-----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, Okl8vVc4fU9knM2L/xLOyVA3hHi+fEUqqTdXEZYdLt/+q09cdyyO32OPvDwpjq90 AZpFFKo6IOy4VsCqIDvOaQ== 0000936392-97-001520.txt : 19971117 0000936392-97-001520.hdr.sgml : 19971117 ACCESSION NUMBER: 0000936392-97-001520 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEPOTECH CORP CENTRAL INDEX KEY: 0000931686 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 330387911 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-85362 FILM NUMBER: 97719356 BUSINESS ADDRESS: STREET 1: 10450 SCIENCE CENTER DRIVE STREET 2: STE 100 CITY: SAN DIEGO STATE: CA ZIP: 92037 BUSINESS PHONE: 6196252424 MAIL ADDRESS: STREET 1: 10450 SCIENCE CENTER DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92121 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 1997 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ___ to ___. Commission file number 0-26862 DEPOTECH CORPORATION (Exact name of Registrant as specified in its charter) CALIFORNIA 33-0387911 ---------- ---------- (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Identification No.) Organization) 10450 SCIENCE CENTER DRIVE SAN DIEGO, CALIFORNIA 92121 --------------------------- (Address of principal executive offices, zip code) (619) 625-2424 -------------- (Registrant's telephone number) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock: No par value, 14,175,303 shares as of October 31, 1997 2 DEPOTECH CORPORATION TABLE OF CONTENTS PAGE ---- PART I FINANCIAL INFORMATION Item 1 Financial Statements Condensed Balance Sheets as of September 30, 1997 (Unaudited) and December 31, 1996...... 1 Condensed Statements of Operations for the Three and Nine Months ended September 30, 1997 and 1996 (Unaudited)................... 2 Condensed Statements of Cash Flows for the Nine Months ended September 30, 1997 and 1996 (Unaudited)................... 3 Notes to Condensed Financial Statements (Unaudited)....... 4 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 6 PART II OTHER INFORMATION Item 2 Changes in Securities .................................... 13 Item 6 Exhibits and Reports on Form 8-K ......................... 14 Signatures....................................................... 15 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DEPOTECH CORPORATION CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $ 8,730,596 $ 1,966,626 Short-term investments 26,022,818 16,231,471 Accounts receivable from collaborations 1,825,338 614,580 Other current assets 3,130,900 1,160,394 ------------- ------------ Total current assets 39,709,652 19,973,071 Property and equipment, net 24,862,674 16,851,574 Other assets 912,711 783,760 ------------- ------------ Total assets $ 65,485,037 $ 37,608,405 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued liabilities $ 5,206,230 $ 2,573,087 Current portion of obligations under capital leases 2,116,306 2,040,578 Current portion of notes payable 1,624,273 493,481 ------------- ------------ Total current liabilities 8,946,809 5,107,146 Deferred revenue 100,850 54,839 Obligations under capital leases, less current portion 2,536,054 4,129,750 Deferred rent 2,095,282 1,377,623 Notes payable, less current portion 6,794,605 1,709,813 Shareholders' equity: Common stock, no par value; 30,000,000 shares authorized, 14,172,593 and 11,543,816 shares issued and outstanding at September 30, 1997 and December 31, 1996, respectively 101,805,608 67,797,617 Deferred compensation related to stock options (122,594) (161,960) Unrealized gain (loss) on investments 37,265 (10,886) Accumulated deficit (56,708,842) (42,395,537) ------------- ------------ Total shareholders' equity 45,011,437 25,229,234 ------------- ------------ Total liabilities and shareholders' equity $ 65,485,037 $ 37,608,405 ============= ============
See accompanying notes to condensed financial statements. Note: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by generally accepted accounting principles. 1 4 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DEPOTECH CORPORATION CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) Contract revenue $ 1,045,539 $ 698,725 $ 2,977,498 $ 3,363,680 Licensing/milestone payments 2,000,000 -- 3,000,000 -- ------------ ------------ ------------ ------------ Total revenue 3,045,539 698,725 5,977,498 3,363,680 Costs and expenses: Research and development 3,947,542 5,000,516 14,028,748 12,721,014 General and administrative 2,712,347 1,060,232 4,667,951 2,665,260 Repurchase of marketing rights -- -- 2,000,000 -- ------------ ------------ ------------ ------------ Total costs and expenses 6,659,889 6,060,748 20,696,699 15,386,274 ------------ ------------ ------------ ------------ Loss from operations (3,614,350) (5,362,023) (14,719,201) (12,022,594) Interest income 383,919 392,284 1,228,430 1,328,055 Interest expense (356,269) (225,756) (822,534) (548,082) ------------ ------------ ------------ ------------ Net loss $ (3,586,700) $ (5,195,495) $(14,313,305) $(11,242,621) ============ ============ ============ ============ Net loss per share $ (0.27) $ (0.45) $ (1.09) $ (0.98) ============ ============ ============ ============ Shares used in computing net loss per share 13,382,717 11,509,142 13,178,318 11,429,098 ============ ============ ============ ============
See accompanying notes to condensed financial statements. 2 5 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DEPOTECH CORPORATION CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 1996 ------------ ------------ (Unaudited) OPERATING ACTIVITIES Net cash used by operating activities $(12,757,725) $(10,597,204) INVESTING ACTIVITIES Purchases of short-term investments (29,845,642) (9,215,055) Proceeds from sale of short-term investments 20,102,446 23,598,780 Purchases of property and equipment (9,403,598) (4,123,967) Restricted cash (37,119) 55,895 ------------ ------------ Net cash (used) provided by investing activities (19,183,913) 10,315,653 FINANCING ACTIVITIES Repayments on capital lease obligations (1,517,967) (1,320,304) Reimbursement for assets refinanced as capital leases -- 3,254 Repayments on notes payable (413,118) -- Proceeds from notes payable 6,628,702 1,418,461 Proceeds from issuance of common stock, net 34,007,991 372,786 ------------ ------------ Net cash provided by financing activities 38,705,608 474,197 ------------ ------------ Net increase in cash and cash equivalents 6,763,970 192,646 Cash and cash equivalents at beginning of period 1,966,626 5,883,911 ------------ ------------ Cash and cash equivalents at end of period 8,730,596 6,076,557 Short-term investments at end of period 26,022,818 18,169,195 ------------ ------------ Cash, cash equivalents and short-term investments at end of period $ 34,753,414 $ 24,245,752 ============ ============ SUPPLEMENTAL INFORMATION Property and equipment acquired through capital leases $ -- $ 3,337,461 ============ ============ Interest paid $ 822,534 $ 548,082 ============ ============
See accompanying notes to condensed financial statements. 3 6 DEPOTECH CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS 1. Basis of Presentation and Significant Accounting Policies The interim unaudited condensed financial statements contained herein have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These interim unaudited condensed financial statements should be read in conjunction with the Company's December 31, 1996 audited financial statements included in the Company's Annual Report on Form 10-K. In management's opinion, the unaudited information includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Interim results are not necessarily indicative of results to be expected for the full year. Certain prior year amounts have been reclassified to conform with the current year presentation. 2. Net Loss Per Share Net loss per share is computed using the weighted average number of common shares outstanding during the period. Common share equivalents have not been included in the computation, since their effect would have been anti-dilutive. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share", regarding the calculation of primary earnings per share, which will be adopted in January 1998. The Company does not anticipate that the adoption of this standard will have a material impact to the Company. 3. Chiron Collaboration In March 1994, the Company entered into a collaborative agreement with Chiron Corporation ("Chiron") to develop and commercialize sustained-release formulations of DepoCyt(TM) and certain Chiron proprietary products using the Company's drug delivery technology. Cumulative reimbursable costs for clinical trials and process development incurred by the Company under this agreement totaled $10.2 million through September 30, 1997 and $8.4 million through September 30, 1996. In June 1997, DepoTech reacquired rights to DepoCyt in Canada and Europe from Chiron for aggregate cash payments of up to $13.7 million. Chiron will retain exclusive marketing rights to DepoCyt in the U.S. A $2.0 million cash payment is payable by DepoTech to Chiron by December 31, 1997 and has been expensed at June 30, 1997. If, prior to December 31, 1998, the U.S. Food and Drug Administration ("FDA") issues a letter or other notification to DepoTech indicating that DepoCyt is approvable or approved, the remaining balance of $11.7 million shall be payable no later than 4 7 DEPOTECH CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS December 31, 1998. If no FDA notification is received prior to December 31, 1998, the remaining amount shall be payable no later than six months from the earlier of U.S. or European Union regulatory notification that the application to market or sell DepoCyt is approvable or approved. If all applications for regulatory approval to sell DepoCyt in the U.S. and European Union are permanently withdrawn, DepoTech shall be relieved of any obligation to pay the remaining $11.7 million. Therefore, such amount will be recorded upon the receipt of the required notification. 4. Pharmacia & Upjohn Agreement In July 1997, DepoTech entered into a Marketing and Distribution Agreement with Pharmacia & Upjohn S.p.A ("P&U"), an affiliate of Pharmacia & Upjohn Inc., for rights to market and sell DepoCyt in countries outside the United States. The Company received a cash payment of $2.0 million upon execution of the agreement. Cumulative reimbursable costs for clinical trials and regulatory approval incurred by the Company under this agreement totaled $0.6 million through September 30, 1997. 5. Private Placement In September 1997, the Company raised net proceeds of $14.6 million through the sale of 1.0 million shares of DepoTech common stock to a private investment company. 6. Subsequent Event In October 1997, DepoTech completed a $4.5 million bank credit facility to finance future capital equipment purchases. 5 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Since its inception in October 1989, DepoTech Corporation ("DepoTech" or the "Company") has devoted substantially all of its resources to the development of its potential products. To date, the Company has not received any revenues from the sale of products. The Company has funded its development programs primarily from equity-derived working capital, equipment lease financing and strategic alliances with other companies. The Company has been unprofitable since its inception and does not expect to achieve sustainable profitability for at least 24 months. As of September 30, 1997, the Company's accumulated deficit was approximately $56.7 million. The following discussion is qualified in its entirety by the more detailed information and the Condensed Financial Statements and Notes thereto appearing elsewhere in this Quarterly Report, including the information under "Risks and Uncertainties." This Quarterly Report may contain, in addition to historical information, forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from the results discussed in such forward-looking statements. Factors that could cause or contribute to such differences include those discussed under "Risks and Uncertainties." RESULTS OF OPERATIONS The Company had total revenue of $3.0 million for the three months ended September 30, 1997 compared to $0.7 million for the same period in 1996. Total revenue for the nine months ended September 30, 1997 increased to $6.0 million from $3.4 million in 1996. In July 1997, the Company entered into a Marketing and Distribution Agreement with Pharmacia & Upjohn S.p.A. ("P&U"), an affiliate of Pharmacia & Upjohn Inc., for rights to market and sell DepoCyt(TM), an anticancer drug, outside the U.S. Included in total revenue for the three and nine months ended September 30, 1997 is an up front payment of $2.0 million from P&U. Also, included in total revenue for the nine months ended September 30, 1997 is a milestone payment from Chiron Corporation ("Chiron") of $1 million paid to DepoTech upon the filing of a New Drug Application for DepoCyt in the U.S. Contract revenue in 1997 and 1996 was derived primarily from reimbursement of 50% of the U.S. clinical trial and manufacturing scale-up expenses for the Company's lead product, DepoCyt, under a collaborative agreement with Chiron. In addition, Chiron reimbursed DepoTech for 100% of pre-clinical development costs and feasibility studies performed on Chiron proprietary products. Revenue may fluctuate from period to period depending on the level of development activity for projects under collaborative agreements and the achievement of future milestones. Research and development expenses for the third quarter ended September 30, 1997 decreased to $3.9 million compared to $5.0 million for the same period in 1996. The decrease in research and development expenses in the third quarter of 1997 is due to the completion of manufacturing scale-up for DepoCyt and certain costs that were reclassified to general and administrative expense. Research and development expenses for the nine 6 9 months ended September 30, 1997 increased to $14.0 million from $12.7 million in 1996. Factors contributing to the year to date increase includes expanded efforts in clinical trials, manufacturing scale-up, and preclinical development of potential DepoFoam(TM) products. The Company is continuing Phase III clinical studies of DepoCyt in neoplastic meningitis arising from leukemia and lymphoma, as well as a Phase IV nonrandomized trial in solid tumor patients. Earlier this year, DepoTech began a Phase I clinical trial of DepoCyt in pediatric patients and a Phase I study of DepoMorphine(TM) sustained-release encapsulated morphine sulfate to treat acute post-surgical pain. Manufacturing scale-up of DepoMorphine is underway. The Company has completed a Phase I study of DepoAmikacin(TM) and is engaged in work necessary to move into follow-on clinical studies. Additionally, the Company completed certain preclinical and feasibility studies on various formulations of DepoIGF-1 with partner, Chiron. Further, the Company is evaluating the feasibility of developing several early stage compounds internally and for corporate partners. Research and development expenses are expected to increase during the remainder of 1997. General and administrative expenses for the third quarter of 1997 increased to $2.7 million from $1.1 million for the same period in 1996. General and administrative expenses for the nine months ended September 30, 1997 increased to $4.7 million from $2.7 million for the comparable period in the prior year. These increases were due primarily to expansion in administrative staffing and higher facility and business development expenses. In addition, certain costs were reclassified from research and development expenses. Further, under the collaborative agreement with Chiron, the Company is obligated to share equally in the funding of sales, marketing and distribution expenses for DepoCyt. Included in general and administrative expenses are costs of $1.0 million incurred through September 1997, for DepoCyt prior to the onset of any product revenue. General and administrative expenses are expected to continue to increase during 1997. Chiron and DepoTech had been jointly developing DepoCyt in the U.S., Canada and Europe since March 1994. In June 1997, DepoTech reacquired rights to DepoCyt in Canada and Europe from Chiron. Chiron will retain exclusive marketing rights to DepoCyt in the U.S. Included in operating expenses for the nine months ended September 30, 1997 were expenses of $2 million associated with the repurchase which is payable by DepoTech to Chiron by December 31, 1997. Interest income was $0.4 million and $1.2 million, respectively, for the three and nine months ended September 30, 1997 compared to $0.4 million and $1.3 million for the same periods in 1996. Interest expense was $0.4 million and $0.8 million for the three and nine months ended September 30, 1997 compared to $0.2 million and $0.5 million for the comparable periods in 1996. The increase in interest expense was due to higher balances outstanding for obligations under notes payable. LIQUIDITY AND CAPITAL RESOURCES From its inception through September 30, 1997, DepoTech has financed its operations primarily through public and private placements of equity securities, which provided aggregate net proceeds of approximately $101.6 million, and through capital 7 10 equipment leases and notes payable. In October 1995, the Company completed its initial public offering of common stock with net proceeds of $38.1 million. In January 1997, the Company completed the private placement of 1.5 million newly issued shares of common stock raising net proceeds of $18.9 million. In September 1997, the Company raised net proceeds of $14.6 million through the sale of 1.0 million shares of DepoTech common stock to a private investment company. Chiron and DepoTech had been jointly developing DepoCyt in the U.S., Canada and Europe since March 1994. In June 1997, DepoTech reacquired rights to DepoCyt in Canada and Europe from Chiron for aggregate cash payments of up to $13.7 million. Chiron will retain exclusive marketing rights to DepoCyt in the U.S. A $2 million cash payment is payable by DepoTech to Chiron by December 31, 1997. If, prior to December 31, 1998, the U.S. Food and Drug Administration ("FDA") issues a letter or other notification to DepoTech indicating that DepoCyt is approvable or approved, the remaining balance of $11.7 million shall be payable no later than December 31, 1998. If no FDA notification is received prior to December 31, 1998, the remaining amount shall be payable no later than six months from the earlier of U.S. or European Union regulatory notification that the application to market or sell DepoCyt is approvable or approved. If all applications for regulatory approval to sell DepoCyt in the U.S. and European Union are permanently withdrawn, DepoTech shall be relieved of any obligation to pay the remaining $11.7 million. In July 1997, DepoTech entered into a Marketing and Distribution Agreement with P&U for rights to market and sell DepoCyt in countries outside the U.S. P&U will generally be responsible for submitting regulatory filings, labeling, packaging, distribution, marketing and sales of DepoCyt in this territory. The Company will manufacture DepoCyt and receive a share of the net sales of DepoCyt sold by P&U. The Company received a cash payment of $2.0 million upon execution of the agreement and may receive additional payments of up to $17.0 million upon achievement of certain regulatory milestones. The agreement also provides for reimbursement of certain clinical trial expenses and regulatory fees incurred by the Company. The initial cash payment of $2.0 million and future milestone payments, if any, totaling up to the obligation to Chiron of $13.7 million will be set aside in a restricted cash account for payment to Chiron for the repurchase of DepoCyt rights. As of September 30, 1997, the Company had cash, cash equivalents and short-term investments of $34.8 million as compared to $18.2 million at December 31, 1996. The increase of $16.6 million in cash, cash equivalents and short-term investments was due primarily to $33.5 million of net proceeds received from two private placements, which was partially offset by net cash used to fund operations of $12.8 million and payments totaling $4.7 million for new capital expenditures and repayment of capital lease obligations and notes payable. In May 1996, the Company signed a bank credit facility for $9.0 million to finance future capital equipment purchases, of which $8.8 million had been utilized through September 30, 1997. In October 1997, DepoTech signed a $4.5 bank credit facility to finance future capital equipment purchases. Working capital increased to $30.8 million as of September 30, 1997 compared to $14.9 million as of December 31, 1996. 8 11 For the nine months ended September 30, 1997, the Company financed an aggregate of $6.6 million for property and equipment through bank credit facilities. The Company intends to continue to fund capital expenditures through external financing supplemented by internal cash resources where appropriate. The Company leases a built-to-suit facility housing most of its administrative, research, clinical and manufacturing activities. The minimum rental commitment for this facility ranges from $2.4 million to $4.3 million per year over the next 19 years, based upon pre-established annual rent increases. The Company is installing a manufacturing line in this facility to support clinical and commercial production of products under development. The cost of equipment and tenant improvement expenses are estimated to total approximately $6.1 million in 1997 of which $4.9 million had been incurred through September 30, 1997. DepoTech intends to finance such expenditures through new and existing bank credit facilities. The Company's right of first refusal and right of first offer to purchase land located adjacent to its headquarters expired in October 1997. The Company's operations to date have consumed substantial amounts of cash, which is expected to continue over the foreseeable future. The amount of net losses and the time required for the Company to achieve profitability are highly uncertain. There can be no assurance that the Company will be able to achieve profitability at all or on a sustained basis. It is the Company's intention to fund product research, development, manufacturing, and sales and marketing costs through additional collaborative relationships with suitable corporate partners. There can be no assurance that the Company will enter into collaborative arrangements with corporate partners or that any agreements resulting from these discussions will successfully reduce the Company's funding requirements. Additional equity or debt financing will be required, and there can be no assurance that these funds will be available on terms favorable to the Company, if at all. If adequate funds are not available, the Company may be required to delay, scale back or eliminate one or more of its product development programs or obtain funds through arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its technologies, product candidates or products that the Company would not otherwise relinquish. DepoTech anticipates that its existing available cash, cash equivalents and short-term investments, committed future contract revenue, projected funding from equipment financing and interest income will be adequate to satisfy its capital requirements and fund operating losses through 1998. The Company's future capital requirements will depend on many factors, including continued scientific progress on its products and process development programs, progress with preclinical testing and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in filing and maintaining patents, competing technological and market developments, changes in existing collaborative relationships, the ability of the Company to establish development or additional collaborative arrangements, the cost of manufacturing scale-up, and the establishment of effective sales and marketing arrangements. 