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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
MIRATI THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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333-
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46-2693615
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(State or other jurisdiction
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(Commission File Number)
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(IRS Employer Identification No.)
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of incorporation)
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4660 La Jolla Village Drive, Suite 500
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San Diego, California
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92122
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
(514) 337-3333
Securities to be registered pursuant to Section 12(b) of the Act:
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Title of each class
to be so registered
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Name of each exchange on
which each class is to be registered
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Common Stock, $0.001 par value
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The NASDAQ Stock Market, LLC
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Securities to be registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
x
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(Do not check if a smaller reporting company)
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EXPLANATORY NOTE
We are filing this General Form for Registration of Securities on Form 10, or the Registration Statement, to register our common stock, par value $0.001 per share, pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a Smaller Reporting Company, as such term is defined by Rule 12b-2 of the Exchange Act. We are also an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act. For implications of our status as smaller reporting company and as an emerging growth company, please see the section titled “Risk Factors” in Item 1A. of this Registration Statement.
On May 8, 2013, we entered into an arrangement agreement with MethylGene Inc., a corporation incorporated under the
Canada Business Corporations Act
, or MethylGene Canada. Subject to the terms and conditions of the arrangement agreement, the securityholders of MethylGene Canada will receive one share of our common stock in exchange for every 50 shares of MethylGene Canada pursuant to a court-approved plan of arrangement under Section 192 of the
Canada Business Corporations Act
, or the Arrangement. In addition, all outstanding options and warrants to purchase common shares of MethylGene Canada will become exercisable on a 50-for-1 basis for shares of our common stock, and a proportionate increase will be made to the exercise price or conversion price, as applicable. Upon consummation of the Arrangement, MethylGene Canada will become our wholly-owned subsidiary. The shares of our common stock to be issued upon the consummation of the Arrangement will be issued in reliance upon the exemption from registration under Section 3(A)(10) of the Securities Act. The Arrangement is subject to court and shareholders’ approval and is expected to close on or around June 28, 2013. This Registration Statement assumes that the Arrangement has been completed and this Registration Statement will only become effective if the Arrangement is consummated. We will file an amendment to this Registration Statement prior to effectiveness reflecting the consummation of the Arrangement. All share numbers, share prices, and exercise prices have been retroactively adjusted in this Registration Statement to reflect the consummation of the Arrangement.
Unless otherwise mentioned or unless the context requires otherwise, when used in this Registration Statement, the terms “Mirati Therapeutics, Inc.,” “Company,” “we,” “us,” and “our” refer to Mirati Therapeutics, Inc., a Delaware corporation and MethylGene Canada on a consolidated basis.
In this Registration Statement, references to
“
C
ND
$
”
and
“
Canadian dollars
”
are to the lawful currency of Canada and references to
“
$
”
and
“
US$
”
and
“
U.S. dollars
”
are to the lawful currency of the United States.
Except as otherwise noted, all information in this Registration Statement gives effect to the Arrangement and a
ll dollar amounts herein are in U.S. dollars, unless otherwise indicated
.
Except as otherwise noted, all amounts referred to in this Registration Statement as “US$ , as converted” shall mean the U.S. dollar amount applying the conversion rate from Canadian dollars (1) in the case of equity issuances, as of the date of such grant, (2) in the case of compensation amounts, using the average weekly or monthly rates as of the date of payment, (3) in the case of the accompanying consolidated financial statements or any amounts derived from them, in accordance with our accounting policies described in Note 2 to the accompanying consolidated financial statements for the year ended December 31, 2012, beginning on page F-1, or (4) in the case of non-historical dollar amounts, as of March 31, 2013.
Our logo, “MethylGene”, and “Mirati Therapeutics” are unregistered trademarks or service marks of Mirati
Therapeutics, Inc.,
and are our property. This Registration Statement also includes references to trademarks and service marks of other entities, and those trademarks and service marks are the property of their respective owners.
