-----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, Sbgi2m3oUfk6VhkAQe4KYlZKVx0YX22G3RjYDv0Ma/5Y/zgBhqKk2TnTnlsYvL31 RmKWt8tL385KQRnwMfFDIg== 0000927016-02-005580.txt : 20021118 0000927016-02-005580.hdr.sgml : 20021118 20021114180306 ACCESSION NUMBER: 0000927016-02-005580 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOIMMUNE INC CENTRAL INDEX KEY: 0000879106 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 133489062 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20948 FILM NUMBER: 02826991 BUSINESS ADDRESS: STREET 1: 1199 MADIA STREET CITY: PASADENA STATE: CA ZIP: 91103 BUSINESS PHONE: 6267921235 MAIL ADDRESS: STREET 1: 128 SPRING STREET CITY: LEXINGTON STATE: MA ZIP: 02173 10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 2002 Commission File No. 0-20948 ------- AUTOIMMUNE INC. (Exact Name of Registrant as Specified in its Charter) Delaware 13-348-9062 (State of Incorporation) (I.R.S. Employer Identification No.) 1199 Madia Street, Pasadena, CA 91103 (Address of Principal Executive Offices) (626) 792-1235 (Registrant's Telephone No., including Area Code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------------- --------------- Number of shares outstanding of the registrant's Common Stock as of October 31, 2002: Common Stock, par value $.01 16,919,623 shares outstanding AUTOIMMUNE INC. QUARTER ENDED SEPTEMBER 30, 2002 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page Number Item 1 - Financial Statements Balance Sheet December 31, 2001 and September 30, 2002 .................. 2 Statement of Operations for the three and nine months ended September 30, 2001 and 2002 and for the period from inception (September 9, 1988) through September 30, 2002 ............ 3 Statement of Cash Flows for the nine months ended September 30, 2001 and 2002 and for the period from inception (September 9, 1988) through September 30, 2002. ............................... 4 Notes to the Unaudited Financial Statements ................... 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations ................. 7 Item 3 - Quantitative and Qualitative Disclosures about Market Risk .... 9 Item 4 - Controls and Procedures ....................................... 9 PART II - OTHER INFORMATION Item 6(a) - Exhibits ................................................... 10 Item 6(b) - Reports on Form 8-K ........................................ 10 Signatures ............................................................. 11 Certifications ......................................................... 12 1 AUTOIMMUNE INC. (A development stage company) BALANCE SHEET (Unaudited)
December 31, September 30, 2001 2002 ------------------- ------------------ ASSETS Current assets: Cash and cash equivalents $ 3,929,000 $ 5,226,000 Marketable securities 6,863,000 4,970,000 Prepaid expenses and other current assets 42,000 62,000 ------------------- ------------------ Total current assets 10,834,000 10,258,000 Fixed assets, net - - Other assets 100,000 100,000 ------------------- ------------------ $ 10,934,000 $ 10,358,000 =================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 47,000 $ 43,000 Accrued expenses 90,000 156,000 ------------------- ------------------ Total current liabilities 137,000 199,000 ------------------- ------------------ Stockholders' equity: Common stock, $.01 par value; 25,000,000 shares authorized; 16,919,623 shares issued and outstanding at December 31, 2001 and September 30, 2002 169,000 169,000 Additional paid-in capital 118,102,000 118,102,000 Deficit accumulated during the development stage (107,474,000) (108,112,000) ------------------- ------------------ Total stockholders' equity 10,797,000 10,159,000 ------------------- ------------------ $ 10,934,000 $ 10,358,000 =================== ==================
The accompanying notes are an integral part of these financial statements. 2 AUTOIMMUNE INC. (A development stage company) STATEMENT OF OPERATIONS (Unaudited)
Period from inception Three months ended Nine months ended (September 9, 1988) September 30, September 30, September 30, September 30, through 2001 2002 2001 2002 September 30, 2002 ----------------- ---------------- ----------------- ---------------- ------------------ Revenue: License rights $ 1,318,000 $ 18,000 $ 1,333,000 $ 48,000 $ 5,406,000 Option fees - - - - 2,200,000 Research and development revenue under collaborative agreements - - - - 955,000 ----------------- ---------------- ----------------- ---------------- ------------------ Total revenues 1,318,000 18,000 1,333,000 48,000 8,561,000 ----------------- ---------------- ----------------- ---------------- ------------------ Costs and expenses: Research and development: Related party 90,000 16,000 120,000 46,000 19,773,000 All other 65,000 195,000 180,000 283,000 91,797,000 General and administrative 119,000 100,000 465,000 506,000 17,429,000 ----------------- ---------------- ----------------- ---------------- ------------------ Total costs and expenses 274,000 311,000 765,000 835,000 128,999,000 ----------------- ---------------- ----------------- ---------------- ------------------ Total operating loss 1,044,000 (293,000) 568,000 (787,000) (120,438,000) ----------------- ---------------- ----------------- ---------------- ------------------ Interest income 97,000 48,000 381,000 149,000 12,633,000 Interest expense - - - - (303,000) ----------------- ---------------- ----------------- ---------------- ------------------ Net income (loss) $ 1,141,000 $ (245,000) $ 949,000 $ (638,000) $ (108,108,000) ================= ================ ================= ================ ================== Net income (loss) per share-basic $ 0.07 $ (0.01) $ 0.06 $ (0.04) ================= ================ ================= ================ Net income (loss) per share-diluted $ 0.07 $ (0.01) $ 0.05 $ (0.04) ================= ================ ================= ================ Weighted average common shares outstanding-basic 16,919,623 16,919,623 16,906,143 16,919,623 ================= ================ ================= ================ Weighted average common shares outstanding-diluted 17,364,746 16,919,623 17,354,411 16,919,623 ================= ================ ================= ================
The accompanying notes are an integral part of these financial statements. 3 AUTOIMMUNE INC. (A development stage company) STATEMENT OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
Period from inception (September 9, 1988) Nine months ended through September 30, September 30, September 30, 2001 2002 2002 -------------------- -------------------- ---------------------- Cash flows from operating activities: Net income (loss) $ 949,000 $ (638,000) $ (108,108,000) Adjustment to reconcile net loss to net cash used by operating activities: Interest expense related to demand notes converted into Series A mandatorily redeemable covertible preferred stock - - 48,000 Patent costs paid with junior convertible preferred and common stock - - 3,000 Valuation of warrants issued in conjunction with license revenue 192,000 - 192,000 Depreciation and amortization - - 4,464,000 Loss on sale/disposal of fixed assets - - 642,000 Decrease in capitalized patent costs - - 563,000 (Increase) decrease in prepaid expenses and other current assets 24,000 (20,000) (62,000) Increase (decrease) in accounts payable (17,000) (4,000) 43,000 Increase (decrease) in accrued expenses 51,000 66,000 156,000 Increase (decrease) in deferred revenue - - - -------------------- -------------------- ---------------------- Net cash provided (used) by operating activities 1,199,000 (596,000) (102,059,000) -------------------- -------------------- ---------------------- Cash flows from investing activities: Purchase of available-for-sale marketable securities (14,894,000) (9,892,000) (303,253,000) Proceeds from sale/maturity of available-for-sale marketable securities 11,735,000 11,785,000 287,272,000 Proceeds from maturity of held-to-maturity marketable securities - - 11,011,000 Proceeds from sale of equipment - - 306,000 Purchase of fixed assets - - (5,288,000) Investment in Oragen (100,000) - (100,000) Increase in patent costs - - (563,000) Increase in other assets - - (125,000) -------------------- -------------------- ---------------------- Net cash provided (used) by investing activities (3,259,000) 1,893,000 (10,740,000) -------------------- -------------------- ---------------------- Cash flows from financing activities: Proceeds from sale-leaseback of fixed assets - - 2,872,000 Payments on obligations under capital leases - - (2,872,000) Net proceeds from issuance of mandatorily redeemable convertible preferred stock - - 10,011,000 Proceeds from bridge notes - - 300,000 Proceeds from issuance of common stock 4,000 - 105,514,000 Proceeds from issuance of convertible notes payable - - 2,200,000 -------------------- -------------------- ---------------------- Net cash provided (used) by financing activities 4,000 - 118,025,000 -------------------- -------------------- ---------------------- Net increase (decrease) in cash and cash equivalents (2,056,000) 1,297,000 5,226,000 Cash and cash equivalents, beginning of period 4,719,000 3,929,000 - -------------------- -------------------- ---------------------- Cash and cash equivalents, end of period $ 2,663,000 $ 5,226,000 $ 5,226,000 ==================== ==================== ======================
The accompanying notes are an integral part of these financial statements. 4 AUTOIMMUNE INC. (a development stage company) NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 1. Interim Financial Data The interim financial data as of September 30, 2002, for the three and nine month periods ended September 30, 2001 and 2002 and for the period from inception (September 9, 1988) through September 30, 2002 are unaudited, however, in the opinion of AutoImmune Inc. (the "Company"), these interim data include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the results for these interim periods. These financial statements should be read in conjunction with the financial statements and the notes thereto for the year ended December 31, 2001 included in the Company's Form 10-K. Results for interim periods are not necessarily indicative of results for the entire year. 2. Net Loss Per Share - Basic and Diluted Basic earnings (loss) per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the weighted average number of common shares and dilutive common equivalent shares assumed outstanding during the period. Shares used to compute diluted earnings per share for the three and nine month periods ended September 30, 2002 exclude the effect of 1,243,536 stock options outstanding at September 30, 2002, as their inclusion would be anti-dilutive. 3. Cash Equivalents and Marketable Securities The following is a summary of cash equivalents held by the Company. Cash equivalents are carried at fair market value, which approximated amortized cost at December 31, 2001 and September 30, 2002: December 31, September 30, 2001 2002 -------------------- --------------------- Money market $ 3,894,000 $ 5,174,000 -------------------- --------------------- $ 3,894,000 $ 5,174,000 ==================== ===================== The following is a summary of available-for-sale marketable securities held by the Company at December 31, 2001 and September 30, 2002:
Maturity Fair Unrealized Unrealized Amortized term value gains losses cost ---------- ---------- ---------- ---------- ---------- December 31, 2001 U.S. Government debt securities within 1 year $ 6,863,000 $ - $ - $ 6,863,000 September 30, 2002 U.S. Government debt securities within 1 year $ 4,970,000 $ - $ - $ 4,970,000
All of the Company's marketable securities are classified as current at September 30, 2002 as these funds are highly liquid and are available to meet working capital needs and to fund current operations. Gross realized gains and losses on sales of marketable securities for the three and nine month periods ended September 30, 2001 and 2002 were not significant. Marketable securities which were purchased and sold in periods prior to adoption of Statement of Financial Accounting Standards (SFAS) No. 115 on January 1, 1994, other than held-to-maturity marketable securities, are included in the category available-for-sale marketable securities in the "period from inception" column of the statement of cash flows. 5 AUTOIMMUNE INC. (a development stage company) NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 4. Fixed Assets Fixed assets with a total cost of $160,000 and a net book value of $0 were contributed to Colloral LLC in August 2002 (see Note 5). As of September 30, 2002, there are no fixed assets in the Company. 5. Other Assets Other assets are comprised of two investments, one in Oragen Corporation and one in Colloral LLC. OraGen Corporation is a private company, in which AutoImmune's interest is less than 20%. The investment in OraGen Corporation is carried at cost. Colloral LLC is a joint venture created in August 2002 between AutoImmune and Deseret Laboratories Inc., (a private company headquartered in St. George, Utah.) to manufacture, market and sell Colloral(R), a product for nutritional support of patients with rheumatoid arthritis. AutoImmune's interest in Colloral LLC is greater than 50% but, because AutoImmune does not have control, the investment is accounted for using the equity method. AutoImmune's contribution to Colloral LLC was the equipment used to manufacture bulk product and a license to certain Colloral-related intellectual property. These assets had a net book value of $0. Deseret contributed cash and is committed to providing additional amounts, which additional amounts are refundable if the Board determines that they are no longer needed. AutoImmune has not committed to make additional capital commitments. The investment was initially recorded by AutoImmune at cost $0. Profits and losses will be allocated in accordance with the joint venture agreement. Under equity accounting, AutoImmune will not recognize a gain on this investment until AutoImmune's share of the profits of Colloral LLC exceeds its share of the cumulative losses. As of September 30, 2002, Colloral has not generated any profit; therefore, the investment is carried at $0. 6. Accrued Expenses Accrued expenses consist of accrued professional fees as of December 31, 2001 and September 30, 2002. 7. Comprehensive Income (Loss) Comprehensive income (loss) for the three and nine month periods ended September 30, 2001 and 2002 is the same as net income (loss). There was no net unrealized gain (loss) on marketable securities for the three and nine month periods ended September 30, 2001 and 2002. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The sections of "Management's Discussion and Analysis of Financial Condition and Results of Operations" captioned "Results of Operations" and "Liquidity and Capital Resources" contain forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from results discussed in the forward-looking statements due to a number of important factors, including, but not limited to the Company's extremely limited operations, the uncertainties of clinical trial results and product development, the Company's dependence on third parties for licensing revenue and the risks of technological change and competition. These factors are more fully discussed in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission in the section "Business-Factors to be Considered." The discussion in the Annual Report on Form 10-K is hereby incorporated by reference into this Quarterly Report. Results of Operations Overview Since its inception through September 30, 2002, the Company has incurred ongoing losses from operations and has cumulative losses as of September 30, 2002 totaling $108,108,000. To date, the Company has not recorded any revenues from the sale of products and accordingly, remains in the development stage. Revenues recorded through September 30, 2002 were earned in connection with the sale of certain patent rights, granting of certain short-term rights and contract research. Future revenues may also include revenues earned from the sale of products, either by the Company or from licenses of its technology. Three and Nine Month Periods Ended September 30, 2001 and 2002 Revenue was $1,318,000 and $18,000 for the three month periods ended September 30, 2001 and 2002, respectively. Revenue was $1,333,000 and $48,000 for the nine month periods ended September 30, 2001 and 2002, respectively. The results for the three-month and nine-month periods ended September 30, 2001 reflect receipt of a payment from a subsidiary of Elan Corporation plc for its purchase of AutoImmune's rights to certain patent applications. In addition, all of these amounts reflect monthly payments from BioMS Medical Corporation (formerly known as Rycor Technology Investments Corp.) under a license agreement. Research and development expenses were $155,000 and $211,000 for the three month periods ended September 30, 2001 and 2002, respectively. Research and development expenses were $300,000 and $329,000 for the nine month periods ended September 30, 2001 and 2002, respectively. The change is due to the timing and amount of contractual payments to The Brigham and Women's Hospital and patent-related legal costs. General and administrative expenses were $119,000 and $100,000 for the three month periods ended September 30, 2001 and 2002, respectively. General and administrative expenses were $465,000 and $506,000 for the nine month periods ended September 30, 2001 and 2002, respectively. The decrease for the three month periods is due to timing of expenses. The increase for the nine month periods is primarily due to a rise in insurance costs. Interest income was $97,000 and $48,000 for the three month periods ended September 30, 2001 and 2002, respectively. Interest income was $381,000 and $149,000 for the nine month periods ended September 30, 2001 and 2002, respectively. The decrease is due to a lower average return on investment and a lower average balance of cash available for investment. 7 AUTOIMMUNE INC. Liquidity and Capital Resources The Company's needs for funds have historically fluctuated from period to period as it has increased or decreased the scope of its research and development activities. Since inception, the Company has funded these needs almost entirely through sales of its equity securities. Its current needs have been significantly reduced as a result of the termination of research, development and most administrative employees and other operating expenses in 1999. The Company's working capital and capital requirements will depend on numerous factors, including the strategic direction that the Company and its shareholders choose, the level of resources that the Company devotes to the development of its patented products, the extent to which it proceeds by means of collaborative relationships with pharmaceutical or nutraceutical companies and its competitive environment. Based upon its budget for the calendar year 2002, the Company believes that current cash and marketable securities, and the interest earned from the investment thereof, will be sufficient to meet the Company's operating expenses and capital requirements for at least five years. At the appropriate time, the Company may seek additional funding through public or private equity or debt financing, collaborative arrangements with pharmaceutical companies or from other sources. If additional funds are necessary but not available, the Company will have to reduce or not pursue certain activities, which could include areas of research, product development, manufacturing or marketing activity, or otherwise modify its business strategy. Such a reduction would have a material adverse effect on the Company. In order to preserve principal and maintain liquidity, the Company's funds are invested in U.S. Treasury obligations and money market instruments. As of September 30, 2002, the Company's cash and cash equivalents and marketable securities totaled $10,196,000. Current liabilities at September 30, 2002 were $199,000. As of September 30, 2002, there were no off-balance sheet transactions. Critical Accounting Policies and Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its financial statements: The Company has a $100,000 investment in Oragen. This represents an ownership interest of 19%. The Company does not have any controlling influence over the operations of Oragen. This investment is valued using the cost method. Future events could cause management to conclude that impairment indicators exist. Any resulting impairment loss would require a write-down of the value of the investment. For a more detailed explanation of the judgements included in this area, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2001. In addition, Colloral LLC, a joint venture, was created in August 2002 between AutoImmune and Deseret Laboratories Inc., (a private company headquartered in St. George, Utah.) to manufacture, market and sell Colloral(R), a product for nutritional support of patients with rheumatoid arthritis. AutoImmune's interest in Colloral LLC is greater than 50% but, because AutoImmune does not have control, the investment is accounted for using the equity method. AutoImmune's contribution to Colloral LLC was the equipment used to manufacture bulk product and a license to certain Colloral-related intellectual property. These assets had a net book value of $0. Deseret contributed cash and is committed to providing additional amounts, which additional amounts are refundable if the Board determines that they are no longer needed. AutoImmune has not committed to make additional capital commitments. The investment was initially recorded by AutoImmune at cost $0. Profits and losses will be allocated in accordance with the joint venture agreement. Under equity accounting, AutoImmune will not recognize a gain on this investment until AutoImmune's share of the profits of Colloral LLC exceeds its share of the cumulative losses. As of September 30, 2002, Colloral has not generated any profit; therefore, the investment is carried at $0. 8 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company invests all of its cash in U.S. Treasury obligations and money market instruments. These investments are denominated in U.S. dollars. Due to the conservative nature of these instruments, the Company does not believe that it has material exposure to interest rate or market risk. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Within the 90-day period prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as such term is defined in Rule 13a-14(c) under the Securities Exchange Act of 1934. The evaluation of the Company's disclosure controls and procedures was made by the Company's Chief Executive Officer and Director of Finance and Treasurer. Based upon that review, the Company believes that its disclosure controls and procedures are effective and are adequately designed to ensure that the information that the Company is required to disclose in this report has been accumulated to allow timely decisions regarding such required disclosure. (b) Changes in Internal Controls The Company's Chief Executive Officer and Director of Finance and Treasurer have concluded that there were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation. 9 AUTOIMMUNE INC. PART II - OTHER INFORMATION Item 6 - EXHIBITS AND REPORTS ON FORM 8-K Item 6(a) - Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit Number Description -------------- ---------------------------------------------------------- 10.35 Limited Liability Company Operating Agreement of Colloral LLC, dated August 19, 2002 ++ 10.36 License Agreement, dated August 19, 2002, between AutoImmune Inc. and Colloral LLC ++ 10.37 Trademark License Agreement, dated August 19, 2002, between AutoImmune Inc. and Colloral LLC ++ 99.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 99.2 Certification of the Director of Finance and Treasurer pursuant to 18 U.S.C. Section 1350 ++ The Company has requested confidential treatment of the redacted portions of this Exhibit pursuant to Rule 24b-2. under the Securities Exchange Act of 1934, as amended, and has separately filed a complete copy of this Exhibit with the Securities and Exchange Commission.