9 12 RISKS AND UNCERTAINTIES This Quarterly Report may contain, in addition to historical information, forward-looking statements that involve risk and uncertainties. The Company's actual results could differ materially from the results discussed in such forward-looking statements. Factors that could cause or contribute to such differences include those discussed below as well as those discussed elsewhere in this Quarterly Report. EARLY STAGE COMPANY. DepoTech's products are at an early stage of development, and, to date, only three of the Company's DepoFoam formulations have been subject to human clinical testing. The Company's potential products will require extensive research, formulation, development, preclinical and clinical testing, and may involve a lengthy regulatory approval process prior to commercialization. There can be no assurance that DepoCyt, DepoMorphine, DepoAmikacin, or any of the Company's other products or potential products will prove safe and effective in clinical trials, meet applicable regulatory standards, be capable of being produced in commercial quantities at acceptable cost or be successfully commercialized. In addition, there can be no assurance that preclinical or clinical testing will accurately predict safety or efficacy in broader human use, or that delays in the regulatory approval process will not arise, delaying approval longer than currently anticipated. Even if all of the Company's products prove to be safe and effective and are approved for marketing by the FDA and other regulatory authorities, there can be no assurance that health care providers, payors and patients will accept the Company's products. Any failure of the Company to achieve technical feasibility, demonstrate safety, achieve clinical efficacy, obtain regulatory approval or, together with its partners, successfully market products would have a material adverse effect on the Company. In April 1997, the Company completed a New Drug Application ("NDA") for DepoCyt for the treatment of neoplastic meningitis arising from solid tumors. The FDA has advised the Company that it is currently scheduling its NDA for review by the FDA's Oncologic Drug Advisory Committee on December 18, 1997. As with all drugs subject to the accelerated approval, the FDA requested that the Company conduct a Phase IV clinical trial on DepoCyt which is in process. There can be no assurance that the data from the DepoCyt Phase III clinical trials will be sufficient to gain FDA approval for marketing for any indication, that additional results from ongoing pivotal Phase III trials will be consistent with earlier results or that the Phase IV and other clinical trials of DepoCyt will generate positive results. Any of these occurrences would have a material adverse effect on the Company. GOVERNMENT REGULATION; UNCERTAINTY OF OBTAINING REGULATORY APPROVAL. DepoTech's research and development activities are, and its future business will be, subject to significant regulation by governmental authorities in the United States, primarily by the FDA, and internationally. The clinical testing and the regulatory review process for new drugs or biologics requires substantial time, effort and expense. There can be no assurance that any approval will be granted to the Company's development products on a timely basis, if at all. The FDA or its international equivalent may refuse to 10 13 approve a drug or biological product for commercial sale or shipment if applicable statutory and/or regulatory criteria are not satisfied, or may require additional testing or information. There can be no assurance that such additional testing or the provision of such additional information, if required, will not have a material adverse effect on the Company. Also, the regulatory process can be modified by legislatures, the FDA or international regulators, in a manner that could have a material adverse effect on the Company. LIMITED MANUFACTURING EXPERIENCE; RISK OF SCALE-UP; RELIANCE ON MANUFACTURING PROCESS. The Company has no experience manufacturing products for commercial purposes. The Company has scaled-up its manufacturing operations to meet initial commercial requirements for DepoCyt but these operations will require continuing satisfactory compliance with current Good Manufacturing Practices ("cGMPs"). For all other products, the Company will need to scale-up its current manufacturing operations. The Company will also need to comply with cGMPs and other regulations prescribed by various regulatory agencies in the United States and other countries to achieve the required levels of production of each of its products and to obtain and retain marketing approval, if any. Failure by the Company to successfully scale-up its manufacturing processes or to comply with cGMPs and other regulations would have a material adverse effect on the Company, including the loss of manufacturing rights to DepoCyt under the Chiron and P&U agreements. To date, the Company has relied on a particular proprietary method of manufacture. There can be no assurance that this method will be applicable to all pharmaceuticals or biologics the Company desires to commercialize. Further, the yield of product incorporated into the delivery system is likely to be highly variable for different therapeutic agents. Finally, the Company will need to successfully meet any manufacturing challenges associated with the specific characteristics of the drug to be encapsulated. DEPENDENCE UPON PARTNERS FOR DEVELOPMENT AND COMMERCIALIZATION. The Company does not currently possess all of the resources necessary to develop, complete the FDA approval process and commercialize all of its potential therapeutic products. The Company hopes to enter into collaborative arrangements with other companies to fund research, development and clinical trials, to assist in obtaining regulatory approvals and to commercialize its products in the United States and internationally. In addition, the Company's ability to apply its drug delivery technology to a broad range of pharmaceuticals will depend upon its ability to establish and maintain collaborative arrangements because the rights to many of the pharmaceuticals most suited to the Company's drug delivery technology are currently owned or controlled by third parties. While the Company has entered into preliminary arrangements to test the feasibility of its delivery technology with certain pharmaceuticals and has entered into more extensive collaborations with Chiron and P&U, there can be no assurance that the Company will be able to enter into additional collaborations to develop commercial applications of its drug delivery technology. In addition, there can be no assurance that the Company will be able to enter into or maintain existing or future collaborations or that such collaborations will be successful. The failure of the Company to enter into a collaboration with the owner of rights to a particular formulation or pharmaceutical would preclude the Company from developing its drug delivery technology with respect to such formulation 11 14 or pharmaceutical. The failure to enter into or maintain existing or future collaborations would have a material adverse effect on the Company. LIMITED SALES AND MARKETING CAPABILITY. Commercialization of the Company's products is expected to be expensive and time-consuming. To the extent the Company relies on its collaborators for sales and marketing capability, the Company will be dependent on the efforts of third parties and there can be no assurance that any of these collaborators will successfully market or distribute the Company's products. PATENTS AND PROPRIETARY TECHNOLOGY. DepoTech relies on a combination of technical leadership, patents, trade secrets, copyright and trademark protection and nondisclosure agreements to protect its proprietary rights. There can be no assurance that any patents issued to the Company will provide significant protection or will not be challenged or that, the Company will be issued any additional patents. Even if such patents are enforceable, the Company anticipates that any attempts to enforce its patents would be time consuming and costly. Additionally, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Defense of any lawsuit or failure to obtain a license to intellectual property rights of third parties could have a material adverse affect on the Company. POSSIBLE VOLATILITY OF STOCK PRICE. Factors such as the announcements of technological innovations or new products by the Company, its competitors and other third parties, the status of submissions to the FDA, as well as variations in the Company's results of operations, market conditions, analysts' estimates and the stock market in general may cause the market price of the Company's common stock to fluctuate significantly. Also, future sales of shares by existing shareholders pursuant to Rule 144 of the Securities Act of 1933, as amended, or through the exercise of outstanding registration rights, could have an adverse effect on the price of the Company's common stock. 12 15 PART II - OTHER INFORMATION Item 1 Legal Proceedings. None. Item 2 Change in Securities. On September 10, 1997, the Company issued 1.0 million shares of its Common Stock to a single private investor under Section 4(2) of the Securities Act of 1933, raising net proceeds of $14.6 million. Item 3 Defaults Upon Senior Securities. None. Item 4 Submission of Matters to a Vote of Security Holders. None. Item 5 Other Information. None. 13 16 PART II - OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Number 10.1+ Marketing and Distribution Agreement between DepoTech Corporation and Pharmacia & Upjohn S.p.A. dated July 2, 1997 (with certain confidential portions omitted). 10.2 Stock Purchase Agreement between DepoTech Corporation and Ross Financial Corporation dated September 10, 1997. + Certain confidential portions of this exhibit were omitted by means of blacking out the text (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (b) Reports on Form 8-K. None. 14 17 DEPOTECH CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DEPOTECH CORPORATION /s/ Edward L. Erickson --------------------------------- Date: November 13, 1997 Edward L. Erickson President and Chief Executive Officer (Principal Executive Officer) /s/ Dana S. McGowan ---------------------------------- Date: November 13, 1997 Dana S. McGowan Vice President, Finance Chief Financial Officer (Principal Financial and Accounting Officer) 15 EX-10.1 2 EXHIBIT 10.1 1 EXHIBIT 10.1 MARKETING AND DISTRIBUTION AGREEMENT BETWEEN DEPOTECH CORPORATION AND PHARMACIA & UPJOHN S.P.A. JULY 2, 1997 ***Certain confidential portions of this Exhibit were omitted by means of blackout of the text (the "Mark"). This Exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 24b-2 under the 1934 Act. 2 ARTICLE 1 DEFINITIONS................................................................. 1 ARTICLE 2 GRANTS...................................................................... 6 2.1 Rights Granted to P&U....................................................... 6 2.2 Transfer of Rights.......................................................... 6 2.3 Reservation of Rights....................................................... 7 2.4 Disclosure of Know How...................................................... 7 2.5 Chiron Rights............................................................... 7 2.6 RDF Nondisturbance.......................................................... 7 ARTICLE 3 DEVELOPMENT AND COMMERCIALIZATION OF DEPOCYT................................ 8 3.1 Conduct of Clinical Trials of DepoCyt....................................... 8 3.2 Development and Regulatory Approvals of DepoCyt............................. 8 3.3 Sales, Marketing and Distribution of DepoCyt................................ 10 3.4 Establishment of Minimum Annual Sales Requirements.......................... 10 3.5 Additional Indications and Alternative Formulations......................... 12 3.6 Performance of Services..................................................... 13 3.7 Coordination with Chiron.................................................... 13 3.8 Right to Reference Drug Master Files........................................ 14 ARTICLE 4 MANAGEMENT OF DEPOCYT PROGRAM............................................... 14 4.1 Project Representative...................................................... 14 4.2 Collaboration Steering Committee............................................ 14 4.3 General Rules Applicable To the CSC......................................... 15 ARTICLE 5 PAYMENTS.................................................................... 16 5.1 Initial Payment............................................................. 16 5.2 Milestone Payments.......................................................... 16 5.3 Clinical Development Funding................................................ 18 5.4 Rebate of Milestone Payments................................................ 18 ARTICLE 6 SALE AND PURCHASE OF DEPOCYT................................................ 18 6.1 Sale and Purchase........................................................... 18 6.2 Supply Limit................................................................ 19 6.3 Production Location......................................................... 19 6.4 TERMS AND CONDITIONS........................................................ 19 ARTICLE 7 PRICE AND PAYMENTS.......................................................... 20 7.1 DepoTech Share of Net Sales................................................. 20 7.2 Price Adjustments........................................................... 20 7.3 Payment of the Supply Price................................................. 21 ARTICLE 8 CONTINGENT MANUFACTURING LICENSES........................................... 21 8.1 Expanded Production Capacity................................................ 21 8.2 Supply Assurances........................................................... 22 ARTICLE 9 REPORTING, RECORDS AND ACCOUNTING........................................... 23 9.1 Records and Data............................................................ 23 9.2 Availability of Employees................................................... 24 9.3 Visit of Facilities......................................................... 24 9.4 Audits...................................................................... 24 ARTICLE 10 REPRESENTATIONS AND WARRANTIES.............................................. 25
-i- 3 10.1 Mutual Representations...................................................... 25 10.2 DepoTech Representations.................................................... 25 ARTICLE 11 PATENTS..................................................................... 27 11.1 Patent Rights............................................................... 27 11.2 No Other Technology Rights.................................................. 28 11.3 Enforcement of Patent Rights................................................ 28 11.4 Third Party Claim of Infringement........................................... 29 11.5 Patent Marking.............................................................. 30 ARTICLE 12 CONFIDENTIALITY AND PUBLICATION............................................. 30 12.1 General..................................................................... 30 12.2 Confidentiality Agreements.................................................. 31 12.3 Injunctive Relief........................................................... 31 12.4 Publication................................................................. 31 12.5 Termination................................................................. 32 ARTICLE 13 INDEMNIFICATION............................................................. 32 13.1 DepoTech Indemnification.................................................... 32 13.2 P&U Indemnification......................................................... 32 13.3 Mutual Indemnification...................................................... 32 13.4 Procedure................................................................... 33 13.5 Product Liability Insurance................................................. 33 ARTICLE 14 TERM AND TERMINATION........................................................ 34 14.1 Term........................................................................ 34 14.2 Manufacturing Term.......................................................... 34 14.3 Other Causes for Termination................................................ 35 14.4 Patent Challenge............................................................ 36 14.5 Termination by P&U.......................................................... 36 14.6 Survival of Obligations..................................................... 36 14.7 Manufacturing Licenses to P&U............................................... 37 14.8 Change of Control of DepoTech............................................... 38 14.9 Acquisitions by P&U......................................................... 38 14.10 RDF and Chiron Rights....................................................... 38 ARTICLE 15 ALTERNATIVE DISPUTE RESOLUTION.............................................. 39 15.1 Executive Mediation......................................................... 39 15.2 Initiation of ADR........................................................... 39 ARTICLE 16 MISCELLANEOUS............................................................... 40 16.1 Force Majeure............................................................... 40 16.2 Limitation of Liability..................................................... 40 16.3 Relationship of the Parties................................................. 41 16.4 Notices..................................................................... 41 16.5 Successors and Assigns...................................................... 42 16.6 Amendments and Waivers...................................................... 42 16.7 Governing Law............................................................... 43 16.8 Attorneys' Fees............................................................. 43 16.9 Severability................................................................ 43 16.10 Use of Names................................................................ 43 16.11 Execution in Counterparts................................................... 43 16.12 Entire Agreement............................................................ 43 16.13 Export Control.............................................................. 44
-ii- 4 MARKETING AND DISTRIBUTION AGREEMENT This MARKETING AND DISTRIBUTION AGREEMENT (the "Agreement") dated as of July 2, 1997 (the "Effective Date"), is entered into by and between DEPOTECH CORPORATION, a California corporation with its principal office at San Diego, California, USA ("DepoTech") and PHARMACIA & UPJOHN S.P.A., an Italian corporation with its principal office at Milano, Italy ("P&U"). A. DepoTech has developed novel and proprietary methods of delivering pharmacologically active compounds to the human body. DepoTech has employed the DepoTech Technology (as defined below) to the development of DepoCyto sustained-release encapsulated cytarabine. B. P&U seeks to collaborate with DepoTech in the clinical development of, in seeking regulatory and/or marketing approval for, and in commercializing DepoCyt in the Territory (as defined below), and in connection therewith to obtain the exclusive right to market and sell DepoCyt in the Territory, and DepoTech desires to grant such rights and to enter into such arrangements, all upon the terms and conditions provided herein. NOW, THEREFORE, in consideration of the mutual agreements provided herein, DepoTech and P&U agree as follows: ARTICLE 1 DEFINITIONS The following capitalized terms used herein shall have the respective meanings set forth below. Certain other capitalized terms are defined elsewhere in this Agreement. 1.1 "Act" means the United States Food, Drug, and Cosmetic Act, as amended, or other equivalent laws, regulations or statutes applicable in each country of the Territory, including EU Directives 65/65/EEC, 75/318/EEC, 75/319/EEC, and 91/356/EEC, as amended, and all national laws implementing such directives, EU Regulation 2309/93, as amended, and the Pharmaceutical Law of Japan (Yakuji Ho, Law No. 1450 of 1960, as amended). 1.2 "Additional Indications" means clinical indications for the use of DepoCyt other than the Initial Indication. 5 1.3 "Affiliate" means a person or entity that directly or indirectly controls, is controlled by or is under common control with a party to this Agreement. "Control" (and, with correlative meanings, the terms "controlled by" and "under common control with") means, in the case of a corporation, the ownership of fifty percent (50%) or more of the outstanding voting securities thereof or, in the case of any other type of entity, an interest that results in the ability to direct or cause the direction of the management and policies of such entity or the power to appoint fifty percent (50%) or more of the members of the governing body of the entity, or if not meeting the preceding requirement, any company owned or controlled by or owning or controlling DepoTech or P&U at the maximum control or ownership right permitted in the country where such company exists. 1.4 "Alternative Formulations" means any formulations of the generic chemotherapeutic compound cytarabine prepared using DepoTech Technology other than DepoCyt. 1.5 "CSC" means the Collaboration Steering Committee described in Section 4.2 hereof. 1.6 "Certificate of Analysis" means a summary of all DepoCyt testing results specific to a lot of DepoCyt performed in accordance with the analytical methods which are required to meet all applicable regulatory (including pharmacopeia) requirements in the Territory. 1.7 "Clinical Plan" means the written plan for the further clinical development of DepoCyt for seeking approval to sell DepoCyt in the Territory, including a budget for Clinical Trial Expenses. The initial Clinical Plan is attached hereto as EXHIBIT A, and shall be modified only by the CSC as provided in Article 4 below. 1.8 "Clinical Trial(s)" means human clinical testing meeting the various regulatory requirements and ethical guidelines as may be specified in the individual countries in the Territory where clinical trials of DepoCyt will be conducted or where such trials will be used to seek approval to market DepoCyt in such country; provided, "Clinical Trials" shall not include Phase IV human clinical testing or post-marketing surveillance. 1.9 "Clinical Trial Expenses" means, to the extent incurred for Clinical Trials 2 6 conducted for the Initial Indication in accordance with the Clinical Plan: (i) expenses related to trial planning, materials, clinical site recruiting, training and participation, monitoring of clinical sites, data analysis and data quality assurance, preparing documents for initial fillings for Regulatory Authority submission (including, but not limited to, all fees paid to clinical investigators, consultants and CROs); (ii) expenses related to planning, managing, carrying out, analyzing and preparing reports of pre-clinical studies necessary to submit as part of initial regulatory marketing applications; (iii) travel expenses related to planning meetings, clinical development or regulatory submissions; and (iv) a reasonable allocation of overhead associated with the conduct of such activities (not to exceed *** of DepoTech's direct labor costs) and of general and administrative expenses in support of Clinical Trials (not to exceed *** of the sum of (i), (ii) and (iii)). "Clinical Trial Expenses" shall not include any costs incurred to conduct the Phase V testing referred to in Exhibit A. 1.10 "DepoTech Technology" means the Patent Rights and the Know-How owned or controlled by DepoTech on the date of this Agreement or which DepoTech develops or acquires during the term of this Agreement useful in the development, regulatory submission, manufacture, use or sale of DepoCyt. 1.11 "DepoCyt" means the DepoCyt sustained-release encapsulated cytarabine product as specified in the NDAs filed in the United States by DepoTech and to be filed by P&U in the Territory and the product labeling and packaging as specified in various NDAs filed in the various countries in the Territory, and all improvements thereof developed or acquired by DepoTech during the term of this Agreement. 1.12 "EU" means all countries which are the members of the European Union at any time during the term of this Agreement. 1.13 "First Commercial Sale" means the first arm's length sale of DepoCyt pursuant to this Agreement to one or more Third Parties following receipt of approval to commence selling DepoCyt from the applicable Regulatory Authority in the applicable country. 1.14 "Initial Indication" means the ***. 1.15 "Know-How" means any knowledge and proprietary information which is not *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 3 7 generally publicly known, including, without limitation, all preclinical, clinical, chemical, biochemical, toxicological, manufacturing, process, formulation and scientific research information, whether or not capable of precise separate description but which alone or when accumulated give to the one acquiring it an ability to study, test, produce, formulate or market something which one otherwise would not have known to study, test, produce, formulate or market in the same way. 1.16 "Major European Country" means any of the ***. 1.17 "NDA" means a New Drug Application and associated documents required to be filed with the United States Food and Drug Administration in order to obtain approval to market DepoCyt in the United States, or its equivalent in other countries in the Territory, including, without limitation, a Marketing Authorization Application to be filed in the EU and New Drug Submission in Canada. 1.18 "Net Sales" means the amount invoiced for sales or other dispositions of DepoCyt hereunder (other than sales or other dispositions to Affiliates, unless such Affiliate is the end user), less the following deductions (to the extent they are not already reflected in the amount billed): (a) discounts, returns, rebates, retroactive price adjustments, allowances, and wholesaler chargebacks allowed and taken in amounts customary in the trade; and (b) import, export, excise, sales or use taxes, tariffs or duties directly imposed and with reference to particular sales. No other allowance or deduction shall be made from the amount invoiced in determining Net Sales. 1.19 "Patent Rights" means all patents, inventors' certificates and patent applications throughout the world, including any renewal, division, continuation or continuation-in-part of any of such certificates and applications, and any and all patents issuing thereon, and any and all reissues, extensions, supplementary protection certificates, substitutions, confirmations, registrations, revalidations, revisions and additions of or to any of said patents, now or hereafter owned by or licensed to DepoTech or to any of its Affiliates, which Patent Rights cover any aspect of the development, use, manufacture or sale of DepoCyt, including without limitation, the patents and patent applications listed on EXHIBIT B hereto. 1.20 "Regulatory Authority" means all governmental agencies regulating the development, manufacture or sale of pharmaceutical products in any country or groups of *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 4 8 countries within the Territory, for example, the European Medicines Evaluation Agency (EMEA). 1.21 "Regulatory Fees" means any fees payable to a Regulatory Authority to obtain approval of the NDA for the Initial Indication in a country in the Territory. 1.22 "Specifications" means the mutually agreed upon product specifications for DepoCyt which shall comply with the requirements of all Regulatory Authorities in the Territory. Set forth in EXHIBIT C is a preliminary version of the Specifications, which the parties shall amend from time to time to comply with such regulatory requirements, and ***. 1.23 "Supply Price" means the price at which DepoTech will supply Vialed Material to P&U as set forth in Section 7.1. 1.24 "Territory" means all of the nations of the world, other than the United States (consisting of the 50 states of the United States of America, Puerto Rico and all territories, possessions and protectorates thereof). 