022 29 Telecopier: 1 212 371 5500 Attention: David Robbins if to the Company: Endorex Newco, Ltd. Clarendon House 2 Church Street Hamilton, Bermuda Telecopier: 001 441 292 4720 Attention: Chairman with a copy to: Brobeck, Phleger & Harrison LLP 1633 Broadway 47th Floor New York, New York 10019 Telecopier: 1 212 586 7878 Attention: Nigel Howard if to the Endorex: Endorex Corporation 900 Lake Shore Drive Lake Bluff, Illinois 60044 Telecopier: 001 847 604 8570 Attention: President with a copy to: Brobeck, Phleger & Harrison LLP 1633 Broadway 47th Floor New York, New York 10019 Telecopier: 1 212 586 7878 Attention: Nigel Howard if to Elan: Elan Medical Technologies Ltd. Monksland Athlone Co. Westmeath, Ireland Telecopier: 353 1 662 4960 Attention: Vice President & General Counsel Elan Pharmaceutical Technologies with a copy to: Brock Fensterstock Silverstein & McAuliffe LLC 153 East 53rd Street 56th Floor New York, New York 10022 Telecopier: 1 212 371 5500 Attention: David Robbins or to such other address(es) as may from time to time be notified by any Party to the others hereunder. 30 18.2. Any notice sent by mail shall be deemed to have been delivered within 7 working days after dispatch, any notice sent by reputable courier shall be deemed to have been delivered within 2 working days after dispatch and any notice sent by telecopy shall be deemed to have been delivered within 24 hours of the time of the dispatch. Notices of change of address shall be effective upon receipt. 19. MISCELLANEOUS CLAUSES 19.1. No waiver of any right under this Agreement shall be deemed effective unless contained in a written document signed by the Party charged with such waiver, and no waiver of any breach or failure to perform shall be deemed to be a waiver of any other breach or failure to perform or of any other right arising under this Agreement. 19.2. If any provision in this Agreement is agreed by the Parties to be, or is deemed to be, or becomes invalid, illegal, void or unenforceable under any law that is applicable hereto, (i) such provision will be deemed amended to conform to applicable laws so as to be valid and enforceable or, if it cannot be so amended without materially altering the intention of the Parties, it will be deleted, with effect from the date of such agreement or such earlier date as the Parties may agree, and (ii) the validity, legality and enforceability of the remaining provisions of this Agreement shall not be impaired or affected in any way. 19.3. The Parties shall use their respective reasonable endeavors to ensure that the Parties and any necessary Independent Third Party shall do, execute and perform all such further deeds, documents, assurances, acts and things as any of the Parties hereto may reasonably require by notice in writing to the other Party or such Independent Third Party to carry out the provisions of this Agreement. 19.4. This Agreement shall be binding upon and enure to the benefit of the Parties hereto, their successors and permitted assigns and sub- licensees. 19.5. No provision of this Agreement shall be construed so as to negate, modify or affect in any way the provisions of any other agreement between the Parties unless specifically referred to, and solely to the extent provided, in any such other agreement. In the event of a conflict between the provisions of this Agreement and the provisions of the Development Agreement, the terms of the Development Agreement shall prevail unless this Agreement specifically provides otherwise. 19.6. No amendment, modification or addition hereto shall be effective or binding on either Party unless set forth in writing and executed by a duly authorized representative of each Party. 19.7. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 31 19.8. Each of the Parties undertake to do all things reasonably within its power which are necessary or desirable to give effect to the spirit and intent of this Agreement. 19.9. Each of the Parties hereby acknowledges that in entering into this Agreement it has not relied on any representation or warranty save as expressly set out herein or in any document referred to herein. 19.10. Nothing contained in this Agreement is intended or is to be construed to constitute Elan and the Company as partners, or Elan as an employee of the Company, or the Company as an employee of Elan. Neither Party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any contract, agreement or undertaking with any Independent Third Party. 32 IN WITNESS THEREOF the Parties hereto have executed this License Agreement in quadruplicate. SIGNED BY For and on behalf of ELAN CORPORATION, PLC /s/ Liam Daniel SIGNED BY For and on behalf of ELAN MEDICAL TECHNOLOGIES LTD. /s/ Liam Daniel SIGNED BY For and on behalf of ENDOREX CORPORATION /s/ Michael S. Rosen President and Chief Executive Officer SIGNED BY For and on behalf of ENDOREX NEWCO, LTD. /s/ Michael S. Rosen Chairman 33 SCHEDULE 1 ELAN PATENTS See attached MEDIPAD(R) SYSTEM PATENT PORTFOLIO INTRADERMAL DRUG DELIVERY DEVICE [****]
COUNTRY FILED SERIAL NO. STATUS Australia 11/17/1994 10763/95 Issued [****] New Zealand 11/17/1994 276485 Issued South Africa 11/18/1994 94/9185 Issued Taiwan 11/15/1994 83110594 Issued United States 01/18/1994 08/183,482 Issued [****]
_____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. MEDICAMENT DELIVERY DEVICE [****] (VIAL ON BOARD AND NEEDLE ON THE PERIPHERY)
COUNTRY FILED SERIAL NO. STATUS [****] Ireland 09/11/1995 950702 Issued [****] South Africa 09/05/1996 96/7502 Issued [****] United States 09/11/1996 60/003,673 Expired 09/06/1996 5,814,020 Issued [****]
_____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. MEDICAMENT CONVERSION SYSTEM [****] LYOPHILIZED DRUG SYSTEM I
COUNTRY FILED SERIAL NO. STATUS [****] South Africa 09/07/1995 96/7444 Issued [****] United States 09/07/1995 60/003,559 Expired 09/06/1996 08/709,486 Pending [****]
- -------------------------------------------------------------------------------- CARTRIDGE-BASED DRUG DELIVERY DEVICE[****] (BOLUS MEDIPAD I)
COUNTRY FILED SERIAL NO. STATUS [****] South Africa 12/10/1996 96/10374 Issued Taiwan 02/11/1997 86101675 Issued [****]
_____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. DELIVERY NEEDLE [****]
COUNTRY FILED SERIAL NO. STATUS [****] South Africa 06/09/1997 97/5065 Issued Taiwan 07/19/1997 86110263 Published United States 06/13/1996 60/019,714 Expired[****] WIPO 06/04/1997 PCT/IE97/00041 Published
(Australia, Brazil, Canada, China, Czech Republic, Hungary, Israel, Norway, New Zealand, Poland, Russian Federation, Ukraine, United States of America, EP) [****] _______________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SCHEDULE 2 ELAN TRADEMARKS See attached MEDIPAD(R) AND ELAN TRADEMARK PORTFOLIO ELAN & LOGO
- ----------------------------------------------------------------------------------------------------------- COUNTRY REG./APPL. NO. REG./FILING DATE STATUS INTL. CLASS(ES) - ----------------------------------------------------------------------------------------------------------- Denmark VA 00147 1994 01/05/94 Pending 5,10 - ----------------------------------------------------------------------------------------------------------- Finland 140765 11/20/95 Registered 5,10 - ----------------------------------------------------------------------------------------------------------- France 92400967 01/13/1992 Registered 10,5 - ----------------------------------------------------------------------------------------------------------- Ireland 128883 08/18/1988 Registered 5 - ----------------------------------------------------------------------------------------------------------- Italy 684515 07/25/1996 Registered 10, 29, 30 5 - ----------------------------------------------------------------------------------------------------------- Japan 4095230 12/19/1997 Registered 5 - ----------------------------------------------------------------------------------------------------------- Norway 179263 01/23/1997 Registered 10, 5 - ----------------------------------------------------------------------------------------------------------- Sweden 326479 03/06/1990 Registered 05, 10 - ----------------------------------------------------------------------------------------------------------- Switzerland 408317 03/23/1993 Registered 5 - ----------------------------------------------------------------------------------------------------------- United States 1,645,769 05/28/1991 Registered 5 - -----------------------------------------------------------------------------------------------------------
ELAN LOGO
- ----------------------------------------------------------------------------------------------------------- COUNTRY REG./APPL. NO. REG./FILING DATE STATUS INTL. CLASS(ES) - ----------------------------------------------------------------------------------------------------------- Denmark VR 02/593 1994 04/22/1994 Registered 10, 5 - ----------------------------------------------------------------------------------------------------------- Ireland 128884 08/18/1998 Registered 5 - ----------------------------------------------------------------------------------------------------------- Switzerland (B) 404.111 01/18/1993 Registered 10,5 Switzerland (A) 404.110 01/18/1993 Registered 10,5 - ----------------------------------------------------------------------------------------------------------- United States 1,644,210 05/14/1991 Registered 5 - -----------------------------------------------------------------------------------------------------------
MEDIPAD
- ----------------------------------------------------------------------------------------------------------- COUNTRY REG./APPL. NO. REG./FILING DATE STATUS INTL. CLASS(ES) - ----------------------------------------------------------------------------------------------------------- Ireland (A) 163887 11/23/1994 Registered 5 Ireland (B) 163886 11/23/1994 Registered 10 - ----------------------------------------------------------------------------------------------------------- United Kingdom 2003655 09/05/1997 Registered 10, 5 - ----------------------------------------------------------------------------------------------------------- United States 2,183,377 08/25/1998 Registered 10 - -----------------------------------------------------------------------------------------------------------
SCHEDULE 3 TYPE II TECHNOLOGICAL COMPETITOR [****] [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. EX-10.24 5 JOINT DEVELOPMENT EXHIBIT 10.24 CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS EXHIBIT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED JOINT DEVELOPMENT AND OPERATING AGREEMENT ELAN CORPORATION, PLC, ELAN INTERNATIONAL SERVICES, LTD., ENDOREX CORPORATION, AND ENDOREX NEWCO, LTD. JOINT DEVELOPMENT AND OPERATING AGREEMENT, made as of October 21, 1998 by and among ELAN CORPORATION, PLC, a public limited company incorporated under the laws of Ireland ("Elan"), ELAN INTERNATIONAL SERVICES, LTD., a Bermuda corporation ("EIS"), ENDOREX CORPORATION, a Delaware corporation ("Endorex"), and ENDOREX NEWCO, LTD., a Bermuda corporation (the "Company"). RECITALS A. Endorex has proprietary know-how and expertise relating to, inter alia, the research, development and commercialization of pharmaceutical formulations capable of delivering drugs. B. Elan is knowledgeable in the discovery, research, development, manufacture and marketing of pharmaceutical formulations and devices capable of delivering drugs, including the Medipad System. Elan owns or has licensed the Elan Technology either itself or through EMT (defined below). Elan also owns and uses certain trademarks in connection with the manufacture, marketing and sale of the Medipad System, including the Elan Trademarks. Elan Medical Technologies Limited is a wholly owned subsidiary of Elan ("EMT"). C. EIS and Endorex have, as of the date hereof, subscribed for the initial share capital of the Company and agreed to co-operate in the management of its business, which will be to research and develop certain Elan Royalty Products incorporating the technologies developed and/or to be developed by Elan and Endorex and to distribute and sell such Elan Royalty Products throughout the world. D. Elan, EIS, Endorex and the Company have agreed to enter into this Agreement for the purpose of recording the terms and conditions of the Joint Venture and regulating their relationship with each other and certain aspects of the affairs of and their dealings with the Company. AGREEMENT The parties hereto agree as follows: CLAUSE 1 DEFINITIONS 1.1 In this Agreement, the following expressions shall, where not inconsistent with the context, have the following meanings respectively. "AFFILIATE" means any corporation or entity, other than the Company, controlling, controlled or under the common control of Elan or Endorex, as the case may be. For the purposes of this definition, "Control" shall mean direct or indirect ownership of fifty percent (50%) or more of the stock or shares entitled to vote for the