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FORWARD-LOOKING STATEMENTS
Statements in this Registration Statement that are not descriptions of historical facts are forward-looking statements that are based on management’s current expectations and are subject to risks and uncertainties that could negatively affect our business, operating results, financial condition and stock price. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “will,” “would” or the negative of these terms or other comparable terminology. Factors that could cause actual results to differ materially from those currently anticipated include those set forth under “Risk Factors” including, in particular, risks relating to:
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the results of research and development activities;
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uncertainties relating to preclinical and clinical testing, financing and strategic agreements and relationships;
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the early stage of products under development;
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our need for substantial additional funds;
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government regulation;
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our ability to obtain and maintain regulatory approval of our lead product candidate, MGCD265, and any of our other future product candidates, and any related restrictions, limitations, and/or warnings in the label of any approved product candidate;
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our ability to obtain funding for our operations;
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our ability to retain key scientific or management personnel;
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patent and intellectual property matters;
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dependence on third party manufacturers; and
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competition.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors.” Moreover, we operate in a very competitive and rapidly-changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the United States Securities and Exchange Commission, or the SEC, this Registration Statement on Form 10. We do not currently file periodic reports with the SEC. When this Registration Statement becomes effective, we will be required to file periodic reports, proxy statements, information statements and other information with the SEC pursuant to the Exchange Act. You may read and copy this information, for a copying fee, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on its Public Reference Room. Our SEC filings will also be available to the public from commercial document retrieval services, and at the website maintained by the SEC at http://www.sec.gov.
Our internet website address is http://www.methylgene.com. Information contained on our website does not constitute part of this Registration Statement. When this Registration Statement becomes effective, we will make available, through a link to the SEC’s website, electronic copies of the documents we file with the SEC (including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, the Section 16 reports filed by executive officers, directors and 10% stockholders and amendments to those reports).
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Item 1. Business.
General
We are a biopharmaceutical company primarily engaged in the development and commercialization of novel therapeutics for the treatment of cancer. Our compounds result from internal chemistry efforts targeting the active sites of enzymes that are key drivers of tumor growth. Our lead program in clinical development is MGCD265, a multi-targeted small molecule kinase inhibitor for treatment of oncology patients with solid tumors. We are also evaluating development opportunities for pipeline programs for the treatment of cancer. Our common shares have been listed on the Toronto Stock Exchange since June 29, 2004 under the ticker symbol “MYG”.
Corporate History
We were incorporated under the laws of the State of Delaware on April 29, 2013. We are a holding company and primarily conduct our operations through MethylGene Inc., a corporation incorporated under the
Canada Business Corporations Act
, or MethylGene Canada. On May 8, 2013, we entered into an Arrangement with MethylGene Canada. Subject to the terms and conditions of the Arrangement, the securityholders of MethylGene Canada will receive one share of our common stock in exchange for every 50 shares of MethylGene Canada pursuant to a court-approved plan of arrangement under the
Canada Business Corporations Act
. In addition, all outstanding options and warrants to purchase common shares of MethylGene Canada will become exercisable on a 50-for-1 basis for shares of our common stock, and a proportionate increase will be made to the exercise price or conversion price, as applicable. Upon consummation of the Arrangement, MethylGene Canada will become our wholly-owned subsidiary.
9222-9129 Québec Inc., formerly MethylGene Inc., or Old MethylGene, was incorporated under Part IA of the Companies Act (Québec) by articles of incorporation dated December 13, 1995. Old MethylGene was party to a court approved arrangement, effective May 19, 2010, under the Companies Act (Québec) involving 1819400 Ontario Inc., 1815303 Ontario Limited, 7503466 Canada Inc. and 7503547 Canada Inc. As part of this arrangement, among other things, 7503466 Canada Inc. and 7503547 Canada Inc. were amalgamated to form MethylGene Canada, which carried on the business of Old MethylGene. We refer to this transaction as the Canadian Arrangement.
The following briefly describes key events since January 1, 2010 in our business.
2010
Our research and license collaboration agreement with Otsuka Pharmaceutical Co., Ltd., or Otsuka, originally entered into in March 2008, for the development of novel, small molecule kinase inhibitors for the local delivery and treatment of ocular diseases, excluding cancer, was extended in April 2010 to September 2010 and was further extended in June 2010 to June 2011. These extensions provided us with an additional $2.07 million in research funding and brought the total potential revenues under the agreement to $58.5 million, including potential milestones of $50.5 million.
In May 2010, following approval by our stockholders, we completed the Canadian Arrangement which provided us with financing of up to $8.7 million, of which $6.9 million was received at the closing.
2011
In October 2011, we announced that the Investigational New Drug, or IND, application we had submitted to the U.S. Food and Drug Administration, or FDA, was activated for initiation of a Phase II clinical trial for MGCD290, our antifungal Hos2 inhibitor, in patients with vulvovaginal candidiasis, or VVC, more commonly known as vaginal yeast infection.
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In June 2011, the research component of our research and license collaboration agreement with Otsuka ended. Upon completion of certain regulatory milestones in the future, we are entitled to receive pre-determined milestone payments and royalties upon commercialization of a compound by Otsuka under this agreement. Otsuka had previously extended the research collaboration, and we have received US$4.5 million of research funding under this agreement.