1.25 "Third Party" means any person or entity other than P&U, DepoTech or their Affiliates. 1.26 "Vialed Material" means the finished but unlabeled vial form of DepoCyt. ARTICLE 2 GRANTS 2.1 RIGHTS GRANTED TO P&U. Subject to the terms and conditions of this Agreement, DepoTech hereby grants to P&U: (a) the exclusive right (against DepoTech and all others, except to the extent that DepoTech acquires rights hereunder) to import, offer to sell, sell and have sold DepoCyt in the Territory; (b) the exclusive right (against DepoTech and all others, except to the extent that DepoTech has reserved rights or acquires rights hereunder) to use DepoTech Technology *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 5 9 anywhere in the world to develop and finish DepoCyt (from Vialed Material supplied by DepoTech) for sale in the Territory and to exercise the rights granted under paragraph (a) above; and (c) subject to the conditions set forth in Article 8 and Section 14.7 below, the exclusive right (against DepoTech and all others, except to the extent that DepoTech has reserved rights or acquires rights hereunder) to use DepoTech Technology anywhere in the world to make and have made DepoCyt (including Vialed Material) for sale in the Territory. 2.2 TRANSFER OF RIGHTS. P&U shall have the right to grant the rights granted in this Article 2 to: (a) its Affiliates; (b) Third Parties which distribute other pharmaceutical products of P&U or its Affiliates; (c) in respect to its right to finish and, if applicable, manufacture DepoCyt, Third Parties performing such activities as contract manufacturers for P&U; and (d) other Third Parties only with the prior written consent of DepoTech, which consent shall not be unreasonably withheld or delayed. 2.3 RESERVATION OF RIGHTS. Subject to the contingent rights granted P&U under Section 2.1(c) and the terms of this Agreement, DepoTech hereby retains and reserves the exclusive right to manufacture Vialed Material using DepoTech Technology. In respect to Vialed Material to be supplied to P&U, DepoTech shall have the right to sublicense the manufacture of Vialed Material, or to have Vialed Material made by Third Parties, only with P&U's prior written consent, which consent shall not be unreasonably withheld or delayed. 2.4 DISCLOSURE OF KNOW HOW. DepoTech shall from time to time at the request of P&U disclose and provide reasonable access to all of its Know How relating to DepoCyt which may be useful in obtaining regulatory approvals, conducting clinical trials, obtaining pricing approvals and marketing for Additional Indications, finishing of DepoCyt and otherwise to further develop and commercialize DepoCyt, including, subject to the terms of Article 8 and Section 14.7, manufacture of Vialed Material. 2.5 CHIRON RIGHTS. P&U acknowledges that DepoTech has previously entered into a Collaboration Agreement with Chiron Corporation ("Chiron"), pursuant to which DepoTech and Chiron are developing, and intend to manufacture, market and sell, DepoCyt in the United States. DepoTech represents that it has now acquired from Chiron all rights Chiron had in respect to DepoCyt in the Territory, and that, except as otherwise previously disclosed in writing to P&U's 6 10 counsel, it has the right to grant P&U the rights herein free of any claim of Chiron. 2.6 RDF NONDISTURBANCE. A significant portion of DepoTech Technology was acquired by DepoTech from the Research Development Foundation, a nonprofit Nevada corporation ("RDF"), under an agreement under which such Technology may revert to RDF under certain circumstances. Accordingly, RDF has entered into the separate agreement with P&U referred to in Section 10.2(g) below. ARTICLE 3 DEVELOPMENT AND COMMERCIALIZATION OF DEPOCYT 3.1 CONDUCT OF CLINICAL TRIALS OF DEPOCYT. Set forth in Exhibit A, as a "Clinical Plan," is a statement of the general objectives of the Clinical Trials. Through the CSC, the parties shall amend and expand such statement from time to time so that it reflects the then current plan and budget for conducting the Clinical Trials. DepoTech shall use its commercially reasonable and diligent efforts to conduct and to complete the Clinical Trials for the Initial Indication in accordance with the Clinical Plan and any relevant clinical protocol. All Clinical Trials shall be conducted in accordance with all applicable GCPs and other legal and regulatory requirements. DepoTech shall not depart in any material manner from the Clinical Plan and any relevant clinical protocol, without the prior approval of the CSC. DepoTech shall bear all costs for such Clinical Trials, but P&U shall reimburse DepoTech for all Clinical Trial Expenses and Regulatory Fees incurred for the Initial Indication, subject to the provisions of Section 5.3 below. DepoTech's obligations to conduct Clinical Trials required by Regulatory Authorities in any country in the Territory, other than the EU, Japan and Canada shall be subject to the determination of the CSC. All costs associated with such Clinical Trials for such countries (other than EU, Japan and Canada) shall be borne solely by P&U. 3.2 DEVELOPMENT AND REGULATORY APPROVALS OF DEPOCYT. (a) Preparation and Submission of NDAs. (1) DepoTech shall obtain, at its expense, all clearances, registrations, permits and other governmental approvals which may be required to manufacture DepoCyt and import it into the EU, Japan, Canada and such countries in the Territory as determined by the CSC. DepoTech shall also compile and prepare all NDAs required to obtain approval to sell DepoCyt for the Initial Indication in Canada, the EU and Japan. DepoTech shall use commercially reasonable and diligent efforts to so compile and 7 11 prepare NDAs for the Initial Indication for all other countries in the Territory. DepoTech shall consult with P&U concerning all regulatory and other governmental submissions related to the use of DepoCyt for the Initial Indication and provide P&U with access to and the right to approve such submissions prior to filing the same. P&U shall reimburse DepoTech for all Regulatory Fees incurred for the Initial Indication, subject to the provisions of Section 5.3. DepoTech shall provide P&U a complete copy of the New Drug Application submitted to obtain approval to sell DepoCyt in the United States. (2) All NDAs filed in the Territory shall be submitted in the name of P&U or one of its Affiliates. The parties now contemplate that DepoCyt will qualify for the centralized registration procedure in obtaining the approval to sell DepoCyt in the EU. As soon as reasonably practical, the parties shall meet or initiate contact with the EMEA and confirm that such procedure may be followed. If such procedure cannot be followed for any reason, the decentralized/mutual recognition registration procedure shall be followed. The initial filing under such decentralized procedure shall be made in the United Kingdom or such other country reasonably determined by the CSC. (b) P&U's Responsibilities. Following the submission of each NDA, each of P&U and DepoTech shall exercise commercially reasonable and diligent efforts toward obtaining the approval of each NDA filed in the Territory. After obtaining approval of each NDA, P&U shall exercise commercially reasonable and diligent efforts toward maintaining all regulatory and other governmental approvals, clearances, registrations or permits which may be required to sell DepoCyt for the Initial Indications in countries within the Territory. P&U shall consult with DepoTech concerning all supplemental or additional regulatory and other governmental submissions related to DepoCyt and provide DepoTech with access to such submissions prior to filing the same. Unless incurred in connection with any submission to obtain approval for the Initial Indication, the costs and expenses of making such supplemental regulatory or other governmental submissions shall be borne entirely by P&U; provided, that DepoTech shall provide all data and information related to the manufacture of DepoCyt without additional cost. DepoTech shall also provide P&U with all other information and Know How possessed or controlled by DepoTech which may reasonably be required in connection with the conduct of Clinical Trials, obtaining, renewing and maintaining any NDAs and marketing and selling DepoCyt in the Territory. P&U shall be solely responsible for obtaining all pricing and reimbursement approvals for DepoCyt in the Territory. (c) Orphan Drug Designations. To the extent available and assuming DepoCyt qualifies, the parties intend to seek orphan drug designations for DepoCyt in Japan and, when such designation is available under applicable law, in the EU. P&U shall apply for such 8 12 designations in its name, and DepoTech shall provide all information and other assistance reasonably required to support P&U's efforts to obtain such designations. 3.3 SALES, MARKETING AND DISTRIBUTION OF DEPOCYT. (a) Sales, Marketing and Distribution. P&U shall be solely responsible for the sale, marketing and distribution of DepoCyt pursuant to this Agreement including, without limitation, commissioning and paying for any and all Phase IV and other post-marketing human clinical studies, post-marketing surveillance and other marketing studies in the Territory. P&U shall use reasonable diligence in proceeding with the sale, marketing and distribution of DepoCyt. Reasonable diligence as used herein shall be the same standard of effort used by P&U in the sale, marketing and distribution of P&U pharmaceuticals having a potential market size and profitability similar to those of DepoCyt. No later than *** prior to the estimated date of First Commercial Sale in a country within the Territory (other than Canada), P&U shall submit its annual strategic marketing plan for DepoCyt in the Territory for review by DepoTech to assure consistency in the product profile and promotional claims (such plan shall be submitted within *** from the date hereof for Canada). Thereafter, P&U shall submit such marketing plans annually to DepoTech prior to November 1 of each year for such review. P&U shall be responsible for final packaging, labeling, marketing, sales and distribution of DepoCyt in the Territory, at its sole cost. P&U shall be responsible for invoicing the customers of DepoCyt and collecting payment therefor. P&U may carry out its obligations to market DepoCyt in the Territory through Third Parties, as provided in Sections 2.1 and 2.2 above. (b) Trademarks. DepoCyt shall be sold under such trademarks and trade names as P&U may select and own. P&U shall have the right to so use "DepoCyt" or any other mark owned or controlled by DepoTech, and DepoTech hereby grants P&U the exclusive license to use any trademarks or trade names owned or controlled by DepoTech for use in connection with the marketing and sale of DepoCyt in the Territory. Such marks owned by DepoTech shall include all trademarks and trade names registered in the Territory by Chiron for the sale of DepoCyt. (c) Labels. To the extent permitted under applicable law, each DepoCyt package shall identify DepoTech as the manufacturer of DepoCyt. 3.4 ESTABLISHMENT OF MINIMUM ANNUAL SALES REQUIREMENTS. (a) Minimum Annual Sales. Commencing with the *** following the First Commercial Sale in any ***, the parties shall establish minimum annual sales requirements (the *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 9 13 "Minimum Annual Sales Requirements"). Prior to November 1 of each such year, P&U shall submit to DepoTech annual strategic marketing plans for DepoCyt for the Territory. The plan shall contain projected sales targets for each ***, the ***, *** and the ***. The Minimum Annual Sales Requirements shall then be *** of such projected sales targets. Minimum Annual Sales Requirements may be amended at any time on mutual agreement of the parties. Set forth in EXHIBIT D is P&U's non-binding estimate of its annual sales for the first *** following such First Commercial Sale, which estimate is based on the assumptions described in such Exhibit. (b) Failure to Attain Minimum Annual Sales Requirements. If (i) P&U shall fail to meet the Minimum Annual Sales Requirements in the entire Territory, and (ii) P&U shall fail to meet the Minimum Annual Sales Requirements in any of the *** during any year (the "Deficit Year")(such of those countries in which P&U failed to meet the Minimum Annual Sales Requirements shall be referred to as the "Deficit Countries"), and (iii) such failure is not due to circumstances beyond the reasonable control of P&U, and (iv) P&U shall not make up the shortfall between the actual Net Sales and the Minimum Annual Sales Requirement during the Deficit Year by exceeding such Minimal Annual Sales Requirement in the *** of the following *** by an amount which, when added to the actual Net Sales in the Deficit Year, equals or exceeds the Minimum Annual Sales Requirement for the Deficit Year in which the shortfall occurred, and (v) P&U shall not, within *** following the giving of notice by DepoTech that the conditions set forth in (i), (ii) and (iv) have occurred, pay to DepoTech an amount equal to *** of the difference between (A) the Minimum Annual Sales Requirement for DepoCyt for the Deficit Countries for the Deficit Year, and (B) the sum of (x) the actual Net Sales for DepoCyt in the Deficit Countries for the Deficit Year plus (y) the amount by which Net Sales in the Deficit Countries during the *** of the *** following the Deficit Year exceed the Minimum Annual Sales Requirement in the Deficit Countries for such ***, then DepoTech shall have the right, exercisable by delivering notice to P&U and, as its sole remedy, to ***. DepoTech shall have the right to ***. P&U shall grant DepoTech the right to reference ***. 3.5 ADDITIONAL INDICATIONS AND ALTERNATIVE FORMULATIONS. (a) Scope of P&U's Rights. Subject to Section 3.4(b) above, DepoTech and P&U agree that P&U's rights hereunder include the exclusive right to commercialize, market and sell DepoCyt in the Territory. P&U and its Affiliates shall not research, develop, manufacture or market DepoCyt in the Territory for any Additional Indications, and shall not enter into any arrangement or contract with a Third Party that would permit such Third Party to engage in such conduct, except, in either case, pursuant to this Agreement. In addition, P&U shall not develop *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 10 14 Alternative Formulations that are commercially suitable for use in the treatment of human cancer during the term of this Agreement without the prior written consent of DepoTech. In the Territory, DepoTech and its Affiliates shall not, by itself or through a Third Party, research, develop, manufacture or market any other formulation of cytabarine for oncological indications or any other pharmaceutical product suitable for the Initial Indication, other than as provided in paragraph (c) below. (b) Additional Indications. After consultation with DepoTech and consideration of its views, P&U may determine to obtain approval from Regulatory Authorities to sell DepoCyt in the Territory for any Additional Indications. Any costs and expenses associated with obtaining such approval, including clinical trials and regulatory fees, shall be borne solely by P&U. DepoTech and its Affiliates will not, in the Territory, directly or indirectly, develop, manufacture, sell or license DepoCyt for any Additional Indications without the prior written consent of P&U. (c) Restrictions on Development of Alternative Formulations. Subject to the terms set forth in paragraph (d) below, DepoTech and its Affiliates shall have the right to research, develop, manufacture or market Alternative Formulations or enter into any arrangements or contract with a Third Party that would permit such Third Party to engage in such conduct; provided, that such Alternative Formulations are unsuitable for and unable to be used for oncology indications, and are unlikely to adversely affect the sales or market price of DepoCyt in the Territory. (d) Right of First Negotiation on Alternative Formulations. DepoTech hereby grants to P&U and its Affiliates a right of first negotiation to obtain, in the Territory, a license to, or collaborative or marketing rights with respect to, any Alternative Formulations that DepoTech has developed or may in the future develop. (1) Notification to P&U. Immediately prior to the earlier of (A) submitting any NDA in the Territory for an Alternative Formulation, or (B) entering into any agreement with a Third Party with respect to an Alternative Formulation in the Territory, DepoTech shall promptly give P&U written notice containing reasonable details concerning such Alternative Formulation and the material terms, if applicable, on which DepoTech would propose to enter into an agreement with such Third Party. DepoTech may elect to give such written notice to P&U earlier than the date required under the preceding sentence. P&U shall respond to DepoTech within *** of the giving of such notice of its interest in obtaining rights to the Alternative Formulation. (2) Negotiation of Terms. For a period of up to *** after the giving of notice of P&U's intention to seek rights relating to such Alternative Formulation, the parties shall negotiate in good faith a reasonable agreement based upon the value of the Alternative Formulation and the contributions or anticipated contributions of both parties to the commercialization of the Alternative Formulation. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 11 15 (3) Commercialization by DepoTech. In the event that P&U fails to respond within ***, indicates that it is not interested in seeking a license regarding such Alternative Formulation or the parties fail to reach a final agreement within the time period set forth in paragraph (2) above, DepoTech and its Affiliates shall be free to commercialize such Alternative Formulation either independently or with one or more Third Parties; provided, that DepoTech shall not offer rights to a Third Party on terms more favorable in the aggregate than those previously offered to P&U. 3.6 PERFORMANCE OF SERVICES. Each party shall use commercially reasonable and diligent efforts to perform its responsibilities hereunder in a prudent and skillful manner, and in accordance, in all material respects, with applicable laws then in effect. Each party shall furnish all labor, supervision, facilities, supplies and materials necessary to perform the activities assigned to it hereunder. 3.7 COORDINATION WITH CHIRON. Together with Chiron, the parties shall establish procedures in respect to DepoCyt to (a) coordinate the conduct of clinical trials for Additional Indications, including data and cost sharing arrangements, (b) allow the free exchange and use of data from clinical trials conducted by either party (including Phase IV trials after the publication of their results), and (c) exchange of reports and other information required to permit DepoTech, Chiron and P&U to comply with their respective obligations to all Regulatory Authorities in the United States and the Territory, including information about adverse drug events. 3.8 RIGHT TO REFERENCE DRUG MASTER FILES. DepoTech (or any Third Party permitted under Section 2.3 above) shall have the right to reference *** and regulatory documents for use in all regulatory filings for DepoCyt worldwide in qualifying *** for use in producing Vialed Material. P&U and its Affiliates shall have the right to reference DepoTech's DepoCyt and Vialed Material Drug Master File and regulatory documents in the United States for use in all regulatory filings for DepoCyt in the Territory. DepoTech shall cause Chiron to grant the same rights to any DMF or NDA for DepoCyt filed in Chiron's name solely for obtaining regulatory approval to sell DepoCyt in the Territory. ARTICLE 4 MANAGEMENT OF DEPOCYT PROGRAM 4.1 PROJECT REPRESENTATIVE. P&U and DepoTech each shall appoint a person (a *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 12 16 "Project Representative") to coordinate its part of (a) the development and (b) the commercialization activities contemplated by this Agreement. The Project Representatives shall be the primary contacts between the parties for day-to-day collaboration pursuant to this Agreement. Each party shall notify the other within thirty (30) days of the Effective Date of the appointment of its Project Representatives and shall notify the other party as soon as practicable upon changing this appointment. 4.2 COLLABORATION STEERING COMMITTEE. (a) Composition of the CSC. The clinical testing and regulatory approval process of DepoCyt in the Territory shall be conducted under the direction of the CSC which shall be composed of three (3) named representatives of P&U and three (3) named representatives of DepoTech. Each party may substitute one or more of its representatives, from time to time in its sole discretion, effective upon notice to the other party of such change. (b) Responsibilities of the CSC. The purposes of the CSC shall be to supervise and coordinate the Clinical Trials and the process of obtaining regulatory approvals of DepoCyt in the various countries in the Territory, and shall determine in what countries in the Territory regulatory filings should be made. As part of its responsibilities, the CSC shall (a) review data developed from the Clinical Trials, (b) monitor the progress of the Clinical Trials and evaluate the work performed and the results obtained therefrom, (c) approve modifications to the Clinical Plan, and establish and modify all Clinical Trial protocols, (d) determine when an NDA for DepoCyt should be filed with the Regulatory Authority and (e) carry out such other activities as the parties may from time to time agree. 4.3 GENERAL RULES APPLICABLE TO THE CSC. (a) Meetings. Unless otherwise agreed, the CSC shall meet no less than semiannually. Each party shall be responsible for its own costs incurred in connection with such meetings. The site of the meetings shall alternate between a site chosen by DepoTech and a site chosen by P&U, with the party hosting the meeting choosing the chairperson for the meeting. (b) Actions. Each member of the CSC shall have one vote. Any approval, determination, decision or other action by the CSC shall require the unanimous vote of the members of the CSC. (c) Records of Action. The chairperson of the CSC shall promptly prepare and deliver to the other party within fifteen (15) days after the date of such meeting minutes of such meeting summarizing the matters reviewed and any actions taken and decisions made at 13 17 such meetings in form and content reasonably acceptable to the other party. (d) Disagreements. All disagreements within the CSC shall be resolved in the following manner: The representatives of the CSC promptly shall present the disagreement to the Managing Director on behalf of P&U, and the President on behalf of DepoTech. Such executives shall confer to discuss and to resolve between themselves such disagreement. In the event that the parties are unable to reach agreement, the parties may, by mutual agreement, submit the dispute for resolution pursuant to Article 15. Notwithstanding the foregoing, P&U alone shall resolve all disagreements concerning which countries in the Territory either party shall conduct clinical trials, seek governmental approval or sell DepoCyt, so long as P&U pays for all costs incurred in carrying out such activities. ARTICLE 5 PAYMENTS 5.1 INITIAL PAYMENT. Within ten (10) days after execution of this Agreement, P&U shall pay to DepoTech the nonrefundable, noncreditable amount of 2 MUSD. 5.2 MILESTONE PAYMENTS. P&U shall pay DepoTech milestone payments within thirty (30) days of the times set forth below: (a) Upon the granting of the approval of the Notice of Compliance required to sell DepoCyt in Canada, P&U shall pay the nonrefundable, noncreditable amount of ***. (b) Upon the granting of FDA approval for marketing DepoCyt in the United States, P&U shall pay the nonrefundable, noncreditable amount of ***. (c) ***, (1) upon the submission to the EMEA of an NDA under the centralized registration procedure, P&U shall pay ***, or (2) if the decentralized/mutual recognition registration procedure is followed, upon the submission of an NDA in any of the Major European Countries, P&U shall pay *** for each such country (up to an aggregate of ***). "Submission" under this paragraph (c) shall mean the filing or, in respect to the EMEA and where otherwise applicable, receipt from the applicable Regulatory Authority of a notice of receipt of a valid application. (d) Upon the receipt of regulatory approval from the EU Commission necessary to commence marketing DepoCyt in the EU under the centralized registration *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 14 18 procedure, P&U shall pay ***, or if the decentralized/mutual recognition registration procedure is followed, upon the receipt of regulatory approvals (inclusive of necessary price and reimbursement approvals) necessary to commence marketing DepoCyt in any of the Major European Countries, P&U shall pay *** for each such country (up to an aggregate of ***). (e) Upon the submission of an NDA to the Japanese Ministry of Health and Welfare to market DepoCyt in Japan, P&U shall pay ***. (f) Upon the earlier of (1) receipt of regulatory approvals necessary to commence marketing DepoCyt in Japan (inclusive of necessary price and reimbursement approvals) or (2) First Commercial Sale in Japan, P&U shall pay ***. Certain milestone payments set forth above shall be reduced, on an event-by-event basis, in the event that they are not completed by the target dates set forth below. For example, if DepoTech misses the target date for filing in Europe but achieves the target date for filing in Japan, only the European filing milestone would be reduced. The following table sets forth the target date for each milestone and the two delay periods. The first delay period ("First Delay Period") will refer to a delay of between one day and three months from the target date. The second delay period ("Second Delay Period") will refer to a delay of between three months and one day and six months from the target date. If a delay greater than one day and six months occurs, the parties will assess the situation and renegotiate the product development and affected milestone payments in good faith.