election of directors; "AGREED" means agreed by all Parties and confirmed in writing; "AGREEMENT" means this agreement (which expression shall be deemed to include the Recitals and the Schedules hereto); "BUSINESS" means the business of the Company as described in Clause 2 and as more particularly specified in the Plan and such other business as the Parties may agree from time to time in writing should be carried on by the Company; "COMPANY COMPOUND(S)" means the [****] compounds made, invented, acquired, developed or licensed by the Company and, if applicable, any Substitute Compound; "COMPANY SUBSCRIPTION AGREEMENT" means the Subscription and Stockholders Agreement of the Company, made by and between EIS, Endorex and the Company as of the date hereof; "COMPANY TECHNOLOGY" shall have the meaning as such term is defined in the License Agreement; "COST" means, depending upon the context, one of the following: In the case of the [****] Cost shall comprise, [****] excluding [****]. In the case of [****] Cost will be calculated, [****] and will exclude [****]. In the case of [****] Cost will comprise the amount [****] including [****]. "DIRECTORS" means the members of the Company's board of directors, as more fully described in Clause 12; "DISPUTE" means, collectively, a Committee Dispute and a Management Dispute, each as defined in Clause 15; "EFFECTIVE DATE" means the date hereof; "ELAN DIRECTOR" means a director or directors of the Company to be appointed by EIS pursuant to Clause 12; "ELAN ROYALTY PRODUCT" means a Medipad(TM) System based on, using and/or incorporating the Elan Technology and containing a Company Compound, and, if applicable, any Substitute Product; "ELAN TECHNOLOGY" shall have the meaning as such term is defined in the License Agreement; _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 3 "ELAN TRADEMARKS" shall have the meaning as such term is defined in the License Agreement; "EXCHANGE RIGHT" means the right of Elan, as described in the Company Subscription and Stockholders Agreement made by and among EIS, Endorex and the Company, as of the date hereof, whereby Elan may increase its ownership percentage of the common stock of the Company to 50 %;. "ENDOREX DIRECTOR" means any director or directors of the Company appointed by Endorex, pursuant to Clause 12; "EXPERT" shall have the meaning assigned to it in Clause 15.5; "FIELD" means the research, development, and commercialization of (i) [****] or (ii) the Substitute Compound; "FINANCIAL YEAR" means that time period commencing on January 1st and expiring on December 31st of each calendar year; "GLP" AND "GMP" means current Good Laboratory Practises and current Good Manufacturing Practises, respectively; "INDEPENDENT THIRD PARTY" means any Person other than Elan, Endorex, the Company and/or any of their respective Affiliates; "KNOW-HOW" means all trade secrets, confidential scientific, technical and medical information and expertise, technical data and marketing information, studies and data including, but not limited to, unpatented inventions, discoveries, designs, theories, plans, ideas (whether or not reduced to practice); "LICENSE AGREEMENT" means the license agreement between Elan, Endorex, the Company and EMT dated as of the date hereof; "MANAGEMENT COMMITTEE" shall have the meaning as such term is defined in Clause 3; "MEDIPAD SYSTEM" means Elan's ambulatory, subcutaneous, micro-infusion pump device and related technology; _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 4 "PANEL" shall have the meaning as such term is defined in Clause 15; "PARTICIPANT" means Endorex or Elan, as the case may be, and "PARTICIPANTS" means each of the Participants together; "PARTY" means Elan, EIS, Endorex or the Company, as the case may be, and "Parties" means all or some of them together, as applicable; "PATENTS" means all and any patents and any applications therefor in the Territory (including any and all divisions, continuations, continuations- in-part, extensions, additions or reissues thereto or thereof); "PERSON" shall mean an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, or other entity of whatever nature; "PLAN" means the plans to be prepared and approved by the Directors, including mutual agreement of the Elan Director and the Endorex Director, pursuant to Clause 14, in conjunction with the Research and Development Program, for the conduct of the Business of the Company for each Financial Year for the duration of this Agreement which shall include, in particular, details of the planned budget for research and development expenses to be incurred in that Financial Year, for which each of the Participants shall be responsible, and how such expenses shall be funded; "PROVIDING PARTY" shall have the meaning assigned to such term in Clause 4.4; "R&D COMMITTEE" means the committee established pursuant to Clause 3.2; "REGULATORY APPLICATION" means any regulatory application or any other application for marketing approval for an Elan Royalty Product but not the Medipad System alone, which the Company will file in any country of the Territory, including any supplements or amendments thereto; "REGULATORY APPROVAL" means the final approval to market an Elan Royalty Product but not the Medipad System alone, in any country of the Territory, including pricing and reimbursement approval and any other approval which is required to launch the Elan Royalty Product in the normal course of business; "RELEVANT EVENT" shall have the meaning as such term is defined in Clause 16; "RESEARCH AND DEVELOPMENT PROGRAM" means the program of research and development work being conducted or to be conducted for and on behalf of the Company which have been devised by the R&D Committee and approved by the Management Committee; "RHA" means any relevant government health authority (or successor agency thereof) in any country of the Territory whose approval is necessary to market an Elan Royalty Product in the relevant country of the Territory; 5 "SHARES" means the common stock of the Company, par value $1.00 per share; "SUBSIDIARY" of any Person means any other Person, (i) of which (or in which) greater than 50% of (A) the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such second Person, if a corporation, (B) the interest in the capital or profits of such second Person, if a partnership or other entity, or (C) the beneficial interest of such trust or estate, if a trust or estate, is at the time directly or indirectly owned by such first Person, by such first Person and one or more other Subsidiaries of such first Person, or by one or more other Subsidiaries of such first Person; (ii) which is otherwise effectively controlled by such first Person or any other Subsidiary of such first Person, pursuant to contract, arrangement, understanding or otherwise; or (iii) or any other corporation, association or other business entity that is required by GAAP to be combined or consolidated with such Person. "SUBSTITUTE PRODUCT" means a Medipad System based on, using and/or incorporating the Elan Technology and/or the Company Technology a Substitute Compound, including but not limited to patents and know-how that may be acquired by or on behalf of the Company; "SUBSTITUTE COMPOUND" means the substitute compound described in Clause 3 of the License Agreement; "TECHNOLOGIES" means collectively, the Company Technology and the Elan Technology; "TERRITORY" means [****]; "TERM" shall have the meaning assigned to such word in Clause 16.1; "TECHNOLOGICAL COMPETITOR" means a Type I Technological Competitor or a Type II Technological Competitor; "THIRD PARTY TECHNOLOGY" shall have the meaning assigned to it in Clause 3.1. of the License Agreement; "TYPE I TECHNOLOGICAL COMPETITOR" means [****]; "TYPE II TECHNOLOGICAL COMPETITOR" shall mean [****]; _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 6 "UNITED STATES DOLLAR" and "US$" means the lawful currency of the United States of America. 1.2 Words importing the singular shall include the plural and vice versa. 1.3 Unless the context otherwise requires, reference to a recital, article, paragraph, provision, clause or schedule is to a recital, article, paragraph, provision, clause or schedule of or to this Agreement. 1.4 Reference to a statute or statutory provision includes a reference to it as from time to time amended, extended or re-enacted. 1.5 The headings in this Agreement are inserted for convenience only and do not affect its construction. 1.6 Unless the context or subject otherwise requires, references to words in one gender include references to the other genders. 1.7 References to "include" or "including" shall be construed as examples only, and in no way be read as limiting. CLAUSE 2 REPRESENTATIONS AND WARRANTIES 2.1 Each of Elan, Endorex and the Company hereby represents and warrants to the other that the Shares acquired or to be acquired by it in the Company will be acquired for its own absolute beneficial ownership and not on behalf of any other Person. 2.2 Each of Elan, Endorex and the Company hereby represents and warrants to the other that: (i) it is duly incorporated under the laws of its place of incorporation; (ii) it has full authority and capacity to enter into and perform its obligations under this Agreement (having obtained all requisite corporate and governmental approvals); (iii) it is not engaged in any litigation or arbitration, or in any dispute or controversy reasonably likely to lead to litigation, arbitration or any other proceeding, which would materially affect the validity of this Agreement, the Party's fulfillment of its respective obligations under this Agreement or the business of the Company as contemplated herein; and (iv) this Agreement has been fully authorised, executed and delivered by it and it has full legal right, power and authority to enter into and perform this Agreement, which constitutes a valid and binding agreement between the Parties. 7 CLAUSE 3 DIRECTION OF RESEARCH AND DEVELOPMENT 3.1 The Directors shall appoint a management committee (the "MANAGEMENT COMMITTEE") to perform certain operational functions, such delegation to be consistent with the Directors' right to delegate powers pursuant to the Company's Certificate of Incorporation or equivalent certificate or document under applicable laws of the Company's country of incorporation. The Management Committee shall initially consist of four members, two of whom shall be nominated by the Elan Director and two of whom shall be nominated by the Endorex Director, and each of whom shall be entitled to one vote, whether or not present at any Management Committee meeting during which such operational functions are discussed. Each of the Elan Director and the Endorex Director shall be entitled to remove any of their nominees to the Management Committee and appoint a replacement in place of any nominees so removed. The number of members of the Management Committee may be altered if agreed to by the Directors; provided that at all times during the term of this Agreement, each of the Elan Director and the Endorex Director shall be entitled to appoint an equal number of members to the Management Committee. 3.2 The Management Committee shall appoint a research and development committee (the "R&D Committee"). The R&D Committee shall initially consist of four members, with an equal number being nominated by the nominees of the Elan Director on the Management Committee and by the nominees of the Endorex Director on the Management Committee, and each of whom shall have one vote, whether or not present at an R&D Committee meeting during which research and development issues are discussed. The nominees of the Elan Director or the nominees of the Endorex Director shall be entitled to remove any of their nominees to the R&D Committee and appoint a replacement in place of any nominees so removed. The number of members of the R&D Committee may be altered if agreed to by the Management Committee; provided, that at all times during the term of this Agreement an equal number of members shall be nominated by the nominees of the Elan Director and by the nominees of the Endorex Director. 3.3 The Management Committee shall be responsible for, inter alia, devising, implementing and reviewing strategy for the Business and, in particular, devising the Company's strategy for research and development in relation to the Field and to monitor and supervise the implementation of the Company's strategy for research and development. 3.4 The Management Committee shall report all significant developments to the Directors on the occurrence thereof and, in addition, shall report at quarterly intervals to the Directors. Any dispute or deadlock among the members of the Management Committee shall be referred by it to the Directors. 