In April 2011, we closed a private placement for gross proceeds of $35.7 million. We issued a total of 5,549,895 units at a subscription price of CND$6.22 (or US$6.42, as converted), with each unit consisting of one common share and thirty one-hundredths (0.30) of a common share purchase warrant, exercisable for a period of five years from the date of issuance at an exercise price of CND$7.46 (or US$7.71, as converted) (representing 120% of the market price). This includes the conversion of convertible debentures we issued in March 2011 to two co-lead investors for each to acquire 61,561 units for $391,934. The issuance costs of the units were $2.0 million.
In March 2011, we concluded a resiliation agreement pursuant to an Agreement of Lease, dated December 13, 2002, by and between MethylGene Canada and GE Q-Tech Real Estate Holdings Inc., as successor in interest to Societe Immobiliere Technologique de Montreal Inc., for a term of 10 years beginning January 1, 2003, whereby we made a lump-sum payment of $645,622 (including taxes) and the lessor provided us with an irrevocable release from all further obligations under the lease. Furthermore, the lessor returned, for cancellation, the letter of guarantee related to the lease in the amount of $356,276. We provided a third party with whom we shared expenses for this lease with an irrevocable release for all its obligations pertaining to the lease upon receipt of $323,326, including taxes, from the third party.
2012
In November 2012, we closed a private placement for gross proceeds of $26.1 million. We issued a total of 3,593,819 units at a subscription price per unit of CND$7.25 (or US$7.28 as converted) with each unit consisting of one common share and thirty one-hundredths (0.30) of a common share purchase warrant, exercisable until November 21, 2017 at an exercise price of CND$8.70 (or US$8.73, as converted) (representing 120% of the subscription price). The issuance costs of the units were $1.3 million.
2013
In March 2013, we announced the results of our Phase II clinical trial (trial 290-005) of MGCD290 plus fluconazole versus fluconazole alone in moderate to severe VVC. In this trial, a single oral dose of MGCD290 (540mg), in combination with a single oral dose of fluconazole (150 mg), failed to improve the rate of therapeutic cure versus a single oral (150 mg) dose of fluconazole alone. While we continue to analyze the data and results of that trial, we intend to explore whether there may be external interest in developing the MGCD290 program.
Product Candidate
The following chart depicts the currents state of our oncology programs:
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Our lead clinical stage product candidate is MGCD265, an oral small molecule, multi-targeted kinase inhibitor for oncology. MGCD265 is in Phase I/II clinical development. MGCD265 is a novel, rationally designed, orally administered small molecule with nanomolar potency against Met, Axl and 3 vascular endothelial growth factor receptors 1, 2 and 3, or (VEGFR 1, 2 and 3). These targets of MGCD265 are receptor tyrosine kinases, or (RTKs), associated with tumorigenesis, unrestricted cellular proliferation, angiogenesis (a process whereby new blood vessels are formed to nourish the tumors), tumor cell metastasis and survival.
Met is a tumor marker and increased expression, activation and/or mutation of Met in tumors is associated with poor prognosis and is implicated in the tumorigenesis of multiple cancer types including non-small cell lung cancer , or NSCLC, liver, renal cell, gastric, prostate, colorectal, bladder, breast and ovarian. Activation of Met mediates resistance to other anti-cancer agents such as epidermal growth factor receptor, or EGFR, inhibitors and anti-angiogenesis inhibitors.
AXL is an oncogenic RTK that is over-expressed in multiple tumor types including NSCLC, renal cell, gastric, esophageal, head and neck, ovarian and liver cancers and is associated with poor prognosis. We believe that MGCD265 has the potential to be a first-in-class Axl inhibitor for the treatment of patients whose tumors have increased expression of Axl.
VEGFR 1, 2, and 3 are receptors on endothelial cells which mediate the growth of tumor infiltrating blood vessels. Inhibitors of VEGF-R such as bevacizumab, sorafenib and axitinib are members of an established class of anti-cancer agents and are approved for the treatment of a wide variety of cancers including colorectal, renal cell, lung and/or hepatocellular carcinoma, or HCC.
Thus, by inhibiting a selected group of RTKs (Met, Axl and VEGFRs), MGCD265 is designed to inhibit specific cancer-driving targets with potentially complimentary mechanisms of action.