Milestone Payment(1) (set forth First Adjusted Second Adjusted Milestone Payment (as set Target in Section Delay Milestone Delay Milestone forth above) Date 5.2) Period Payment(1) Period Payment(1) - ----------------------------------------------------------------------------------------------- Canadian approval *** *** *** *** *** *** (Section 5.2(a) European submission *** *** *** *** *** *** (Section 5.2(c)) European approval *** *** *** *** *** *** (Section 5.2(d)) Japanese submission *** *** *** *** *** *** (Section 5.2(e))2 Japanese approval *** *** *** *** *** *** (Section 5.2(f))2
(1) All milestone payments are in millions and are to be paid in U.S. dollars. If the decentralized/mutual recognition *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 15 19 procedure is used for the EU, the Adjusted Milestone Payments shall be *** of the amounts set forth above for each Major European Country, and the Target Dates and Delay Periods for European submission and approval shall be extended by ***. (2) ***. 5.3 CLINICAL DEVELOPMENT FUNDING. P&U shall reimburse DepoTech for *** of all Clinical Trial Expenses and Regulatory Fees for the Initial Indication incurred by DepoTech since ***, by the payment to DepoTech, monthly in arrears and not later than the 15th day after DepoTech's invoice, the lesser of: (a) the cumulative amount of Clinical Trial Expenses and Regulatory Fees actually incurred since ***, or (b) *** times the number of months lapsed since ***; less, in each case, (c) the cumulative amount previously paid by P&U under this Section 5.3. Notwithstanding the foregoing, P&U shall not be obligated to reimburse DepoTech for any Clinical Trial Expenses or Regulatory Fees incurred in connection with obtaining all regulatory approvals in the EU, Canada and Japan for the Initial Indication which, in the aggregate, exceed ***. 5.4 REBATE OF MILESTONE PAYMENTS. If approval to sell DepoCyt in a Major European Country for the Initial Indication is not obtained prior to ***, DepoTech shall refund *** of the pro-rata payments previously made under Section 5.2(c) for such Major European Country. If approval to sell DepoCyt in Japan for the Initial Indication is not obtained prior to ***, DepoTech shall refund *** of the payment previously made under Section 5.2(e). ARTICLE 6 SALE AND PURCHASE OF DEPOCYT 6.1 SALE AND PURCHASE. Subject to the terms and conditions of this Agreement (including Article 8 and Exhibit E): (a) DepoTech shall use its commercially reasonable and diligent efforts to manufacture and sell to P&U such quantities of Vialed Material as P&U may require; and (b) P&U agrees, for itself, its Affiliates and sublicensees, to satisfy, solely through P&U's purchase of Vialed Material under this Agreement, *** of P&U's, its Affiliates' and sublicensees' requirements of DepoCyt in the Territory. P&U shall be solely responsible for finishing Vialed Material into DepoCyt, including all labelling and packaging. 6.2 SUPPLY LIMIT. Notwithstanding the foregoing, DepoTech shall be under *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 16 20 no obligation to fill orders in excess of *** vials per year (*** vials through calendar year ***), unless mutually agreed by the parties in writing. DepoTech represents that its production facility at 11011 N. Torrey Pines Road, La Jolla, California 92037 is or will be validated for the production of Vialed Material and that, except for non-commercial quantities of other products manufactured on a small scale line using its DepoFoam technology, such facility will be used solely to produce Vialed Material for sale to P&U and Chiron. DepoTech shall use a dedicated production line at such facility to produce such Vialed Material. If DepoTech is unable to supply all of requirements of DepoCyt (and, if applicable, other products using its DepoFoam delivery system), it shall allocate its available supplies equitably among all requirements in proportion to their actual purchases in the prior ***. 6.3 PRODUCTION LOCATION. Except as otherwise provided in Article 8 below, all Vialed Material shall be produced at DepoTech's facilities in San Diego County, or such other locations as agreed by the parties, which facilities shall be approved by the FDA for the manufacture of the Vialed Material. 6.4 TERMS AND CONDITIONS. THE SUPPLY OF VIALED MATERIAL HEREUNDER IS EXPRESSLY LIMITED TO AND CONDITIONED UPON THE PARTIES' ACCEPTANCE OF THE ADDITIONAL TERMS AND CONDITIONS OF SALE ATTACHED HERETO AS EXHIBIT E AND NO TERMS ADDITIONAL TO OR DIFFERENT FROM THOSE IN OR INCORPORATED BY REFERENCE IN THIS AGREEMENT ARE BINDING ON DEPOTECH UNLESS AGREED TO IN WRITING BY DEPOTECH. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 17 21 ARTICLE 7 PRICE AND PAYMENTS 7.1 DEPOTECH SHARE OF NET SALES. As compensation for the manufacture and supply of Vialed Material, P&U shall pay to DepoTech an amount equal to *** of Net Sales, but not less than *** (the "Supply Price"). Such minimum Supply Price is based on the assumption that DepoCyt is approved only for the Initial Indication and its approved labeling shall contain ***. 7.2 PRICE ADJUSTMENTS. The Supply Price payable in accordance with Section 7.1 above shall be subject to adjustment as follows: (a) Additional Indications and Changes in the Market Price. If (1)***, or (2)***, the parties shall negotiate in good faith such equitable modifications to the Supply Price as may be required as a result of such changed circumstances. (b) Loss of Patent Coverage. In the event (i) DepoCyt is no longer claimed under any of DepoTech's valid and enforceable Patent Rights in any country and (ii)***, the Supply Price for Vialed Material for use in making DepoCyt for sale in such country shall be reduced to *** of Net Sales in such country (and the minimum price shall be reduced to ***). (c) Non-Commercial Sales. The parties shall discuss and agree upon commercially reasonable reductions in the Supply Price on dispositions of DepoCyt for use by or for indigent patients, treatment INDs and named patient uses, and clinical trials (which dispositions shall not exceed *** of the total vials distributed by P&U). 7.3 PAYMENT OF THE SUPPLY PRICE. (a) Prior to January 1 of each year, the parties shall establish a reasonable estimate of the Supply Price. Such estimated Supply Price shall be used to make tentative payments during that year, and shall be subject to retroactive adjustment as provided below. Within sixty (60) days after the end of each calendar quarter, P&U shall pay to DepoTech an amount equal to the aggregate estimated Supply Price for all DepoCyt sold in that quarter. Within 60 days after the end of year, P&U shall submit its report of its actual Net Sales for such year, and within 20 days thereafter the parties shall make the appropriate adjustment of the Supply Price for DepoCyt sold in such year. P&U shall deliver to DepoTech within thirty (30) *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 18 22 days after the end of each calendar quarter a sales report, including quantities and monetary amounts, of P&U's and its Affiliates and sublicensees Net Sales. Such quarterly reports shall indicate the Net Sales on a country-by-country basis, as well as all calculations used to determine the Supply Price. (b) All payments to DepoTech under this Agreement shall be in U.S. dollars and shall be made by wire transfer of immediately available funds to the bank account designated in writing by DepoTech from time to time. With respect to any payment based on Net Sales made in a currency other than U.S. dollars, P&U shall convert Net Sales to U.S. dollars in accordance with generally accepted accounting principles, consistently applied, in accordance with P&U's customary foreign translation methods for its financial reporting. ARTICLE 8 CONTINGENT MANUFACTURING LICENSES 8.1 EXPANDED PRODUCTION CAPACITY. As soon as reasonably practicable, P&U shall notify DepoTech in writing when it expects, if at all, its aggregate annual requirements of Vialed Material in the Territory to exceed *** vials. DepoTech shall then have the right to produce all such excess requirements of Vialed Material upon the terms set forth herein. If DepoTech fails to commit in writing to produce such excess quantities within *** after such notice from P&U, or at anytime thereafter fails to provide reasonable assurances that it will be able to produce such quantities, P&U shall have the right to manufacture or to have manufactured such excess requirements (or, if such excess requirements are less than *** vials, its requirements exceeding *** vials) for use and sale in the Territory, whereupon DepoTech shall then grant P&U such licenses and provide such other materials and services as are described in Section 14.7 below. DepoTech shall continue to produce, and P&U shall continue to purchase, such quantities of Vialed Material not so permitted to be manufactured by or for P&U for so long as this Agreement shall continue pursuant to Article 14. 8.2 SUPPLY ASSURANCES. The parties recognize that the availability of adequate quantities of Vialed Material consistent with P&U's requirements is essential for the commercial success of DepoCyt. The parties therefore agree as follows: (a) Each party shall maintain an inventory of Vialed Material or DepoCyt sufficient to satisfy P&U's requirements for at least *** based on P&U's requirements for the prior *** (or, *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 19 23 during the first *** after the First Commercial Sale, the first *** set forth in the forecast provided under Paragraph 1.2 of Exhibit E). (b) DepoTech shall use commercially reasonable and diligent efforts to validate its other production facility at 10450 Science Center Drive in San Diego (or such other facility as the parties may mutually agree) for the production of Vialed Material. Upon completion of such validation (including the approval of all Regulatory Authorities in the EU, Canada and Japan), DepoTech shall confirm in writing that such other facility may be used as a second source and will be available for use to permit DepoTech to comply with its supply obligations hereunder. (c) If such written confirmation is not provided prior to *** or thereafter P&U asserts reasonable grounds for insecurity with respect to DepoTech's ability to supply Vialed Material (and DepoTech is unable to promptly furnish adequate assurance of due performance): (1) DepoTech shall make available to P&U sufficient technology and know-how to enable P&U (or a qualified Third Party designated by P&U and reasonably acceptable to DepoTech) to manufacture Vialed Material. DepoTech shall update such information from time to time thereafter so that P&U possesses all such technology and know-how then used by DepoTech to manufacture the Vialed Material, including all manufacturing and controls information contained in any DMF or otherwise contained or referred to in any NDA and reasonable technical assistance to transfer effectively to P&U such technology and know how. (2) Subject to the occurrence of the conditions or events referred to above in this paragraph (c), DepoTech hereby grants P&U and its Affiliates a non-exclusive, limited license under the DepoTech Technology and other relevant know how and patents to manufacture and have manufactured Vialed Material. Subject to the royalty payable under Section 14.7 below, such license may be used only as follows: (A) To manufacture or have manufactured such portion of its requirements of Vialed Material in the Territory reasonably necessary for P&U to maintain a validated facility as a backup source of Vialed Material (up to *** of its annual requirements); and (B) If DepoTech is unable to supply Vialed Material within *** after receipt of a purchase order from P&U (even if caused by any of the reasons referred to in Section 16.1 below), P&U or such Third Party may make or have made Vialed Material until *** after DepoTech provides written notice that it can again provide Vialed Material. (d) Such licenses shall be subject to the amounts and other terms set forth below in Section 14.7(a) and such additional terms as may be required to carry out the intent of the foregoing standby license, including rights to reference DMF's, conduct of bioequivalence studies, and technical assistance. ARTICLE 9 *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 20 24 REPORTING, RECORDS AND ACCOUNTING 9.1 RECORDS AND DATA. Each party shall maintain records in sufficient detail and in good scientific manner appropriate for regulatory and other governmental purposes and so as to properly reflect all work done and results achieved in the performance of clinical development activities hereunder. Such records shall include books, records, reports, research notes, charts, graphs, comments, computations, analyses, recordings, photographs, computer programs and documentation thereof, computer information storage means, samples of materials and other graphic or written data generated in connection with such activities, including any data required to be maintained pursuant to applicable governmental regulations. Each party shall provide the other the right to inspect such records, and shall provide copies of all requested records, to the extent reasonably required for the performance of the other's obligations under this Agreement. 9.2 AVAILABILITY OF EMPLOYEES. Each party shall make its employees engaged in activities relating to this Agreement and relevant reports of nonemployee consultants available, upon reasonable notice during normal business hours, at their respective places of employment to consult with the other party on issues arising during the term hereof and in connection with any request from any regulatory agency, including regulatory, scientific, technical, commercialization and clinical testing issues. 9.3 VISIT OF FACILITIES. Representatives of each party may, upon reasonable notice and at times reasonably acceptable to the other party, (a) visit the facilities where the other party's activities under this Agreement are being conducted, (b) consult informally, during such visits and by telephone, with personnel of the other party performing work under this Agreement and (c) with the other party's prior approval, which approval shall not be unreasonably withheld, visit the sites of any clinical trials or other experiments being conducted by such other party in connection with such other party's activities under this Agreement, but only to the extent in each case as such trials or other experiments relate to such activities. 9.4 AUDITS. Upon DepoTech's request, P&U shall permit an independent, certified public accountant selected by DepoTech, except one to whom P&U has reasonable objection, to have access during ordinary business hours to P&U's records necessary to determine the accuracy of any report or payment made in respect to any calendar quarter and obtain information as to the amount payable to DepoTech for any such period. Such examination shall be at DepoTech's 21 25 expense and shall not take place more than once each year. However, if such examination reveals an underpayment of monies owed to DepoTech in excess of ***, then said examination shall be at P&U's expense. The right of examination with respect to any year shall terminate *** after the end of any such year. Information supplied to DepoTech by such independent, certified public accountants shall not include any proprietary information not required to be disclosed under other sections of this Agreement. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 22 26 ARTICLE 10 REPRESENTATIONS AND WARRANTIES 10.1 MUTUAL REPRESENTATIONS. Each party hereby represents and warrants to the other as follows: (a) Due Organization. It is a corporation duly organized and validly existing and in good standing under the laws of its jurisdiction in which it is chartered. (b) Due Authority. It has the power and authority to execute and deliver this Agreement, and to perform its obligations hereunder. (c) No Conflict. The execution, delivery and performance by it of this Agreement and its compliance with the terms and provisions hereof does not and will not conflict with or result in a breach of any of the terms and provisions of or constitute a default under (i) any loan agreement, guaranty, financing agreement, agreement affecting any of the Patent Rights or Know How or other agreement or instrument binding or affecting it or its property; (ii) the provisions of its charter document or bylaws; or (iii) any material law, rule, regulation or any order, writ, injunction or decree of any court or governmental authority entered against it or by which any of its property is bound. (d) Binding Obligation. This Agreement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to the availability of particular remedies under general equity principles. (e) No Actions. There are no actions, suits or proceedings pending or, to its knowledge, threatened against it or its Affiliates which affect its ability to carry out its obligations under this Agreement. 10.2 DEPOTECH REPRESENTATIONS. In addition to the foregoing, DepoTech represents, warrants and covenants to P&U as follows: (a) No Proceedings. There are no actions, suits or proceedings pending or, to DepoTech's knowledge, threatened against DepoTech or any of its Affiliates, at law or in equity before any court or administrative office or agency which affect the Patent Rights. (b) No Infringement. To DepoTech's knowledge, practice of the DepoTech Technology as contemplated by this Agreement will not involve any infringement or constitute 23 27 an unauthorized use of any patent, copyright, trade secret, proprietary information, license or right therein belonging to any Third Party. (c) Patents. Each of the patent applications included in the Patent Rights is currently pending and in good standing, and has not been abandoned. DepoTech has no knowledge of any facts or circumstances that could adversely affect DepoTech's ability to obtain patents based on such applications or the validity of such patents if any are issued. (d) Conflicting Rights. DepoTech has not granted, and during the term of this Agreement will not grant, any right to any Third Party relating to the Patent Rights or the Know How in the Territory which would conflict with the rights granted to P&U hereunder. (e) Right to Practice. DepoTech's right to practice those aspects of the DepoTech Technology embodied in those Patent Rights of DepoTech identified on Exhibit B hereto as "RDF Patents" is held pursuant to an exclusive, worldwide assignment of all right, title and interest in such Patent Rights to DepoTech by RDF (such technologies, the "RDF Technologies"). (f) Status of RDF Agreements. DepoTech has provided to P&U a true, correct and complete copy of that certain Assignment Agreement, dated as February 9, 1994, between DepoTech and RDF (the "Assignment Agreement"). The Assignment Agreement constitutes the only agreement between DepoTech and RDF with respect to the RDF Technologies. DepoTech has complied with all obligations imposed on it by the Assignment Agreement. The Assignment Agreement is in full force and effect. To DepoTech's knowledge, no right, title or interest in any aspect of the RDF Technologies is owned by any Third Party other than RDF. Under the terms of the Assignment Agreement, DepoTech has the exclusive, worldwide right to practice the RDF Technologies and to license the RDF Technologies to P&U pursuant to this Agreement. DepoTech has no knowledge of any fact or circumstance that could adversely affect DepoTech's rights to practice the RDF Technologies in the Territory under the Assignment Agreement. (g) RDF Agreement with P&U. DepoTech has delivered to P&U the agreement of RDF, in form satisfactory to P&U, to grant rights to the RDF Technologies to P&U on an exclusive basis throughout the Territory for the purposes of conducting the development and commercialization program contemplated by the parties under this Agreement in the event that DepoTech shall, for any reason, no longer have the full and unencumbered right to grant rights to the RDF Technologies to P&U (the "RDF Agreement"). (h) Compliance with RDF Agreements. DepoTech shall, for the benefit of P&U, its Affiliates and sublicensees, faithfully and timely perform and discharge its obligations 24 28 to RDF under the Assignment Agreement. (i) Disclosure of NDA. DepoTech has disclosed to P&U a correct and complete copy of its NDA submitted to the United States Food and Drug Administration. ARTICLE 11 PATENTS 11.1 PATENT RIGHTS.DepoTech shall file, prosecute and maintain patent and other regulatory applications with respect to Patent Rights in the Territory. All costs incurred with respect to the filing, prosecution and maintenance of the Patent Rights shall be borne by DepoTech. DepoTech shall give P&U an opportunity to review the text of the patent applications included in the Patent Rights before filing, and in good faith shall consider and incorporate the reasonable requests of P&U. DepoTech shall supply P&U with a copy of such applications as filed by DepoTech, together with notice of its filing date and serial number. DepoTech shall keep P&U fully informed with copies of all substantive communications to and from United States and foreign patent offices regarding such application within a reasonable time prior to filing such communication or promptly following receipt thereof, as the case may be. DepoTech shall reasonably consider any comments P&U may have relating to such applications or communications. In the event that DepoTech elects not to file a patent application in the Patent Rights in any country in the Territory, or decides to abandon any pending application or not to maintain any patent with claims covering a Patent Right in any country in the Territory, it shall provide adequate notice to P&U and give P&U the opportunity to file or maintain such application or patent at its own expense. In the event P&U shall thereupon file or maintain such application, DepoTech shall assign ownership of such Patent Right and all costs of prosecution and maintenance of such Patent Rights shall thereafter be borne by P&U. DepoTech and P&U shall also cooperate to obtain supplementary protection certificates in respect to Patent Rights issued by each national patent office in the European Union, and the equivalent patent term extensions in Japan and other countries. Each application for such extensions shall be prepared by P&U and timely submitted by DepoTech. 11.2 NO OTHER TECHNOLOGY RIGHTS. Except as otherwise provided in this Agreement, under no circumstances shall a party hereto, as a result of this Agreement, obtain any ownership interest or other right in any technology, trade secrets, patents, pending patent applications, products of the other party, including items owned, controlled or developed by the other, or 25 29 transferred by the other to such party at any time pursuant to this Agreement. 11.3 ENFORCEMENT OF PATENT RIGHTS. *** shall use good faith efforts to enforce the Patent Rights. Upon learning of a significant and continuing infringement of any Patent Rights by a Third Party, DepoTech promptly shall provide notice to P&U in writing of the fact and shall supply P&U with all evidence possessed by DepoTech pertaining to and establishing said infringement. *** shall have *** from the giving of notice under this Section, or such lesser period of time if a further delay would result in ***, to abate the infringement, to file suit against at least one of the infringers in a country of the Territory, at its sole expense, following consultation with ***. *** shall not be obligated to bring or maintain *** with respect to claims directed to any one method or composition. If *** does not, within *** days of the giving of such notice or such lesser period of time if a further delay would result ***, abate the infringement or file suit to enforce such Patent Rights against *** in a country of the Territory, *** shall have the right to take whatever action it deems appropriate in its own name or, if required by law, in the name of ***, to enforce such Patent Rights. Regardless of which party takes an enforcement action, all monies recovered upon the final judgment or settlement of any such enforcement action (after reimbursement of all litigation costs and expenses incurred by each party) shall be allocated in an equitable manner based on the financial losses incurred by each party as a consequence of such third party's acts in the Territory. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 26 30 11.4 THIRD PARTY CLAIM OF INFRINGEMENT. (a) DepoTech Patent Rights; Defense by ***. If a claim of infringement is brought against *** in any country in the Territory alleging infringement of any patent in such country owned by a Third Party by reason of the manufacture, use or sale of DepoCyt, or if *** becomes aware of any potentially-infringing patent owned by a Third Party in any country in the Territory, *** shall promptly give notice thereof to *** and provide *** with all information in *** possession regarding such claim or potential infringement. *** shall indemnify, defend and hold *** harmless against any damages, costs, expenses and liabilities (including attorneys' fees and expenses) arising out of such claim. *** shall conduct the defense of any suit for infringement at its expense and *** may participate in such defense, at its option and expense. *** shall furnish to *** such assistance as *** may reasonably need and request from time to time for the conduct of the defense of such suit. *** shall not dispose of or settle any such claim in any manner which may *** prior written consent, which shall not be unreasonably withheld. If *** defends against such claim or suit, there shall be *** hereunder; provided, that *** by reason of any infringement, including any ***. Without limiting any obligation of *** hereunder or any remedies available to ***, if *** fails to defend such claim or suit, *** shall have the right to do so, and *** hereby agrees to *** in connection with such defense. (b) Damages. Without limiting *** obligations under Section 11.4(a), if as a result of any suit or claim falling within the provisions of Section 11.4(a), *** for which *** is obligated to *** under Section 11.4(a), *** which would otherwise be payable to ***. If *** becomes obligated to pay damages, royalties or other costs to any Third Party (including royalties to allow P&U to make, have made, use or sell DepoCyt), such amounts shall be ***. ***. 11.5 PATENT MARKING. P&U shall mark DepoCyt with appropriate patent numbers or indicia at DepoTech's instruction and election, as, when and where P&U may reasonably accommodate same, given packaging, printing schedules and other factors, in those countries where such markings have notice value as against infringers. ARTICLE 12 CONFIDENTIALITY AND PUBLICATION 12.1 GENERAL. All Know-How or other confidential information or materials disclosed by one party to the other prior to the date hereof or during the term of this Agreement, including *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 27 31 chemical and biological materials ("Confidential Information"), shall not be used by the receiving party except in connection with the activities contemplated by this Agreement, shall be maintained in confidence by the receiving party, and shall not be disclosed by the receiving party to any other person, firm or agency, governmental or private, without the prior written consent of the disclosing party, except to the extent Confidential Information is: (1) known by or in possession of the receiving party at the time of its receipt as documented in written records; (2) independently developed outside the scope of this Agreement by employees of the receiving party having no access to or knowledge of the Confidential Information disclosed hereunder; (3) in the public domain at the time of its receipt or thereafter becomes part of the public domain through no fault of the receiving party; (4) received without an obligation of confidentiality from a Third Party having the right to disclose such information; (5) required to be disclosed to governmental agencies in order to gain approval to sell DepoCyt, or disclosure is otherwise required by law, regulation or governmental or court order (so long as the receiving party provides notice of such disclosure, seeks to obtain protective orders or other available confidentiality treatment and, in the case of disclosures to the SEC, seeks confidential treatment to the extent reasonably requested by the disclosing party); (6) released from the restrictions of this Section 12.1 by the express written consent of the disclosing party; or (7) disclosed to agents, consultants, assignees, sublicensees or subcontractors of P&U or DepoTech or their Affiliates which have a need to know such information in connection with the performance of this Agreement, provided that such persons are or agree to be subject to the provisions of this Section 12.1 or substantially similar provisions. 