3.5 The R&D Committee shall be responsible for the design of the Research and Development Program for consideration by the Management Committee and the implementation of the Research and Development Program as approved by the 8 Management Committee. The R&D Committee shall meet at regular intervals to monitor the progress of the Research and Development Program and to report on their progress to the Management Committee. CLAUSE 4 CONDUCT OF RESEARCH AND DEVELOPMENT 4.1 For a period commencing on the date hereof and expiring on 31st December, 1999, as described in the Company Subscription Agreement, each of Elan and Endorex shall undertake to perform research and development related to the development and commercialization of the Elan Royalty Products in an amount up to a maximum of [****] at the request of the Company and as articulated in the Plan in furtherance of the development and commercialization of the Elan Royalty Products and cultivation of Patent Rights and Know-How related to the Elan Royalty Products, and the Company Technology. The cost of such development work shall be the applicable Party's respective Cost plus [****]. All subcontracted services by third parties shall be charged at cost. 4.2 Research and development work related to Elan Royalty Products, the Third Party Technology or the Company Technology, including, without limitation, formulation, optimization, clinical and regulatory activities shall be conducted by Elan and Endorex as provided in the Plan. Research and development activities related primarily to the Elan Technology shall be conducted by Elan. Nothing in this Clause 4.2. shall be deemed [****] in the event that [****]. 4.3 With reference to Clause 3 of the License Agreement, in the event that notwithstanding its reasonable endeavours, the Company [****] Elan and Endorex shall [****]. The selection of the Substitute Compound [****]. 4.4 Each of Elan and Endorex (each, a "PROVIDING PARTY") shall use its reasonable endeavours to conduct its portion of the Research and Development Program in accordance with the timetable set out in the Research and Development Program. The research and development work conducted by the Providing Party for the Company shall be in accordance with the Research and Development Program devised by the R&D Committee as approved by the Management Committee. The Providing Party shall, in accordance with the terms and conditions set forth in this Agreement, undertake reasonably diligent efforts, as would be deemed commensurate with the achievement of its own business aims for a similar product of its own, to conduct its part of the Research and Development Program. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 9 4.5 The Research and Development Program(s) shall be directed by the R&D Committee, subject to the strategic direction of the Management Committee. In conducting the Research and Development Program(s), the Providing Party shall co-operate fully with the R&D Committee and the Management Committee. Each Providing Party shall maintain the facilities used by it for the performance of the Research and Development Program in compliance with the applicable requirements of the RHA's, including GMP and GLP standards. 4.6 The Company may evaluate the reports and other data furnished by the Providing Party for the purpose, inter alia, of deciding whether or not to proceed with all or part of the applicable Research and Development Program. 4.7 Elan, Endorex and the Company shall agree on a budget in connection with the activities to be undertaken during the Research and Development Program, which budget shall form part of the Research and Development Program. In the event that as a result of additional activities to be undertaken by the Providing Party at the request of the Company the budget needs to be revised, Elan, Endorex and the Company will agree on such revision prior to the Providing Party commencing any such additional development activities. 4.8 The Providing Party will keep accurate records consistent with its normal business practices of the efforts expended by it under the Research and Development Program for which it is charging the Company, which will include the time spent by each person working on the Research and Development Program. 4.9 [****] the Providing Party shall permit the Company or its duly authorized representative on reasonable notice and at any reasonable time during normal business hours to have access to inspect and audit the accounts and records of the Providing Party and any other book, record, voucher, receipt or invoice relating to the calculation or the Cost of the Research and Development Program or, where applicable, for the supply of the Elan Royalty Products and to the accuracy of the reports which accompanied them. Any such inspection of the Providing Party's records shall be at the expense of the Company, except that if any such inspection reveals an overpayment in the amount of the Costs paid to the Providing Party for the Research and Development Program in any calendar quarter of [****] or more of the amount of the Costs actually due to the Providing Party hereunder, then the expense of such inspection shall be borne solely by the Providing Party instead of by the Company. Any surplus over the Costs properly payable by the Company to the Providing Party shall be paid promptly to the Company. If such inspection reveals a deficit in the amount of the Costs properly payable to the Providing Party by the Company, the Company shall pay the deficit to the Providing Party. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 10 4.10 Subject to the provisions of Clause 4.1, the Company shall pay the Providing Party for any research and development work carried out by them on behalf of the Company at the termination of each stage of the Research and Development Program, subject to the proper invoicing of research and development work and expenses. CLAUSE 5 REGULATORY APPROVALS 5.1 During the relevant regulatory procedure, the Company shall keep the other Parties promptly and fully advised of the relevant regulatory activities, progress and procedures. The Company shall inform the other Parties of any dealings it shall have with an RHA, and shall furnish the other Parties with copies of all correspondence. The Parties shall collaborate in relation to obtaining the approval of the RHA's for final approved labelling. 5.2 The Company shall, at its own cost, file, prosecute and maintain any and all Regulatory Applications specifically related to the Third Party Technology, the Company Technology and the Elan Royalty Products but not the Medipad System itself and all Regulatory Approvals specifically related to the Third Party Technology, the Company Technology and the Elan Royalty Products shall remain the property of the Company; provided, that the Company shall allow the other Parties access thereto to enable those Parties to fulfill their obligations and exercise their rights under this Agreement, and the License Agreement. The Company shall diligently pursue all regulatory activities described in this Clause 5.2. 5.3 The costs and expenses of any filings and proceedings made by the Company to the RHA's, including post approval studies required by the RHA's in respect of an Elan Royalty Product, and to maintain the RHA's approval hereunder shall be paid by the Company. 5.4 It is hereby acknowledged that there are inherent uncertainties involved in the registration of pharmaceutical products with the RHA's insofar as obtaining approval is concerned and such uncertainties form part of the business risk involved in undertaking the form of commercial collaboration as set forth in this Agreement. Therefore, except for using its reasonable efforts, neither Elan nor Endorex shall have any liability to the Company solely as a result of any failure of an Elan Royalty Product to achieve the approval of any RHA. 5.5 Elan shall, at its own cost, file, prosecute, maintain any and all Regulatory Applications specifically related to the Medipad System and the Elan Technology and all Regulatory Approvals specifically related to the Elan Technology shall remain the property of Elan; provided, that Elan shall allow the other Parties access thereto and the use thereof to enable those Parties to fulfil their obligations and exercise their rights under this Agreement, and the License Agreement. 11 CLAUSE 6 PROPERTY OWNERSHIP RIGHTS/COMPETITION The Parties acknowledge and agree to be bound by: 6.1 the provisions of Clause 5 of the License Agreement outlining the agreement between the parties thereto in relation to Intellectual Property Rights; and 6.2 the provisions of Clause 5 of the License Agreement outlining the agreement between the parties thereto in relation to competition. CLAUSE 7 PATENT RIGHTS 7.1 The rights and obligations of the Elan and the Company in respect of any Patents claiming the Technologies are governed by the provisions of the License Agreement. CLAUSE 8 EQUIPMENT 8.1 Any equipment or other assets purchased by Endorex and/or Elan which are funded by the Company shall belong to the Company. In the event that such equipment or assets are purchased, the Parties shall conclude the appropriate arrangements as regards insurance and bailment provisions. CLAUSE 9 EXPLOITATION OF PRODUCTS 9.1 The Company will have [****] any Elan Royalty Products subject to the other terms of this Agreement. [****]. It may be necessary to file a Regulatory Application and perform clinical testing in more than one country. The conduct of such clinical trials and the obtaining of Regulatory Approvals shall be regulated in accordance with arrangements agreed upon by the Management Committee. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 12 9.2 The Management Committee shall review the Research and Development Program on a regular basis to decide, inter alia, whether such Research and Development Program should continue, be terminated, continue as modified or whether the Parties should commence a new Research And Development Program. Any Party may call upon the Management Committee of the Company to review termination of the Research and Development Program for an Elan Royalty Product. 9.3 The strategy for the registration and the commercialization of the Elan Royalty Products shall be determined by the Management Committee. CLAUSE 10 TECHNICAL SERVICES AND ASSISTANCE 10.1 Whenever commercially and technically feasible, the Company shall contract with Endorex or Elan, as the case may be, to perform such other services as the Company may require, other than those specifically dealt with in the Elan License Agreement and in Clause 4. In determining which Party should provide such services, the Management Committee shall take into account the respective infrastructure, experience and Cost of Elan, and Endorex. Nothing in this Clause 10.1 shall be deemed to prohibit the Company from contracting such required services from an Independent Third Party in the event that [****]. 10.2 The Company shall, if appropriate, conclude an administrative support agreement with Elan and Endorex on such terms as the parties thereto shall in good faith negotiate. The management services required include, but are not limited to, one or more of the following management services which shall be requested by the Company: (i) accounting, financial and other services; (ii) tax services; (iii) insurance services; (iv) human resources services; (v) legal and company secretarial services; (vi) patent and related intellectual property services; and (vii) all such other services consistent with and of the same type as those services to be provided pursuant to this Agreement, as may be required. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 13 10.3 If Elan or Endorex so requires, Endorex or Elan, as the case may be, shall receive, at times and for periods mutually acceptable to the parties, employees of the other party (such employees to be acceptable to the receiving party in the matter of qualification and competence) for instruction in respect of the Elan Technology or the Company Technology, as the case may be, as is necessary to further the Research and Development Programs. 10.4 The employees received by Elan or Endorex, as the case may be, shall be subject to obligations of confidentiality no less stringent than those set out in Clause 17 and such employees shall observe the rules, regulations and systems adopted by the Party receiving the said employees for its own employees or visitors. CLAUSE 11 SUPPLY ARRANGEMENTS 11.1 Elan shall supply, or procure the supply of, Elan Royalty Products to the Company at [****]. In advance of the first launch of an Elan Royalty Product, the Parties shall negotiate in good faith a supply agreement on pharmaceutical industry standard terms, including provisions as to product quality and supply. CLAUSE 12 PROCEEDINGS OF DIRECTORS AND CHAIRMAN 12.1 As described in the Company Subscription Agreement, the board of directors of the Company shall consist of five members as follows: one Elan Director and four Endorex Directors. In the event that Elan shall exercise the Exchange Right, the board of directors shall be altered so that the number of shall consist of four members as follows: two Elan Directors and two Endorex Directors. 