Item 6(b) - Reports on Form 8-K No Form 8-K has been filed during the quarter for which this report is filed. 10 AUTOIMMUNE INC. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AUTOIMMUNE INC. Date: November 14, 2002 /s/ Robert C. Bishop ------------------------------------ Robert C. Bishop Chairman and Chief Executive Officer /s/ Heather A. Ellerkamp ------------------------------------ Heather A. Ellerkamp Director of Finance and Treasurer 11 CERTIFICATIONS I, Robert C. Bishop, certify that: 1. I have reviewed this quarterly report on Form 10-Q of AutoImmune Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Robert C. Bishop -------------------- Name: Robert C. Bishop Title: Chief Executive Officer 12 CERTIFICATIONS I, Heather A Ellerkamp, certify that: 1. I have reviewed this quarterly report on Form 10-Q of AutoImmune Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November, 14, 2002 /s/ Heather A. Ellerkamp ------------------------ Name: Heather A. Ellerkamp Title: Director of Finance and Treasurer 13 EX-10.35 3 dex1035.txt COLLORAL LLC OPERATING AGREEMENT Exhibit 10.35 - -------------------------------------------------------------------------------- Portions of this exhibit have been omitted pursuant to a request for confidential treatment of those portions filed with the Securities and Exchange Commission. Such confidential portions have been filed with the Securities and Exchange Commission and are denoted in this exhibit by an asterisk (*). - -------------------------------------------------------------------------------- ================================================================================ LIMITED LIABILITY COMPANY OPERATING AGREEMENT of COLLORAL LLC a Delaware Limited Liability Company Dated as of August 19, 2002 ================================================================================ COLLORAL LLC OPERATING AGREEMENT TABLE OF CONTENTS
Page ---- 1. ORGANIZATION. ........................................................ 1 1.1 Formation ....................................................... 1 1.2 Name ............................................................ 1 1.3 Certificate of Formation; Filings ............................... 1 1.4 Business Purpose ................................................ 1 1.5 Fictitious Business Name Statements ............................. 1 1.6 Principal Place of Business; Other Places of Business ........... 1 1.7 Designated Agent for Service of Process ......................... 2 1.8 Term ............................................................ 2 2. POWERS ............................................................... 2 2.1 Enter into Agreements ........................................... 2 2.2 Borrowings ...................................................... 2 2.3 Expenses ........................................................ 2 2.4 Other Powers .................................................... 2 2.5 Powers Not Otherwise Prohibited ................................. 2 3. MANAGEMENT ........................................................... 2 3.1 Designation of Managers ......................................... 2 3.2 Managers as Members ............................................. 3 3.3 Management of the Company ....................................... 3 3.4 Board Action .................................................... 3 3.5 Compensation of Managers and Members ............................ 3 3.6 Contracts with Affiliated Persons ............................... 3 3.7 Other Activities ................................................ 4 3.8 Officers ........................................................ 4 4. MEMBERS AND CAPITAL CONTRIBUTIONS .................................... 4 4.1 Capital Accounts ................................................ 4 4.2 Initial Members and Initial Capital Contributions ............... 4 4.3 Additional Members .............................................. 4 4.4 No Withdrawal of or Interest on Capital ......................... 5 4.5 Liability of Members ............................................ 5 4.6 Additional Capital Requirements ................................. 5 4.7 Third Party Liabilities ......................................... 5 5. DISTRIBUTIONS ........................................................ 5 5.1 Distribution of Company Funds ................................... 6 5.2 Distribution of Member Recovery Amounts ......................... 6 5.3 Distribution Upon Dissolution ................................... 6 5.4 Distribution of Assets in Kind .................................. 6 6. ALLOCATION OF PROFITS AND LOSSES. .................................... 6 6.1 Allocation of Profits and Losses ................................ 7
-i- 7. FISCAL MATTERS ...................................................... 7 7.1 Books and Records ............................................ 7 7.2 Bank Accounts ................................................ 7 7.3 Fiscal Year .................................................. 7 7.4 Tax Matters Partner .......................................... 7 8. TRANSFERS OF INTERESTS .............................................. 8 8.1 General Restrictions on Transfer ............................. 8 8.2 Transfer by Operation of Law ................................. 8 8.3 Other Restrictions ........................................... 8 8.4 Relief From Liability ........................................ 9 8.5 Party to Agreement ........................................... 9 8.6 Contravention of Provisions .................................. 9 9. DISSOLUTION AND TERMINATION ......................................... 9 9.1 Limitations .................................................. 9 9.2 Events Causing Dissolution ................................... 9 9.3 Procedures on Dissolution .................................... 10 9.4 Special Dissolution Provisions ............................... 10 10. TAX ALLOCATION PROVISIONS ........................................... 10 10.1 Required Regulatory Allocations .............................. 11 10.2 Curative Allocations ......................................... 12 10.3 Tax Allocations and Book Allocations ......................... 12 10.4 General Allocation and Distribution Rules .................... 13 10.5 Tax Withholding .............................................. 13 11. NON-COMPETITION ..................................................... 14 12. REPRESENTATIONS AND WARRANTIES ...................................... 14 12.1 AI ........................................................... 14 12.2 Deseret ...................................................... 15 13. GENERAL PROVISIONS .................................................. 16 13.1 Notices ...................................................... 16 13.2 Word Meanings ................................................ 16 13.3 Binding Provisions ........................................... 16 13.4 Applicable Law ............................................... 16 13.5 Counterparts ................................................. 16 13.6 Separability of Provisions ................................... 16 13.7 Section Titles ............................................... 17 13.8 Amendments ................................................... 17 13.9 Entire Agreement ............................................. 17 13.10 Waiver of Partition .......................................... 17 13.11 Public Announcements ......................................... 17 [13.12 Survival of Certain Provisions ............................... 17 14. DEFINITIONS ......................................................... 17
-ii- COLLORAL LLC OPERATING AGREEMENT This Operating Agreement, dated as of August 19, 2002, is by and between AutoImmune Inc., and Deseret Laboratories, Inc. 1. ORGANIZATION. 1.1 Formation. COLLORAL LLC (the "Company") has been formed as a limited liability company under the Delaware Limited Liability Company Act (the "Act") for the purposes and upon the terms and conditions hereinafter set forth. The rights and liabilities of the Members of the Company shall be as provided in the Act, except as otherwise expressly provided herein. In the event of any inconsistency between any terms and conditions contained in this Agreement and any nonmandatory provisions of the Act, the terms and conditions contained in this Agreement shall govern. 1.2 Name. The name of the Company shall be COLLORAL LLC. The Company may also conduct business at the same time under one or more fictitious names if the Board of Managers of the Company (the "Board") determines that it is in the best interests of the Company. The Board may change the name of the Company, from time to time, in accordance with applicable law. 1.3 Certificate of Formation; Filings. A Certificate of Formation (the "Certificate") has been executed and filed in the Office of the Delaware Secretary of State as required by the Act. The Board may execute and file any duly authorized amendments to the Certificate from time to time in a form prescribed by the Act. The Board shall also cause to be made, on behalf of the Company, such additional filings and recordings as the Board shall deem necessary or advisable. 1.4 Business Purpose. The Company shall engage solely in the business of developing, manufacturing, marketing and selling Licensed Products (as defined in the License Agreement of even date herewith between AI and the Company) as non-prescription products for the treatment of arthritic conditions and any activities ancillary thereto. 1.5 Fictitious Business Name Statements. Fictitious business name statements will be filed and published when and if the Board determines such statements are necessary. Any such statement shall be renewed as required by applicable law. 1.6 Principal Place of Business; Other Places of Business. The principal place of business of the Company shall be at such place within or outside the State of Delaware as the Board may from time to time designate. The Board may direct that the Company maintain offices and places of business at such other place or places within or outside the State of Delaware, as and when required by the Company's business and in furtherance of the general character of the Company's business described in the Certificate, and may appoint agents for service of process in all jurisdictions in which the Company shall conduct business. The Board shall file such certificates and documents as are necessary under the laws of any jurisdictions in which the Company shall conduct business. 1.7 Designated Agent for Service of Process. The Company shall continuously maintain a registered office and a designated and duly qualified agent for service of process on the Company in the State of Delaware. 1.8 Term. The Company shall commence on the date that the Certificate is filed with the Office of the Delaware Secretary of State, and shall continue until terminated pursuant to this Agreement. 2. POWERS. Subject to all other provisions of this Agreement, in furtherance of the conduct of the business purpose described in Section 1.4, the Company is authorized to take those actions listed in this Section 2. 2.1 Enter into Agreements. The Company may enter into, execute, modify, amend, supplement, acknowledge, deliver, perform, and carry out contracts of any kind, including operating agreements of limited liability companies, whether as a member or manager, contracts with Affiliated Persons, including guarantees and joint venture, limited and general partnership agreements and contracts establishing business arrangements or organizations, necessary to, in connection with, or incidental to the accomplishment of the permitted business of the Company, and to secure the same by mortgages, pledges or other liens. 2.2 Borrowings. The Company may borrow money and issue evidences of indebtedness in furtherance of the permitted business of the Company, and to secure the same by mortgages, pledges, or other liens. 2.3 Expenses. To the extent that funds of the Company are available, the Company may pay all expenses, debts and obligations of the Company. 2.4 Other Powers. The Company may exercise all the powers and privileges granted by the Act or any other law or this Agreement, together with any powers incidental thereto, so far as such powers are necessary or convenient to the conduct, promotion, or attainment of the permitted business, trade, purposes, or activities of the Company. 2.5 Powers Not Otherwise Prohibited. The Company may take any other action not prohibited under the Act or other applicable law and permitted under Section 1.4. 3. MANAGEMENT. 3.1 Designation of Managers. The number of Managers of the Company shall be initially fixed at 3 and shall be the Persons named in Schedule I hereto. Subject to the provisions set forth below, any Person may be elected as a Manager at any time by the unanimous consent of the Members. Each Member agrees to vote in favor of the following actions: (a) to cause and maintain the election to the Board of one Manager designated by AI (the "AI Manager"); and (b) to cause and maintain the election to the Board of two Managers designated by Deseret (the "Deseret Managers"). -2- Each Manager shall hold office until such individual is removed by the Member which designated him or her, resigns or dies. In the event that any Manager dies, resigns or is unable or unwilling to serve as such, or is removed from office by the Member that designated him or her, the Members shall promptly elect a successor consistent with the provisions of this Section 3.1. 3.2 Managers as Members. Any Manager may, but need not, hold an Interest in the Company as a Member, and such person's rights and interest as a Manager shall be distinct and separate from such person's rights and Interest as a Member. 3.3 Management of the Company. Subject to the provisions of this Agreement that require the consent of the Members, the Board shall have the exclusive power and authority to manage the business and affairs of the Company and to make all decisions with respect thereto. Except as otherwise expressly provided in this Agreement, the Board or Persons designated by the Board, including officers and agents appointed by the Board, shall be the only Persons authorized to execute documents binding on the Company. To the fullest extent permitted by Delaware law, but subject to any specific provisions in this Agreement granting rights to the Members, the Board shall have the power to perform any acts, statutory or otherwise, with respect to the Company or this Agreement, which would otherwise be possessed by the Members under Delaware law, and the Members shall have no power whatsoever with respect to the management of the business and affairs of the Company. 3.4 Board Action. Any action to be taken by the Board shall require the approval of a majority of the Board; provided, that such majority consists of the AI Manager and at least one Deseret Manager and; provided, further, that with respect to any matter, agreement or claim involving the Company, on the one hand, and a Member or an Affiliated Person of a Member, on the other hand, the Board shall act solely with the approval of the AI Manager if such Member is Deseret or if the matter, agreement or claim involves an Affiliated Person of Deseret and solely with the approval of the Deseret Manager if such Member is AI or if the matter, agreement or claim involves an Affiliated Person of AI. Subject to the foregoing, the Board may take action by less than unanimous written consent. 3.5 Compensation of Managers and Members. No payment shall be made by the Company to any Manager or Member for such Manager or Member's services as a Manager or Member except as expressly provided in this Agreement. Each Manager shall be entitled to reimbursement from the Company for all out-of pocket expenses reasonably incurred by such Manager in managing and conducting the business and affairs of the Company. The Board shall determine which expenses, if any, are allocable to the Company in a manner which is fair and reasonable to the Managers and the Company, and if such allocation is made in good faith it shall be conclusive in the absence of manifest error. The foregoing shall not prohibit payments and reimbursements to any Manager or Member who is also an officer of the Company, in such Person's capacity as an officer, to the extent approved by the Board. 3.6 Contracts with Affiliated Persons. The Company may enter into one or more oral or written agreements, leases, contracts or other arrangements for the furnishing to or by the Company of goods, services or space with any Member, Manager or Affiliated Person (including as an officer pursuant to Section 3.8 or as a non-officer employee), and may pay compensation thereunder for such goods, services or space. -3- 3.7 Other Activities. Except as set forth in Section 11, the Members, Managers and any Affiliates of any of them may engage in and possess interests in other business ventures and investment opportunities of every kind and description, independently or with others, including serving as managers and general partners of other limited liability companies and partnerships with purposes similar to those of the Company. Neither the Company nor any other Member or Manager shall have any rights in or to such ventures or opportunities or the income or profits therefrom. 3.8 Officers. The Board may from time to time designate one or more Persons to be officers of the Company, each of whom shall serve at the pleasure of the Board. The Board shall delegate to each such officer the authority and duties that are set forth in the resolution appointing the officer and in any subsequent resolution adopted by the Board, and such officer shall have full authority to act within the scope of such delegated authority, including by binding the Company to the extent provided therein. The Board may assign titles to particular officers. Each such officer shall hold office until his successor shall be duly designated and qualified, or until his death, or until he shall resign or shall have been removed by resolution adopted by the Board. Any number of offices may be held by the same Person. The salaries or other compensation, if any, of the officers and agents of the Company shall be fixed from time to time by the Board. 4. MEMBERS AND CAPITAL CONTRIBUTIONS. 4.1 Capital Accounts. A separate Capital Account shall be maintained for each Member, including any Member who shall hereafter acquire an Interest in the Company. Capital Accounts shall be maintained in accordance with the provisions of ss. 704 of the Code and the Regulations thereunder, except as provided herein. 4.2 Initial Members and Initial Capital Contributions. On the date of this Agreement, each of the Members has contributed to the capital of the Company the amount of cash, or property having an agreed value, set forth opposite its name on Schedule I. If so required by a vote of the Board (such vote to include the vote of the AI Manager and at least one Deseret Manager), Deseret may be required to make an additional capital contribution or contributions, in cash, in an aggregate amount not to exceed * dollars ($* ) in the event that the business of the Company (if so determined at the sole discretion of the Board) requires additional capital. Such additional capital contributions shall be refundable to Deseret if the Board, in its sole discretion, determines they are no longer needed and so votes (such vote to include the vote of the AI Manager and at least one Deseret Manager). Such as vote shall not be a conflict of interest for Deseret. 