12.2 CONFIDENTIALITY AGREEMENTS. P&U and DepoTech shall use all commercially reasonable efforts to obtain, if not already in place, confidentiality agreements from its relevant employees and agents, to protect the confidential information as herein provided. 12.3 INJUNCTIVE RELIEF. Both parties acknowledge that either party would not have an adequate remedy at law for breach of any of the covenants contained in this Article 12 and hereby consent to the enforcement of same by the non-breaching party by means of temporary or permanent injunction issued by any court having jurisdiction thereof and further agrees that it be entitled to assert any claim it may have for damages resulting from the breach of such covenants in addition to seeking injunctive or other relief. 28 32 12.4 PUBLICATION. During the term of this Agreement, P&U and DepoTech each acknowledge the other party's interest in publishing certain of its results to obtain recognition within the scientific community and to advance the state of scientific knowledge. Each party also recognizes the mutual interest in obtaining valid patent protection and protecting business interests. Consequently, either party, its employees or consultants wishing to make a publication (including any oral disclosure made without obligation of confidentiality) relating to work performed by such party as part of the activities being conducted under this Agreement (the "Publishing Party") shall transmit to the other party (the "Reviewing Party") a copy of the proposed written publication or an outline of such oral disclosure at least fifteen (15) days prior to submission for publication or oral disclosure. To the extent such publications or disclosures contain clinical or other data generated by P&U or information about clinical or sales results in the Territory, such publication or disclosure shall not be made without the prior written consent of P&U, which consent shall not be unreasonably withheld. The parties will jointly issue press releases following the execution of this Agreement, the form and substance of which shall be approved by both parties. 12.5 TERMINATION. All obligations of confidentiality imposed under this Article 12 shall expire ten (10) years following termination of this Agreement. ARTICLE 13 INDEMNIFICATION 13.1 DEPOTECH INDEMNIFICATION. DepoTech shall indemnify and hold P&U, its directors, officers, employees, agents, Affiliates and sublicensees harmless against all claims, damages, liabilities, losses, costs and expenses (collectively, "Claims") arising from ***. 13.2 P&U INDEMNIFICATION. P&U shall indemnify and hold DepoTech, its directors, officers, employees, agents, Affiliates and sublicensees harmless against all Claims arising from any ***. 13.3 MUTUAL INDEMNIFICATION. Each party agrees to indemnify and hold the other party and its Affiliates, officers, directors, employees, agents and shareholders harmless against any and all Claims arising out of or in connection with (a) the breach by the indemnifying party *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 29 33 of any of its representations or warranties contained in this Agreement or (b) the nonperformance, partial or total, of any covenants of the indemnifying party contained in this Agreement (including its Exhibits). 13.4 PROCEDURE. (a) Notice to Indemnifying Party. As a condition to the indemnified party's right to indemnification under this Section, the indemnified party shall give prompt written notice to the indemnifying party of any suits, claims or demands by third parties or the indemnified party which may give rise to any loss for which indemnification may be required under this Section. The indemnifying party shall be entitled to assume the defense and control of any suit, claim or demand of any third party at its own cost and expense; provided, that the other party shall have the right to be represented by its own counsel at its own cost in such matters. In the event that the indemnifying party shall decline to assume control of any such suit, claim or demand, the party entitled to indemnification shall be entitled to assume such control, conduct the defense of, and settle such suit, claim or action, all at the sole cost and expense of the indemnifying party. The indemnifying party shall not settle or dispose of any such matter in any manner which would adversely impact the rights or interests of the indemnified party without the prior written consent of the indemnified party, which shall not be unreasonably withheld. (b) Joint Defense.***. 13.5 PRODUCT LIABILITY INSURANCE.***. ARTICLE 14 TERM AND TERMINATION 14.1 TERM. (a) The exclusive rights granted under Section 2.1 shall remain in effect, on a country-by-country basis until the later of (a) *** from the date of First Commercial Sale in such country or (b) the last-to-expire of the Patent Rights in such country claiming DepoCyt or its method of manufacture or use which, but for the rights granted hereunder, would be infringed by P&U. Thereafter, P&U shall have a fully-paid up, non-exclusive right under Section 2.1 in such country, including the right to manufacture anywhere in the world Vialed Material and DepoCyt for sale in such country. Notwithstanding such conversion of such exclusive rights, the exclusive trademark license granted to P&U under Section 3.3(b) shall continue for all trademarks of DepoTech then used by P&U in connection with the sale of DepoCyt. Upon *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 30 34 expiration of such exclusive rights in a country (and expiration of any market exclusivity, orphan drug designations or other exclusivity rights), P&U shall grant DepoTech the right to reference its NDAs in connection with DepoTech's regulatory filings to obtain approval to sell DepoCyt in such country. (b) All references in this Agreement to the "term of this Agreement" or words of similar meaning shall mean the period ending upon the expiration pursuant to paragraph (a) above of all exclusivity rights granted under Section 2.1 in all countries of the Territory. All references in this Agreement to the "termination of this Agreement" or words of similar meaning shall mean the period ending upon the earlier of (i) the expiration pursuant to paragraph (a) above of all exclusivity rights granted under Section 2.1 in all countries of the Territory, or (ii) the termination of this Agreement under Sections 14.3, 14.4 or 14.5. 14.2 MANUFACTURING TERM. The term of DepoTech's manufacturing and supply obligations shall be co-extensive with the term set forth above, except that it shall continue indefinitely thereafter until either party elects to terminate upon *** prior notice. Following such termination of P&U's exclusive rights as provided in Section 14.1, if P&U does not elect to manufacture Vialed Material itself under the paid up rights granted under Section 14.1, DepoTech shall continue to supply Vialed Material on such commercially reasonable terms as the parties shall negotiate in good faith, which terms shall include a reduced Supply Price to reflect P&U's paid up rights, the then current patent position of DepoCyt in the Territory and the expiration of DepoTech's payment obligations to RDF. 14.3 OTHER CAUSES FOR TERMINATION. Either party may terminate this Agreement by written notice to the other in the event that (i) the other party fails to perform any material obligation hereunder and such failure is not cured within ninety (90) days following notice thereof from the nondefaulting party, except obligations under Section 3.4 or Article 8, as to which the sole remedies are set forth therein, or (ii) any bankruptcy, receivership, insolvency or reorganization proceedings are instituted by the other party or any such proceedings are instituted against the other party and not dismissed within ninety (90) days. The failure to obtain the approvals to sell DepoCyt referred to in Section 5.4 above prior to the dates set forth therein shall be deemed a breach by DepoTech of a material obligation. (a) Breach. If either party terminates this Agreement pursuant to clause (i) hereof, then the terminating party shall be entitled to pursue all of its legal and contractual remedies (but in no event shall it be entitled to recover lost profits or other consequential *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 31 35 damages). In the event of such a termination, the non-breaching party shall have the ***. Additionally, if P&U is the breaching party and to the extent allowed under applicable law, all registrations held by P&U to sell DepoCyt shall be transferred, at DepoTech's expense, to DepoTech. P&U shall also then grant DepoTech the right to use any of P&U's trademarks then used by P&U exclusively for DepoCyt. (b) Bankruptcy. If either party terminates this Agreement pursuant to clause (ii) hereof, the terminating party shall have an exclusive right in the Territory (including the right to grant rights under the rights granted hereunder) to make, have made, use and sell DepoCyt, subject to all royalty obligations to Third Parties. If P&U terminates this Agreement pursuant to clause (ii) hereof, it shall in addition have the exclusive right (including the right to grant rights thereunder) to make, have made, use and sell DepoCyt in the Territory, subject to an obligation to pay to DepoTech an amount equal to 10% of Net Sales. The rights granted to P&U by DepoTech pursuant to this Agreement constitute "intellectual property" within the meaning of Sections 101 and 365(n) of the United States Bankruptcy Code (the "Code") and the rights of P&U to obtain DepoTech Technology in the event of a DepoTech bankruptcy pursuant to any escrow or similar arrangement are "supplementary to" such rights within the meaning of Section 365(n) of the Code. 14.4 PATENT CHALLENGE. DepoTech shall have the right to terminate this Agreement if P&U commences legal proceedings to challenge the validity of the Patent Rights within any country in the Territory and does not withdraw such challenge within 60 days after written request from DepoTech, which shall have been given within 30 days after commencement of such proceedings. 14.5 TERMINATION BY P&U. P&U shall have the right at any time to terminate this Agreement upon *** prior notice to DepoTech. In the event of such a termination, all of P&U's rights to DepoCyt shall revert to DepoTech, and P&U shall grant DepoTech the perpetual, royalty-free, exclusive right to make, have made, use and sell Vialed Material and DepoCyt in the Territory. Additionally, to the extent allowed under applicable law, all registrations held by P&U to sell DepoCyt shall be transferred to DepoTech at P&U's expense for its internal costs and DepoTech's expense for fees and expenses payable to Regulatory Authorities and other Third Parties. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 32 36 14.6 SURVIVAL OF OBLIGATIONS. No termination of this Agreement shall eliminate any rights and obligations accrued prior to such termination. Promptly following any termination of this Agreement under Sections 14.3, 14.4 or 14.5, each party shall return all written materials containing Confidential Information, except one copy that may be retained for record keeping purposes only. The provisions of Articles 12, 13, 15 and 16 and Sections 9.4, 11.4, 14.6, 14.7(b), 14.7(c) (under the terms set forth therein) and 14.10 of this Agreement and Paragraphs 5.1(e), (f), and (g), 5.2(e), (f) (i) and (l), 8, 9, and 10.3 of Exhibit E shall survive any termination of this Agreement; provided, that neither party shall be liable to the other under Article 13 with respect to Claims arising out of the other party's activities with respect to DepoCyt occurring following termination of this Agreement. 14.7 MANUFACTURING LICENSES TO P&U. Upon the occurrence of the following conditions or events P&U shall have the right to manufacture Vialed Material: (a) Upon the occurrence of the conditions referred to in Section 8.1 or 8.2 above, DepoTech shall grant P&U a non-exclusive, perpetual (so long as P&U complies with the terms of this license), sublicensable right and license to use the DepoTech Technology anywhere in the world solely to manufacture and have manufactured the quantities of Vialed Material DepoTech does not supply as provided in such Sections for use and sale in the Territory. P&U shall pay an amount on its sales of DepoCyt so manufactured by or for it equal to *** of Net Sales of such DepoCyt. (b) Upon the expiration, on a country-by-country basis, under Section 14.1 of the exclusive rights granted hereunder, DepoTech shall grant P&U non-exclusive, royalty-free, perpetual (so long as P&U complies with the terms of this license), sublicensable rights under the DepoTech Technology solely to manufacture and have manufactured DepoCyt and Vialed Material anywhere in the world for use and sale in the Territory, except to the extent P&U then obtains Vialed Material or DepoCyt from DepoTech. (c) Upon the termination of this Agreement by P&U under Section 14.3, DepoTech shall grant P&U an exclusive, royalty-free, perpetual (so long as P&U complies with the terms of this license), sublicensable right and license under the DepoTech Technology solely to manufacture and have manufactured DepoCyt and Vialed Material anywhere in the world for use and sale in the Territory. In each such case, at the request of P&U, DepoTech shall provide P&U or its designee with all available information and data comprising any such technology and shall render reasonable technical assistance to enable P&U or its designee to manufacture Vialed Material and DepoCyt in a commercial manner, to *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 33 37 validate its production facility in accordance with all regulatory requirements, to obtain all process equipment and raw materials not commercially available and to obtain regulatory approval to sell DepoCyt so manufactured by or for P&U. Unless arising under paragraph (c) above, P&U shall compensate DepoTech for all reasonable costs and expenses incurred by DepoTech in providing such information and data and rendering such technical assistance. 14.8 CHANGE OF CONTROL OF DEPOTECH. In the event that a Third Party active in the pharmaceutical industry (the "Acquiring Party") shall acquire by stock purchase, merger or otherwise, directly or indirectly, *** or more of the outstanding shares entitled to vote for the election of directors of DepoTech, or substantially all of its assets to which this Agreement relates, P&U shall have the right, within *** of such acquisition, to *** upon 30 days notice to the Acquiring Party and to DepoTech, except for the sales reports referred to in Section 7.3(a) above and as otherwise required by law. 14.9 ACQUISITIONS BY P&U. In the event that P&U shall acquire control of any Third Party which is a competitor of DepoTech in the development of alternative drug delivery technologies suitable for use for the indications for which DepoCyt is approved, P&U agrees ***. 14.10 RDF AND CHIRON RIGHTS. (a) In the event that the RDF shall, by notice to P&U given pursuant to the RDF Agreement or otherwise, indicate that DepoTech has breached an obligation to RDF under the Assignment Agreement or any other agreement with RDF which relates to the DepoTech Technology licensed to P&U hereunder, P&U may in its discretion proceed to cure any such breach and shall be entitled to immediately offset the cost of any such cure against amounts due to DepoTech hereunder, or to otherwise recover such amounts from DepoTech by process of law. (b) In the event the (i) DepoTech's rights to the Assigned Proprietary Technologies (as that term is defined in the Assignment Agreement) are reconveyed to the RDF or its assigns pursuant to the terms of the Assignment Agreement, or (ii) DepoTech's rights under the Assignment Agreement are converted into a non-exclusive license to the Assigned Proprietary Technologies, then P&U shall have the right, in its sole discretion, to enter into such agreement or agreements with RDF as P&U deems necessary or desirable to secure an exclusive license to the Assigned Proprietary Technologies within the territories and for the purposes contemplated by this Agreement, and to immediately offset any amounts that may be payable to RDF under *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 34 38 such agreement or agreements against amounts due to DepoTech hereunder, or to otherwise recover such amounts from DepoTech by process of law. (c) In respect to DepoTech's agreement with Chiron concerning the termination of Chiron's rights to sell DepoCyt in the Territory, P&U shall have the right, similar to that provided in paragraph (a) above, to cure any breach by DepoTech of its obligation to Chiron and offset the cost of such cure; and P&U shall have the right, similar to that provided in paragraph (b) above, to enter into an agreement directly with Chiron in the event such rights to DepoCyt revert to Chiron. ARTICLE 15 ALTERNATIVE DISPUTE RESOLUTION 15.1 EXECUTIVE MEDIATION. The parties recognize that a bona fide dispute as to certain matters may from time to time arise during the term of this Agreement which relate to either party's rights or obligations hereunder. In the event of the occurrence of such a dispute, either party may, by written notice to the other, have such dispute referred to their respective officer designated below or their successors, for attempted resolution by good faith negotiations within sixty (60) days after such notice is received. Said designated officers are as follows: For DepoTech - Chief Executive Officer For P&U - Managing Director In the event the designated officers are not able to resolve such dispute within such thirty (30) day period, any party may invoke the provisions below. 15.2 INITIATION OF ADR. (a) Any dispute arising out of or relating to this Agreement, including any question regarding its existence, validity or termination, which is not resolved under the procedure set forth in Section 15.1 above shall be referred to and finally resolved by arbitration in London, England under the Rules of the London Court of International Arbitration ("LCIA") by three (3) arbitrators appointed in accordance with said Rules (i.e., two party-appointed arbitrators shall select the third arbitrator). The decision reached by such arbitrators in any such proceeding shall be final and binding upon the parties thereto. The parties shall, however, in addition to the rights provided in Section 12.3, remain free to apply to any competent judicial authority for interim or conservatory measures, even after the transmittal of the file to the aforesaid arbitrators and even if there are no exceptional circumstances. The arbitration proceedings shall be conducted in the English language. 35 39 (b) Whenever a party shall decide to institute arbitration proceedings, it shall give sixty (60) days' prior written notice to that effect to the other party. (c) The arbitration tribunal shall determine the proportion in which the parties shall pay the costs and fees of the arbitration. Each party shall pay its own costs (including, without limitation, attorneys' fees) and expenses in connection with such arbitration. (d) The arbitration proceedings shall be confidential and the tribunal shall issue appropriate protective orders to safeguard each party's Confidential Information. Except as required by law, no party shall make (or instruct the tribunal to make) any public announcement with respect to the proceedings or decision of the neutral without the prior written consent of each other party. The existence of any dispute submitted to arbitration, and the award of the tribunal, shall be kept in confidence by the parties and the neutral, except as required in connection with the enforcement of such award or as otherwise required by applicable law. (e) Any judgment upon the award rendered by the tribunal may be entered in any court having jurisdiction thereof. ARTICLE 16 MISCELLANEOUS 16.1 FORCE MAJEURE. Each party shall be excused for any failure or delay in performing any of its obligations under this Agreement (except payment obligations), if such failure or delay is caused by Force Majeure. For purposes of this Agreement, "Force Majeure" shall mean any act of God, accident, explosion, fire, storm, earthquake, flood, drought, riot, embargo, civil commotion, war, act of war, strike or other labor difficulty or any other similar or dissimilar circumstances or event beyond the reasonable control of the party relying upon such circumstance or event. 16.2 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY OR ITS AFFILIATES BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT (INCLUDING, BUT NOT LIMITED TO, NEGLIGENCE, FAILURE TO WARN OR FAILURE TO TEST), STRICT LIABILITY OR OTHERWISE, including, but not limited to, loss of profits or revenue, except to the extent such damages are claimed by third parties and for which either party is required to indemnify the other party under Section 11.4 or Article 13. 36 40 16.3 RELATIONSHIP OF THE PARTIES. The parties agree that each is acting as an independent contractor with respect to the other and nothing contained in this Agreement is intended, or is to be construed, to constitute P&U and DepoTech as partners or joint venturers or DepoTech or P&U as an agent of the other. Neither party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any contract, agreement or undertaking. 16.4 NOTICES. Any notice or other communication hereunder shall be in writing and shall be deemed given when so delivered in person, by overnight courier (with receipt confirmed) or by facsimile transmission (with receipt confirmed by telephone or by automatic transmission report) as follows (or to such other address as may be specified in writing to the other party hereto): DepoTech Corporation 10450 Science Center Drive San Diego, CA 92121 Attention: President Facsimile: (619) 623-0376 Copy to: Brobeck, Phleger & Harrison LLP 550 West C Street, Suite 1300 San Diego, CA 92101 Attention: Faye H. Russell, Esq. Facsimile: (619) 234-3848 Pharmacia & Upjohn S.p.A. Via Robert Koch, 1.2 20152 Milano, Italy Attention: Managing Director Facsimile: +39 2 4838 2033 Copy to: Wiggin & Dana 301 Tresser Blvd. Stamford, CT 06901 Attention: James F. Farrington, Jr. Facsimile: (203) 363-7676 16.5 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement shall inure to the benefit of, and be binding upon, P&U, DepoTech, and their respective successors and 37 41 assigns; provided, that neither P&U nor DepoTech may transfer or assign any of its rights and obligations hereunder without the prior written consent of the other, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, either party may transfer or assign any of its rights and obligations hereunder to an Affiliate or a person that acquires all or substantially all of the assets of such party to which this Agreement relates or pursuant to a merger or consolidation. Each party shall notify the other within thirty (30) days prior to any such transfer, assignment, merger or consolidation. Any purported assignment in contravention of this Section 16.5 shall, at the option of the nonassigning party, be null and void and of no effect. 16.6 AMENDMENTS AND WAIVERS. No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure by P&U or DepoTech therefrom, shall in any event be effective, unless the same shall be in writing specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the party against whom enforcement of such amendment is sought, and each amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the party against whom enforcement of such variance, contradiction or explanation is sought. 16.7 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York (USA), without regard to its conflict of laws rules (and without limiting the foregoing, the United Nations Convention On Contracts for International Sale of Goods [1980] shall not govern this Agreement). 16.8 ATTORNEYS' FEES. Each party shall bear its own legal fees incurred in connection with the transactions contemplated hereby. 16.9 SEVERABILITY. If any provision hereof should be held invalid, illegal or unenforceable in any respect in any jurisdiction, then, to the fullest extent permitted by law, all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intentions of the parties hereto as nearly as may be possible; provided, that nothing herein shall be construed so as to defeat the overall intention 38 42 of the parties. 16.10 USE OF NAMES. Neither party shall use the name, trade name or trademark of the other party in connection with this Agreement without the express prior written consent of the other party, and nothing herein shall be deemed to require any party to use any name or mark of the other party in connection with commercialization of DepoCyt hereunder, except as set forth in this Agreement. 16.11 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original, and all of which counterparts, taken together, shall constitute one and the same instrument. 16.12 ENTIRE AGREEMENT. This Agreement, together with all exhibits and schedules attached hereto and all documents referred to herein, contains the entire agreement and understanding of the parties hereto, and supersedes any prior agreements or understandings between the parties with respect to the subject matter hereof including without limitation the letter of intent between the parties dated February 19, 1997. 16.13 EXPORT CONTROL. P&U agrees not to export, or allow the export or reexport of any DepoCyt outside the Territory. In addition, P&U agrees to comply with all export laws and regulations governing the import or export of DepoCyt within the Territory. [REMAINDER OF PAGE INTENTIONALLY BLANK] 39 43 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as an instrument under seal and delivered as of the date first above written. DEPOTECH CORPORATION /s/ Edward L. Erickson ----------------------------------------- By: Edward L. Erickson President and Chief Executive Officer PHARMACIA & UPJOHN S.P.A. /s/ Lamberto Andreotti --------------------------------- By: Lamberto Andreotti Managing Director 40 44 EXHIBIT A CLINICAL PLAN SEE ATTACHED 2 PAGES *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 41 45 EXHIBIT A CLINICAL PLAN EUROPE *** JAPAN *** PHASE V *** 46 DEPOTECH CORPORATION PU COST PROJECTION DEPOCYT (IN 000'S)
JAPAN TOTAL EUROPE TOTAL ------------------------------ ------------------------------ 1997 1998 1999 JAPAN 1997 1998 1999 EUROPE ------- ------- ------- -------- ------- ------- ------- -------- CLINICAL COSTS CRO Payments *** *** *** *** *** *** *** *** Toxicology Study *** *** *** *** *** *** *** *** Other *** *** *** *** *** *** *** *** ------------------------------ ---------- ------------------------------ ---------- Total ------------------------------ ---------- ------------------------------ ---------- REGULATORY SUPPORT Labor & Travel *** *** *** *** *** *** *** *** Regulatory Consulting *** *** *** *** *** *** *** *** ------------------------------ ---------- ------------------------------ ---------- Total ------------------------------ ---------- ------------------------------ ---------- MANUFACTURING *** *** *** *** *** *** *** *** REGULATORY FEES *** *** *** *** *** *** *** *** OVERHEAD *** *** *** *** *** *** *** *** ------------------------------ ---------- ------------------------------ ---------- TOTAL DEPOCYT ============================== ========== ============================== ==========
CANADA TOTAL TOTAL ------------------------------- 1997 1998 1999 CANADA EX-U.S. ------- ----- ------ ------- -------- CLINICAL COSTS CRO Payments *** *** *** *** *** Toxicology Study *** *** *** *** *** Other *** *** *** *** *** ------------------------------- ------------------------- Total ------------------------------- ------------------------- REGULATORY SUPPORT Labor & Travel *** *** *** *** *** Regulatory Consulting *** *** *** *** *** ------------------------------- ------------------------- Total ------------------------------- ------------------------- MANUFACTURING *** *** *** *** *** REGULATORY FEES *** *** *** *** *** OVERHEAD *** *** *** *** *** ------------------------------- ------------------------- TOTAL DEPOCYT =============================== =========================
47 EXHIBIT B DEPOTECH PATENT RIGHTS SEE THE ATTACHED FOUR PAGES All Patents marked with an asterisk are subject to the terms of the Assignment Agreement with RDF. 42 48 EXHIBIT B DEPOTECH PATENT RIGHTS All Patent marked with an asterisk (*) are subject to the terms of the Assignment Agreement with RDF.