12.2 As of the date hereof and until Elan exercises its Exchange Right, an Endorex Director shall be the chairman of the Company's board of directors. 12.3 The Chairman appointed under Clause 12.2 shall retire once Elan exercises its Exchange Right. Thereafter: (i) each Participant, beginning with Elan, shall have the right, exercisable alternatively, of nominating one of the Directors to be Chairman of the Company for a period of one year; _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 14 (ii) the Chairman shall hold office until the termination of the next Annual Meeting following his appointment; (iii) if the Chairman is unable to attend any meeting of the board, the Director of the same designation shall act as Chairman in his place at the meeting. CLAUSE 13 MATTERS REQUIRING PARTICIPANTS' APPROVAL 13.1 In consideration of Elan agreeing to enter into the License Agreement, the Parties hereby agree that neither the Company nor any Subsidiary of the Company shall, without the prior approval of each of the Participants: (i) engage in any activity other than the Business; (ii) acquire or dispose of assets of a value in excess of [****] or sell the principal assets, undertaking or Business of the Company; (iii) borrow any sum (except from the Company's bankers in the ordinary and proper course of the Business) in excess of a maximum aggregate sum outstanding at any time of [****]. (iv) make any loan or advance or give any credit (other than normal trade credit) in excess of [****] to any Person; (v) give any guarantee or indemnity to secure the liabilities or obligations of any Party other than those which it is usual to give in the ordinary course of a business similar to the Business; (vi) enter into any contract, arrangement or commitment involving expenditure on capital account or the realization of capital assets if the amount or the aggregate amount of such expenditure or realisation by the Company and all of the Subsidiaries of the Company would exceed [****] in any one year or in relation to any one project, and for the purpose of this paragraph the aggregate amount payable under any agreement for hire, hire purchase or purchase on credit sale or conditional sale terms shall be deemed to be capital expenditure incurred in the year in which such agreement is entered into; (vii) issue any unissued Shares or create or issue any new shares, or alter any rights attaching to the Company's capital stock; _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 15 (viii) create, acquire or dispose of any Subsidiary or of any shares in any Subsidiary; (ix) enter into any partnership or profit sharing agreement with any Person other than arrangements with trade representatives and similar Persons in the ordinary course of business; (x) issue any debentures or other securities convertible into shares or debentures or any share warrants or any options in respect of Shares; (xi) acquire, purchase or subscribe for any shares, debentures, mortgages or securities (or any interest therein) in any company, trust or other Person; (xii) adopt any employee benefit program or incentive schemes; (xiii) engage any new employee of the Company at remuneration which could exceed the rate of [****] per annum; (xiv) pay any remuneration to Directors by virtue of holding such office; (xv) licence or sub-licence any of the Elan Technology or the Company Technology; (xvi) amend or vary the terms of the Licence Agreement; (xvii) undertake a Research and Development Program; (xviii) file an amendment to the Company's certificate of incorporation or alter the by-laws or equivalent certificate or documents under applicable laws of the Company's country of incorporation; (xix) alter the number of the Company's directors; (xx) any actions of the Company in relation to the acquisition of the Third Party Technology or the nomination of the Substitute Compound under Clause 3 of the License Agreement; (xxi) pay dividends or distributions in respect of, or redeem or repurchase, the equity of the Company; or (xxii) amend or vary the terms of the Plan. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 16 CLAUSE 14 THE BUSINESS PLAN AND REVIEWS 14.1 The Directors shall meet as soon as reasonably practicable after the date hereof and in any event within 90 days of signing this Agreement, to agree and approve the Business Plan and operating budget for the initial Financial Year. Thereafter the Directors shall reach agreement on each subsequent Financial Year operating budget at least 30 days prior to the commencement of each respective Financial Year. 14.2 The Participants agree that the Management Committee shall submit to the Directors, on 15th February, 15th May, 15th August and 15th November, or as soon as reasonably practicable thereafter in each Financial Year, a report on the performance of the business activities of the Company and the Directors shall hold such meeting as may be necessary to review the performance of the Company against the Plan for the relevant year of trading. CLAUSE 15 DISPUTES 15.1 Disputes among the members of the R&D Committee in connection with the Licence Agreement (each such event, a "COMMITTEE DISPUTE") which cannot be resolved by consensus shall be forwarded to the Management Committee for discussion and resolution, by filing of a notice of dispute from the R&D Committee to the Management Committee. 15.2 In the event that the members of the Management Committee, after reasonable consideration, cannot resolve a Committee Dispute within 10 days of receipt of a notice as described in Clause 15.1, such Committee Dispute shall be forwarded to a designated senior officer of each of Elan and Endorex and thereafter to the board of directors for discussion and resolution, by submission of a letter from the Management Committee to the Chairman of the board of directors detailing the issue in dispute and the position of each party in relation thereto. 15.3 Disputes under this Agreement among members of the Management Committee (each such event a "MANAGEMENT DISPUTE"; together with a Committee Dispute, a "DISPUTE"), which cannot be resolved by consensus shall also be forwarded to the board of directors for discussion and resolution, by submission of a letter from the Management Committee to the Chairman of the board of directors detailing the issue in dispute and the position of each party in relation thereto. 15.4 In the event of submission of a letter accordance with Clause 15.2 or 15.3, the members of the board of directors shall convene in person or via telephone conference within 10 days in order to discuss the Dispute. After discussion and consideration, resolution of the Dispute shall be decided by a majority vote of the board of directors. 17 15.5 In the event that the board is unable to resolve a Dispute, the Chairman shall refer the matter to an expert (the "EXPERT"), mutually acceptable to the Parties; or in the event that the Parties cannot so agree, a Panel (as defined below) in accordance with the procedures for such Panel as set forth below in Clause 15.9 below. In each case, the Expert shall be selected having regard to his suitability to determine the particular dispute or difference on which he is being requested to determine. The Expert shall afford each Party a reasonable opportunity, in writing or orally, to state its respective reasons in support of such contentions as each Party may wish to make relative to the matters under consideration. The Expert shall give notice in writing of his determination to the Parties within such time as may be stipulated in his terms of appointment, or in the absence of such stipulation as soon as practicable, but in any event within three weeks from the reference of the Committee Dispute to him. 15.6 The fees of each Expert shall be shared equally between the Parties. The Expert shall be entitled to inspect and examine all documentation and any other material which he may consider to be relevant to the Dispute. 15.7 Any determination by the Expert shall not be final and binding on the Parties. 15.8 In no event shall the referral of a Dispute to the Expert supercede the provisions of Clause 13 of this Agreement, that both the Elan Director(s) and Endorex Directors, and where applicable the Participants, approve certain business decisions. 15.9 In the event that the board of directors is unable to agree upon an Expert, a panel of experts (the "PANEL") shall be appointed as follows. Each of the Elan Director and the Endorex Director shall each select one Expert, each in their sole discretion, using good faith to select an Expert with appropriate qualifications. Within 20 days of the appointment of such Experts, the two Experts so selected shall appoint a third Expert from a list of arbitrators provided by the American Arbitration Association (the "AAA"); provided, that in the event that the two selected Experts are unable to agree upon such third Expert within 20 days, any director of the Company may request the AAA to appoint such third Expert. 15.10 Notwithstanding Clause 15.9, each of the Elan Director and the Endorex Director shall be prohibited from selecting as an Expert any person who has or has had a material interest or relationship (i.e., through employment, stock ownership, business affiliation or otherwise) with a Party or any of its directors, officers or employees. Service as an Expert hereunder shall not constitute such a material interest or relationship in connection with the resolution of subsequent Disputes. CLAUSE 16 TERMINATION 16.1 The Company shall continue to operate and exist for so long as its stockholders shall determine, and this Agreement and the Company Subscription Agreement shall govern 18 such operation and existence until this Agreement shall be terminated in accordance with this Clause 16 (the "TERM"). 16.2 For the purpose of this Clause 16, a "RELEVANT EVENT" is committed by Elan or Endorex if: (i) it commits a material breach of one of its material obligations under this Agreement and fails to remedy such breach within 60 days of being specifically required in writing to do so by the other Participant; provided, however, that if the breaching Participant has proposed a course of action to rectify the breach and is acting in good faith and with due diligence to rectify same but has not cured the breach by the 60th day, such rectifying period shall be extended by an amount of time as is reasonably necessary to permit the breach to be rectified; (ii) it ceases, wholly or substantially, to carry on its business, other than for the purpose of a reorganization, without the prior written consent of Elan in the case of Company, or Company in the case of Elan (such consent not to be unreasonably withheld); (iii) the voluntary appointment of a liquidator, receiver, administrator, examiner, trustee or similar officer over all or substantially all of its assets under the laws of its state or country of incorporation; (iv) an application or petition for bankruptcy, corporate reorganization, composition, administration, examination, arrangement or any other procedure similar to any of the foregoing under the laws of its state or country of incorporation, is filed, and is not discharged within 90 days. 16.2 If either Participant commits a Relevant Event, the other Participant shall have in addition to all other legal and equitable rights and remedies hereunder, the right to terminate this Agreement upon 30 days' written notice; provided, that such written notice be given within 60 days following the date that the other Participant becomes aware of the Relevant Event. 16.3 In the event that a [****] shall, directly or indirectly, [****]or otherwise [****] shall be entitled to forthwith [****] to [****]. 16.4 If, at any time, the Participants agree that the Company should be wound up or liquidated, the Parties shall ensure that, after all of the debts of the Company have been satisfied, the assets of the Company shall be distributed, in specie in accordance with the Participants' ownership interest in the Company and/or as the Parties further agree to negotiate in good faith, the terms for other arrangements, including cross licences, as may be necessary to enable Endorex and Elan to exploit the Company Technology for the Field. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 19 CLAUSE 17 CONFIDENTIALITY 17.1 Each of the Parties acknowledge that it may be necessary, from time to time, to disclose to one another confidential and proprietary information, including without limitation, inventions, the Technologies, improvements and the patents relating thereto, works of authorship, trade secrets, specifications, designs, data, know-how and other information, relating to the Field, the terms of the various agreements between the Parties, the Elan Royalty Products, processes, and services, of the disclosing Party ("CONFIDENTIAL INFORMATION"). Confidential Information shall not be deemed to include: (i) information that is in the public domain; (ii) information which is made public by the disclosing Party; (iii) information which is independently developed by a Party without the aid or application of the Confidential Information; (iv) information that is published or otherwise becomes part of the public domain without any disclosure by a Party, or on the part of a Participant's directors, officers, agents, representatives or employees; (v) information that becomes available to a Party on a non-confidential basis, whether directly or indirectly, from a source other than another Party, which source, to the best of the receiving Party's knowledge, did not acquire this information on a confidential basis; or (vi) information which the receiving Party is required to disclose pursuant to: (A) a valid order of a court or other governmental body or any political subdivision thereof or otherwise required by law; or (B) other applicable law or judicial or administrative process; provided that if the receiving Party becomes legally required to disclose any confidential information, the receiving Party shall give the disclosing Party prompt notice of such fact so that the disclosing Party may obtain a protective order or other appropriate remedy concerning any such disclosure. The receiving Party shall fully co-operate with the disclosing Party in connection with the disclosing Party's efforts to obtain any such order or other remedy. If any such order or other remedy does not fully preclude disclosure, the receiving Party shall make such disclosure only to the extent that such disclosure is legally required. 20 17.2 Any Confidential Information revealed by a Party to another Party shall be used by the receiving Party exclusively for the purpose of fulfilling the receiving Party's obligations under this Agreement and for no other purpose. 17.3 Each of the Parties agrees to disclose Confidential Information of another Party only to those employees, representatives and agents requiring knowledge thereof in connection with their duties directly related to the fulfilling of the Party's obligations under this Agreement. Each of the Parties further agrees to inform all such employees, representatives and agents of the terms and provisions of this Agreement and their duties hereunder and to obtain their consent hereto as a condition of receiving Confidential Information. Each of the Parties agrees that it will exercise the same degree of care, but in no event less than a reasonable degree, and protection to preserve the proprietary and confidential nature of the Confidential Information disclosed by a Participant, as the receiving Party would exercise to preserve its own proprietary and confidential information. Each of the Parties agrees that it will, upon request of a Party, return all documents and any copies thereof containing Confidential Information belonging to or disclosed by, such Party. 17.4 Notwithstanding the above, each Party may use or disclose Confidential Information disclosed to it by another Party to the extent such use or disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, conducting clinical trials, or making a permitted sub-license or otherwise exercising rights hereunder; provided, that if a Party is required to make any such disclosure of another Party's confidential information, other than pursuant to a confidentiality agreement, such disclosing Party shall inform the other Party thereof, and allow such other Party to participate in the disclosure process for the purpose of generally limiting, to the extent possible, such disclosure. 17.5 The provisions relating to confidentiality in this Clause 17 shall remain in effect during the Term, and for a period of [****] following the expiration or earlier termination of this Agreement. _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 21 17.6 The Parties agree that the obligations of this Clause 17 are necessary and reasonable in order to protect the Parties' respective businesses, and each Party expressly agrees that monetary damages may be inadequate to compensate a Party for any breach by another Party of its covenants and agreements set forth herein. Accordingly, the Parties agree and acknowledge that any such violation or threatened violation may cause irreparable injury to a Party and that, in addition to any other remedies that may be available, in law and equity or otherwise, a Party shall be entitled to seek injunctive relief against the threatened breach of the provisions of this Clause 17, or a continuation of any such breach by another Party, specific performance and other equitable relief to redress such breach together with its damages and reasonable counsel fees and expenses to enforce its rights hereunder, without the necessity of proving actual or express damages. CLAUSE 18 PARTICIPANTS' CONSENT 18.1 Where this Agreement provides that any particular transaction or matter requires the consent, approval or agreement of any Participant, such consent, approval or agreement may be given subject to such terms and conditions as that Participant may impose and to which the other Participant shall agree and any breach of such terms and conditions by any Persons subject thereto shall ipso facto be deemed to be a breach of the terms of this Agreement. CLAUSE 19 PARTIES AND COMPANY BOUND 19.1 The Company undertakes with each of the Parties to be bound by and comply with the terms and conditions of this Agreement insofar as the same relate to the Company. 19.2 Each Party undertakes with the others to exercise its part in relation to the Company so as to ensure that the Company fully and promptly observes, performs and complies with its obligations under this Agreement. CLAUSE 20 COSTS 20.1 Each Party shall bear its own legal and other costs incurred in relation to preparing and concluding this Agreement and the related agreements and other documents. 20.2 All costs, legal fees, registration fees and other expenses, including the costs and expenses incurred in relation to the incorporation of the Company, shall be borne by the Company. 22 CLAUSE 21 GENERAL 21.1 GOOD FAITH Each of the Parties hereto undertakes with the others to do all things reasonably within its power which are necessary or desirable to give effect to the spirit and intent of this Agreement. 21.2 FURTHER ASSURANCE The Parties hereto shall use their respective reasonable efforts to procure that any necessary third party shall do, execute and perform all such further deeds, documents, assurances, acts and things as any of the Parties hereto may reasonably require by notice in writing to the others to carry the provisions of this Agreement into full force and effect; including, without limitation, the execution of any documents required to ensure the assignment of the Technologies, as described in Clause 6.1. In addition, each of Elan and Endorex shall cooperate and make reasonably available to the Company (including its authorized agents and representatives) all assistance reasonably necessary or appropriate to enable the Company to prepare, file, prosecute and maintain Patents or other intellectual property rights related to the Technologies, throughout the Territory. 21.3 NO REPRESENTATION Each of the Parties hereto hereby acknowledges that in entering into this Agreement it has not relied on any representation or warranty save as expressly set out herein or in any document referred to herein. 21.4 EXERCISE OF POWERS Where either Participant is required under this Agreement to exercise its powers in relation to the Company to procure a particular matter or thing, such obligation shall be deemed to include an obligation to exercise its powers both as a Participant and as a Director (where applicable) of the Company and to procure that any Director appointed by it (whether alone or jointly with any other Person) shall procure such matter or thing. 21.5 FORCE MAJEURE Neither Party to this Agreement shall be liable for delay in the performance of any of its obligations hereunder if such delay results from causes beyond its reasonable control, including, without limitation, acts of God, fires, strikes, acts of war, or intervention of any relevant government authority, but any such delay or failure shall be remedied by such Party as soon as practicable. 23 21.6 RELATIONSHIP OF THE PARTICIPANTS Nothing contained in this Agreement is intended or is to be construed to constitute Elan and Endorex as partners, or Elan as an employee of Endorex, or Endorex as an employee of Elan. No Party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of another Party or to bind another Party to any contract, agreement or undertaking with any third party. 21.7 COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 21.8 NOTICES Any notice to be given under this Agreement shall be sent in writing in English by registered mail, airmail, reputable courier or recorded delivery post, or telecopied to: if to Elan: Elan Corporation, plc Lincoln House Lincoln Place Dublin 2, Ireland Attention: Vice President & General Counsel Elan Pharmaceutical Technologies Fax; 353 1 662 4960 with a copy to: Brock Silverstein McAuliffe LLC 153 East 53rd Street 56th Floor New York, New York 10022 Attention: David Robbins Fax 1 212 371 5500 IF TO ENDOREX: Endorex Corp. 900 North Shore Drive Lake Buff, Illinois 60044 Attention: President Fax 1 847 604 8570 24 with a copy to: Brobeck, Phleger & Harrison LLP 1633 Broadway 47th Floor New York, New York 10019 Attention: Nigel Howard Fax 1 212 586 7878 - -IF TO THE COMPANY: Clarendon House 2 Church Street Hamilton Bermuda Attention: President and Chairman Fax 1 441 292 4720 with a copy to: Brobeck, Phleger & Harrison LLP 1633 Broadway 47th Floor New York, New York 10019 Attention: Nigel Howard Fax 1 212 586 7878 with a copy to counsel to each of Elan and Endorex at the respective addresses listed above, with a copy to the non-notifying Parties; or to such other address(es) as may from time to time be notified by any Party to the others hereunder. Any notice sent by mail shall be deemed to have been delivered within seven working days after dispatch and any notice sent by reputable courier shall be deemed to have been delivered within 24 hours of the time of the dispatch. Notices of change of address shall be effective upon receipt. 21.9 GOVERNING LAW AND DISPUTES This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the principles thereof relating to conflict of laws. The Parties agree to submit to the jurisdiction of the courts of New York for the resolution of disputes hereunder, which the Parties have not otherwise agreed should be subject to the binding determination of an Expert or Panel, pursuant to the terms of this Agreement. 21.10 SEVERABILITY If any provision in this Agreement is agreed by the Parties to be, deemed to be or becomes invalid, illegal, void or unenforceable under any law that is applicable hereto, (i) 25 such provision will be deemed amended to conform to applicable laws so as to be valid and enforceable or, if it cannot be so amended without materially altering the intention of the Parties, it will be deleted, with effect from the date of such agreement or such earlier date as the Parties may agree, and (ii) the validity, legality and enforceability of the remaining provisions of this Agreement shall not be impaired or affected in any way. 21.11 AMENDMENTS No amendment, modification or addition hereto shall be effective or binding on any Party unless set forth in writing and executed by a duly authorised representative of all Parties. 21.12 WAIVER No waiver of any right under this Agreement shall be deemed effective unless contained in a written document signed by the Party charged with such waiver, and no waiver of any breach or failure to perform shall be deemed to be a waiver of any future breach or failure to perform or of any other right arising under this Agreement. 21.13 ASSIGNMENT This Agreement may not be assigned by any Party without the prior written consent of the other, which consent in relation to the proposed assignment to an Affiliate of a Party shall not be unreasonably withheld, conditioned or delayed. 21.14 NO EFFECT ON OTHER AGREEMENTS No provision of this Agreement shall be construed so as to negate, modify or affect in any way the provisions of any other agreement between any of the Parties unless specifically referred to, and solely to the extent provided, in any such other agreement. In the event of a conflict between the provisions of this Agreement and the provisions of the License Agreements or the Company Subscription Agreement, the terms of this Agreement shall prevail. 21.15 SUCCESSORS This Agreement shall be binding upon and enure to the benefit of the Parties hereto, their successors and permitted assigns. 26 IN WITNESS THEREOF the Parties hereto have executed this Joint Development and Operating Agreement in quadruplicate. SIGNED BY For and on behalf of ELAN CORPORATION, PLC /s/ Liam Daniel SIGNED BY FOR AND ON BEHALF OF ELAN INTERNATIONAL SERVICES, LTD. /s/ Liam Daniel SIGNED BY For and on behalf of ENDOREX CORPORATION /s/ Michael S. Rosen President and Chief Executive Officer SIGNED BY For and on behalf of ENDOREX NEWCO, LTD. /s/ Michael S. Rosen Chairman 27 SCHEDULE 1 TYPE II TECHNOLOGICAL COMPETITOR [****] _____________ [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 28 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENTS OF OPERATION. 9-MOS DEC-31-1997 SEP-30-1998 14,103,207 0 0 0 0 15,787,354 429,294 916,110 16,656,742 687,984 0 0 8,448,905 10,055 7,509,798 16,656,742 0 629,962 0 0 12,881,998 0 13,483 (12,265,520) 0 (12,265,520) 0 0 0 (12,265,520) (1.28) (1.28)