4.3 Additional Members. Additional Persons may be admitted to the Company as Members, and additional Interests may be created, all on the terms and conditions approved by the Board at the time of admission, subject to the Company's receipt of such Capital Contribution (if any) as may be agreed upon between the Board and such Person. Notwithstanding the foregoing, the terms of admission or issuance may not create any class or series of Interests having rights, powers or duties senior to those of any existing Interests unless the Board has obtained the unanimous consent of the Members holding the Interests in such junior class(es). The Board shall reflect the creation of additional Interests by amendment of Schedule I hereto, and shall reflect the creation of any new class or series in an amendment to this Agreement indicating the different rights, powers and duties possessed by the several classes or series of Interests, either of which amendments need be executed only by the Board. -4- 4.4 No Withdrawal of or Interest on Capital. No Member shall have the right to resign and receive any distribution from the Company as a result of such resignation, and no Member shall have the right to receive the return of all or any part of its Capital Contributions or Capital Account, or any other distribution, except as provided in Sections 5 and 9.3. No Member shall have any right to demand and receive property of the Company in exchange for all or any portion of its Capital Contributions or Capital Account, except as provided in Sections 5 and 9.3 upon dissolution and liquidation of the Company. No interest or prior or preferred return shall accrue or be paid on any Capital Contribution or Capital Account except pursuant to Section 5 as the same may be hereafter amended. 4.5 Liability of Members. Except as set forth in this Section 4, no Member shall be entitled, obligated or required to make any capital contribution in addition to its Capital Contribution made under Section 4.2 or 4.3, or any loan to the Company. No Member, in its capacity as a Member, shall have any liability to restore any negative balance in its Capital Account or to contribute to, or in respect of, the liabilities or the obligations of the Company, or to restore any amounts distributed from the Company, except as may be required under the Act or other applicable law. In no event shall any Member, in its capacity as a Member, be personally liable for any liabilities or obligations of the Company. 4.6 Additional Capital Requirements. (a) In addition to the additional capital contribution that may be requested of Deseret pursuant to Section 4.2, in the event that the Company requires additional funds to carry out its purposes, to conduct its business, or to meet its obligations, the Company may create additional Interests as the Board may determine, or may borrow funds from such lender(s) as the Board may determine, in each case including any one or more Managers or existing Members, all on such terms and conditions as are approved by the Board. (b) No loan made to the Company by any Member shall constitute a Capital Contribution to the Company for any purpose. (c) No Member or Manager shall have any obligation to give notice of an existing or potential default of any obligation of the Company to any of the Members or Managers, nor shall any Member or Manager be obligated to make any Capital Contributions or loans to the Company, or otherwise supply or make available any funds to the Company, even if the failure to do so would result in a default of any of the Company's obligations or the loss or termination of all or any part of the Company's assets or business. 4.7 Third Party Liabilities. The provisions of this Section 4 are not intended to be for the benefit of any creditor or other Person (other than a Member in its capacity as a Member) to whom any debts, liabilities, or obligations are owed by (or who otherwise has any claim against) the Company or any of the Members. Moreover, notwithstanding anything contained in this Agreement, including specifically but without limitation this Section 4, no such creditor or other Person shall obtain any rights under this Agreement or shall, by reason of this Agreement, make any claim in respect of any debt, liability, or obligation (or otherwise) against the Company or any Member. 5. DISTRIBUTIONS -5- 5.1 Distribution of Company Funds. Except as provided in this Section 5, all Company funds, which are determined by the Board to be available for distribution shall be distributed to the Members on a quarterly basis as follows: (a) First, to the Members in the following proportions: * percent (*%) to AI and * percent (*%) to Deseret until an aggregate of $* is distributed pursuant to this Section 5.1 in a fiscal year; and (b) Second, the balance for the fiscal year shall be allocated equally between the Members. It is the intention of the Company to distribute each quarter all cash and liquid assets of the Company other than such cash as the Board deems prudent to maintain in the Company in connection with the operation of the Company's business. 5.2 Distribution of Member Recovery Amounts. Notwithstanding any other provision in this Section 5, all Member Recovery Amounts received by the Company shall be distributed to the Member which has not paid the Member Recovery Amount to the Company as soon as is reasonably practicable. 5.3 Distribution Upon Dissolution. Proceeds from a Terminating Capital Transaction and amounts available upon dissolution, and after payment of, or adequate provision for, the debts and obligations of the Company, and liquidation of any remaining assets of the Company, shall be distributed and applied in the following priority: (a) First, to fund reserves for liabilities not then due and owing and for contingent liabilities to the extent deemed reasonable by the Board; provided, that, upon the expiration of such period of time as the Board shall deem advisable, the balance of such reserves remaining after payment of such contingencies shall be distributed in the manner hereinafter set forth in this Section 5.3; and (b) Second, to the Members, an amount sufficient to reduce the Members' Capital Accounts to zero, in proportion to the positive balances in such Capital Accounts (after reflecting in such Capital Accounts all adjustments thereto necessitated by (A) all other Company transactions (including distributions and allocations of Profits and Losses and items of income, gain, deduction, and loss) and (B) such Terminating Capital Transaction). 5.4 Distribution of Assets in Kind. Notwithstanding the foregoing provisions of this Section 5, in the event of a dissolution other than in connection with a Terminating Capital Transaction, all equipment contributed to the Company by AI pursuant to Section 4 shall be returned to AI. Except for the foregoing, no Member shall have the right to require any distribution of any assets of the Company in kind. If any assets of the Company are distributed in kind, such assets shall be distributed on the basis of their fair market value as determined by the Board. Any Member entitled to any interest in such assets shall, unless otherwise determined by the Board, receive separate assets of the Company and not an interest as tenant-in-common, with other Members so entitled, in each asset being distributed. 6. ALLOCATION OF PROFITS AND LOSSES. -6- 6.1 Allocation of Profits and Losses. (a) After giving effect to the allocations set forth in Sections 10.1 and 10.2, and subject to the other provisions of Section 10 and of Section 6.2, Profits for each fiscal year shall be allocated in the following order and priority: (i) First, in proportion to any deficit Capital Account balances, until such deficits are eliminated; and (ii) Second, of the next $* in Profits, after taking account of the allocations to the Members pursuant to Section 6.1(a)(i) (if any), (A) * percent (*%) shall be allocated to AI and (B) * percent (*%) shall be allocated to Deseret; and (iii) Third, any remaining Profits shall be allocated equally between the Members. (b) After giving effect to the allocations set forth in Section 10.1 and 10.2, and subject to the other provisions of Section 10, Losses for each fiscal year shall be allocated in the following order and priority: (i) First, to each Member to reduce the balance in its Capital Account to zero; and (ii) Second, any remaining Losses shall be allocated equally between the Members. 6.2 Special Allocations. All Member Recovery Amounts received by the Company shall be allocated one hundred (100%) by the Company to the Member which has not, or the Affiliate of which has not, paid the Member Recovery Amount to the Company. 7. FISCAL MATTERS. 7.1 Books and Records. The Board shall keep or cause to be kept complete and accurate books and records of the Company in accordance with generally accepted accounting principles consistently applied. Such documents and information as are required to be furnished to the Members under the Act shall be made available at an office of the Company for examination and copying by any Member or Manager, or his, her, or its duly authorized representative, at his reasonable request and at his expense during ordinary business hours. 7.2 Bank Accounts. Bank accounts and/or other accounts of the Company shall be maintained in such banking and/or other financial institution(s) as shall be selected by the Board, and withdrawals shall be made and other activity conducted on such signature or signatures as shall be approved by the Board. 7.3 Fiscal Year. The fiscal year of the Company shall end on December 31 of each year. 7.4 Tax Matters Partner. The Tax Matters Partner shall be the Person so named in Schedule I hereto. At any time and from time to time if there is no Tax Matters Partner, a Tax -7- Matters Partner may be designated by the Board. The Tax Matters Partner is hereby authorized to, and shall perform all duties of, a "tax matters partner" under the Code and shall serve as Tax Matters Partner until his, her, or its resignation or until the designation of his, her, or its successor, whichever occurs sooner. 8. TRANSFERS OF INTERESTS. 8.1 General Restrictions on Transfer. No Member may Transfer all or any part of its Interest, or otherwise withdraw from the Company, except (i) with the prior written approval of the Board, which may be withheld for any reason or for no reason, (ii) in connection with Transfers to Affiliates, and (iii) in connection with the sale of all or substantially all of the assets of the Member or the business of the Member of which the activities of the Company are a part. No transferee of a Transfer, including without limitation an Affiliate, may be admitted as a Member except with the prior written approval of the Board, which may be withheld for any reason or for no reason, and upon the satisfaction of the other requirements of this Agreement. 8.2 Transfer by Operation of Law. No Person who becomes the holder by operation of law of all or any part of an Interest may be admitted as a Member except with the prior written approval of the Board, which may be withheld for any reason or for no reason, and upon satisfaction of the other requirements of this Agreement. 8.3 Other Restrictions. Every Transfer of an Interest permitted by this Section 8 shall nevertheless be subject to the following: (a) No Transfer of any Interest may be made if such Transfer would cause or result in a breach of any agreement binding upon the Company or of then applicable rules and regulations of any governmental authority having jurisdiction over such Transfer. The Board may require as a condition of any Transfer that the transferor assume all costs incurred by the Company in connection therewith and furnish an opinion of counsel, satisfactory to the Company both as to counsel and opinion, that the proposed Transfer complies with applicable law, including federal and state securities laws, and does not cause the Company to be an investment company as such term is defined in the Investment Company Act of 1940, as amended. (b) The Board shall require, as a condition to the admission to the Company as a Member of any transferee who is not otherwise a Member, that such transferee demonstrate to the reasonable satisfaction of the Board that it is a financially responsible Person or has one or more financially responsible Persons who have affirmatively assumed the financial obligations of the transferee under this Agreement, if any, on its behalf. (c) Notwithstanding anything contained herein to the contrary, no Interest shall be transferred if, by reason of such Transfer, the classification of the Company as an Company for federal income tax purposes would be adversely affected or jeopardized, or if such Transfer would have any other substantial adverse effect for federal income tax purposes. (d) In the event of any Transfer, there shall be filed with the Company a duly executed and acknowledged counterpart of the instrument effecting such Transfer. The transferee shall execute such additional instruments as shall be reasonably required by the Board. If and for so long as such instruments are not so executed and filed, the Company need not recognize any -8- such Transfer for any purpose, and the transferee shall be entitled only to the rights which are required under the Act to be afforded to a transferee who does not become a Member. (e) Upon the admission or withdrawal of a Member, this Agreement (including without limitation Schedule I hereto) and/or the Certificate shall be amended appropriately by the Board to reflect the then existing names and addresses of the Members. 8.4 Relief From Liability. A transferor of an Interest shall, if the transferee is a Member hereunder or if the transferee becomes a Member pursuant to the provisions of this Agreement, be relieved of liability under this Agreement with respect to the transferred Interest arising or accruing on or after the effective date of the Transfer. 8.5 Party to Agreement. Any Person who acquires in any manner whatsoever an Interest (or any part thereof), whether or not such Person has accepted and assumed in writing the terms and provisions of this Agreement or been admitted into the Company as a Member as provided in this Section 8, shall be deemed, by acceptance of the acquisition thereof, to have agreed to be subject to and bound by all of the obligations of this Agreement with respect to such Interest and shall be subject to the provisions of this Agreement with respect to any subsequent Transfer of such Interest. 8.6 Contravention of Provisions. Any Transfer in contravention of any of the provisions of this Agreement shall be null and void and ineffective to transfer any Interest, and shall not bind, or be recognized by, or be recorded on the books of, the Company, and any transferee or assignee in such transaction shall not be or be treated as or deemed to be a Member for any purpose. In the event any Member shall at any time Transfer an Interest in contravention of any of the provisions of this Agreement, then each other Member shall, in addition to all rights and remedies at law and equity, be entitled to a decree or order restraining and enjoining such transaction, and the offending Member shall not plead in defense thereto that there would be an adequate remedy at law, it being expressly hereby acknowledged and agreed that damages at law would be an inadequate remedy for a breach or threatened breach of the violation of the provisions concerning such transactions set forth in this Agreement. 9. DISSOLUTION AND TERMINATION. 9.1 Limitations. The Company may be dissolved, liquidated, and terminated only pursuant to the provisions of this Section 9, and the parties hereto do hereby irrevocably waive any and all other rights they may have to a dissolution of the Company or a sale or partition of any or all of the Company assets. 9.2 Events Causing Dissolution. Notwithstanding the Act, the Company shall be dissolved and its affairs wound up only upon the occurrence of any of the following events: (a) A Terminating Capital Transaction; provided, that no Terminating Capital Transaction may occur without the prior written approval of the Board and the unanimous consent of the Members; -9- (b) The election to dissolve the Company made in writing by the Board with the unanimous consent of the Members; (c) Any consolidation or merger of the Company with or into any entity in which the Company is not the resulting or surviving entity; provided, that no such consolidation or merger may occur without the prior written approval of the Board and the unanimous consent of the Members; (d) By either Member if the Board is deadlocked with respect to any material matter brought before it for action and such deadlock has continued for at least thirty days; (e) By the non-breaching Member in the event of any material breach of the representations and warranties set forth in Section 12; (f) By either Member in the event of any material breach of this Agreement by the other Member, which breach is not cured within fifteen days after notice specifying the nature of such breach; (g) By either Member in the event of any breach by the other Member or its Affiliates of the Manufacturing, Sales and Marketing Agreement, which breach is not cured within ninety days after notice specifying the nature of such breach, or in the event the Manufacturing, Sales and Marketing Agreement expires or is terminated by Deseret in accordance with its terms; (h) By Deseret in the event of any breach by AI or its Affiliates of the License Agreement or the Trademark Agreement, which breach is not cured within ninety days after notice specifying the nature of such breach; or (i) By either Member if a Change of Control has occurred with respect to a Member. 9.3 Procedures on Dissolution. Upon dissolution of the Company, the Board, or if none, a liquidator elected by the unanimous consent of the Members, shall liquidate the assets of the Company, apply and distribute the proceeds thereof in accordance with Section 5 of this Agreement, and cause the cancellation of the Certificate. The Company shall not terminate until the Certificate shall be canceled. 