- ----------------------------------------------------------------------------------------------------------------------------- DEPOTECH PATENTS AND APPLICATIONS COVERING DepoCyt(TM) - ----------------------------------------------------------------------------------------------------------------------------- Patent Application Title/Claims Patent Number Date of Country Status Expiration Date Issuance - ----------------------------------------------------------------------------------------------------------------------------- *"Multivesicular Liposomes Having A Biologically Expected USA Notice of Expected Active Substance Encapsulated therein in the Sept. 1997 Allowance Sept. 2011 presence of A Hydrochloride" - 43 Process Claims June 1997 - ----------------------------------------------------------------------------------------------------------------------------- *"Multivesicular Liposomes Having a Biologically Expected USA Notice of Expected Active Substance Encapsulated Therein in the Sept. 1997 Allowance Sept. 2011 presence of A Hydrochloride" -7 Composition June 1997 claims and 1 Method of Treatment Claim - ----------------------------------------------------------------------------------------------------------------------------- *"Multivesicular Liposomes Having A Biologically EPO Published Active Substance Encapsulated Therein in the 8/31/88 presence of A Hydrochloride" - 22 Process Claims - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 04/07/93 Austria Issued 2/23/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 602190 02/23/88 Australia Issued 2/23/2008 23 process claims, 5 method claims - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 04/07/93 Belgium Issued 2/23/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 1323568 10/26/93 Canada Issued 10/26/2010 23 process claims, 5 method claims - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 04/07/93 Switzerland Issued 2/23/2008 22 process claims - -----------------------------------------------------------------------------------------------------------------------------
49
- ----------------------------------------------------------------------------------------------------------------------------- DEPOTECH PATENTS AND APPLICATIONS COVERING DepoCyt(TM) - ----------------------------------------------------------------------------------------------------------------------------- Patent Application Title/Claims Patent Number Date of Country Status Expiration Date Issuance - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 04/07/93 Germany Issued 2/23/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 172057 10/16/97 Denmark Granted 2/23/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 04/07/93 EPC Granted 2/23/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 04/07/93 Spain Issued 2/23/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- *"Multivesicular Liposomes Having A Biologically 95439 02/12/96 Finland Issued 2/23/2008 Active Substance Encapsulated Therein in the presence of A Hydrochloride" - 22 Process Claims - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 4/07/93 France Issued 2/23/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 4/07/93 Great Britain Issued 2/23/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 4/07/93 Greece Issued 2/23/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 62221 1/11/95 Ireland Issued 2/23/2008 23 process claims, 1 method - -----------------------------------------------------------------------------------------------------------------------------
50
- ----------------------------------------------------------------------------------------------------------------------------- DEPOTECH PATENTS AND APPLICATIONS COVERING DepoCyt(TM) - ----------------------------------------------------------------------------------------------------------------------------- Patent Application Title/Claims Patent Number Date of Country Status Expiration Date Issuance - ----------------------------------------------------------------------------------------------------------------------------- *"Multivesicular Liposomes Having a Biologically 85509 6/30/92 Israel Issued 2/23/2008 Active Substance Encapsulated Therein in the presence of A Hydrochloride" - 22 Process and 3 Compositions Claims, 2 method claims" - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 4/07/93 Italy Issued 2/23/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " Japan Pending 22 process claims, 5 method claims - ----------------------------------------------------------------------------------------------------------------------------- * " South Korea Allowed 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 4/07/93 Luxembourg Issued 2/23/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 4/07/93 Netherlands Issued 2/23/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 174087 3/16/94 Norway Issued 2/22/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 223599 1/25/91 New Zealand Issued 2/22/2008 28 process claims, 6 method claims (from spec) - ----------------------------------------------------------------------------------------------------------------------------- * " 86805 5/29/92 Portugal Issued 2/22/2008 22 process claims - ----------------------------------------------------------------------------------------------------------------------------- * " 0280503 4/07/93 Sweden Issued 2/23/2008 22 process claims - -----------------------------------------------------------------------------------------------------------------------------
51
- ----------------------------------------------------------------------------------------------------------------------------- DEPOTECH PATENTS AND APPLICATIONS COVERING DepoCyt(TM) - ----------------------------------------------------------------------------------------------------------------------------- Patent Application Title/Claims Patent Number Date of Country Status Expiration Date Issuance - ----------------------------------------------------------------------------------------------------------------------------- *"Multivesicular Liposomes Having a Biologically 39083 05/01/90 Taiwan Issued 2/23/2008 Active Substance Encapsulated Therein in the presence of A Hydrochloride" - 22 Process Claims - ----------------------------------------------------------------------------------------------------------------------------- * " 88/1241 10/26/88 South Africa Issued 2/23/2008 22 process claims, 5 method claims - ----------------------------------------------------------------------------------------------------------------------------- "Method for treating Neurologic Disorders" - 4 US 5,455,044 10/03/95 USA Issued 10/03/2012 Method Claims - ----------------------------------------------------------------------------------------------------------------------------- "Method for treating Neurologic Disorders" - 5 US 5,576,018 11/19/96 USA Issued 11/19/2013 Method Claims - ----------------------------------------------------------------------------------------------------------------------------- "Method for treating Neurologic Disorders" - 47 Canada Pending Method Claims - ----------------------------------------------------------------------------------------------------------------------------- " Japan Pending - ----------------------------------------------------------------------------------------------------------------------------- DepoCyt "Species" patent - narrow species To be filed 2Q97 in the US, patent to cover DepoCyt formulation and PCT, and other countries oncology uses for this formulation - -----------------------------------------------------------------------------------------------------------------------------
52 EXHIBIT C SPECIFICATIONS FOR VIALED MATERIAL AND DEPOCYT SEE THE ATTACHED 2 PAGES 43 53 EXHIBIT C SPECIFICATIONS FOR VIALED MATERIAL AND DEPOCYT (AS OF 11/22/97 PRE-NDA SUBMISSION) *** *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 44 54 EXHIBIT C TENTATIVE MODIFICATIONS TO DEPOCYT SPECIFICATIONS TO COMPLY WITH EU REQUIREMENTS *** *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 45 55 EXHIBIT D ANNUAL SALES FORECAST Set forth below is P&U's non-binding forecast of its estimated sales of DepoCyt for the *** following the First Commercial Sale in the ***. Such estimated requirements are based on the following assumptions: 1. *** 2. The Initial Indication is ***. 3. Sales price is *** per vial, and ***. 4. Approved labeling contains ***. SALES IN *** Country Year 1 Year 2 Year 3 ------- ------ ------ ------ *** *** *** *** TOTAL *** *** *** *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 46 56 EXHIBIT E ADDITIONAL TERMS AND CONDITIONS OF SALE 1. QUANTITY; FORECASTS; ORDER PROCEDURE. 1.1 P&U agrees to purchase the Vialed Material in production batch quantities (approximately *** vials) or multiples thereof. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 47 57 1.2 Within 30 days after submission of the first NDA in the EU, P&U shall deliver to DepoTech a non-binding, good-faith *** forecast of purchases of Vialed Material (such forecast shall be provided within 60 days from the date hereof in respect to Canada). Beginning on the first day of the *** which is *** immediately prior to the *** in which the First Commercial Sale of DepoCyt in the Territory is projected to occur, P&U shall provide to DepoTech a rolling forecast of purchases of Vialed Material for the following ***, including desired delivery dates. Thereafter, P&U shall provide such rolling forecast to DepoTech every *** during the term of this Agreement. The first *** of each rolling forecast shall be a firm order by P&U, against which DepoTech is authorized to institute production and P&U is authorized to give shipping orders. The total amount of Vialed Material ordered by P&U for delivery in the first *** of such forecast shall be not less than *** (the "Minimum Order Amount") or more than *** (the "Maximum Order Amount") of the most recent forecast for Vialed Material for such ***. If P&U's requirement hereunder for any quarter exceeds the Maximum Order Amount, DepoTech and P&U will discuss in good faith the additional amount which DepoTech will be able to supply consistent with its other obligations and P&U will adjust its order accordingly. P&U shall indemnify DepoTech and reimburse it promptly upon request for all reasonable out-of-pocket costs and expenses, including the cost of carrying increased inventory, to the extent caused by any P&U failure to order at least the Minimum Order Amount, and DepoTech shall act reasonably to mitigate any such costs and expenses. To the extent DepoTech fails to deliver Vialed Material in the quantities required under this Paragraph 1.2 or within the time period required under Paragraph 2.1 below, the Supply Price for such Vialed Material shall be *** of the amount otherwise due. P&U shall exercise reasonable efforts to level load its production requirements in recognition of DepoTech's finite capacity and the lead times necessary for production. 1.3 Vialed Material shall be ordered on P&U or its designees' standard purchase order forms. The only function of the purchase order is to set forth the quantities of Vialed Material desired by the desired delivery dates for the quantity of Vialed Material ordered and shipping destination of Vialed Material. Within five (5) business days, DepoTech shall either acknowledge receipt of the purchase order on DepoTech's standard acknowledgment form, or contact P&U about DepoTech's ability to supply quantities of Vialed Material in excess of the forecast, and/or alternative ship dates which shall be agreed to in writing using the purchase order form and acknowledgment form. Except as otherwise set forth above, the only function of DepoTech's acknowledgment form is to acknowledge receipt of the purchase order. All other terms and conditions of either the purchase orders or the acknowledgment forms are void and of no effect, and the terms and conditions of this Agreement shall control. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 48 58 1.4 P&U's forecasts and purchase orders shall reflect its good faith expectations of customer demand and P&U shall act in a commercially reasonable manner to schedule orders to avoid creating production capacity problems for DepoTech. 2. DELIVERY. 2.1 Vialed Material shall be delivered to P&U DDP (INCOTERMS 1990) P&U's warehouses in the Territory within five (5) business days of the applicable delivery dates set forth in the purchase orders. All customs, duties, costs, taxes, insurance premiums and other expenses relating to such transportation and delivery shall be at DepoTech's expense. All Vialed Material shall be delivered with a remaining shelf life of at least ***. If technically feasible and approved by the appropriate Regulatory Authority, the shelf life shall be increased to *** (including *** of inventory held by DepoTech under the Agreement) after completion of required stability tests. 2.2 DepoTech shall package Vialed Material for delivery to P&U according to the Specifications. DepoTech shall include with each shipment copies of all applicable quality and testing records, which shall be in a form acceptable for the appropriate Regulatory Authorities. 3. SPECIFICATIONS. Either of the parties shall have the right to request changes to the Specifications. Such request shall be made in writing. No change shall be implemented by either party, whether requested by a party or by a Regulatory Authority, until the parties have mutually agreed in writing to such change and the implementation date of such change, subject to the receipt of any necessary approvals by a Regulatory Authority. The reasonable costs incurred to implement such changes to the Specifications shall be borne as follows: (a) in the event the change to the Specifications is requested by *** and requires a change in the NDA, *** shall bear all such costs; (b) in the event the change to the Specifications is required by *** shall bear all such costs; and (c) in the event the change to the Specifications is otherwise required by ***. Notwithstanding the foregoing, DepoTech shall be solely responsible for any changes to the Specifications required to obtain approvals of NDAs to sell DepoCyt in the EU, Canada and Japan. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the commission. 49 59 4. NONCONFORMING VIALED MATERIAL. 4.1 P&U may reject any shipment of Vialed Material which is not conforming with the Specifications. In order to reject a shipment, P&U must (i) give notice to DepoTech of P&U's intent to reject the shipment within sixty (60) days of receipt together with a detailed written indication of the reasons for such possible rejection, and (ii) as promptly as reasonably possible thereafter but in any event within an additional thirty (30) days, provide DepoTech with notice of final rejection and the full basis therefor. After notice of intention to reject is given, P&U shall cooperate with DepoTech in determining whether rejection is necessary or justified. If no such notice of intent to reject is timely received, P&U shall be deemed to have accepted such delivery of Vialed Material. DepoTech shall notify P&U as promptly as reasonably possible whether it accepts P&U's basis for any rejection. DepoTech shall promptly replace all Vialed Material properly rejected, at its expense. 4.2 Unless DepoTech requests the return to it of a rejected batch within sixty (60) days of receipt of P&U's notice of rejection, P&U shall destroy such batch promptly, at DepoTech's expense, and provide DepoTech with certification of such destruction. P&U shall, upon receipt of DepoTech's request for return, promptly dispatch said batch to DepoTech, at DepoTech's cost. 5. DEPOTECH AND P&U DUTIES. 5.1 P&U shall: (a) order and receive labeling and other packaging supplies from vendors; (b) package and label Vialed Material for sale to Third Parties in accordance with the Specifications; (c) perform identity testing of Vialed Material and final release testing of DepoCyt in accordance with all applicable regulatory requirements and agreed testing procedures, including the use of a "qualified person" (as required by EU Directive 75/319/EEC; Article 21 or any successor regulation); (d) ascertain and comply with all applicable laws and regulations and standards of industry or professional conduct in connection with the use, distribution or promotion of DepoCyt, including without limitation, those applicable to product claims, labeling, approvals, registrations and notifications; and (e) keep for five (5) years after termination of this Agreement (or such other period of time required by the Regulatory Authority in each country in the Territory) records of all DepoCyt sales and customers sufficient to adequately administer a recall of DepoCyt and to fully cooperate (at P&U's expense) in any decision by the parties to recall, retrieve and/or replace DepoCyt; (f) immediately notify DepoTech of any ADEs or any other unexpected results or any actual or potential government action relevant to DepoCyt and, if and to the extent requested by DepoTech in writing, to suspend distribution of DepoCyt; (g) retain under proper storage conditions such samples of DepoCyt as are required to comply with the general retention requirements as specified in cGMPs; and (h) participate and cooperate with DepoTech representatives who may, upon reasonable prior notice and in a reasonable manner, audit P&U facilities and records, and promptly 50 60 take reasonable corrective action as may be required by DepoTech to comply with cGMP requirements, and when requested by DepoTech, describe in writing appropriate corrective action planned or taken. 5.2 DepoTech shall: (a) be responsible for supplying Vialed Material; (b) promptly notify P&U of any problems or unusual production situations which have the potential to adversely affect production of Vialed Material, or its timely delivery to P&U or its designee; (c) perform quality assurance final product release of the Vialed Material in accordance with all applicable regulatory requirements and agreed testing procedures; (d) provide a Certificate of Analysis to P&U; (e) immediately notify P&U of any ADEs or any other unexpected results or any actual or potential government action relevant to Vialed Material or DepoCyt and, if and to the extent requested by P&U in writing, to suspend its manufacture of Vialed Material; (f) keep for five (5) years after termination of this Agreement (or such other period of time required by the Regulatory Authority in each country in the Territory) records of all DepoCyt sales and customers sufficient to adequately administer a recall of DepoCyt and to fully cooperate (at DepoTech's expense) in any decision by the parties to recall, retrieve and/or replace DepoCyt; (g) ascertain and comply with all applicable laws and regulations and standards of industry or professional conduct in connection with the manufacture of Vialed Material and the conduct of the Clinical Trials, including without limitation, those applicable to approvals, registrations and notifications; (h) assist P&U in complying with all applicable laws and regulations by providing all relevant Know How in its possession, including material safety data sheets and other information about chemical and physical characteristics of DepoCyt and the Vialed Material; (i) retain under proper storage conditions such samples of Vialed Material as are required to comply with the general retention requirements as specified in GMPs; (j) perform stability testing as described in an approved stability protocol and report any out of specification test results to P&U within three (3) business days and report annually to P&U all stability test results; (k) participate and cooperate with P&U representatives who may, upon reasonable prior notice and in a reasonable manner audit DepoTech facilities and records and promptly take reasonable corrective action as may be required by P&U to comply with cGMP requirements and when requested by P&U describe in writing appropriate corrective action planned or taken; (l) immediately notify P&U of any incident or data of which it becomes aware that could result in a recall; and (m) Assure that penicillin or penicillin containing products will not be received, stored, handled, dispensed, manufactured or packaged in the same facility(ies) or in facilities that share a common Heating, Ventilation and Air Conditioning systems or utilize the same equipment in the manufacture or handling of the components, raw materials or 51 61 packaging as Vialed Material. 6. TAXES. DepoTech shall pay any and all taxes levied on account of the Supply Price or other payments it receives under this Agreement. If laws or regulations require that taxes be withheld, P&U shall (a) deduct these taxes from the remittable amount, (b) pay the taxes to the proper taxing authority, and (c) send proof of payment to DepoTech within forty-five (45) days following that payment. P&U shall cooperate with DepoTech to claim exemption from such withholdings under any double taxation treaty or similar agreement in force from time to time and shall endeavor to secure any such exemptions before payments are made hereunder. 7. BLOCKED CURRENCY. If at any time legal restrictions in any country in the Territory prevent the prompt remittance of part or all of any amounts owing to DepoTech hereunder, then P&U shall, at DepoTech's election, either (a) have no obligation to pay such amounts to DepoTech for the period such restrictions remain in place, and shall thereafter pay such amounts to DepoTech, or (b) pay such amounts in such country in local currency by deposit in a local bank designated by DepoTech. P&U shall, during the period that its obligation to make payments directly to DepoTech is suspended pursuant to this Section, exert commercially reasonable efforts to cause such amounts to be remitted to DepoTech. 8. COMPLAINTS. Each party shall maintain a record of all complaints it receives with respect to DepoCyt. Each party shall notify the other of any complaint received by it in sufficient detail and within five (5) business days after the event, and in any event in sufficient time to allow the responsible party to comply with any and all regulatory requirements imposed upon it in any country in the Territory. 9. DATA SHARING AND ADVERSE DRUG EVENTS. The parties recognize that the holder of an NDA may be required to submit information and file reports to various governmental agencies on DepoCyt. Information must be submitted at the time of initial filing for investigational use in humans and at the time of a request for market approval of a new drug. In addition, supplemental information must be provided on compounds at periodic intervals and adverse drug experiences ("ADE") must be reported at more frequent intervals depending on the severity of the experience. Consequently, each party agrees to follow P&U's standard operating procedures for the reporting of ADEs and to: (a) provide to the other for initial and/or periodic submission to a Regulatory Authority significant information on DepoCyt from preclinical laboratory, animal toxicology and pharmacology studies, as well as adverse drug experience reports from clinical trials and commercial experiences with DepoCyt; 52 62 (b) report to the other within three (3) calendar days of the initial receipt of a report of any fatal or life-threatening adverse reaction with DepoCyt, or sooner if required for either party to comply with regulatory requirements; and (c) report to the other within five (5) business days of the initial receipt of a report of any adverse reaction with DepoCyt that is serious and unexpected or sooner if required for either party to comply with regulatory requirements; and (d) send to the other a list with any other serious (expected) adverse reaction with DepoCyt monthly or sooner if required for either party to comply with regulatory requirements. "Serious adverse reaction" means any drug-related event that: results in death; is life-threatening (i.e. results in an immediate risk of death); requires inpatient hospitalization or prolongation of existing hospitalization (for treating the event); results in persistent or significant disability/incapacity; is a congenital anomaly/birth defect or a new cancer; is an inadvertent medication overdose (irrespective of whether it gives signs/symptoms or not). In addition, any other drug-related event the Investigator judges to be serious can also be considered a serious adverse reaction. An unexpected adverse reaction is one not identified in nature, specificity, severity or frequency in the current investigator brochure or the U.S. labeling for DepoCyt. Each party also agrees that if it contracts with a Third Party for research, development or marketing to be performed by such Third Party on DepoCyt, that party agrees to require such Third Party to report to the contracting party the information set forth in subparagraphs (a), (b), (c) or (d) above. Furthermore, DepoTech will facilitate the coordination the reporting of such information directly between P&U and Chiron. 10. WARRANTIES. 10.1 DEPOTECH'S WARRANTIES. DepoTech warrants to P&U that DepoCyt, upon receipt of the Certificate of Analysis, (i) will conform in all respects to the Specifications, as then in effect, and the Act, (ii) will not be adulterated, misbranded or mislabeled within the meaning of the Act; and (iii) was manufactured in accordance with all applicable GMP. Should any failure to conform with such warranties appear prior to the expiration date of any Vialed Material (whether discovered by P&U, its Affiliates, or their distributors or customers), and if given prompt written notice by P&U, DepoTech shall correct such nonconformity, at its option, by (a) replacement of the nonconforming Vialed Material, or (b) refund of the Supply Price. 10.2 P&U'S WARRANTIES. P&U warrants to DepoTech that it will not adulterate, misbrand or mislabel DepoCyt within the meaning of the Act. 10.3 LIMITATION OF LIABILITY. A PARTY'S SOLE AND EXCLUSIVE REMEDY FOR ANY BREACH OF THE FOREGOING WARRANTIES BY THE OTHER PARTY SHALL BE ITS RIGHTS SET FORTH ABOVE AND ITS RIGHTS UNDER ARTICLE 13 OF THE AGREEMENT. EXCEPT FOR THE FOREGOING WARRANTIES, NEITHER PARTY WARRANTS THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF DEPOCYT OR THE PERFORMANCE OR NONINFRINGEMENT THEREOF, MAKES ANY WARRANTY, EXPRESS OR IMPLIED, WITH 53 63 RESPECT TO DEPOCYT, SPECIFICATIONS, SUPPORT, SERVICE OR ANYTHING ELSE AND MAKES ANY WARRANTY TO P&U'S CUSTOMERS OR AGENTS. DEPOTECH HAS NOT AUTHORIZED ANYONE TO MAKE ANY REPRESENTATION OR WARRANTY OTHER THAN AS PROVIDED ABOVE. THE FOREGOING LIMITATIONS OF WARRANTIES SHALL NOT IN ANY WAY LIMIT A PARTY'S RIGHTS UNDER ARTICLE 13 OF THE AGREEMENT. 11. INSPECTION. 11.1 Prior to commencement of manufacture and/or packaging of DepoCyt, and at least once during each year, each party shall permit the other party or its designated representative to review such party's licenses and permits relating to the facilities and operations utilized by such party in the manufacture and/or packaging of DepoCyt. Such review shall be conducted during regular business hours, on mutually agreeable dates. 11.2 In the event that either party's facilities used for the production of Vialed Material or DepoCyt are the subject of an inspection by any duly authorized agency of the federal, state, local or any foreign government, such party shall thereafter notify the other party immediately (by telephone and, if possible, in writing) upon learning of such inspection, and shall supply the other party with copies of any correspondence or portions of correspondence which relate to Vialed Material or DepoCyt. Such other party may send representatives to the manufacturing facility and may participate fully in any portion of such inspection relating to Vialed Material or DepoCyt. In the event either party receives (or has received in the past 12 months) any regulatory letter or written comments from any Regulatory Agency in connection with its manufacture of Vialed Material, including but not limited to receipt of a Form 483 (Inspectional Observations) or a Warning Letter, it shall provide the other party with a copy of each such communication and the proposed response. 11.3 To the extent applicable to it, each party shall maintain all manufacturing and analytical records, all records of shipments of Vialed Material and DepoCyt, and all validation data relating to Vialed Material for the time periods required by applicable laws and regulations and shall make such data available to the EMEA (or other Regulatory Authority) upon the other party's request or if required by law. 12. REGULATORY COMPLIANCE. Each party shall comply in all respects with the requirements of the Act, all other applicable laws and the Specifications, then in effect. 13. ENVIRONMENTAL. Each party shall identify to the other party all haulers and disposal sites utilized for disposal of Vialed Material or DepoCyt and such party shall permit, or cause those with whom such party contracts for the disposal of waste to permit the other party or its designated representative to visit all disposal sites for Vialed Material or DepoCyt. 54 EX-10.2 3 EXHIBIT 10.2 1 EXHIBIT 10.2 [CONFORMED COPY] STOCK PURCHASE AGREEMENT by and between DEPOTECH CORPORATION, and ROSS FINANCIAL CORPORATION Dated as of September 10, 1997 2 TABLE OF CONTENTS