EX-99 7 CERTAIN FACTORS Certain Factors that May Affect Future Results, Financial Condition and the Market Price of Securities Need for Substantial Additional Funds. The Company had approximately $14.1 million of cash, cash equivalents and marketable securities at Sept. 30, 1998. The Company may be required to seek additional financing in the future to continue operations during such period in the event of cost overruns, unanticipated expenses, a determination to pursue additional research projects, or the failure to receive funds anticipated from other sources. The Company will require substantial additional funds to finance its business activities on an ongoing basis. The Company's actual future capital requirements will depend on numerous factors, including, but not limited to, costs associated with technologies and products which it may license from third parties, progress in its research and development programs, including pre-clinical and clinical trials, costs of filing and prosecuting patent applications and, if necessary, enforcing issued patents or obtaining additional licenses to patents, competing technological and market developments, the cost and timing of regulatory approvals, the ability of the Company to establish collaborative relationships, and the cost of establishing manufacturing, sales and marketing capabilities. The Company has no current commitment to obtain other additional funds and is unable to state the amount or potential source of any other additional funds. Because of the Company's potential long-term capital requirements, it may undertake additional equity offerings whenever conditions are favorable, even if it does not have an immediate need for additional capital at that time. There can be no assurance that the Company will be able to obtain additional funding when needed, or that such funding, if available, will be obtainable on reasonable terms. Any such additional funding may result in significant dilution to existing stockholders. If adequate funds are not available, the Company may be required to accept unfavorable alternatives, including (i) the delay, reduction or elimination of research and development programs, capital expenditures, and marketing and other operating expenses, (ii) arrangements with collaborative partners that may require the Company to relinquish material rights to its products that it would not otherwise relinquish, or (iii) a merger of the Company or a sale of the Company or its assets. Early Stage of Development. The Company is a development stage enterprise and expects no significant revenue from the sale of products in the near future. The Company's proprietary immunomodulator, ImmTher(R), has completed some Phase II clinical trials for cancer with limited response in gross metastatic disease. The Company initiated new randomized Phase II clinical trials for ImmTher(R) in treating micro-metastasis in pediatric sarcomas with M.D. Anderson Cancer Center in Houston and Memorial Sloan-Kettering Cancer Center in New York City. ImmTher(R) recently received FDA Orphan drug designations for Ewings sarcoma and osteosarcoma, the most prevalent bone cancers in children and young adults. Additionally, the Company's second cancer drug, Perillyl alcohol ("POH") has completed several Phase I trials as an anti-cancer drug at the University of Wisconsin-Madison and with the Eastern Cooperative Oncology Group, and has initiated three Phase II trials in breast, ovarian and prostate cancers, all sponsored by the National Cancer Institute. Furthermore, the Company initiated development of other monoterpene based cancer agents via a sponsored research agreement with the University of Wisconsin-Madison. The Company's oral delivery technology is in the pre-clinical development stage. As a result, the Company must be evaluated in light of the problems, delays, uncertainties and complications encountered in connection with early-stage biopharmaceutical development. These risks include, but are not limited to, the possibilities that any or all of the Company's potential products will be found to be ineffective or toxic, or fail to receive necessary regulatory clearances in the United States or abroad. To achieve profitable operations, the Company must successfully develop, obtain regulatory approval for, introduce and successfully market through a larger pharmaceutical partner, at a profit, products that are currently in the research and development phase. The Company is currently not profitable. No assurance can be given that the Company's research and development efforts will be successful, that required regulatory approvals will be obtained, that any of the Company's proposed products will be safe and effective, that any such products, if developed and introduced, will be successfully marketed or achieve market acceptance, or that such products can be marketed at prices that will allow profitability to be achieved or sustained. Failure of the Company to successfully develop, obtain regulatory approval for, and introduce and market its products under development would have a material adverse effect on the business, financial condition and results of operations of the Company. History of Losses; Uncertainty of Future Financial Results. The Company has experienced significant operating losses since its inception, has a significant accumulated deficit, and expects to incur losses for the next several years. The amount of net losses may vary significantly from year-to-year and quarter-to- quarter and depend on, among other factors, the success of the Company in securing collaborative partners and the progress of research and pre-clinical and clinical development programs. The Company's ability to attain profitability will depend, among other things, on its successfully completing development of its product candidates, obtaining regulatory approvals, establishing manufacturing, sales and marketing capabilities and obtaining sufficient funds to finance its activities. There can be no assurance that the Company will be able to achieve profitability or that profitability, if achieved, can be sustained. Dependence on Elan Joint Ventures. The Company's strategy for research, development and commercialization of certain of its products is to rely in part upon various arrangements with corporate partners. As a result, the Company's products are dependent in large part upon the subsequent success of such third parties in performing pre-clinical studies and clinical trials, obtaining regulatory approvals, manufacturing and marketing. In January 1998, the Company entered into a joint venture with Elan Corporation, plc ("Elan") for the exclusive research, development and commercialization of oral and mucosal prophylactic and therapeutic vaccines. In October 1998, the Company entered into a second joint venture with Elan for the exclusive research, development and commercialization of products using Elan's Medipad(TM) drug delivery system for two drugs in undisclosed fields. In connection with the two joint ventures, the Company is obligated to fund each joint venture's research and development activities in an amount up to approximately $1.5 million during the first year of each joint venture and in proportion to its ownership interest in each joint venture thereafter. In the event the Company does not have sufficient resources to meet its funding obligations under the two joint ventures as well as other ongoing research and development activities of the Company, the Company's funding obligations under the two joint ventures could have a material adverse effect on the Company's business, financial condition or results of operations. The Company intends to pursue additional collaborations in the future. There can be no assurance that the Company will be able to negotiate additional acceptable collaborative arrangements or that such arrangements will be successful. No assurance can be given that the Company's collaborative partners will be able to obtain FDA approval for any licensed compounds, that any such licensed compounds, if so approved, will be able to be commercialized successfully, or that the Company will realize any revenues pursuant to such arrangements. Although the Company believes that parties to collaborative arrangements generally have an economic motivation to succeed in performing their contractual responsibilities, the amount and timing of resources which they devote to these activities are not within the control of the Company. There can be no assurance that such parties will perform their obligations as expected or that current or potential collaborators will not pursue treatments for other diseases or seek alternative means of developing treatments for diseases targeted by collaborative programs with the Company or that any additional revenues will be derived from such arrangements. If any collaborative partner breaches or terminates its agreement with the Company or otherwise fails to conduct its collaborative activities in a timely manner, the development or commercialization of the product candidate or research program under such collaboration agreement may be delayed, the Company may be required to undertake unforeseen additional responsibilities or to devote unforeseen additional resources to such development or commercialization, or such development or commercialization could be terminated. The termination or cancellation of collaborative arrangements could also adversely effect the Company's financial condition, intellectual property position and results of operations. In addition, disagreements between collaborators and the Company have in the past and could in the future lead to delays in the collaborative research, development or commercialization of certain product candidates, or could require or result in legal process or arbitration for resolution. These consequences could be time consuming, expensive and could have a material adverse effect on the Company's business, financial condition or results of operations. Limited Experience and Dependence on Third Parties for Completion of Clinical Trials, Manufacturing and Marketing. The Company has no experience with receipt of government approvals or marketing pharmaceutical products and has limited experience with clinical testing and manufacturing. The Company may seek to form alliances with established pharmaceutical companies for the testing, manufacturing and marketing of, and pursuit of regulatory approval for, its products. There can be no assurance that the Company will be successful in forming such alliances or that the Company's partners would devote adequate resources to, and successfully market, the Company's products. If the Company instead performs such tasks itself, it will be required to develop expertise internally or contract with third parties to perform these tasks. This will place increased demands on the Company's resources, requiring the addition of new management personnel and the development of additional expertise by existing management personnel. The failure to acquire such services or to develop such expertise could materially adversely affect prospects for the Company's success. All of the Company's scientific and clinical advisors are employed by others and may have commitments to or consulting or advisory contracts with other entities that may limit their availability to the Company. Reliance on Patents and Other Proprietary Rights. The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. The Company's success will depend, in part, on its ability to obtain protection for its products and technologies under United States and foreign patent laws and other intellectual property laws, to preserve its trade secrets and to operate without infringing the proprietary rights of third parties. There can be no assurance that the research conducted by or on behalf of the Company will result in any patentable technology or products. Even if patents are obtainable, the procedure for obtaining patents is expensive, time consuming and can be subject to lengthy litigation. No assurance can be given that patents issued to or licensed by the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. There can be no assurance that the Company's patent applications will be approved, that the Company will develop additional products that are patentable, that any issued patent will provide the Company with any competitive advantage or adequate protection for its inventions or will not be challenged by others, or that the patents of others will not have an adverse effect on the ability of the Company to do business. Competitors may have filed applications, may have been issued patents or may obtain additional patents and proprietary rights relating to products or processes competitive with those of the Company. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate any of the Company's products or design around any patented products developed by the Company. Moreover, it is possible, with respect to some patentable items, that the Company may conclude that better protection would be afforded by not seeking patents. Although the Company has endeavored, and will continue to endeavor, to prevent disclosure of any confidential information by adopting a policy to bind its scientific advisors and scientific and management employees and consultants by confidentiality agreements. No assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's trade secrets, or that the Company can effectively protect its rights to its unpatented trade secrets. Any such discovery or disclosure would likely have an adverse effect on the Company. The Company currently has several patents issued and patent applications pending in the United States and foreign countries. Although the Company intends to apply for additional patents, there can be no assurance that the Company will obtain patents either under the pending applications or any future applications or that any of its existing or any future patent will provide effective protection against competitive products. If patent or other proprietary rights cannot be obtained and maintained by the Company, its products may face significantly increased competition. The application of patent law to the area of biotechnology is relatively new and has resulted in considerable litigation. The ability of the Company to obtain patents, licenses and similar rights and the nature, extent and enforceability of the intellectual property rights, if any, that are obtained as a result of its research programs involve complex legal and factual issues. For example, the Company is dependent upon its license of oral delivery technology from MIT and its license of Perillyl alcohol from the Wisconsin Alumni Research Foundation. No assurance can be given that the technology underlying such license will be profitable, or that the Company will retain its license for such technology or that the Company will obtain patent protection outside the United States. The issues are more significant with respect to any product based upon natural substances, for which available patent protection may be limited due to the prior use or reported utility of such products (or their natural sources) to treat various disorders or diseases. There can be no assurance as to the degree of protection that proprietary rights, when and if established, will afford the Company. To the extent that the Company relies on trade secret protection and confidentiality agreements to protect technology, there can be no assurance that others will not independently develop similar technology, or otherwise obtain access to the Company's findings or research materials embodying those findings. There is also a substantial risk in the rapidly developing biotechnology industry that patents and other intellectual property rights held by the Company could be infringed by others or that products developed by the Company or their method of manufacture could be covered by patents owned by other companies. To the extent that any infringement should occur with respect to any patents issued to the Company or licenses granted to the Company, or if the Company is alleged to have infringed on patents or licenses held by others, the Company could be faced with the expensive prospect of litigating such claims; if the Company were to have insufficient funds on hand to finance its litigation, it might be forced to negotiate a license with such other parties or to otherwise resolve such a dispute on terms less favorable to the Company than could result from successful litigation. Uncertainty of Clinical Trials and Results. The results of clinical trial and pre-clinical testing for the Company's products are subject to varying interpretations. Furthermore, studies conducted with alternative designs or on alternative populations could produce results that vary from those expected. Therefore, there can be no assurance that the results or the Company's interpretation of them will be accepted by governmental regulators or the medical community. Even if the development of the Company's products in the pre- clinical phase advances to the clinical stage, there can be no assurance that they will prove to be safe and effective. The products that are successfully developed, if any, will be subject to requisite regulatory approval prior to their commercial sale, and the approval, if obtainable, may take several years. Generally, only a very small percentage of the number of new pharmaceutical products initially developed is approved for sale. Even if new products are approved for sale, there can be no assurance that they will be commercially successful. The Company may encounter unanticipated problems relating to development, manufacturing, distribution and marketing, some of which may be beyond the Company's financial and technical capacity to solve. The failure to address such problems adequately could have a material adverse effect on the Company's business, financial condition or results of operations. No assurance can be given that the Company will succeed in the development and marketing of any new drug products, or that they will not be rendered obsolete by products of competitors. Uncertainty of Health Care Reform Measures. Federal, state and local officials and legislators (and certain foreign government officials and legislators) have proposed or are reportedly considering proposing a variety of reforms to the health care systems in the United States and abroad. The Company cannot predict what health care reform legislation, if any, will be enacted in the United States or elsewhere. Significant changes in the health care system in the United States or elsewhere are likely to have a substantial impact over time on the manner in which the Company conducts its business. Such proposals and changes could have a material adverse effect on the Company's ability to raise capital. Furthermore, the Company's ability to commercialize its potential products may be adversely affected to the extent that such proposals have a material adverse effect on the business, financial condition and profitability of other companies that are prospective corporate partners with respect to certain of the Company's proposed products. Uncertain Extent of Price Flexibility and Third-Party Reimbursement. The Company's ability to commercialize its products successfully will depend in part on the extent to which appropriate reimbursement levels for the cost of such products and related treatment are obtained from government authorities, private health insurers and other organizations, such as health maintenance organizations ("HMOs"). Third party payers are increasingly challenging the prices charged for medical products and services. Also, the trend towards managed health care in the United States and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of health care services and products, as well as legislative proposals to reduce government insurance programs, may all result in lower prices for the Company's products. The cost containment measures that health care providers are instituting could affect the Company's ability to sell its products and may have a material adverse effect on the Company. Government Regulation; Need for FDA and Other Regulatory Approval. Prior to marketing, each of the Company's products must undergo an extensive regulatory approval process conducted by the U.S. Food and Drug Administration (the "FDA") and applicable agencies in other countries. The process, which focuses on safety and efficacy and includes a review by the FDA of pre-clinical testing and clinical trials and investigating as to whether good laboratory and clinical practices were maintained during testing, takes many years and requires the expenditure of substantial resources. The Company is, and will be dependent on the external laboratories and medical institutions conducting its pre-clinical testing and clinical trials to maintain both good laboratory practices established by the FDA and good clinical practices. Data obtained from pre- clinical and clinical testing are subject to varying interpretations which could delay, limit or prevent regulatory approval. In addition, delays or rejection may be encountered based upon changes in FDA policy for drug approval during the period of development and by the requirement for regulatory review of each submitted Product License Approval or New Drug Application. There can be no assurance that, even after such time and expenditures, regulatory approval will be obtained for any of the Company's product candidates. Moreover, such approval may entail significant limitations on the indicated uses for which a drug may be marketed. Even if such regulatory approval is obtained, a marketed therapeutic product and its manufacturer are subject to continual regulatory review, and later discovery of previously unknown problems with a product or manufacturer may result in restrictions on such product or manufacturing, including withdrawal of such product from the market. Change in the manufacturing procedures used by the Company for any of the Company's approved drugs are subject to FDA review, which could have an adverse effect upon the Company's ability to continue the commercialization or sale of a drug. The process of obtaining FDA and foreign regulatory approval is costly and time consuming, and there can be no assurance that any product that the Company may develop will be deemed to be safe and effective by the FDA. The Company will not be permitted to market any product it may develop in any jurisdiction in which the product does not receive regulatory approval. The Company is also subject to various foreign, federal, state and local laws, regulations and recommendations (collectively "Governmental Regulations") relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use, manufacture, storage, handling and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with the Company's research and development work and manufacturing processes. Although the Company believes it is in compliance with all other Governmental Regulations in all material respects there can be no assurance that the Company will not be required to incur significant costs to comply with Governmental Regulations in the future. Competition; Technological Change. There is substantial competition in the pharmaceutical field in general and in vaccine development and liposomal formulation in particular. The Company's competitors include companies with financial resources, and licensing, research and development staffs and facilities substantially greater than those of the Company. Competitors in the vaccine development field include major pharmaceutical companies, specialized biotechnology firms, universities and governmental agencies, including American Home Products, the Merck Company, SmithKline Beecham, MedImmune, Aviron and Chiron. Competitors in the liposomal formulation field include The Liposome Company, NexStar and Sequus. Competitors in the field of the oral delivery of drugs include Emisphere, which is currently in Phase II trials for oral heparin and in pre-clinical development with oral hormones, and Cortecs, which has several products in clinical development. Additionally there are numerous major pharmaceutical companies and biotech companies developing new cancer therapies. Many competitors have greater experience than the Company in undertaking pre- clinical testing and clinical trials and obtaining FDA and other regulatory approvals. There can be no assurance that the Company's competitors will not succeed in developing similar technologies and products more rapidly than the Company and that these technologies and products will not be more effective than any of those that are being or will be developed by the Company, or that such competitors' technologies and products will not render the Company's technologies and products obsolete or noncompetitive. Manufacturing and Marketing Capabilities. The Company does not now have, and probably will not have in the foreseeable future, the resources to manufacture or directly market on a large commercial scale any products which it may develop. In connection with the Company's research and development activities, it will seek to enter into collaborative arrangements with pharmaceutical companies to assist in funding development costs, including the costs of clinical testing