9.4 Special Dissolution Provisions. In the event of the dissolution of the Company: (a) The provisions of Section 11 and the right to receive any Member Recovery Amount shall inure to the Members and may be enforced by AI with respect to Deseret and by Deseret with respect to AI; and (b) If dissolution occurs pursuant to Section 9.2(e), Section 9.2(f) or Section 9.2(g) or Section 9.2(h), the non-breaching party shall be entitled to any and all rights and remedies available to it at law or in equity with respect to any and all breaches giving rise to such dissolution 10. TAX ALLOCATION PROVISIONS. -10- 10.1 Required Regulatory Allocations. (a) Limitation on and Reallocation of Losses. At no time shall any allocations of Losses, or any item of loss or deduction, be made to a Member if and to the extent such allocation would cause such Member to have, or would increase, any Adjusted Capital Account Deficit of such Member at the end of any fiscal year. To the extent any Losses or items are not allocated to one or more Members pursuant to the preceding sentence, such Losses shall be allocated to the Members to which such losses or items may be allocated without violation of this Section 10.1(a). (b) Minimum Gain Chargeback. If there is a net decrease in the Minimum Gain of the Company during any fiscal year, then items of income or gain of the Company for such fiscal year (and, if necessary, subsequent fiscal years) shall be allocated to each Member in an amount equal to such Member's share of the net decrease in the Minimum Gain, determined in accordance with Regulations (S) 1.704-2(d)(1). A Member's share of the net decrease in the Minimum Gain of the Company shall be determined in accordance with Regulations (S) 1.704-2(g). The items of income and gain to be so allocated shall be determined in accordance with Regulations (S)(S) 1.704-2(f)(6) and 1.704-2(j)(2). (c) Partner Minimum Gain Chargeback. Notwithstanding any contrary provisions of this Section 10, other than Section 10.1(b) above, if there is a net decrease in Partner Minimum Gain attributable to Partner Nonrecourse Debt during any fiscal year, then each Member who has a share of such Partner Minimum Gain, determined in accordance with Regulations (S) 1.704-2(i), shall be allocated items of income and gain of the Company, determined in accordance with Regulations (S) 1.704-2(j)(2)(ii), for such fiscal year (and, if necessary, subsequent fiscal years) in an amount equal to each such Member's share of the net decrease in such Partner Minimum Gain, determined in accordance with Regulations (S) 1.704-(2)(i). (d) Qualified Income Offset. If any Member unexpectedly receives an item described in Regulations (S) 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of income and gain shall be allocated to each such Member in an amount and manner sufficient to eliminate, as quickly as possible and to the extent required by Regulations (S) 1.704-1(b)(2)(ii)(d), the Adjusted Capital Account Deficit of such Member; provided, that an allocation pursuant to this Section 10.1(d) shall be made if and only to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 10 have been tentatively made as if this Section 10.1(d) were not in the Agreement. (e) Gross Income Allocation. In the event any Member has a Capital Account deficit at the end of any Company fiscal year which is in excess of the sum of the items to be credited to a Member's Capital Account under clause (a) of the definition of Adjusted Capital Account Deficit, then each such Member shall be allocated items of income and gain in the amount of such excess as quickly as possible; provided, that an allocation pursuant to this Section 10.1(e) shall be made if, and only to the extent that, such Member would have a Capital Account deficit in excess of such sum after all other allocations provided for in this Section 10 have been tentatively made as if this Section 10.1(e) were not in this Agreement. As among Members having such excess, if there are not sufficient items of income and gain to eliminate all such excesses, such allocations shall be made in proportion to the amount of any such excess. -11- (f) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or other period (not including any Partner Nonrecourse Deductions allocated pursuant to Section 10.1(g)) shall be allocated among the Members equally. Solely for purposes of determining each Member's proportionate share of the "excess nonrecourse liabilities" of the Company, within the meaning of Regulations (S) 1.752-3(a)(3), each Member's interest in Company profits shall be equal. The items of losses, deductions, and Code (S) 705(a)(2)(b) expenditures to be so allocated shall be determined in accordance with Regulations (S) 1.704-2(j)(1)(ii). (g) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for any fiscal year or other period shall be allocated to the Member who bears the economic risk of loss with respect to the nonrecourse liability (as determined and defined under Regulations (S) 1.704-2(b)(4)) to which such Partner Nonrecourse Deductions are attributable, in accordance with Regulations (S) 1.704-2(i)(1). The items of losses, deductions, and Code (S) 705(a)(2)(b) expenditures to be so allocated shall be determined in accordance with Regulations (S) 1.704-2(j)(1)(ii). (h) Basis Adjustment. To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to either of Code (S)(S) 734(b) or 743(b) is required pursuant to Regulations (S) 1.704-1(b)(2)(iv)(m) to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Regulations. 10.2 Curative Allocations. The allocations set forth in Section 10.1 are intended to comply with certain requirements of Regulations (S)(S) 1.704-1(b) and 1.704-2 and shall be interpreted consistently therewith. Such allocations may not be consistent with the manner in which the Members intend to divide Company distributions and to make Profit and Loss allocations. Accordingly, by the approval of the Board, other allocations of Profits, Losses, and items thereof shall be made among the Members so as to prevent the allocations in Section 10.1 from distorting the manner in which Company distributions will be made among the Members pursuant to Sections 6.1 and 6.2 hereof. In general, the Members anticipate that this will be accomplished by specially allocating other Profits, Losses, and items of income, gain, loss, and deduction among the Members so that the net amount of allocations under Section 10.1, and allocations under this Section 10.2, to each such Member is zero. However, the Board shall have discretion to accomplish this result in any reasonable manner. 10.3 Tax Allocations and Book Allocations. Except as otherwise provided in this Section 10.3, for federal income tax purposes, each item of income, gain, loss, and deduction shall, to the extent appropriate, be allocated among the Members in the same manner as its correlative item of "book" income, gain, loss, or deduction has been allocated pursuant to the other provisions of this Agreement. In accordance with Code (S) 704(c) and the Regulations thereunder, depreciation, amortization, gain, and loss, as determined for tax purposes, with respect to any property whose Book Value differs from its adjusted basis for federal income tax purposes shall, for tax purposes, be allocated among the Members so as to take account of any variation between the -12- adjusted basis of such property to the Company for federal income tax purposes and its Book Value, such allocation to be made by the Board in any manner which is permissible under said Code (S) 704(c) and the Regulations thereunder, and the Regulations under Code (S) 704(b). In the event the Book Value of any property of the Company is subsequently adjusted, subsequent allocations of income, gain, loss, and deduction with respect to any such property shall take into account any variation between the adjusted basis of such property for federal income tax purposes and its Book Value in the manner provided under Code (S) 704(c) and the Regulations thereunder. Allocations pursuant to this Section 10.3 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement. 10.4 General Allocation and Distribution Rules. (a) For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Board using any permissible method under Code (S) 706 and the Regulations thereunder. Except as otherwise provided in this Agreement, all items of income, gain, loss, and deduction shall be allocable among the Members in the same proportions as the Profits or Losses are allocated for the fiscal year in which such item is included. (b) Upon the admission of a new Member or the Transfer of an Interest, the new and old Members or the transferor and transferee shall be allocated shares of Profits and Losses and other allocations and shall receive distributions, if any, based on the portion of the fiscal year that the new or transferred Interest was held by the new and old Members, or the transferor and transferee, respectively. For the purpose of allocating Profits and Losses and other allocations and distributions, (i) such admission or Transfer shall be deemed to have occurred on the first day of the month in which it occurs, or if such date shall not be permitted for allocation purposes under the Code or the Regulations, on the nearest date otherwise permitted under the Code or the Regulations, and (ii) if required by the Code or the Regulations, the Company shall close its books on an interim basis on the last day of the previous calendar month. 10.5 Tax Withholding. If the Company incurs a withholding tax obligation with respect to the share of income allocated to any Member, (a) any amount which is (i) actually withheld from a distribution that would otherwise have been made to such Member and (ii) paid over in satisfaction of such withholding tax obligation shall be treated for all purposes under this Agreement as if such amount had been distributed to such Member, and (b) any amount which is so paid over by the Company, but which exceeds the amount, if any, actually withheld from a distribution which would otherwise have been made to such Member, shall be treated as an interest-free advance to such Member. Amounts treated as advanced to any Member pursuant to this Section 10.5 shall be repaid by such Member to the Company within 30 days after the Board gives notice to such Member making demand therefor. Any amounts so advanced and not timely repaid shall bear interest, commencing on the expiration of said 30 day period, compounded monthly on unpaid balances, at an annual rate equal to the Applicable Federal Rate as of such -13- expiration date. The Company shall collect any unpaid amounts from any Company distributions that would otherwise be made to such Member. 11. NON-COMPETITION. While a Member holds an Interest in the Company and, except for the non-breaching Member if the Company is dissolved pursuant to Sections 9.2(e), 9.2(f), 9.2(g) or 9.2(h), for one year thereafter, such Member and its Affiliates shall not engage or become interested, directly or indirectly, in the operation, management or supervision of any type of business or enterprise that at any time during such period manufactures, markets or sells a non-prescription product containing Type II collagen for the treatment of arthritic conditions; provided, however, that nothing contained in this Section 11 shall be deemed to prohibit any Member or its Affiliates from performing contract manufacturing activities for unrelated parties not involving a non-prescription product containing Type II collagen for the treatment of arthritic conditions. Notwithstanding the foregoing to the contrary, a Member may otherwise own shares in a publicly-traded corporation or publicly-traded mutual fund or publicly-traded limited partnership in which such Member's aggregate ownership interest is one percent (1%) or le(S) The geographic scope of the limitations set forth in this Section 11 is worldwide. Notwithstanding the foregoing, the provisions of this Section 11 shall not apply (a) to the non-breaching Member if the Company is dissolved pursuant to Sections 9.1(e), (f), (g) or (h) and to that Member's Affiliates and (b) to AI if Deseret terminates the Manufacturing, Sales and Marketing Agreement pursuant to Section 9.2.3 thereof. In the event the Company is dissolved, the rights and obligations set forth in this Section 11 shall be assigned to the Members. If any restriction set forth in this Section 11 is found by a court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or is too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area for which it may be enforceable. Each Member acknowledges that any breach of this Section 11 will result in irreparable harm to the Company for which an adequate remedy at law does not exist. Accordingly, each Member agrees that the Company, in addition to any other available rights and remedies it may have, shall be entitled to receive injunctive or other equitable relief, without the necessity of posting a bond, for any breach of this Section 11. 12. REPRESENTATIONS AND WARRANTIES. 12.1 AI. AI hereby represents and warrants to Deseret and the Company as follows: (a) AI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full corporate power and authority to own, lease and operate its properties and to carry on the business conducted by it and the transactions contemplated hereby. (b) The execution and delivery by AI of this Agreement and of the agreements to be executed and delivered by it pursuant hereto, and the performance by it of its obligations hereunder and thereunder, have been duly and validly authorized by all necessary corporate action on the part of AI, and AI has all necessary corporate power with respect thereto. This -14- Agreement and all of the aforementioned agreements are the valid and binding obligations of AI enforceable against it in accordance with their respective terms. Neither the execution and delivery by AI of this Agreement or any of the aforementioned agreements, nor the consummation of the transactions contemplated hereby or thereby, nor the performance by it of its obligations hereunder or thereunder, will (nor with the giving of notice or the lapse of time or both would) (i) conflict with or result in a breach of any provision of the charter or by-laws of AI, or (ii) conflict with, give rise to a default, or any right of termination, cancellation or acceleration, or otherwise result in a loss of contractual benefits to AI under any of the terms, conditions or provisions of, any note, bond, mortgage indenture, license, agreement or other instrument or obligation to which AI is bound, or (iii) violate any order, writ, injunction, decree, law, statute, rule or regulation applicable to AI, or (iv) result in the creation or imposition of any lien, claim, restriction, charge or encumbrance upon any of AI's assets or (v) interfere with or otherwise adversely affect the ability of AI to carry on the activities contemplated by this Agreement. (c) Neither Deseret nor the Company shall have any liability for any financial advisory fee, brokerage commission, finder's fee, or other like payment in connection with any of the transactions contemplated hereby by reason of actions taken by AI. (d) AI has obtained and there remains in effect all third party, governmental and administrative consents, permits, appointments, approvals, licenses, certificates and franchises necessary for the performance by AI of its proposed activities contemplated under this Agreement. 12.2 Deseret. Deseret hereby represents and warrants to AI and the Company as follows: (a) Deseret is a corporation duly organized, validly existing and in good standing under the laws of Utah, with full corporate power and authority to own, lease and operate its properties and to carry on the business conducted by it and the transactions contemplated hereby. (b) The execution and delivery by Deseret of this Agreement and the agreements to be executed and delivered by it pursuant hereto, and the performance by it of its obligations hereunder and thereunder, have been duly and validly authorized by all necessary corporate action on the part of Deseret, and Deseret has all necessary corporate power with respect thereto. This Agreement and all of the aforementioned agreements are the valid and binding obligations of Deseret enforceable against it in accordance with their respective terms. Neither the execution and delivery by Deseret of this Agreement or any of the aforementioned agreements, nor the consummation of the transactions contemplated hereby or thereby, nor the performance by it of its obligations hereunder or thereunder, will (nor with the giving of notice or the lapse of time or both would) (i) conflict with or result in a breach of any provision of the charter or by-laws of Deseret, or (ii) conflict with, give rise to a default, or any right of termination, cancellation or acceleration, or otherwise result in a loss of contractual benefits to Deseret under any of the terms, conditions or provisions of, any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which Deseret is bound, or (iii) violate any order, writ, injunction, decree, law, statute, rule or regulation applicable to Deseret, or (iv) result in the creation or imposition of any lien, claim, restriction, charge or encumbrance upon -15- any of Deseret's assets or (v) interfere with or otherwise adversely affect the ability of Deseret to carry on the activities contemplated by this Agreement. (c) Neither AI nor the Company shall have any liability for any financial advisory fee, brokerage commission, finder's fee, or other like payment in connection with any of the transactions contemplated hereby by reason of actions taken by Deseret. (d) Deseret has obtained and there remain in effect all third party governmental and administrative consents, permits, appointments, approvals, licenses, certificates and franchises necessary for the performance by Deseret of its proposed activities contemplated under this Agreement. 13. GENERAL PROVISIONS. 13.1 Notices. Any and all notices under this Agreement shall be effective (a) upon delivery, if delivered in hand, (b) on the third business day after being sent by registered or certified mail, return receipt requested, postage prepaid, or (c) on the first business day after being sent by commercial overnight delivery service providing a receipt for delivery. All such notices in order to be effective shall be in writing and addressed, if to the Company, at its registered office under the Act and, if to a Member, at the last address of record on the Company books. Copies of such notices shall also be sent to the last address for the recipient which is known to the sender, if different from the address so specified. 13.2 Word Meanings. Words such as "herein," "hereinafter," "hereof," and "hereunder" refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. The singular shall include the plural, and the masculine gender shall include the feminine and neuter, and vice versa, unless the context otherwise requires. 13.3 Binding Provisions. Subject to the restrictions on transfer set forth herein, the covenants and agreements contained herein shall be binding upon, and inure to the benefit of, the parties hereto, their heirs, Legal Representatives, and permitted successors and assigns, and any other Person who is issued or who is otherwise acquires any Interest at any time. 13.4 Applicable Law. This Agreement, including its existence, validity, construction, and operating effect, and the rights of each of the parties hereto, shall be governed by and construed in accordance with the laws of the State of Delaware without regard to otherwise governing principles of conflicts of law. 13.5 Counterparts. This Agreement may be executed in several counterparts and, as so executed, shall constitute one agreement binding on all parties hereto, notwithstanding that all of the parties have not signed the original or the same counterpart. 