Page ---- I. PURCHASE AND SALE.......................................................................1 1.1. Purchase and Sale......................................................1 1.2. Purchase Price.........................................................1 1.3. Closing................................................................2 II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................3 2.1. Due Organization, etc..................................................3 2.2. Compliance with Law....................................................3 2.3. Authorization; Execution and Delivery of Agreement.....................4 2.4. No Conflict; No Consent................................................4 2.5. Capital Stock..........................................................5 2.6. SEC Reports............................................................6 2.7. Financial Statements...................................................6 2.8. No Brokers.............................................................7 III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.......................................7 3.1. Due Organization, etc..................................................7 3.2. Authorization; Execution and Delivery of Agreement.....................7 3.3. No Conflict; No Consent................................................8 3.4. No Brokers.............................................................8 3.5. Investment Purposes....................................................8 IV. COVENANTS OF THE COMPANY..............................................................10 4.1. Preemptive Rights.....................................................10 4.2. Exchange of Stock Certificates........................................11 4.3. Lost, Stolen, Destroyed or Mutilated Stock Certificates...............11 V. COVENANTS OF THE PURCHASER AND THE COMPANY.............................................12 5.1. Public Disclosure and Confidentiality.................................12 5.2. Restrictions on Transfer..............................................12 5.3. Efforts to Consummate; Further Actions................................13 VI. REGISTRATION RIGHTS...................................................................13 6.1. "Piggyback" Registration..............................................13 6.2. Demand Registration...................................................15 6.3. General Provisions....................................................15 6.4. Information, Documents, Etc...........................................17
i 3 6.5. Expenses..............................................................17 6.6. Cooperation...........................................................18 6.7. Action to Suspend Effectiveness; Supplement to Registration Statement...........................................................19 6.8. Indemnification.......................................................21 VII. INDEMNIFICATION......................................................................27 7.1. Indemnification by the Company........................................27 7.2. Indemnification by the Purchaser......................................27 VIII. TERMINATION........................................................................27 8.1 Termination............................................................27 IX. GENERAL PROVISIONS....................................................................29 9.1. Survival of Representations, Warranties and Agreements................29 9.2. Notices...............................................................29 9.3. General...............................................................30 9.4. Governing Law.........................................................31 9.5. Severability of Provisions............................................31 9.6. Captions..............................................................31 9.7. Expenses..............................................................31 9.8. Equitable Relief......................................................32 9.9. Definitions...........................................................32
ii 4 STOCK PURCHASE AGREEMENT (this "Agreement") dated as of September 10, 1997 by and between DEPOTECH CORPORATION, a California corporation (the "Company"), and ROSS FINANCIAL CORPORATION a Cayman Islands corporation (the "Purchaser"). WHEREAS, the Purchaser wishes to purchase from the Company, and the Company wishes to sell to the Purchaser, one million (1,000,000) shares (the "Shares") of the Company's authorized but unissued common stock, no par value (the "Common Stock"), at a price of fourteen and 0.625 dollars ($14.625) per share of Common Stock; WHEREAS, the Purchaser and the Company are entering into this Agreement to provide for such purchase and sale and to establish various rights and obligations in connection therewith; NOW THEREFORE, in consideration of these premises and for other good and valuable consideration, the parties hereto hereby agree as follows: I. PURCHASE AND SALE 1.1. Purchase and Sale. Upon the terms and subject to the conditions set forth in this Agreement, the Company agrees to issue, sell and deliver to the Purchaser, and the Purchaser agrees to purchase from the Company, 1,000,000 Shares. The Shares purchased and sold hereunder shall be free and clear of any liens, security interests, pledges, voting agreements, claims, options and encumbrances of every kind, character and description whatsoever ("Encumbrances"), except as contemplated by this Agreement. 1.2. Purchase Price. As consideration for the sale of the Shares, at the Closing (as hereinafter defined) the Purchaser shall pay to the Company in immediately available funds 1 5 by wire transfer, a purchase price of $14,625,000 to an account designated by the Company in writing prior to the date hereof. 1.3. Closing. (a) On the terms and subject to the conditions of this Agreement, the purchase and sale of the Shares pursuant to this Agreement shall take place at the offices of Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York, 10006 at 10:00 a.m. (New York time) on September 11, 1997 or as soon thereafter as practicable. The consummation of the purchase and sale transactions described in this Section 1.3 are hereinafter referred to collectively as the "Closing." The date on which the Closing occurs is hereinafter referred to as the "Closing Date." (b) Company Closing Deliveries. At the Closing, the Company will deliver to the Purchaser the following: (i) a stock certificate or certificates representing the Shares; and (ii) a certificate of the Secretary of the Company certifying as to the adoption and effect of resolutions of the Board of Directors of the Company (the "Board") authorizing the execution, delivery and performance of this Agreement. (c) Purchaser Closing Deliveries. At the Closing, the Purchaser will deliver to the Company the following: (i) a certificate of an authorized officer of the Purchaser certifying as to the adoption and effect of resolutions of the Purchaser authorizing the execution, delivery and performance of this Agreement; and (ii) payment of the purchase price provided by Section 1.2. 2 6 II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 2.1. Due Organization, etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of California, and it has all requisite corporate or other necessary power and authority to own, operate and lease its respective properties and assets and to conduct its respective businesses as now conducted and is qualified to do business in each state or other jurisdiction where the nature of its properties, assets or businesses requires such qualification other than where the failure to be so qualified would not have a material adverse effect on the condition (financial or otherwise), business, operations, properties, assets or liabilities of the Company (a "Material Adverse Effect"). The Company has no subsidiaries. 2.2. Compliance with Law. The Company has obtained and maintains in full force and effect all permits, licenses, consents, approvals, registrations, memberships, authorizations and qualifications under all federal, state, local and foreign laws and regulations, and with all Authorities, required for the conduct by it of its business and the ownership or possession by it of its properties and assets other than where the failure to obtain or maintain such permits, licenses, consents, approvals, registrations, memberships, authorizations or qualifications would not, individually or in the aggregate, have a Material Adverse Effect. The Company is in compliance with all laws, regulations, ordinances, orders and decrees (including, without limitation, all environmental and occupational, health and safety laws) of any federal, state, local or foreign governmental or regulatory authority (an "Authority") applicable to the conduct by the Company of its business and to its ownership and possession of its properties and assets, other than where the failure so to comply would not, individually or in the aggregate, have a Material Adverse Effect. 3 7 2.3. Authorization; Execution and Delivery of Agreement. (a) The execution and delivery of this Agreement, the issuance and sale of the Shares to the Purchaser and the consummation of the transactions contemplated hereby (i) do not require the approval or consent of any stockholders of the Company and (ii) have been duly authorized by all necessary corporate action on the part of the Company for all purposes. This Agreement has been duly executed and delivered by the Company and this Agreement constitutes the legal, valid, binding and enforceable obligation of the Company, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. The Company has full corporate power and authority to enter into this Agreement and to perform its obligations hereunder. (b) The Shares have been duly authorized by all necessary corporate action on the part of the Company, and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration therefor set forth herein, the Shares will be validly issued, fully paid and non-assessable. The Purchaser will acquire valid and marketable title to the Shares, free and clear of any Encumbrances except as contemplated by this Agreement. 2.4. No Conflict; No Consent. The execution and delivery of this Agreement, the issuance and sale of the Shares to the Purchaser and the consummation of the transactions contemplated hereby do not, and will not, conflict with, or result in any violation of or default under, or permit the acceleration of any obligation under, or the creation or imposition of any Encumbrance on any of the properties or assets of the Company under, (i) any provision of the articles of incorporation or by-laws or similar constituent documents of the Company, (ii) any indenture, lease, mortgage, deed of trust, loan agreement or other agreement or instrument, or 4 8 any permit, license, registration, membership, authorization or qualification from any Authority, of the Company or (iii) any judgment, order, decree, statute, law, ordinance, rule or regulation of any Authority to which the Company is a party or by which it is bound, other than, in the case of clause (ii) above, where such conflict, violation, default, acceleration or Encumbrance would not, individually or in the aggregate, have a Material Adverse Effect. No consent, approval, order or authorization of, or registration, declaration, filing with or notice to, any Authority or third party is required to be made or obtained by the Company (including, without limitation, under any environmental or occupational, health and safety laws) in order to execute or deliver this Agreement, issue and sell the Shares or to consummate the transactions contemplated hereby, other than as a result of the periodic reporting requirements under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or except where the failure to make or obtain any such consent, approval, order, authorization, registration, declaration, filing or notice would not have a Material Adverse Effect. 2.5. Capital Stock. (a) The authorized capital stock of the Company consists of thirty million (30,000,000) shares of Common Stock, no par value, of which, as of June 30, 1997, thirteen million one hundred and fifty five thousand, two hundred and seventy nine (13,155,279) shares were outstanding and no shares were held in treasury and two million seven hundred and twenty six thousand, seven hundred and ninety three (2,726,793) shares are reserved for future issuance pursuant to any option, warrant or other rights agreement, arrangement or other commitment. All of the issued and outstanding shares of Common Stock have been validly issued and are fully paid and non-assessable. (b) (i) Other than this Agreement or as set forth in SEC Reports (as defined hereinafter), there are not authorized or outstanding any subscriptions, options, conversion rights, 5 9 warrants or other agreements, securities or commitments of any nature whatsoever (whether oral or written and whether firm or conditional) obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, to any Person any shares of Common Stock or any other shares of the capital stock of the Company or any securities convertible into or exchangeable for any such shares, or obligating any such Person to grant, extend or enter into any such agreement or commitment; and (ii) except as set forth in SEC Reports, there is no obligation, contingent or otherwise, of the Company to repurchase, redeem or otherwise acquire any share of capital stock or other equity interests of the Company. 2.6. SEC Reports. The Company has filed with the Securities and Exchange Commission (the "Commission") all proxy statements, reports, forms and other documents required to be filed by it after January 1, 1995 under the Exchange Act (collectively, the "SEC Reports"). As of their respective dates, the SEC Reports (i) complied as to form in all material respects with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2.7. Financial Statements. (a) The financial statements (including any related notes) included in the SEC Reports (the "Financial Statements") have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved (except as may be noted therein) and fairly present the consolidated financial condition, results of operations and cash flows of the Company as of the dates thereof and for the periods ended on such dates (in each case subject, as to interim statements, to changes resulting from year-end adjustments (none of which were or, except as otherwise disclosed to the 6 10 Purchaser in writing, will be material in amount or effect) and except as permitted by Form 10-Q pursuant to Section 13 or 15(d) of the Exchange Act). (b) On the date hereof, except as disclosed in the SEC Reports, the Company has no liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due and whether or not required to be disclosed in the SEC Reports, other than liabilities that have been disclosed to the Purchaser in writing, have been incurred in the ordinary course of business or are not in the aggregate material to the Company. 2.8. No Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of the Company. III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Company that: 3.1. Due Organization, etc. The Purchaser is a corporation duly organized and validly existing under the laws of the Cayman Islands. The Purchaser has no direct or indirect subsidiaries. 3.2. Authorization; Execution and Delivery of Agreement. The Purchaser has all requisite power and authority to execute this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Purchaser. This Agreement has been duly executed and delivered by the Purchaser and this Agreement constitutes the legal, valid, binding 7 11 and enforceable obligation of the Purchaser, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. 3.3. No Conflict; No Consent. The execution and delivery of this Agreement, the issuance and sale of the Shares to the Purchaser and the consummation of the transactions contemplated hereby do not, and will not, conflict with, or result in any violation of or default under, or permit the acceleration of any obligation under, or the creation or imposition of any Encumbrance on any of the properties or assets of the Purchaser under, (i) any provision of the charter and by-laws or similar constituent documents of the Purchaser, (ii) any indenture, lease, mortgage, deed of trust, loan agreement or other agreement or instrument, or any permit, license, registration, membership, authorization or qualification from any Authority, of the Purchaser or (iii) any judgment, order, decree, statute, law, ordinance, rule or regulation of any Authority to which the Purchaser is a party or by which it is bound, other than, in the case of clause (ii) above, where such conflict, violation, default, acceleration or Encumbrance would not, individually or in the aggregate, have a Purchaser Material Adverse Effect. Other than as a result of the reporting requirements of the Exchange Act, no consent, approval, order or authorization of, or registration, declaration, filing with or notice to, any Authority is required to be made or obtained by the Purchaser in order to execute or deliver this Agreement or to consummate the transactions contemplated hereby. 3.4. No Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of the Purchaser. 3.5. Investment Purposes. (a) The Purchaser, by reason of its business and financial experience, has such knowledge, sophistication and experience in business and financial 8 12 matters as to be capable of evaluating the merits and risks of its investment in the Shares, and is purchasing the Shares hereunder for its own account, for investment only and not with a view to, or any present intention of, effecting a distribution of such securities or any part thereof. The Purchaser acknowledges that the Shares to be purchased hereunder have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any state or other jurisdiction and cannot be disposed of unless they are subsequently registered under the Securities Act and any applicable state laws or exemption from such registration is available. Furthermore, the Purchaser acknowledges that the Company shall place upon each certificate representing the Shares, a legend substantially in the following form: "The securities represented by this certificate have been issued without registration or qualification under the Securities Act of 1933, as amended (the "Securities Act"), or any applicable state securities laws (the "State Acts"). Such securities may not be sold, assigned, transferred or otherwise disposed of, beneficially or on the records of the company, unless the securities represented by this certificate have been registered or qualified under the Securities Act and the applicable State Acts or there has been delivered to the company an opinion of counsel, reasonably satisfactory to the company, to the effect that such registration and qualification are not required." (b) The Purchaser is an "accredited investor" as that term is defined in Rule 501 promulgated under the Securities Act. (c) The Purchaser or its representative has had the opportunity to ask questions and to receive answers concerning the financial condition, operations and prospects of the Company and the terms and conditions of the Purchaser's investment, as well as the opportunity to obtain any additional information necessary to verify the accuracy of information furnished in connection therewith that the Company possesses or can acquire without unreasonable effort or expense. 9 13 IV. COVENANTS OF THE COMPANY The Company covenants and agrees that: 4.1. Preemptive Rights. The Company shall not issue, reissue or otherwise dispose of any shares of Common Stock or any securities convertible into, or any rights, warrants or options to acquire, shares of Common Stock, without affording the Purchaser the preemptive right to acquire such shares of Common Stock or other securities in proportion to its then-existing holdings of outstanding shares of Common Stock, on the same terms and conditions and for the same consideration as the Company proposes to issue such shares of Common Stock or other securities to Persons other than the Purchaser; provided, however, that the provisions of this Section 4.1 shall not apply to any of the following: (a) shares of Common Stock issued on a pro rata basis pursuant to a stock split, subdivision or dividend; (b) shares of Common Stock issued in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise; (c) shares of Common Stock issued to a corporation, partnership, educational institution or other entity in connection with a research and development partnership or licensing or other collaborative arrangement between the Company and such institution or entity; or (d) shares of Common Stock (or options, warrants or other rights to purchase such shares of Common Stock) issuable or issued to employees, consultants or directors of this corporation, upon the express approval of the Board of Directors, whether issued or issuable after the Closing Date; 10 14 and provided, further, however, that the aggregate number of shares of Common Stock issued pursuant to Sections 4.1(a), 4.1(b) and 4.1(c) shall not exceed, on a cumulative basis, ten percent (10%) of the outstanding shares of Common Stock as of the date hereof. As used herein, "Person" means any individual, partnership, joint venture, firm, corporation, association, trust or other entity or any government or political subdivision or agency, department or instrumentality thereof. 4.2. Exchange of Stock Certificates. Promptly upon surrender of any certificates representing Shares at the office of the Company, the Company will, at its expense, execute and deliver to the Purchaser a new certificate or certificates in denominations specified by the Purchaser for an aggregate number of Shares equal to the number of Shares represented by the certificates surrendered. 4.3. Lost, Stolen, Destroyed or Mutilated Stock Certificates. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any certificate for Shares and, in the case of loss, theft or destruction, upon delivery of an indemnity satisfactory to the Company (which, in the case of the Purchaser may be an undertaking by the Purchaser to so indemnify the Company), or, in the case of mutilation, upon surrender and cancellation thereof, the Company will issue a new certificate of like tenor for a number of Shares equal to the number of Shares represented by the certificate lost, stolen, destroyed or mutilated. 4.4. Poison Pill. The Company shall not adopt a shareholder rights plan, poison pill or similar device, nor shall it adopt any provision in its articles of incorporation, by-laws or other constituent document which (a) prohibits the acquisition of shares beyond a specific threshold by a shareholder or (b) provides benefits to other shareholders upon the 11 15 acquisition by a shareholder of shares in excess of a specific threshold, unless such rights plan, poison pill or similar device includes, as an express term thereof, an exemption for the Purchaser from (i) the prohibition of the acquisition of shares or (ii) the effect triggered by an acquisition of shares in excess of a specific threshold and the Company shall not amend any such rights plan, poison pill or similar device or its articles of incorporation, by-laws or other constituent document to remove the exemption granted the Purchaser herein. V. COVENANTS OF THE PURCHASER AND THE COMPANY 5.1. Public Disclosure and Confidentiality. Each party hereby agrees that, prior to the Closing, except as required by applicable law (or under the rules and regulations of the Nasdaq Stock Market (or any national securities exchange on which the Common Stock is listed)), no press release or public announcement or communication will be made or caused to be made concerning the execution or performance of this Agreement, the terms hereof or the transactions contemplated hereby unless specifically approved in advance by both parties. In the event that a party views disclosure as required by applicable law (or the rules and regulations of the Nasdaq Stock Market or any such national stock exchange) as contemplated by the previous sentence, such disclosing party shall provide a copy of such disclosure to the other party within a reasonable period of time prior to such disclosure. 5.2. Restrictions on Transfer. (a) The rights contained in this Agreement, including the registration rights, may be transferred by the Purchaser only to one of its "Affiliates", as determined under Rule 12b-2 of the General Rules and Regulations under the Exchange Act. Prior to such transfer, the Company shall be furnished with prior written notice of the name and address of such transferee, the Company shall give its prior written consent to 12 16 such transfer, which consent shall not be unreasonably withheld, and such transferee shall agree to be bound by the terms and provisions of this Agreement. (b) Except pursuant to the requirements of Rule 144, the Shares may not be sold or otherwise disposed of except as follows: (i) to a person or persons who, in the opinion of counsel reasonably satisfactory to the Company, is a person to whom the Shares may legally be transferred without registration and without the delivery of a current prospectus with respect thereto; or (ii) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities (as to which a registration statement under the Securities Act shall then be in effect) and the offering thereof for such sale or disposition. 5.3. Efforts to Consummate; Further Actions. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate the transactions contemplated by this Agreement. VI. REGISTRATION RIGHTS The Company covenants and agrees to provide the following registration rights: 6.1. "Piggyback" Registration. If, at any time while the Purchaser shall hold shares of Common Stock, the Company proposes to file a registration statement relating to the offering of any of its capital stock under the Securities Act (other than (i) a registration statement required to be filed in respect of employee benefit plans of the Company on Form S-8 or any similar form from time to time in effect, (ii) any registration statement on Form S-4 or similar successor form, or (iii) a registration statement relating to a transaction pursuant to Rule 145 of 13 17 the Securities Act), whether or not for sale for its own account, the Company shall, at least twenty-one days (or if such twenty-one day period is not practicable, then a reasonable shorter period which shall not be less than seven days) prior to such filing, give written notice of such proposed filing to the Purchaser. Upon receipt by the Company not more than seven days (unless the notice given to the Purchaser pursuant to the previous sentence is less than ten days, in which case such seven-day period shall be shortened to five days) after such notice of a written request from the Purchaser for registration of Purchaser's Stock (as hereinafter defined), (i) the Company shall, subject to Section 6.3, include such Purchaser's Stock in such registration statement, and shall use all reasonable efforts to cause such registration statement to become effective with respect to such Purchaser's Stock, unless the managing underwriter therefor concludes in its reasonable judgment that the number of securities requested to be included in such registration exceeds the number which can reasonably be sold in (or during the time of) such offering, in which case the Company may (i) include all securities initially proposed by the Company to be sold for its own account and (ii) decrease the number of shares of Purchaser's Stock and any other securities (other than securities included by virtue of clause (i) above) proposed to be sold to the extent necessary to reduce the number of securities to be included in the registration to the level recommended by the managing underwriter; provided, however, that there shall be no such decrease in the number of shares of Purchaser's Stock unless the number of shares of Purchaser's Stock and such other securities (other than the securities included by virtue of clause (i) above) proposed to be sold has been decreased on a pro rata basis, calculated according to the number of shares of Purchaser's Stock and other securities requested to be included by the respective holders of each. "Purchaser's Stock" means any shares of Common Stock held by the Purchaser or its affiliates. 