necessary to obtain regulatory approvals. It is expected that these entities will also be responsible for commercial scale manufacturing which must be in compliance with applicable FDA regulations. The Company anticipates that such arrangements may involve the grant by the Company of the exclusive or semi-exclusive right to sell specific products to specified market segments in particular geographic territories in exchange for a royalty, joint venture, future co-marketing or other financial interest. The Company believes that these arrangements will be more effective in promoting and distributing therapeutic products in the United States in view of the Company's limited resources and the extensive marketing networks and large advertising budgets of large pharmaceutical companies. To date, the Company has not entered into any collaborative marketing agreements or distributorship arrangements for any of its proposed products and there can be no assurance that the Company will be able to enter into any such arrangements on favorable terms or at all. The Company may ultimately determine to establish its own manufacturing and/or marketing capability, at least for certain products, in which case it will require substantial additional funds and personnel. Use of Hazardous Materials; Environmental Matters. The Company's research and development involves the controlled use of small quantities of hazardous materials, chemicals and various radioactive compounds. Although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by federal, state and local regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of such an accident, the Company could be held liable for any resulting damages, and any such liability could exceed the resources of the Company. There can be no assurance that the Company will not be required to incur significant costs to comply with environmental laws and regulations in the future, nor that the operations, business or assets of the Company will not be materially adversely affected by current or future environmental laws or regulations. Product Liability Exposure; Limited Insurance Coverage. The testing and marketing of pharmaceutical products entails an inherent risk of exposure To product liability claims from adverse effects of products. As of March 10, 1998, the Company has increased its liability insurance with limits of liability to $10.0 million for each claim from $1.0 million, and $10.0 million in the aggregate, from $3.0 million. There is no assurance that current or future policy limits will be sufficient to cover all possible liabilities. Further, there can be no assurance that adequate product liability insurance will continue to be available in the future or that it can be maintained at reasonable costs to the Company. In the event of a successful product liability claim against the Company, lack or insufficiency of insurance coverage could have an adverse effect on the Company. Dependence on Key Personnel and Scientific Advisors; Evolution of Management. The Company is dependent on the principal members of its management and scientific staff, the loss of whose services could impede the achievement of development objectives. The Company's founder, Chairman of the Board, and Scientific Director, Gerald Vosika, M.D., resigned in February 1998, and is now a consultant to the Company. His consulting agreement expires in May 1999. Furthermore, as the Company's focus evolves, the Company's need for certain skills may diminish and the need for other skills may arise. Thus, recruiting and retaining qualified scientific personnel to perform research and development work in the future will also be critical to the Company's success and may lead to further evolution of the Company's management. Although the Company believes it will be successful in attracting and retaining skilled and experienced scientific personnel, there can be no assurance that the Company will be able to attract and retain such personnel on acceptable terms given the competition among numerous pharmaceutical and health care companies, universities and non-profit research institutions for experienced scientists and managers. The Company's scientific advisors are employed on a full-time basis by unrelated employers and some have one or more consulting or other advisory arrangements with other entities which at times may conflict with their obligations to the Company. Inventions or processes discovered by such persons, other than those to which the Company's licenses relate, or those for which the Company is able to acquire licenses or those which were invented while performing consulting services under contract to the Company, will most likely not become the property of the Company, but will remain the property of such persons or such persons' full-time employers. Failure to obtain needed patents, licenses or proprietary information held by others could have a material adverse effect on the Company's business, financial condition or results of operations. Limited Personnel; Dependence on Contractors. As of November 13, 1998, the Company had sixteen full-time employees. With the exception of these employees, the Company relies, and for the foreseeable future will rely, on certain independent organizations, advisors and consultants to provide certain services with regard to clinical research. There can be no assurance that their services will continue to be available to the Company on a timely basis when needed, or that the Company could find qualified replacements. The Company's advisors and consultants generally sign agreements that provide for confidentiality of the Company's proprietary information. However, there can be no assurance that the Company will be able to maintain the confidentiality of the Company's technology, the dissemination of which could have a material adverse effect on the Company's business, financial condition or results of operations. Conducting Business Abroad. Although the Company currently does not conduct business outside the United States, it is in discussions with potential strategic partners for the in-licensing and out-licensing of technology and the development and marketing of its products. No assurance can be given that the Company will be able to establish arrangements covering foreign countries, that the necessary foreign regulatory approvals for its product candidates will be obtained, that foreign patent coverage will be available or that the development and marketing of its products through such licenses, joint ventures or other arrangements will be commercially successful. The Company may also have greater difficulty obtaining proprietary protection for its products and technologies outside the United States rather than in it, and enforcing its rights in foreign courts rather than in United States courts. Limited Availability of Net Operating Loss Carry Forwards. For Federal income tax purposes, net operating loss and tax credit carryforwards as of December 31, 1997 are approximately $5.2 million and $322,000, respectively. These carryforwards will expire beginning in 2004 through 2011. The Tax Reform Act of 1986 provided for a limitation on the use of net operating loss and tax credit carryforwards following certain ownership changes. The Company believes that the Private Placement, together with certain prior issuances of common stock, is likely to restrict severely the Company's ability to utilize its net operating losses and tax credits. Additionally, because U.S. tax laws limit the time during which net operating loss and tax credit carryforwards may be applied against future taxable income tax liabilities, the Company may not be able to fully utilize its net operating loss and tax credits for federal income tax purposes. Potential Volatility of Price; Low Trading Volume. The market price of the Common Stock, like that of many other development-stage public pharmaceutical or biotechnology companies, has been highly volatile and may continue to be in the future. Factors such as announcements of technological innovations or new commercial products by the Company or its competitors, disclosure of results of pre-clinical and clinical testing, adverse reactions to products, governmental regulation and approvals, developments in patent or other proprietary rights, public or regulatory agency concerns as to the safety of products developed by the Company and general market conditions may have a significant effect on the market price of the Common Stock and its other equity securities. Since August 6, 1998, the Company's common stock has been thinly traded on the American Stock Exchange. There can be no assurance that a more active trading market will develop in the future. Dividends. The Company has never paid cash dividends on its common stock and does not anticipate paying any such dividends in the foreseeable future. The Company currently intends to retain its earnings, if any, for the development of its business. Certain Interlocking Relationships; Potential Conflicts of Interest. Steve H. Kanzer, C.P.A., Esq., a director of the Company, is a Senior Managing Director of Paramount Capital, Inc. ("Paramount"). Paramount Capital Asset Management, Inc. ("PCAM") is the investment manager and general partner of The Aries Fund, a Cayman Island Trust, and the Aries Domestic Fund, L.P., respectively, each of which is a significant shareholder of the Company. Lindsay A. Rosenwald, M.D., the President and sole stockholder of PCAM, is also the President and sole stockholder of Paramount. Dr. Rosenwald is also President and sole stockholder of Paramount Capital Investment LLC ("PCI"), a merchant banking and venture capital firm specializing in biotechnology companies. In addition, certain officers, employees and/or associates of Paramount and/or its affiliates own securities in the Company's subsidiaries. In the regular course of its business, PCI identifies, evaluates and pursues investment opportunities in biomedical and pharmaceutical products, technologies and companies. Generally, Delaware corporate law requires that any transactions between the Company and any of its affiliates be on terms that, when taken as a whole, are substantially as favorable to the Company as those then reasonably obtainable from a person who is not an affiliate in an arms-length transaction. Nevertheless, neither such affiliates nor PCI is obligated pursuant to any agreement or understanding with the Company to make any additional products or technologies available to the Company, nor can there be any assurance, and the Company does not expect and purchasers of the securities offered hereby should not expect, that any biomedical or pharmaceutical product or technology identified by such affiliates or PCI in the future will be made available to the Company. In addition, certain of the current officers and directors of the Company or certain of any officers or directors of the company hereafter appointed may from time to time serve as officers or directors of other biopharmaceutical or biotechnology companies. There can be no assurance that such other companies will not have interests in conflict with those of the Company. Concentration of Ownership and Control. The Company's directors, executive officers and principal stockholders and certain of their affiliates have the ability to influence the election of the Company's directors and most other stockholder actions. In particular, pursuant to the Placement Agency Agreement, so long as 50% of the Private Placement Shares remain outstanding and subject contractual rights described in the subscription agreement between The Company and each signatory thereto (the "Subscription Agreements"), the Company may not do any of the following without the Placement Agent's prior approval: (i) issue or increase the authorized amount or alter the terms of any securities of the Company senior to, or on parity with, the Private Placement Shares with respect to voting, liquidation or dividends, (ii) alter the Company's charter documents in any manner that would adversely affect the relative rights, preferences, qualifications, limitations or restrictions of the Private Placement Shares or of certain contractual rights described in the Subscription Agreements, (iii) incur indebtedness in excess of $1.0 million, (iv) incorporate or acquire any subsidiaries and (v) enter any transactions with affiliates of the Company. In addition, the Company's Board of Directors cannot exceed seven persons without the prior written consent of the Placement Agent. These arrangements may discourage or prevent any proposed takeover of the Company, including transactions in which stockholders might otherwise receive a premium for their shares over the then current market prices. Such stockholders may influence corporate actions, including influencing elections of directors and significant corporate events. See also, "--Certain Interlocking Relationships; Potential Conflicts of Interest." -----END PRIVACY-ENHANCED MESSAGE-----