13.6 Separability of Provisions. Each provision of this Agreement shall be considered separable. If, for any reason, any provision or provisions herein are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Agreement which are valid, and if for any reason any provision or -16- provisions herein would cause the Members to be liable for or bound by the obligations of the Company, such provision or provisions shall be deemed void and of no effect. 13.7 Section Titles. Section titles are for descriptive purposes only and shall not control or alter the meaning of this Agreement as set forth in the text. 13.8 Amendments. Except as otherwise specifically provided herein, including without limitation in Section 8.3(e), this Agreement may be amended or modified only with the approval of the Board and the unanimous consent of the Members. No Member shall have any preemptive, preferential, or other right with respect to the issuance or sale of any Interests, or any warrants, subscriptions, options or other rights with respect thereto. 13.9 Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 13.10 Waiver of Partition. Each Member agrees that irreparable damage would be done to the Company if any Member brought an action in court to dissolve the Company except in accordance with this Agreement. Accordingly, unless otherwise expressly authorized in this Agreement, each Member agrees that it shall not, either directly or indirectly, take any action to require partition or appraisement of the Company or of any of the assets or properties of the Company and, notwithstanding any provisions of this Agreement to the contrary, each Member (and its successors and assigns) accepts the provisions of the Agreement as its sole entitlement on termination, dissolution, and/or liquidation of the Company and hereby irrevocably waives any and all right to maintain any action for partition or to compel any sale or other liquidation with respect to its interest, in or with respect to, any assets or properties of the Company; and each Member agrees that it will not petition a court for the dissolution, termination or liquidation of the Company except to the extent permitted by this Agreement. 13.11 Public Announcements. The Members agree that press releases and other announcements to be made by either of them in relation to this Agreement shall be subject to the written consent of the other party, which consent shall not be unreasonably withheld or delayed, except to the extent otherwise required by law. The parties will agree to issue a joint press release immediately following the execution of this Agreement, the form and content of which shall be reasonably satisfactory to parties. 13.12 Survival of Certain Provisions. The following Sections shall survive the dissolution and termination of the Company: 4.5, 9.4, 11, 12 and 13.12. 14. DEFINITIONS the following defined terms used in this Agreement shall have the meanings specified below: "Act" means the Delaware Limited Liability Company Act, in effect at the time of the initial filing of the Certificate with the office of the Secretary of the State of Delaware, and as thereafter amended from time to time. -17- "Adjusted Capital Account Deficit" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments: (a) credit to such Capital Account any amounts which such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to Regulations (S)(S) 1.704-2(g)(1) and 1.704-2(i)(5); and (b) debit to such Capital Account the items described in Regulations (S) 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition is intended to comply with the provisions of Regulations (S) 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. "Affiliated Person" or "Affiliate" means, with reference to a specified Person any entity or person that directly or indirectly controls, is controlled by or is under common control with such Person. For purposes of this definition, "control" shall mean the possession, directly or indirectly, of 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. "Agreement" means this Operating Agreement as it may be amended, supplemented, or restated from time to time. "AI" means Autoimmune Inc., a Member. "AI Manager" shall have the meaning given in Section 3.1. "Applicable Federal Rate" means the Applicable Federal Rate as that term is defined in Code (S) 7872, whether the short-term, mid-term or long-term rate, as the case may be, as published from time to time by the Secretary of the Treasury. "Board" means the Board of Managers of the Company. "Book Value" means, with respect to any asset of the Company, such asset's adjusted basis for federal income tax purposes, except that: (i) the initial Book Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset (not reduced for any liabilities to which it is subject or which the Company assumes), as such value is determined and for which credit is given to the contributing Member under this Agreement; (ii) the Book Values of all assets of the Company shall be adjusted to equal their respective gross fair market values, as determined by the Board, at and as of the following times: (a) the acquisition of an additional or new Interest by a new or existing Member in exchange for other than a de minimis capital contribution, or in exchange for services by such Member, if the Board reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Members; -18- (b) the distribution by the Company to a Member of more than a de minimis amount of any asset of the Company (including cash or cash equivalents) as consideration for all or any portion of the Member's Interest, if the Board reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Members; (c) the liquidation of the Company within the meaning of Regulations (S) 1.704-1(b)(2)(ii)(g); and (iii) the Book Value of the assets of the Company shall be increased (or decreased) to reflect any adjustment to the adjusted basis of such assets pursuant to Code (S) 734(b) or Code (S) 743(b), but only to the extent such adjustments are taken into account in determining Capital Accounts pursuant to Regulations (S) 1.704-1(b)(2)(iv)(m); provided, however, that Book Value shall not be adjusted pursuant to this clause (iii) to the extent that the Board determines that an adjustment pursuant to clause (ii) hereof is necessary or appropriate in connection with the transaction that would otherwise result in an adjustment pursuant to this clause (iii). If the Book Value of an asset has been determined or adjusted pursuant to the preceding clauses (i), (ii), or (iii), such Book Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses, and the amount of the adjustment shall thereafter be taken into account as gain or loss from the distribution of such asset for purposes of computing Profits or Losses. "Capital Account" of any Member shall mean the Capital Account of such Member referred to in Section 4.1 hereof. "Capital Contribution" means the amount of cash and the value of any other property contributed to the Company by a Member with respect to such Member's Interest, net of liabilities relating to such contributed property that the Company assumes or to which the Company takes subject under Code (S) 752. Any non-cash property shall be valued by agreement of the Board and the contributing Member, which valuation shall be conclusive. "Certificate" means the Certificate of Organization creating the Company, as it may from time to time be amended in accordance with the Act. "Change of Control" shall be deemed to have taken place if (i) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) is or becomes the beneficial owner, directly or indirectly, of securities of a Member representing 50% or more of the combined voting power of the Member's then outstanding securities or (ii) a Member is a party to a reorganization, merger or consolidation with respect to which persons who were shareholders of the Member immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or (iii) a Member liquidates or dissolves or (iv) a Member sells all or substantially all of its assets. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any subsequent federal law of similar import. -19- "Company" means the limited liability company formed pursuant to the Certificate and this Agreement, as it may from time to time be constituted and amended. "Depreciation" means, for each year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable for federal income tax purposes with respect to an asset for such year or other period, except that if the Book Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount that bears the same relationship to the Book Value of such asset as the depreciation, amortization, or other cost recovery deduction computed for tax purposes with respect to such asset for such period bears to the adjusted tax basis for such asset or, if such asset has a zero adjusted tax basis, Depreciation shall be determined with reference to the initial Book Value of such asset using any reasonable method selected by the Board, but not less than depreciation allowable for tax purposes for such year. "Deseret" means Deseret Laboratories, Inc., a Member. "Deseret Manager" shall have the meaning given in Section 3.1. "Interest" means the entire equity interest (or "limited liability company interest" as such term is used in the Act) of a Member in the Company and all rights and liabilities associated therewith, including without limitation rights to distributions (liquidating or otherwise), allocations, information, and rights to consent or approve. "Legal Representative" means, with respect to any individual, a duly appointed executor, administrator, guardian, conservator, personal representative, or other legal representative appointed as a result of the death or incompetency of such individual. "License Agreement" means the License Agreement between AI and the Company of even date herewith. "Losses" shall have the meaning provided below under the heading "Profits and Losses." "Managers" shall refer to the Person(s) named as Managers in this Agreement and any Person who becomes an additional, substitute, or replacement Manager as permitted by this Agreement, in each such Person's capacity as a Manager of the Company. "Manufacturing, Sales and Marketing Agreement" means the Manufacturing, Sales and Marketing Agreement among the Company, AI and Deseret of even date herewith. "Member" shall refer to any Person named as a Member in this Agreement and any Person who becomes an additional, substitute, or replacement Member as permitted by this Agreement, in each such Person's capacity as a Member of the Company; and "Members" shall refer to all such Persons collectively. "Minimum Gain" shall have the meaning given in Regulations (S) 1.704-2(d). "Member Recovery Amount" shall be any amount paid to the Company by a Member or an Affiliate of such Member (a) as damages or otherwise with respect to the breach by such Member or its Affiliate of any obligation owed to the Company or in connection with any -20- agreement by such Member or its Affiliate with the Company and (b) pursuant to any indemnification obligations of such Member or its Affiliate to the Company. "Nonrecourse Deductions" shall have the meaning given in Regulations (S) 1.704-2(b)(1). "Partner Minimum Gain" shall mean an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a nonrecourse liability, determined in accordance with Regulations (S) 1.704-2(i)(3). "Partner Nonrecourse Debt" shall have the meaning given in Regulations (S) 1.704-2(b)(4). "Partner Nonrecourse Deductions" shall have the meaning given in Regulations (S) 1.704-2(i)(2). "Person" means any natural person, partnership (whether general or limited), limited liability company, trust, estate, association, or corporation. "Profits and Losses" means, for each fiscal year or other period, an amount equal to the Company's taxable income or loss for such year or period, determined in accordance with Code (S) 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code (S) 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (i) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this provision shall be added to such taxable income or loss; (ii) Any expenditures of the Company described in Code (S) 705(a)(2)(B) or treated as Code (S) 705(a)(2)(B) expenditures pursuant to Regulations (S) 1.704-l(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this provision, shall be subtracted from such taxable income or loss; (iii) Gain or loss from a disposition of property of the Company with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Book Value of such property, rather than its adjusted tax basis; (iv) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing taxable income or loss, there shall be taken into account the Depreciation on the assets for such fiscal year or other period; and (v) Any items which are separately allocated pursuant to Sections 10.1 and/or 10.2 which otherwise would have been taken into account in calculating Profits and Losses pursuant to the above provisions shall not be taken into account and, as the case may be, shall be added to or deducted from such amounts so as to be not part of the calculation of the Profits or Losses; and -21- (vi) Any income of the Company that is recognized as a result of receiving a Member Recovery Amount shall be excluded from the calculation of the Profits and Losses, and shall be specially allocated in accordance with Section 6.2. If the Company's taxable income or loss for such year, as adjusted in the manner provided above, is a positive amount, such amount shall be the Company's Profits for such year; and if negative, such amount shall be the Company's Losses for such year. "Profits" shall have the meaning provided above under the heading "Profits and Losses." "Regulations" means the Regulations promulgated under the Code, and any successor provisions to such Regulations, as such Regulations may be amended from time to time. "Tax Matters Partner" shall have the meaning given in Section 7.4. "Terminating Capital Transaction" means a sale or other disposition of all or substantially all of the assets of the Company.\ "Trademark Agreement" means the Trademark License Agreement of even date herewith between AI and the Company. "Transfer" and any grammatical variation thereof shall refer to any sale, exchange, issuance, redemption, assignment, distribution, encumbrance, hypothecation, gift, pledge, retirement, resignation, transfer, or other withdrawal, disposition, or alienation in any way as to any interest as a Member. Transfer shall specifically, without limitation of the above, include assignments and distributions resulting from death, incompetency, Bankruptcy, liquidation, and dissolution. The definitions set forth in the Act shall be applicable, to the extent not inconsistent herewith, to define terms not defined herein and to supplement definitions contained herein. * * * -22- IN WITNESS WHEREOF, the parties hereto have executed this Operating Agreement under seal as of the day and year first above written. MANAGERS: MEMBERS: /s/ Robert C. Bishop AUTOIMMUNE INC. - -------------------- By: /s/ Robert C. Bishop -------------------- /s/ Scott A. Gubler Name: Robert C. Bishop - ------------------- Title: Chairman and CEO /s/ Mark H. Gubler DESERET LABORATORIES, INC. - ------------------ By: /s/ Scott A. Gubler ------------------- Name: Scott A. Gubler Title: President, CEO -23- SCHEDULE I TO OPERATING AGREEMENT OF COLLORAL LLC A. MANAGERS Scott A. Gubler Mark H. Gubler Robert C. Bishop, Ph.D. B. TAX MATTERS PARTNER Deseret Laboratories, Inc. C. MEMBERS
- ------------------------------------------------------------------------------------------------------------------ Name, Address Capital Contrib. (cash or Percentage Capital ------- and Tax I.D. No. value of property) Interest Issue Date Account ---------------- ----------------- -------- ---------- ------- - ------------------------------------------------------------------------------------------------------------------ Name: AutoImmune Inc. (a) The License Agreement and Address: 1199 Madia Street the Trademark Agreement 51% Pasadena, CA 91103-1961 pursuant to which AI SSN: 13-238-9062 licenses to the Company certain intellectual property. (b) The machinery and equipment listed on Schedule II, such machinery and equipment is being transferred to the Company "as is" without any representations or warranties whatsoever. - ------------------------------------------------------------------------------------------------------------------ Name: Deseret Laboratories, Inc. $* 49% Address: 1414 East 3850 South St. George, Utah 84790 SSN: 87-047-6826 - ------------------------------------------------------------------------------------------------------------------
-24- EX-10.36 4 dex1036.txt LICENSE AGREEMENT DATED AUGUST 19, 2002 Exhibit 10.36 LICENSE AGREEMENT between AUTOIMMUNE INC. and COLLORAL LLC dated as of August 19, 2002 ARTICLE 1. DEFINITIONS .............................................................. 1 ARTICLE 2. LICENSE GRANT ............................................................ 2 2.1 Grant of License Rights by AutoImmune to Licensee ........................... 2 2.2 Sublicenses ................................................................. 2 2.3 Reserved Rights of the U.S. Government and Brigham & Women's Hospital ....... 2 2.4 Marketing and Distribution Rights and Obligations ........................... 3 2.5 No Other Technology Rights .................................................. 3 ARTICLE 3. INTELLECTUAL PROPERTY .................................................... 3 3.1 Filing, Prosecution and Maintenance of Patent Rights......................... 3 3.1.1 Prosecution and Maintenance .............................................. 3 3.1.2 Abandonment; Failure to Pay .............................................. 3 3.1.3 Cooperation .............................................................. 3 3.2 Infringement by Others ...................................................... 3 3.2.1 Prosecution by AutoImmune ................................................ 3 3.2.2 Prosecution by Licensee .................................................. 4 3.3 Declaratory Actions ......................................................... 4 3.4 Infringement Action Against Licensee ........................................ 4 3.5 Cooperation ................................................................. 5 3.6 Improvements ................................................................ 5 ARTICLE 4. CONFIDENTIALITY .......................................................... 5 4.1 Nondisclosure Obligations ................................................... 5 4.1.1 General .................................................................. 5 4.1.2 Limitations .............................................................. 5 4.2 Terms of this Agreement ..................................................... 6 4.3 Publications ................................................................ 6 4.3.1 Procedure ................................................................ 6 4.3.2 Delay .................................................................... 6 4.3.3 Resolution ............................................................... 7 4.4 Prohibition ................................................................. 7 4.5 Injunctive Relief ........................................................... 7 ARTICLE 5. REPRESENTATIONS AND WARRANTIES ........................................... 7 5.1 Mutual Representations ...................................................... 7 5.1.1 Organization ............................................................. 7 5.1.2 Authorization ............................................................ 7 5.1.3 Binding Agreement ........................................................ 7 5.1.4 No Inconsistent Obligation ............................................... 7 5.2 Limitations ................................................................. 7 5.2.1 Disclaimer of Warranty ................................................... 7 5.2.2 Disclaimer of Certain Damages ............................................ 8 5.2.3 Further Limitations ...................................................... 8 ARTICLE 6. INDEMNITY ................................................................ 8 6.1 Licensee Indemnity Obligations .............................................. 8 6.2 AutoImmune Indemnity Obligations ............................................ 9 6.3 Procedure ................................................................... 9 6.4 Insurance ................................................................... 9 ARTICLE 7. EXPIRATION AND TERMINATION ............................................... 10