14 18 6.2. Demand Registration. In the event that, subsequent to 180 days following the Closing Date, the Company shall receive at any time or from time to time a written request from the Purchaser requesting the Company to register any shares of Purchaser's Stock under the Securities Act on Form S-3 (or if the Company is not eligible to use Form S-3, then on Form S-1 or S-2), or any other similar form then in effect, the Company agrees that it will use all reasonable efforts to cause the prompt registration of all shares of Purchaser's Stock as to which such request is made (or will amend or supplement an effective registration statement to include Purchaser's Stock) provided; however; that the Company shall in no event be required to register shares of Purchaser's Stock pursuant to this Section 6.2 unless the number of such shares of Purchaser's Stock exceeds twenty-five thousand (25,000). The Company may postpone for a limited time, which in no event shall be longer than 45 days, compliance with a request for registration pursuant to this Section 6.2 if (i) the Company shall have given notice to the Purchaser of the occurrence of a Suspension Event (as hereinafter defined) or (ii) the Company is conducting a public offering of capital stock and the managing underwriter concludes in its reasonable judgment that such compliance would materially adversely affect such offering. Notwithstanding anything in this Section 6.2 to the contrary, the Company shall not be required to prepare or cause to be prepared audited financial statements of the Company other than those prepared in the normal course of the Company's business at its fiscal year end. 6.3. General Provisions. (a) As long as the Purchaser owns at least twenty five thousand (25,000) shares of Common Stock, the Company will use all reasonable efforts to cause any registration statement referred to in Sections 6.1 and 6.2 to become effective and to remain effective (with a prospectus at all times meeting the requirement of the 1933 Act), subject, however, to the Company's suspension rights set forth in Section 6.7(b). The Company 15 19 will use all reasonable efforts to effect such qualifications under applicable Blue Sky or other state securities laws as may be reasonably requested by the Purchaser (provided that the Company shall not be obligated to file a general consent to service of process or qualify to do business as a foreign corporation or otherwise subject itself to taxation in any jurisdiction solely for the purpose of any such qualification) to permit or facilitate such sale or other distribution. The Company will cause the Purchaser's Stock to be listed on the principal stock exchange on which the shares of Common Stock are listed. (b) The Purchaser agrees, if requested by the managing underwriter or underwriters in an underwritten offering (an "Offering"), not to effect any public sale or distribution of any of the securities of the Company of any class included in such Offering, including a sale pursuant to Rule 144 or Rule 144A under the Securities Act (except as part of such Offering), during the 15-day period prior to, and during the 90-day period beginning on, the date of pricing of each Offering, to the extent timely notified in writing by the Company or the managing underwriters. Furthermore, notwithstanding anything to the contrary set forth in the Agreement, the Company's obligation under this Agreement to cause a registration statement and any filings with any state securities commission to be made or to become effective or to amend or supplement such registration statement shall be suspended in the event and during such period as the Company is proceeding with an Offering if the Company is advised by the underwriters that the sale of shares of Purchaser's Stock under such registration statement would have a material adverse effect on the Offering. (c) Following the effectiveness of a registration statement and the filings with any state securities commissions, the Purchaser agrees that it will not effect any sales of the Purchaser's Stock pursuant to such registration statement or any such filings at any time after it 16 20 has received notice from the Company to suspend sales (i) as a result of the occurrence or existence of any Suspension Event, or (ii) so that the Company may amend or supplement such registration statement or such filing. The Purchaser may recommence effecting sales of the Purchaser's Stock pursuant to the registration statement or such filings following further notice to such effect from the Company, which notice shall be given by the Company not later than three (3) business days after the conclusion of any such Suspension Event or amendment or supplement. 6.4. Information, Documents, Etc. Upon making a request for registration pursuant to Sections 6.1 or 6.2, the Purchaser shall furnish to the Company such information regarding its holdings and the proposed manner of distribution thereof as the Company may reasonably request and as shall be required in connection with any registration, qualification or compliance referred to in this Article VI. The Company agrees that it will furnish to the Purchaser the number of prospectuses, offering circulars or other documents, or any amendments or supplements thereto, incident to any registration, qualification or compliance referred to in this Article VI as the Purchaser from time to time may reasonably request. 6.5. Expenses. The Company will bear all expenses of registrations (including amendments and supplements related thereto) pursuant to Sections 6.1 and 6.2 (in each case, other than underwriting discounts and commissions and brokerage commissions and fees, if any, payable with respect to shares of Purchaser's Stock sold by the Purchaser, and fees and expenses of any accountants, counsel or other parties retained or employed by holders of Purchaser's Stock) including, without limitation, registration fees, printing expenses, expenses of compliance with Blue Sky or other state securities laws, and legal and audit fees incurred by the Company in connection with such registration and amendments or supplements in connection therewith. 17 21 6.6. Cooperation. In connection with any registration of Purchaser's Stock pursuant to this Article VI, the Company agrees to: (a) enter into such customary agreement (including an underwriting agreement containing such representations and warranties by the Company and such other terms and provisions, including indemnification provisions, as are customarily contained in underwriting agreements for comparable offerings and, if no underwriting agreement is entered into, an indemnification agreement on such terms as is customary in transactions of such nature) and take all such other actions as the Purchaser or the underwriters, if any, participating in such offering and sale may reasonably request in order to expedite or facilitate such offering and sale; (b) furnish, at the request of the Purchaser or any underwriters participating in such offering and sale, (i) a comfort letter or letters, dated the date of the final prospectus with respect to the Purchaser's Stock and/or the date of the closing for the sale of the Purchaser's Stock from the independent certified public accountants of the Company and addressed to the Purchaser and any underwriters participating in such offering and sale, which letter or letters shall state that such accountants are independent with respect to the Company within the meaning of Rule 1.01 of the Code of Professional Ethics of the American Institute of Certified Public Accountants and shall be in form reasonably satisfactory to the managing underwriter (or, if none, to the Purchaser) and shall cover matters of the type customarily covered in "cold comfort" letters in connection with transactions of a similar nature for similar entities and (ii) an opinion, dated the date of the closing for the sale of the Purchaser's Stock, of the counsel representing the Company with respect to such offering and sale (which counsel may be the General Counsel of the Company or other counsel reasonably satisfactory to the Purchaser), addressed to the Purchaser and any such underwriters, which opinion shall be in form reasonably 18 22 satisfactory to the managing underwriter (or, if none, to the Purchaser) and shall address such matters as are customary in transactions of a similar nature for similar entities; (c) make available for inspection by the Purchaser, the underwriters, if any, participating in such offering and sale (which inspecting underwriters shall, if reasonably possible, be limited to any manager or managers for such participating underwriters), the counsel for the Purchaser, one accountant or accounting firm retained by the Purchaser and any such underwriters, or any other agent retained by the Purchaser or such underwriters, all financial and other records, corporate documents and properties of the Company, and supply such additional information, as they shall reasonably request; provided that any such party shall keep the contents thereof confidential in the manner prescribed by Section 5.1. 6.7. Action to Suspend Effectiveness; Supplement to Registration Statement. (a) The Company will notify the Purchaser and its counsel promptly of (i) any action by the Commission to suspend the effectiveness of the registration statement covering the Purchaser's Stock or the institution or threatening of any proceeding for such purpose (a "stop order") or (ii) the receipt by the Company of any notification with respect to the suspension of the qualification of the Purchaser's Stock for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. Immediately upon receipt of any such notice, the Purchaser shall cease to offer or sell any Purchaser's Stock pursuant to the registration statement in the jurisdiction to which such stop order or suspension relates. The Company will use all reasonable efforts to prevent the issuance of any such stop order or the suspension of any such qualification and, if any such stop order is issued or any such qualification is suspended, to obtain as soon as possible the withdrawal or revocation thereof, and will notify the Purchaser and its counsel at the 19 23 earliest practicable date of the date on which the Purchaser may offer and sell Purchaser's Stock pursuant to the registration statement. (b) Notwithstanding anything to the contrary set forth in this Agreement, the Company's obligation under this Agreement to cause the registration of Purchaser's Stock and any filings with any state securities commission to be made or to become effective or to amend or supplement a registration statement shall be suspended in the event and during such period that there are pending negotiations relating to, or consummation of, a transaction or the occurrence of an event that would require additional disclosure of material information by the Company in such registration statement or such filing (such circumstances being hereinafter referred to as a "Suspension Event") that would make it impractical or inadvisable to cause such registration statement or such filings to be made or to become effective or to amend or supplement such registration statement, but such suspension shall continue only for so long as such event or its effect is continuing but in no event will that suspension exceed forty-five (45) days. Immediately upon receipt by the Purchaser of notice of a Suspension Event, the Purchaser shall cease to offer or sell any Purchaser's Stock pursuant to such registration statement, cease to deliver or use such registration statement and, if so requested by the Company, return to the Company, at its expense, all copies (other than permanent file copies) of such registration statement. (c) In the event the Company shall determine that it is necessary to amend or supplement any registration statement relating to Purchaser's Stock, the Company will furnish copies of such proposed amendment or supplement to the Purchaser and its counsel and will not file or distribute such amendment or supplement without the prior consent of the Purchaser, which consent shall not be unreasonably withheld. 20 24 6.8. Indemnification . In the event any Purchaser's Stock is included in a registration statement under this Article VI: (a) To the full extent permitted by law, the Company will indemnify and hold harmless the Purchaser and each subsequent holder of Purchaser's Stock as set forth in Section 9.3(d) hereof (each, a "Holder") and the affiliates of such Holder, and their respective directors, officers, employees, general and limited partners, members, agents and representatives (and the directors, officers, affiliates and controlling Persons thereof), and each other Person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act, from and against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus, any final prospectus contained therein or any amendments or supplements thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company in connection with the registration of Purchaser's Stock under the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, affiliate or controlling Person, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, that the indemnity agreement contained in this Section 6.8(a) shall not apply to amounts paid in settlement of any 21 25 such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable hereunder in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by the Purchaser or controlling Person; and provided, further, that the Company shall not be liable hereunder in any such case to the extent it is determined that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made: (A) in any such preliminary prospectus, if (I) it was the responsibility of such Holder to provide the Person asserting such loss, claim, damage, liability or expense with a current copy of the prospectus and such Holder failed to deliver or cause to be delivered a copy of the prospectus to such Person after the Company had furnished such Holder with a sufficient number of copies of the same and (II) the prospectus corrected such untrue statement or omission; or (B) in such prospectus, if such untrue statement or omission is corrected in an amendment or supplement to such prospectus and the Holder thereafter fails to deliver the prospectus as so amended or supplemented prior to or concurrently with the sale of Purchaser's Stock to the Person asserting such loss, claim, damage, liability or expense after the Company had furnished such Holder with a sufficient number copies of the same. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any such director, officer, employee, 22 26 general or limited partner, member, agent, representative or controlling Person and shall survive the transfer of such securities by such Holder. Each Holder shall furnish such information regarding itself or the claim in question as the Company may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (b) To the full extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in such registration statement and any controlling Person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing Persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon (i) any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration or (ii) an untrue statement or alleged untrue statement or omission or alleged omission made in the circumstances described in clauses (A) or (B) of Section 6.8(a); and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any Person intended to be indemnified pursuant to this Section 6.8(b), in connection with investigating or defending any such loss, claim, damage, liability or action; provided, that the indemnity agreement contained in this Section 6.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; 23 27 provided, that, in no event shall any indemnity under this Section 6.8(b) exceed the gross proceeds from the offering received by such Holder; and provided, further, that the obligation to provide indemnification pursuant to this Section 6.8(b) shall be several, and not joint and several, among such indemnifying parties. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer, representative or controlling Person and shall survive the transfer of such securities by such prospective Seller. (c) Promptly after receipt by an indemnified party under this Section 6.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel selected by the indemnifying party or parties. The failure to deliver written notice to the indemnifying party within a reasonable time after the indemnifying party first learns of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 6.8 to the extent of such prejudice, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 6.8. The indemnified party shall have the right, but not the obligation, to participate in the defense of any action referred to above through counsel of its own choosing and shall have the right, but not the obligation, to assert any and all separate defenses, cross claims or counterclaims which it may have, and the fees and 24 28 expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel has been specifically authorized in advance by the indemnifying party, (ii) there is a conflict of interest that prevents counsel for the indemnifying party from adequately representing the interests of the indemnified party or there are defenses available to the indemnified party that are different from, or additional to, the defenses that are available to the indemnifying party, or (iii) the indemnifying party fails to assume the defense or does not reasonably contest such action in good faith, in which case, if the indemnified party notifies the indemnifying party that it elects to employ separate counsel, the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party and the reasonable fees and expenses of such separate counsel shall be borne by the indemnifying party; provided, however, that, the indemnifying party shall not, in connection with any proceeding or related proceedings, be liable for the reasonable fees and expenses of more than one separate firm (in addition to one firm acting as local counsel) for all indemnified parties. (d) Contribution. If for any reason (other than the reasons expressly specified in this Section 6.8) the foregoing indemnity and payment obligation is unavailable or is insufficient to hold harmless an indemnified party under paragraphs (a) or (b) of this Section 6.8, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any loss, claim, damage or liability (or actions or proceedings in respect thereof), including, without limitation, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding, in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other. The relative fault shall be determined by reference to, among other things, whether the action in question, including any 25 29 untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact has been taken or made by, or relates to information supplied by, the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, untrue statement or omission. If, however, the allocation provided in the second preceding sentence is not permitted by applicable law, or if the allocation provided in the second preceding sentence provides a lesser sum to the indemnified party than the amount hereinafter calculated, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative fault but also the relative benefits to the indemnifying party and the indemnified party as well as any other relevant equitable considerations. The parties agree that it would not be just and equitable if contributions pursuant to this Section 6.8(d) were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the preceding sentences of this Section 6.8(d). Notwithstanding anything in this Section 6.8(d) to the contrary, no indemnifying party (other than the Company) shall be required pursuant to this Section 6.8(d) to contribute any amount in excess of the gross proceeds received by such indemnifying party from the sale of Purchaser's Stock in the offering to which the losses, claims, damages or liabilities of the indemnified parties relate. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (e) The obligations of the Company and the Holders under this Section 6.8 shall survive the completion of any offering of Purchaser's Stock in a registration statement under this Article VI. 26 30 (f) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement (if any) entered into in connection with any underwritten public offering of the Purchaser's Stock are in conflict with the foregoing provisions, the provisions in such underwriting agreement shall control. VII. INDEMNIFICATION 7.1. Indemnification by the Company. The Company shall indemnify and hold the Purchaser and each of its members, employees, officers and agents harmless from and against any and all losses, claims, damages or liabilities whatsoever (including legal fees and expenses) incurred by any of them based upon, resulting from or arising out of any material breach of any representation, warranty, covenant or agreement of the Company contained in this Agreement. 7.2. Indemnification by the Purchaser. The Purchaser shall indemnify and hold the Company and each of its employees, directors, officers and agents harmless from and against any and all losses, claims, damages or liabilities whatsoever (including legal fees and expenses) incurred by any of them resulting from or arising out of any material breach of any representation, warranty, covenant or agreement of the Purchaser contained in this Agreement. VIII. TERMINATION 8.1 Termination. (a) This Agreement may be terminated and the transactions contemplated herein may be abandoned at any time prior to the Closing: (i) by the Company or the Purchaser, if the Closing has not occurred by September 12, 1997; (ii) by mutual written consent of the Company and the Purchaser; (iii) by the Company, if there has been a material misrepresentation or breach of warranty on the part of the Purchaser in the representations and warranties contained herein or 27 31 a material breach of covenants on the part of the Purchaser and the same has not been cured within 30 days after notice thereof; (iv) by the Purchaser, if there has been a material misrepresentation or breach of warranty on the part of the Company in the representations and warranties contained herein or a material breach of covenants on the part of the Company and the same has not been cured within 30 days after notice thereof; or (v) by either the Purchaser or the Company, if any court, administrative body or governmental agency shall have issued a final order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable, provided that the party seeking to terminate shall have used its best efforts to appeal such order, decree, ruling or other action. (b) Notwithstanding anything herein to the contrary, the right to terminate this Agreement under this Section 8.1 shall not be available to any party to the extent the failure of such party to fulfill any of its obligations under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date (as a result, for example, of an action or failure to act causing a failure of a condition precedent). (c) A party terminating this Agreement pursuant to this Section 8.1 shall give written notice thereof to the other party hereto, whereupon this Agreement shall terminate and be of no further force and effect, the transactions contemplated hereby shall be abandoned without further action by any party and there shall be no liability on the part of the Company or the Purchaser, except as provided in Section 9.7 hereof and except for any liability for any willful 28 32 breach hereof; provided however that the provisions of Sections 7.1 and 7.2 shall survive any such termination. IX. GENERAL PROVISIONS 9.1. Survival of Representations, Warranties and Agreements. Notwithstanding any investigation conducted or notice or knowledge obtained by or on behalf of any party hereto, each representation and warranty in this Agreement and each agreement or covenant in this Agreement which does not by its own terms expire on or prior to the Closing shall survive the Closing without limitation as to time, except as specifically referred to herein. 9.2. Notices. Any notice, request, instruction or other document to be given hereunder by a party hereto shall be in writing and shall be deemed to have been given, (i) when received if given in Person, or (ii) on the date of transmission if sent by nationally recognized overnight courier, certified or registered mail, return receipt requested or (iii) three days after being deposited in the U.S. mail, postage prepaid: (a) if to the Purchaser, addressed as follows: Ross Financial Corporation P.O. Box 31363 Seven Mile Beach Grand Cayman, Cayman Islands British West Indies Attention: Kenneth B. Dart with a copy to: Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, New York 10006 Attention: Lee C. Buchheit, Esq. 29 33 (b) if to the Company, addressed as follows: DepoTech Corporation 10450 Science Center Drive, San Diego, California 92121 Attention: Edward L. Erickson with a copy to: Brobeck, Phleger & Harrison LLP 550 West C Street Suite 1300 San Diego, California 92101 Attention: Faye H. Russell, Esq. or to such other individual or address as a party hereto may designate for itself by notice given as herein provided. 9.3. General. (a) This Agreement (including the documents and instruments referred to or incorporated herein) constitutes the entire agreement, and supersedes all of the prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. (b) This Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder other than as contemplated in Article VI, Article VII and Section 9.3(d) and shall not be assigned by any party by operation of law or otherwise. (c) This Agreement may be executed in two or more counterparts which together shall constitute a single agreement. (d) This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, heirs and permitted assigns. This Agreement is not assignable except by consent of each of the parties hereto or by operation of law. Any purported assignment of this Agreement in violation of this Section 9.3 shall be null and void. 30 34 9.4. Governing Law. (a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES CREATED HEREBY SHALL BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (b) Each party agrees that any proceeding relating to this Agreement shall be brought in a state court of New York. Each party hereby consents to personal jurisdiction in any such action brought in any such New York court, consents to service of process by mail made upon such party and such party's agent and waives any objection to venue in any such New York court or to any claim that any such New York court is an inconvenient forum. 9.5. Severability of Provisions. If any provision or any portion of any provision of this Agreement or the application of any such provision or any portion thereof to any Person or circumstance, shall be held invalid or unenforceable, to the extent permitted by law, the remaining portion of such provision and the remaining provisions of this Agreement, or the application of such provision or portion of such provision as is held invalid or unenforceable to Persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby. 9.6. Captions. All section titles or captions contained in this Agreement are for convenience only, shall not be deemed a part of this Agreement and shall not affect the meaning or interpretation of this Agreement. All references herein to Sections shall be deemed references to such parts of this Agreement, unless the context shall otherwise require. 9.7. Expenses. Except as otherwise expressly provided in this Agreement, each party hereto shall pay its own expenses incidental to the preparation of this Agreement, the 31 35 carrying out of the provisions hereof and the consummation of the transactions contemplated hereby. 9.8. Equitable Relief. Each party acknowledges that, in the event of any breach of this Agreement by a party, the other party would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that such other party, in addition to any other remedy to which it may be entitled, shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to compel specific performance of this Agreement. Any requirements for the securing or posting of any bond with respect to such remedy are hereby waived by each of the parties hereto. 9.9. Definitions. The following terms shall have the respective meanings specified in the indicated Sections of this Agreement: Term Agreement Section - ---- ----------------- Agreement Recitals Authority 2.2 Board 1.3(b)(ii) Closing 1.3(a) Closing Date 1.3(a) Commission 2.6 Common Stock Recitals Company Recitals Encumbrances 1.1 Exchange Act 2.4 Financial Statements 2.7(a) Holder 6.8(a) Material Adverse Effect 2.1 Offering 6.3(b) Person 4.1 Purchaser Recitals Purchaser Material Adverse Effect 1.3(c) Purchaser's Stock 6.1 SEC Reports 2.6 Securities Act 3.5 Shares Recitals 32 36 Stop Order 6.7(a) Suspension Event 6.7(b) 33 37 IN WITNESS WHEREOF, each of the parties hereto has duly executed and delivered this Agreement as of the date first above written. DEPOTECH CORPORATION By: /s/ Edward L. Erickson ------------------------------------ Name: Edward L. Erickson Title: President/CEO ROSS FINANCIAL CORPORATION By: /s/ Kenneth B. Dart ------------------------------------ Name: Kenneth B. Dart Title: President EX-27 4 FINANCIAL DATA SCHEDULE
5 1000 YEAR DEC-31-1997 JAN-01-1997 SEP-30-1997 8,731 26,023 1,825 0 0 39,710 29,251 (4,388) 65,485 8,947 0 0 0 101,806 (56,793) 65,485 0 5,977 0 14,029 2,000 0 823 (14,313) 0 0 0 0 0 (14,313) (1.09) 0
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