7.1 Termination ................................................. 10 7.1.1 Termination by Either Party .............................. 10 7.1.2 Termination by AutoImmune ................................ 10 7.2 Survival .................................................... 10 7.3 Non-Limitation of Rights .................................... 10 ARTICLE 8. MISCELLANEOUS ............................................ 10 8.1 Force Majeure ............................................... 10 8.2 Assignment .................................................. 10 8.3 Severability ................................................ 10 8.4 Notices ..................................................... 11 8.5 Applicable Law .............................................. 11 8.6 Public Announcements ........................................ 11 8.7 Entire Agreement ............................................ 12 8.8 Headings .................................................... 12 8.9 Independent Contractors ..................................... 12 8.10 Exports ..................................................... 12 8.11 Waiver ...................................................... 12 8.12 Counterparts ................................................ 12 8.13 Interpretation .............................................. 12 8.14 Identification of Patent Rights; Patent Marking ............. 13
LICENSE AGREEMENT THIS LICENSE AGREEMENT dated as of August 19, 2002 (the "Agreement") is made between AUTOIMMUNE INC., a Delaware corporation ("AutoImmune"), and COLLORAL LLC, a Delaware limited liability company ("Licensee"). RECITALS 1. AutoImmune is a biopharmaceutical company pursuing the development of therapies for the treatment of inflammatory diseases. AutoImmune's therapeutic approach is based on oral tolerance induction, a method of controlling a variety of immune-related disorders through the use of the body's natural immunosuppressive mechanisms. 2 During the course of its work in the area of inflammatory disease research, AutoImmune has developed certain proprietary technology related to methods and formulations for treating diseases. 3. AutoImmune is interested in licensing this technology for use in the Field (as hereinafter defined) to a third party which can maximize its potential by making, having made and selling products embodying such technology on a worldwide basis. 4. Licensee is interested in obtaining an exclusive, worldwide license to AutoImmune's technology in the Field. 5. AutoImmune is willing to grant such a license upon the terms and conditions set forth below. NOW, THEREFORE, in consideration of the premises and of the covenants herein contained, the parties hereto mutually agree as follows: ARTICLE 1. DEFINITIONS 1.1 "Affiliate" shall mean any corporation or other entity which directly or indirectly controls, is controlled by or is under common control with a party to this Agreement. A corporation or other entity shall be regarded as in control of another corporation or entity if it owns or directly or indirectly controls more than fifty (50%) of the voting stock or other ownership interest of the other corporation or entity, or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation or other entity or the power to elect or appoint fifty percent (50%) or more of the members of the governing body of the corporation or other entity. 1.2 "Effective Date" shall mean the date first written above. 1.3 "Field" shall mean the use of Licensed Products as a non-prescription product for the treatment of arthritic conditions. 1.4 "Improvements" shall mean all inventions, whether or not patentable, information, know-how and data of any kind owned or controlled by, or licensed (with the right to sublicense) to, Licensee, at any time during the term of this Agreement for use in connection with the development, manufacture or use of Licensed Products. 1.5 "Licensed Products" shall mean any product, or any method of making or using such a product, which, but for the license granted herein, would be within a Valid Claim of a pending patent application included in the Patent Rights or which would infringe a Valid Claim of a pending patents application or an issued patent included in the Patent Rights. 1.6 "Patent Rights" shall mean the United States and foreign patent applications and/or issued patents set forth in Exhibit A hereto; any division, continuation or continuation-in-part of any such applications; any foreign patent applications corresponding to any such patent applications; and any U.S. or foreign patents or the equivalent thereof issuing thereon or any reissue or extension thereof. 1.7 "Technical Information" shall mean information, data and knowledge currently in AutoImmune's possession and as to which AutoImmune has the right to grant licenses in the Field relating to manufacturing procedures for Licensed Products in the Field. 1.8 "Third Party" shall mean any entity other than AutoImmune or Licensee. 1.9 "Valid Claim" shall mean either (a) a claim of an issued and unexpired patent which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been declared to be invalid or unenforceable through reissue or disclaimer or otherwise or (b) a claim of a pending patent application which claim was filed in good faith and has not been abandoned or finally rejected without the possibility of appeal or refiling of said application. ARTICLE 2. LICENSE GRANT 2.1 Grant of License Rights by AutoImmune to Licensee. Subject to the provisions of Section 2.3, AutoImmune hereby grants to Licensee the exclusive worldwide royalty-free right and license under the Patent Rights and a non-exclusive worldwide royalty-free right and license under the Technical Information to use, manufacture, have manufactured, import, offer for sale and sell the Licensed Products for use in the Field. 2.2 Sublicenses. Licensee shall have the right to grant sublicenses under the Patent Rights with the prior written consent of AutoImmune. A copy of each sublicense granted by Licensee under this Agreement shall be furnished to AutoImmune promptly after execution thereof. Any such sublicense shall conform to the terms hereof, and Licensee shall be responsible for the performance by its sublicensees of all obligations imposed under the terms of this Agreement. 2.3 Reserved Rights of the U.S. Government and Brigham & Women's Hospital. Licensee acknowledges that the license granted herein is subject to any rights of the United States Government under 35 U.S.C.ss.ss.200-212 and a license retained by the Brigham & 2 Women's Hospital to use technology developed at the institution for its own internal research purposes. 2.4 Marketing and Distribution Rights and Obligations. Licensee shall have the exclusive worldwide right under the Patent Rights to market and distribute the Licensed Products. Licensee agrees, at its own expense, to use diligent efforts to market the Licensed Products to obtain maximum sales of the Licensed Products. 2.5 No Other Technology Rights. Except as otherwise expressly provided in this Agreement, under no circumstances shall a party hereto, as a result of this Agreement, obtain any ownership interest in or other right to any technology, know-how, patents, pending patent applications, products or biological materials of the other party, including items owned, controlled or developed by the other party, or transferred by the other party to said party, at any time pursuant to this Agreement. ARTICLE 3. INTELLECTUAL PROPERTY 3.1 Filing, Prosecution and Maintenance of Patent Rights. 3.1.1 Prosecution and Maintenance. AutoImmune shall be responsible at its expense for the filing, prosecution and maintenance of the Patent Rights in its own name, keeping Licensee informed. 3.1.2 Abandonment; Failure to Pay. AutoImmune agrees that it will not abandon the prosecution of any patent applications included within the Patent Rights nor shall it fail to make any payment or fail to take any other action necessary to maintain a patent under the Patent Rights unless it has notified Licensee in sufficient time for Licensee to assume such prosecution or make such payment. If AutoImmune elects not to continue to seek or maintain patent protection on any patent or patent application included in the Patent Rights, subject to any rights of Third Parties granted prior to the Effective Date, Licensee shall have the right, at its option and expense, but in the name of AutoImmune, to prepare, file, prosecute (including oppositions) and maintain such patent applications and patents; provided, however, that the rights of the parties with respect to any such Patent Rights in all other respects shall be as described in this Agreement. 3.1.3 Cooperation. Each party shall make available to the other party (or to the other party's authorized attorneys, agents or representatives), its employees, agents or consultants to the extent reasonably necessary or appropriate to enable the appropriate party to file, prosecute and maintain patent applications and resulting patents as set forth in this Section 3.1 for periods of time reasonably sufficient for such party to obtain the assistance it needs from such personnel. Where appropriate, each party shall sign or cause to have signed all documents relating to said patent applications or patents at no charge to the other party. 3.2 Infringement by Others. 3.2.1 Prosecution by AutoImmune. AutoImmune and Licensee shall each promptly notify the other in writing of any alleged or threatened infringement of patents 3 or patent applications included in the Patent Rights licensed hereunder to Licensee of which they become aware, and the parties shall consult with one another concerning the action to be taken. AutoImmune shall have the right, but not the obligation, to prosecute at its own expense any such infringement. After repayment to AutoImmune of all of its costs and expenses, any recovery or damages derived from such action shall be shared equally by AutoImmune and Licensee. 3.2.2 Prosecution by Licensee. If, within sixty (60) days after AutoImmune first becomes aware of any infringement of the Patent Rights, AutoImmune declines to prosecute such infringement or fails to cause such infringement to terminate or to bring or diligently prosecute a suit or action to compel termination, Licensee shall have the right, but not the obligation, subject to any rights of Third Parties granted prior to the Effective Date, to bring such suit or action to compel termination at the sole expense of Licensee. In such event, Licensee shall have the right, if AutoImmune is a legally indispensable party, to bring such suit or action in the name of AutoImmune. AutoImmune shall have the right to join any such suit or action brought by Licensee at AutoImmune's expense. Any recovery or damages derived from such action shall first be used to reimburse the parties for all legal expenses relating to the suit and thereafter shall belong entirely to the Licensee if the infringement involves a nutraceutical product, otherwise entirely to AutoImmune No settlement, consent, judgment or other voluntary final disposition of the suit may be entered into without the consent of AutoImmune, which consent shall not unreasonably be withheld. 3.3 Declaratory Actions. In the event that a declaratory judgment action alleging invalidity or non-infringement of any of the Patent Rights shall be brought against Licensee, Licensee shall promptly notify AutoImmune in writing, and the parties shall consult concerning the action to be taken. AutoImmune, at its sole option, shall have the right, within thirty (30) days after commencement of such action, to intervene, take over and duly prosecute the sole defense of the action at its own expense. Licensee shall have no obligation to defend any such action, but Licensee shall have the right, at its own expense, subject to any rights of Third Parties granted prior to the Effective Date, to join in the defense of any such suit or action or to defend any such action if AutoImmune has decided not to do so within thirty (30) days after commencement of such action. 3.4 Infringement Action Against Licensee. In the event that a suit or action is brought against Licensee alleging infringement of any third-party patent right as a result of the exercise of Licensee's rights under Section 2.1, Licensee shall have the exclusive right to defend such suit or action at its sole expense. AutoImmune will confer with and assist Licensee, at AutoImmune's expense, in the conduct or settlement of such defense. AutoImmune shall have the right to be represented in such suit or action by advisory counsel at its expense. Licensee shall not have the right to settle any such suit or action without the prior written consent of AutoImmune if as a result of such settlement AutoImmune would be obligated to make any payment, assume any obligation, part with any property or interest therein, be subject to any injunction or order, grant any license or other right under the Patent Rights, or acknowledge the invalidity of any of the Patent Rights. Any recovery or damages obtained by Licensee in relation to any counterclaim or the like filed by Licensee in such suit shall be applied first in satisfaction 4 of any expenses and legal fees of Licensee relating to the suit. Any recovery or damages still remaining shall belong entirely to the Licensee. 3.5 Cooperation. In any infringement suit either party may institute to enforce or defend the Patent Rights or in which either party defends claims of infringement of third-party patents pursuant to this Agreement or in any declaratory judgment action defended by a party, the other party shall, at the request of the party initiating or defending such suit, cooperate at its expense in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples and the like. 3.6 Improvements. Licensee hereby grants to AutoImmune a non-exclusive, worldwide, royalty-free license, including the right to sublicense, to all Improvements for any purpose. In the event this Agreement is terminated, AutoImmune shall retain such license. ARTICLE 4. CONFIDENTIALITY 4.1 Nondisclosure Obligations. 4.1.1 General. Except as otherwise provided in this Article 4, during the term of this Agreement and for a period of five (5) years thereafter, both parties shall maintain in confidence and use only for purposes specifically authorized under this Agreement (i) information and data received from the other party resulting from or related to the development of the Licensed Products and (ii) all information and data not described in clause (i) but supplied by the other party under this Agreement. For purposes of this Article 4, information and data described in clause (i) or (ii) shall be referred to as "Information". 4.1.2 Limitations. To the extent it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement, a party may disclose to its Affiliates, actual or potential, sublicensees, consultants, outside contractors, and clinical investigators, Information it is otherwise obligated under this Section 4.1 not to disclose on a need-to-know basis on condition that such entities or persons agree in writing to keep the Information confidential for the same time periods and to the same extent as such party is required to keep the Information confidential; and a party or its sublicensees may disclose such Information to government or other regulatory authorities to the extent that such disclosure is reasonably necessary to obtain patents or authorizations to conduct clinical trials of, and to commercially market, the Licensed Products. The obligation not to disclose Information shall not apply to any part of such Information that: (i) is or becomes part of the public domain other than by unauthorized acts of the party obligated not to disclose such Information or its Affiliates or sublicensees; (ii) can be shown by written documents to have been disclosed to the receiving party or its Affiliates or sublicensees by a Third Party, provided such Information was not obtained by such Third Party directly or indirectly from the other party pursuant to a confidentiality agreement; (iii) prior to disclosure under this Agreement, was already in the possession of the receiving party or its Affiliates or sublicensees, provided such Information was not obtained directly or indirectly from the other party pursuant to a confidentiality agreement; (iv) can be shown by written 5 documents to have been independently developed by the receiving party or its Affiliates without breach of any of the provisions of this Agreement; or (v) is disclosed by the receiving party pursuant to interrogatories, requests for information or documents, subpoena, civil investigative demand issued by a court or governmental agency or as otherwise required by law, provided that the receiving party notifies the other party immediately upon receipt thereof and provided further that the receiving party furnishes only that portion of the Information which it is advised by counsel is legally required and as to which confidential treatment is requested. 4.2 Terms of this Agreement. Except as provided in Section 8.6 hereof, AutoImmune and Licensee each agree not to disclose any terms or conditions of this Agreement to any Third Party without the prior consent of the other party, except as required by applicable law or pursuant to a confidentiality agreement no less restrictive than this Article 4. If either party determines that it is required to file with the Securities and Exchange Commission or other governmental agency this Agreement for any reason, such party shall request confidential treatment of such portions of this Agreement as it and the other party shall together determine. Notwithstanding the foregoing, prior to execution of this Agreement, AutoImmune and Licensee shall agree upon the substance of information that can be used as a routine reference in the usual course of business to describe the terms of this transaction, and AutoImmune and Licensee may disclose such information, as modified by mutual agreement from time to time, without the other party's consent. 4.3 Publications. 4.3.1 Procedure. Each party recognizes the mutual interest in obtaining patent protection for inventions which arise under this Agreement. In the event that either party, its employees or consultants or any other Third Party under contract to such party wishes to make a publication (including any oral disclosure made without obligation of confidentiality) relating to this Agreement (the "Publishing Party"), such party shall transmit to the other party (the "Reviewing Party") a copy of the proposed written publication at least thirty (30) days prior to submission for publication, or an abstract of such oral disclosure at least thirty (30) days prior to submission of the abstract or the oral disclosure, whichever is earlier. The Reviewing Party shall have the right (a) to propose modifications to the publication for patent reasons, (b) to request a delay in publication or presentation in order to protect patentable information, or (c) to request that the information be maintained as a trade secret and, in such case, the Publishing Party shall not make such publication. If no request for delay is made by the Reviewing Party pursuant to (b) hereinabove, then the proposed publication may be submitted for publication. 4.3.2 Delay. If the Reviewing Party requests a delay as described in Section 4.3.1(b), the Publishing Party shall delay submission or presentation of the publication for a period of ninety (90) days to enable patent applications protecting each party's rights in such information to be filed. 6 4.3.3 Resolution. Upon either compliance with the provisions of Section 4.3.1 or the receipt of written approval of the Reviewing Party, the Publishing Party may proceed with the written publication or the oral presentation. 4.4 Prohibition. The use by Licensee, its Affiliates and sublicensees of the names "Brigham & Women's Hospital" and "Harvard Medical School" or any other academic or governmental installation wherein any of the Patent Rights or Technical Information has originated in connection with the licensure, marketing or sale of Licensed Products is expressly prohibited. 4.5 Injunctive Relief. The parties hereto understand and agree that remedies at law may be inadequate to protect against any breach of any provisions of this Article 4 by either party or their employees, agent, officers or directors or any other person acting in concert with it or on its behalf. Accordingly, each party shall be entitled to the granting of injunctive relief by a court of competent jurisdiction against any action that constitutes any such breach of this Article 4, without any requirement to post a bond. ARTICLE 5. REPRESENTATIONS AND WARRANTIES 5.1 Mutual Representations. AutoImmune and Licensee each represent and warrant to the other as follows: 5.1.1 Organization. It is a corporation (in the case of AutoImmune) or a limited liability company (in the case of Licensee) duly organized, validly existing and is in good standing under the laws of Delaware and has all requisite power and authority, corporate or otherwise, to execute, deliver and perform this Agreement. 5.1.2 Authorization. The execution, delivery and performance by it of this Agreement has been duly authorized by all necessary action and does not violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to it or any provision of its charter documents or any agreement or other instrument or obligation to which it is bound or its assets are subject. 5.1.3 Binding Agreement. This Agreement is a legal, valid and binding obligation of it enforceable against it in accordance with its terms and conditions. 5.1.4 No Inconsistent Obligation. Except as provided in Section 2.3, it is not under any obligation to any person, or entity, contractual or otherwise, that is conflicting or inconsistent in any respect with the terms of this Agreement or that would impede the diligent and complete fulfillment of its obligations. 5.2 Limitations. 5.2.1 Disclaimer of Warranty. Except as provided in Section 5.1, the rights granted by AutoImmune herein are provided WITHOUT REPRESENTATION OR WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY OR REPRESENTATION, EXPRESS OR 7 IMPLIED. AUTOIMMUNE MAKES NO REPRESENTATION OR WARRANTY THAT EXERCISE OF THE RIGHTS GRANTED IN THIS AGREEMENT WILL NOT INFRINGE A PATENT OR OTHER PROPRIETARY RIGHT OF ANY THIRD-PARTY. AUTOIMMUNE ASSUMES NO RESPONSIBILITY WHATSOEVER WITH RESPECT TO THE PATENT RIGHTS OR TECHNICAL INFORMATION, OR THE USE THEREOF, OR THE MERCHANTABILITY, FITNESS OR QUALITY OF THE INFORMATION CONTAINED IN THE PATENT RIGHTS OR THE TECHNICAL INFORMATION, OR THE PRACTICE OF THE INVENTIONS CONTAINED THEREIN OR THE USE THEREOF, OR THE MANUFACTURE, POSSESSION, USE, MARKETING, SALE OR OTHER DISPOSITION, BY LICENSEE OR ANYONE ELSE, OF LICENSED PRODUCT(S). Without limitation of the generality of this Section, nothing contained herein or in the Patents Rights of Technical Information shall be construed as extending any representation or warranty with respect to any of the foregoing or the results to be obtained thereby. 5.2.2 Disclaimer of Certain Damages. IN NO EVENT WILL AUTOIMMUNE BE LIABLE TO LICENSEE OR ANY OTHER PARTY, REGARDLESS OF THE CAUSE OR THEORY OF ACTION (WHETHER CONTRACT, TORT INCLUDING WITHOUT LIMITATION STRICT LIABILITY AND NEGLIGENCE, OR OTHERWISE) FOR ANY INCIDENTAL, SPECIAL, PUNITIVE, CONSEQUENTIAL OR OTHER EXTRAORDINARY DAMAGES RESULTING FROM OR ARISING UNDER THIS AGREEMENT INCLUDING WITHOUT LIMITATION THE EXERCISE OF THE RIGHTS GRANTED IN THIS AGREEMENT, THE USE OF PATENT RIGHTS OR TECHNICAL INFORMATION, OR THE MANUFACTURE, SALE OR USE OF LICENSED PRODUCTS. 5.2.3 Further Limitations. Nothing in this Agreement shall be construed as: (a) a warranty or representation by AutoImmune as to the validity or scope of any Patent Rights; or (b) a warranty or representation that anything made, used, sold or otherwise disposed of under the rights granted in this Agreement is or will be free from infringement of a third-party patent or other proprietary right; or (c) a warranty or representation that any of the Technical Information has not been, or may not hereafter be, developed independently by a Third Party; or (d) conferring by implication, estoppel or otherwise any license or other right under patents or technology of AutoImmune. ARTICLE 6. INDEMNITY 6.1 Licensee Indemnity Obligations. Licensee agrees to defend, indemnify and hold AutoImmune, its Affiliates and their respective directors, officers, employees and agents harmless against any and all claims, suits, losses, judgments, liabilities, damages, costs and fees (including but not limited to reasonable attorneys' fees) and expenses resulting from or arising 8 out of (a) the breach by Licensee of its representations and warranties in Article 5 or any other breach of this Agreement; (b) actual or asserted violations of any applicable law or regulation by Licensee, its Affiliates or sublicensees by virtue of which the Licensed Products manufactured, distributed or sold shall be alleged or determined to be adulterated, misbranded, mislabeled or otherwise not in compliance with such applicable law or regulation; (c) claims for personal injury, death, property damage, or monetary loss attributable to the manufacture, distribution, sale or use of the Licensed Products by Licensee, its Affiliates or sublicensees; or (d) a recall ordered by a governmental agency, or required by a confirmed failure, of Licensed Products manufactured, distributed, or sold by Licensee, its Affiliates or sublicensees. 6.2 AutoImmune Indemnity Obligations. AutoImmune agrees to defend, indemnify and hold Licensee, its Affiliates and their respective directors, officers, employees and agents harmless against any and all claims, suits, losses, judgments, liabilities, damages, costs, fees (including but not limited to reasonable attorneys' fees) and expenses resulting from or arising out of the breach by AutoImmune of its representations and warranties in Article 5 or any other breach of this Agreement. 6.3 Procedure. A party or any of its Affiliates or their respective employees or agents (the "Indemnitee") that intends to claim indemnification under this Article 6 shall promptly notify the other party (the "Indemnitor") of any loss, claim, damage, liability or action in respect of which the Indemnitee intends to claim such indemnification, and the Indemnitor shall assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between the Indemnitee and the Indemnitor. The indemnity agreement in this Article 6 shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld unreasonably. The failure to deliver notice to the Indemnitor within a reasonable time after the commencement of any such action shall not relieve the Indemnitor of any liability to the Indemnitee under this Article 6. The Indemnitee and its employees and agents shall cooperate fully with the Indemnitor and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. In the event that an Indemnitee claims indemnity from the Indemnitor and the Indemnitor is finally held liable to indemnify the Indemnitee, the Indemnitor shall additionally be liable to pay the reasonable legal costs and attorneys' fees incurred by the Indemnitee in establishing its claim for indemnity. If either counsel for Licensee or counsel for AutoImmune represents both Licensee and AutoImmune in any action to be indemnified under this Article 6 or in any action under Article 3, the parties agree that they will not use that representation to disqualify that counsel in unrelated matters. 6.4 Insurance. Licensee shall maintain appropriate product liability insurance with financially responsible insurance carriers naming AutoImmune as an additional insured with respect to development, manufacture and sales of the Licensed Products by Licensee in such amount as Licensee customarily maintains with respect to sales of its other products. Licensee shall maintain such insurance naming AutoImmune as an additional insured for so long as it continues to develop, manufacture or sell the Licensed Products, and thereafter for so long as Licensee maintains insurance for itself covering such manufacture or sales. 9 ARTICLE 7. EXPIRATION AND TERMINATION 7.1 Termination. 7.1.1 Termination by Either Party. Subject to the provisions of Section 7.1.2, this Agreement may be terminated by either party upon written notice to the other party (i) by reason of a material breach if the breaching party fails to remedy such breach within ninety (90) days after written notice thereof by the non-breaching party or (ii) upon bankruptcy, insolvency, dissolution, liquidation or winding up of the other party. 7.1.2 Termination by AutoImmune. This Agreement may be terminated by AutoImmune by written notice to Licensee if Licensee ceases business operations. 7.2 Survival. The provisions of Articles 3, 4, 5 and 6 and Sections 7.3, 8.1 and this Section 7.2 shall survive the expiration or termination of this Agreement. 7.3 Non-Limitation of Rights. Termination of this Agreement pursuant to Section 7.1 shall not be exclusive or prejudicial to any other rights or remedies of the non-defaulting party on account of the defaulting party's breach or default under this Agreement. ARTICLE 8. MISCELLANEOUS 8.1 Force Majeure. Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or be in breach of this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected party, including but not limited to fire, floods, embargoes, war, acts of war (whether war is declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, act of God or acts, omissions or delays in acting by any governmental authority or the other party; provided, however, that the party so affected shall use reasonable commercial efforts to avoid or remove such causes of nonperformance, and shall continue performance hereunder with reasonable dispatch whenever such causes are removed. Either party shall provide the other party with prompt written notice of any delay or failure to perform that occurs by reason of force majeure. The parties shall mutually seek a resolution of the delay or the failure to perform as noted above. 8.2 Assignment. This Agreement may not be assigned or otherwise transferred by Licensee without the prior written consent of AutoImmune. Any purported assignment in violation of the preceding sentence shall be void. 8.3 Severability. Each party hereby agrees that it does not intend to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries. Should one or more provisions of this Agreement be or become invalid, the parties hereto shall substitute, by mutual consent, valid provisions for such invalid provisions which valid provisions in their economic effect are sufficiently similar to the invalid provisions that it can be reasonably assumed that the parties would have entered into this Agreement with such valid provisions. In case such valid provisions cannot be agreed upon, the invalidity of one or several provisions of this Agreement shall not affect the validity of this Agreement as a whole, unless the invalid 10 provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the parties would not have entered into this Agreement without the invalid provisions. 8.4 Notices. Any consent, notice or report required or permitted to be given or made under this Agreement by one of the parties hereto to the other shall be in writing, delivered personally or by facsimile (and promptly confirmed by telephone, personal delivery or courier) or courier, postage prepaid (where applicable), addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and shall be effective upon receipt by the addressee. If to AutoImmune: AutoImmune Inc. 1199 Madia Street Pasadena, CA 91103-1961 Attn: Robert C. Bishop, Ph.D. Chairman of the Board, President and Chief Executive Officer Telephone: 626 792 1235 Telecopy: 626 792 1236 with a copy to: Nutter, McClennen & Fish, LLP One International Place Boston, MA 02110-2699 Attention: Constantine Alexander, Esq. Telephone: 617 439-2595 Telecopy: 617 310-9597 If to Licensee: Scott A. Gubler or Mark H. Gubler Deseret Laboratories, Inc. 1414 East 3850, South St. George, Utah 84790 Telephone: 435-628-7876 Telecopy: 435-673-1202 8.5 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the choice of laws provisions thereof, provided, however, that the scope, validity and enforceability of patents shall be determined in accordance with the applicable laws of the countries in which such patents have been issued. 8.6 Public Announcements. The parties agree that press releases and other announcements to be made by either of them in relation to this Agreement shall be subject to the 11 written consent of the other party, which consent shall not be unreasonably withheld or delayed, except to the extent otherwise required by law. The parties will agree to issue a joint press release immediately following the execution of this Agreement, the form and content of which shall be reasonably satisfactory to both parties. 8.7 Entire Agreement. This Agreement, together with the Exhibit hereto, contains the entire understanding of the parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly merged in and made a part of this Agreement. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both parties hereto. 8.8 Headings. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Section hereof. 8.9 Independent Contractors. It is expressly agreed that AutoImmune and Licensee shall be independent contractors and that the relationship between the two parties shall not constitute a partnership, joint venture or agency. Neither AutoImmune nor Licensee shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, without the prior consent of the other party to do so. 8.10 Exports. The parties acknowledge that the export of technical data, materials, or products is subject to the exporting party receiving any necessary export licenses and that the parties cannot be responsible for any delays attributable to export controls which are beyond the reasonable control of either party. AutoImmune and Licensee agree not to export or re-export, directly or indirectly, any information, technical data, the direct product of such data, samples or equipment received or generated under this Agreement in violation of any applicable export control laws or governmental regulations. AutoImmune and Licensee agree to obtain similar covenants from their licensees, sublicensees and contractors with respect to the subject matter of this Section 8.10. 8.11 Waiver. The waiver by either party hereto of any right hereunder or the failure to perform or of a breach by the other party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other party whether of a similar nature or otherwise. 8.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.13 Interpretation. The parties acknowledge and agree that: (i) each party and its counsel reviewed and negotiated the terms and provisions of this Agreement and has contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provision of this agreement shall be construed fairly as to all parties hereto and not in favor of or against any party, regardless of which party was generally responsible for the preparation of this Agreement. 12 8.14 Identification of Patent Rights; Patent Marking. Where appropriate, all packaging and documentation for the Licensed Products shall include a notation acknowledging AutoImmune's patent rights in the Licensed Products. Licensee shall mark, and cause its Affiliates and sublicensees to mark, all Licensed Products made, sold or used under this Agreement, or their containers, in accordance with the applicable patent marking laws of each country in which such Licensed Products are to be sold or offered for sale. [Remainder of Page Left Intentionally Blank] 13 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. AUTOIMMUNE INC. COLLORAL LLC By /s/ Robert C. Bishop By /s/ Scott A. Gubler -------------------- ------------------- Robert C. Bishop, Ph.D. Title: Chairman of the Board, Title: Manager Aug 6th 2002 President and Chief Executive Officer 14 EXHIBIT "A"
- ------------------------------------------------------------------------------------------------------------------- Title Country Patent Application Filing Grant Number Number Date Date - ------------------------------------------------------------------------------------------------------------------- Treatment of Autoimmune United 5,869,093 08/328,562 10/24/94 2/9/99 Diseases by Oral States Administration of Autoantigens - ------------------------------------------------------------------------------------------------------------------- Treatment of Autoimmune United 6,019,971 08/463,946 6/5/95 2/1/00 Arthritis by Oral States Administration of Collagen - ------------------------------------------------------------------------------------------------------------------- Treatment of Autoimmune United 5,733,547 08/461,586 6/2/95 3/31/98 Arthritis by Oral States Administration of Type I or Type III Collagen - ------------------------------------------------------------------------------------------------------------------- Treatment of Autoimmune Australia 693232 30409/95 9/1/95 11/5/98 Diseases by Oral Administration of Autoantigens - ------------------------------------------------------------------------------------------------------------------- Treatment of Autoimmune Canada 2,092,905 2,092,905 10/15/91 1/8/02 Diseases by Oral Administration of Autoantigens - ------------------------------------------------------------------------------------------------------------------- Treatment of Autoimmune Norway P931372 10/15/91 Pending Diseases by Oral Administration of Autoantigens - ------------------------------------------------------------------------------------------------------------------- Treatment of Autoimmune South Korea 140841 701083/1993 10/15/91 3/16/98 Diseases by Oral Administration of Autoantigens - ------------------------------------------------------------------------------------------------------------------- Treatment of Autoimmune EP 92900084.2 10/15/91 Pending Diseases by Oral Administration of Autoantigens - ------------------------------------------------------------------------------------------------------------------- Treatment of Autoimmune Japan 2635444 4-500704 10/15/91 4/25/97 Diseases by Oral Administration of Autoantigens - ------------------------------------------------------------------------------------------------------------------- Pharmaceutical Israel 99754 99754 10/15/91 11/5/96 Composition Containing an Autoantigen or a Fragment or Analogue Thereof, forthe Treatment - -------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------- of Autoimmune Arthritis and Multiple Sclerosis - ---------------------------------------------------------------------------------------------------------------------- Method for Preparation of United 5,840,848 08/778,467 1/3/97 11/24/98 Type II Collagen States - ---------------------------------------------------------------------------------------------------------------------- Method for Preparation of EP 97903850.2 1/3/97 Pending Type II Collagen - ---------------------------------------------------------------------------------------------------------------------- Method for Preparation of Canada 2,238,439 1/3/97 Pending Type II Collagen - ---------------------------------------------------------------------------------------------------------------------- Method for Preparation of Australia 705719 18319/97 1/3/97 9/2/99 Type II Collagen - ---------------------------------------------------------------------------------------------------------------------- Method for Preparation of Japan 9-515334 1/3/97 Pending Type II Collagen - ---------------------------------------------------------------------------------------------------------------------- Title Country Patent Application Filing Grant Number Number Date Date - ---------------------------------------------------------------------------------------------------------------------- Method for Preparation of Israel 124834 1/3/97 Pending Type II Collagen - ---------------------------------------------------------------------------------------------------------------------- Method of Treating United 5,399,347 07/951,565 9/25/92 3/21/95 Rheumatoid Arthritis with States Type II Collagen - ---------------------------------------------------------------------------------------------------------------------- Method of Treating United 5,843,445 08/124,985 9/21/93 12/1/98 Rheumatoid Arthritis with States Type II Collagen - ---------------------------------------------------------------------------------------------------------------------- Method of Treating United 5,783,188 08/480,180 6/7/95 7/21/98 Rheumatoid Arthritis with States Type Collagen Peptide Fragments Containing Repeating Sequences - ---------------------------------------------------------------------------------------------------------------------- Method of Treating United 5,720,955 08/480,137 6/7/95 2/24/98 Rheumatoid Arthritis with States Soluble Collagen - ---------------------------------------------------------------------------------------------------------------------- Use of an Active Israel 107050 107050 9/20/93 4/2/00 Fragment or an Active Analog of Collagen in the Preparation of a Medicament for Treating Rheumatoid Arthritis - ---------------------------------------------------------------------------------------------------------------------- Method of Treating Japan 6-509198 9/24/93 Pending Rheumatoid Arthritis with Type II Collagen - ---------------------------------------------------------------------------------------------------------------------- Method of Treating Israel 110899 9/8/94 Pending Rheumatoid Arthritis with Type II Collagen - ---------------------------------------------------------------------------------------------------------------------- Method of Treating United 5,856,446 08/675,886 7/5/96 1/5/99 Rheumatoid Arthritis with States Low Dose Type II Collagen - ----------------------------------------------------------------------------------------------------------------------
2 EX-10.37 5 dex1037.txt TRADEMARK LICENSE AGREEMENT DATED AUGUST 19,2002 Exhibit 10.37 TRADEMARK LICENSE AGREEMENT between AUTOIMMUNE INC. and COLLORAL LLC dated as of August 19, 2002 TRADEMARK LICENSE AGREEMENT THIS AGREEMENT is made and entered into this 19/th/ day of August, 2002, by and between AutoImmune Inc., a Delaware corporation ("AutoImmune") and COLLORAL LLC, a Delaware limited liability company ("Company"). RECITALS: A. AutoImmune is the owner of the trademark, COLLORAL(R), for use in connection with pharmaceutical and neutraceutical preparations for use in the treatment of autoimmune diseases and food supplements; B. Pursuant to the terms of a certain License Agreement of even date herewith between AutoImmune and Company, AutoImmune is licensing certain technology to Company in order to enable Company to manufacture, market and sell a non-prescription product for the treatment of arthritic conditions; C. Company desires to use the trademark, COLLORAL, as the name of the product being manufactured, marketed and sold under the Technology License; and D. AutoImmune has agreed to license the trademark to Company on the terms and conditions set forth in this Agreement; NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the promises made herein, Company and AutoImmune hereby agree as follows: 1. DEFINITIONS (a) "License" means the rights granted to Company in the first sentence of Section 2. (b) "Patent Rights" has the meaning set forth for such term in the Technology License. (c) "Product" means a non-prescription product for the treatment of arthritic conditions that but for the license rights granted to Company in the Technology License would be within a Valid Claim of a pending patent application or issued patent included in the Patent Rights. (d) "Technology License" means the License Agreement of even date herewith between AutoImmune and the Company. (e) "Trademark" means the word mark, COLLORAL. (f) "Valid Claim" has the meaning set forth for such term in the Technology License. 2. LICENSE GRANT (a) Grant. Subject to the terms and conditions of this Agreement, AutoImmune hereby grants to Company, and Company hereby accepts, an exclusive, worldwide, royalty-free right and license to use the Trademark under the common law and under the auspices and privileges provided by the registration(s) covering the same in connection with the manufacture, marketing and sale of the Product. (b) Sublicenses. Company shall have the right to sublicense the License with the prior written consent of AutoImmune. A copy of each sublicense granted by Company under this Agreement shall be furnished to AutoImmune promptly after execution thereof. Any such sublicense shall conform to the terms hereof, and Company shall be responsible for the performance by its sublicensees of all obligations imposed under the terms of this Agreement. 3. TITLE (a) Title in AutoImmune. Company acknowledges AutoImmune's ownership of the Trademark and that all use of the Trademark by Company and its sublicensees shall inure to the benefit of AutoImmune. Company shall not do anything that is inconsistent with such ownership and shall neither acquire nor claim any title to the Trademark by virtue of the License or Company's use of the Trademark. (b) Confusingly Similar Marks. Company shall not adopt or use any word, name, mark or other designation which is likely to cause confusion with the Trademark and shall not make any unlicensed use or file any application for registration of the Trademark or any marks confusingly similar thereto in any jurisdiction. (c) Third Party Infringement. (i) If Company knows or reasonably believes that any third party is infringing the Trademark or using or promoting any mark or design similar to the Trademark in connection with a product or products similar to the Product, Company shall notify AutoImmune immediately, and the parties shall consult with one another concerning the action to be taken. (ii) AutoImmune shall have the right, but not the obligation, to prosecute at its own expense any such infringement. After repayment to AutoImmune of all of its costs and expenses, any recovery or damages derived from such action shall be shared equally by AutoImmune and Company. (iii) If, within sixty (60) days after AutoImmune first becomes aware of any infringement of the Trademark, AutoImmune declines to prosecute such infringement or fails to cause such infringement to terminate or to bring or diligently prosecute a suit or action to compel termination, Company shall have the right, but not the obligation to bring such suit or action to compel termination at the sole expense of Company. In such event, Company shall have the right, if AutoImmune is a legally indispensable party, to bring such suit or action in the name of AutoImmune. AutoImmune shall have the right to join any such suit or action brought by Company at AutoImmune's expense. Any -2- recovery or damages derived from such action shall first be used to reimburse the parties for all legal expenses relating to the suit and thereafter shall belong entirely to the Company if the infringement involves a nutraceutical product, otherwise entirely to AutoImmune. No settlement, consent, judgment or other voluntary final disposition of the suit may be entered into without the consent of AutoImmune, which consent shall not unreasonably be withheld. 4. QUALITY CONTROL (a) Specifications. Company acknowledges that AutoImmune has the right to establish specifications and enforce quality control standards for the use of the Trademark. From time to time, AutoImmune may notify Company of the specifications and quality control standards that will apply to use of the Trademark. Company will use the Trademark only in compliance with the then most recent version of such specifications and standards. (b) Quality Control. The quality of the Product marketed or sold under the Trademark shall be satisfactory to AutoImmune, which satisfaction shall be in AutoImmune's sole discretion. Company will cooperate with AutoImmune in facilitating AutoImmune's control over the quality of such Product and, upon request, will supply AutoImmune with specimens of the Product. Upon seven days prior notice, AutoImmune and/or its authorized representatives shall have the right to inspect, during regular business hours, any facility used to manufacture the Product and any marketing collateral or advertisements used to promote the Product to determine satisfaction with the quality of the Product and compliance with the then current version of the specifications and standards for use of the Trademark. 5. TERM AND TERMINATION (a) Term. Unless earlier terminated in the manner set forth in this Section 5, this Agreement shall be in effect from the date hereof until the Technology License terminates. (b) Early Termination. AutoImmune may terminate this Agreement by providing notice to Company in the event that (i) Company commits a material breach of any of the provisions of this Agreement or fails to comply with any material condition hereof, (ii) AutoImmune gives notice to Company specifying the nature of the breach alleged to have occurred and (iii) Company fails to remedy such breach within 30 days of notice thereof; provided, however, that AutoImmune may not terminate this Agreement if the Company's breach hereof or the failure to remedy such breach is caused by AutoImmune by reason of its being a member, and having the right as such to appoint a manager, of the Company. (c) Effect of Termination. Upon termination of this Agreement, Company will cease and desist from any use of the Trademark and the provisions of Sections 3, 6, 7 and 8 will survive termination of this Agreement. 6. INDEMNITY Company shall indemnify and defend AutoImmune, its affiliates and their respective directors, officers, employees and agents against all liability, damages, losses, costs and expenses (including without limitation, reasonable attorneys' fees) arising out of any claims, suits, actions -3- or proceedings brought by third parties against AutoImmune based upon the quality or nature of Company's goods and services sold under the Trademark or upon Company's use of the Trademark outside of the scope of the License and this Agreement. Section 6.3 of the Technology License sets forth the procedures applicable to claims for indemnification under this Section. 7. NOTICE Any notice required or permitted to be given or made under this Agreement by one of the parties hereto to the other shall be in writing and shall be delivered personally, by facsimile (and promptly confirmed by telephone, personal delivery or courier) or by overnight courier, addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and shall be effective upon receipt by the addressee. If to AutoImmune: AutoImmune Inc. 1199 Madia Street Pasadena, CA 91103-1961 Attn: Robert C. Bishop, Ph.D. Chairman of the Board, President and Chief Executive Officer Telephone: 626 792-1235 Telecopy: 626 792-1236 with a copy to: Nutter, McClennen & Fish, LLP One International Place Boston, MA 02110-2699 Attention: Constantine Alexander, Esq. Telephone: 617 439-2595 Telecopy: 617 310-9597 If to Company: Scott A. Gubler or Mark H. Gubler Deseret Laboratories, Inc. 1414 East 3850, South St. George, Utah 84790 Telephone: 435-628-8786 Telecopy: 435-673-1202 8. MISCELLANEOUS -4- (a) Amendment. This Agreement may be amended, or any term hereof, modified, only by a written instrument duly executed by both parties hereto. (b) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the choice of laws provisions thereof. (c) Assignment. This Agreement may not be assigned or otherwise transferred by Company without the prior written consent of AutoImmune. Any purported assignment in violation of the preceding sentence shall be void. (d) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. (e) Counterparts. This Agreement may be executed in two or more counterparts each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (f) Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly merged in and made a part of this Agreement. (g) Headings. All section headings contained in this Agreement are for convenience of reference only, do not form a part hereof and do not in any way affect the meaning or interpretation of this Agreement. (h) Severability. Each party hereby agrees that it does not intend to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries. Should one or more provisions of this Agreement be or become invalid, the parties hereto shall substitute, by mutual consent, valid provisions for such invalid provisions which valid provisions in their economic effect are sufficiently similar to the invalid provisions that it can be reasonably assumed that the parties would have entered into this Agreement with such valid provisions. In case such valid provisions cannot be agreed upon, the invalidity of one or several provisions of this Agreement shall not affect the validity of this Agreement as a whole, unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the parties would not have entered into this Agreement without the invalid provisions. (i) Limitation. Nothing in this Agreement shall be construed as a warranty or representation as to the validity or scope of the Trademark or that use of the Trademark will not infringe the rights of a third party. (j) Waiver. The waiver by either party hereto of (i) any right hereunder, (ii) the failure to perform an obligation or (iii) a breach by the other party shall not be deemed a waiver of any other right hereunder or of any other failure or breach by said other party, whether of a similar nature or otherwise. -5- (k) Interpretation. The parties acknowledge and agree that (i) each party and its counsel reviewed and negotiated the terms and provisions of this Agreement and contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provisions of this agreement shall be construed fairly as to all parties hereto and not in favor of or against any party, regardless of which party was generally responsible for the preparation of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective duly authorized officers. AUTOIMMUNE INC. By: /s/ Robert C. Bishop ----------------------------------------- Its: Robert C. Bishop, Ph.D. Chairman of the Board, President and Chief Executive Officer COLLORAL LLC By: /s/ Scott A. Gubler ----------------------------------------- Its: Manager August 06, 2002 -6- EX-99.1 6 dex991.txt CERTIFICATION OF CEO Exhibit 99.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned officer of AutoImmune Inc. (the "Company") hereby certifies that, as of the date of this statement, the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2002 (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of the Company as of and for the three and nine-month periods ended September 30, 2002. The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sabarnes-Oxley Act of 2002. This statement is not "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Act or any other federal or state law or regulation. Date: November 14, 2002 /s/ Robert C. Bishop -------------------------------- Name: Robert C. Bishop Title: Chief Executive Officer EX-99.2 7 dex992.txt CERTIFICATION OF CFO Exhibit 99.2 CERTIFICATION OF THE DIRECTOR OF FINANCE AND TREASURER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned officer of AutoImmune Inc. (the "Company") hereby certifies that, as of the date of this statement, the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2002 (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of the Company as of and for the three and nine-month periods ended September 30, 2002. The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sabarnes-Oxley Act of 2002. This statement is not "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Act or any other federal or state law or regulation. Date: November 14, 2002 /s/ Heather A. Ellerkamp ------------------------------------ Name: Heather A. Ellerkamp Title: Director of Finance and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----