In preclinical studies, MGCD265 monotherapy demonstrated excellent activity in a variety of tumor types. Synergistic anti-cancer activity was demonstrated when MGCD265 was combined with other anti-cancer agents such as EGFR inhibitors and taxanes. Safety in pre-clinical models was favorable and anti-cancer activity was shown to be superior to leading multi-targeted kinase inhibitors in some models.
Phase I and Phase I/II clinical trials are underway using the agent as monotherapy and in combination with select anti-cancer agents. The protocols for these two studies allow for expansion cohorts to begin enrollment as soon as the maximum tolerated dose, or MTD, is defined. Single-arm, Phase II-type expansion cohorts will begin accruing once the MTD is identified. The patients to be enrolled in the expansion cohorts will be selected based on their unmet medical need and their over expression of RTKs that are inhibited by MGCD265.
The first cohort will consist of patients with refractory metastatic renal cell carcinoma (mRCC). Patients with mRCC who have failed prior treatment with RTK’s have been shown to over express Met and often over express Axl.
The second cohort will include patients with NSCLC who have failed standard of care chemotherapy and who over expresses Met. NSCLC patients are also known to over express Axl and may be responsive to angiogenesis inhibitors such as VEGFR kinase inhibitors.
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The third patient population has hepatocellular cancer, a type of liver cancer, which may over express Met and have failed prior treatment with sorafenib. These patients have no approved treatment options and may be more likely to respond to a Met inhibitor and may benefit from VEGFR inhibition.
The final cohort would include patients with gastric cancer or squamous cell carcinoma of the head and neck who over express Met and who have failed prior standard of care chemotherapy. These patients have no approved therapeutic options. These expansion cohorts will inform our plans for future randomized, placebo-controlled Phase II clinical trials.
Pipeline Programs
Our pipeline programs include mocetinostat (previously referred to as MGCD0103) and MGCD516. Mocetinostat is an orally available, isoform selective histone deacetylate, or HDAC, inhibitor that we have evaluated in multiple Phase I and Phase II clinical trials for the treatment of hematological malignancies and solid tumors. We are evaluating plans for development of this agent in combination with azacitidine for the treatment of patients with intermediate and high risk myelodysplastic syndromes, or MDS. Prognosis for the intermediate and high-risk category of MDS patients is poor and there is a need for treatments that will improve clinical outcomes. Further, there are no approved therapies for the treatment of patients in whom azacitidine treatment failed. We believe that the combination of these two epigenetic agents may represent a beneficial combination therapy for patients with MDS. MGCD0103 was previously subject to an agreement with Celgene Corporation (formerly Pharmion Corporation) which was terminated in January of 2009. Prior to the termination, MGCD0103 had been studied by both us and Celgene in over 400 patients and showed promising single agent activity in Hodgkin’s and Non Hodgkin’s lymphomas, and in combination with azacitadine in patients with MDS.
MGCD516 is a multi-targeted kinase inhibitor for cancer currently in preclinical development. Pre-clinical development activities suggest that MGCD516 has a promising profile of kinase inhibition, including Met, VEGFR, Tie2, AXL, Eph and RET. The MGCD516 program is ready for IND enabling studies with the potential to initiate Phase I clinical development in early 2014.
MGCD290
In March 2013, we announced the results of our first human efficacy trial (trial 290-005) of MGCD290 plus fluconazole versus fluconazole alone in moderate to severe VVC. In this study, a single oral dose of MGCD290 (540mg), in combination with a single oral dose of fluconazole (150mg), failed to improve the rate of therapeutic cure versus a single oral (150mg) dose of fluconazole alone. While we continue to analyze the data and results of that trial, at the present time we do not expect to prioritize development of MGCD290 internally and we will explore whether there may be external interest in the program.
Industry
Oncology Therapeutics Market
According to the American Cancer Society, cancer is the second leading cause of death in the United States behind cardiovascular disease. They estimated that in the United States, 1,638,910 new cancer cases were expected to be diagnosed and 577,190 patients were expected to die of the disease in 2012. According to the Canadian Cancer Society, in Canada, the 2012 figures are 186,400 and 75,700 respectively. The following chart depicts the estimated new cancer cases and deaths for several solid tumor indications in the United States and Canada.
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Estimated New Cases of and Death by Cancer in the United States and Canada in 2012
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United States(1)
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Canada(2)
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Cancer Site
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Estimated
New Cases
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Estimated
Deaths
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Estimated New
Cases
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Estimated
Deaths
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Lung(3)
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226,160
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160,340
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25,600
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20,600
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Renal
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64,770
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13,570
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5,600
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1,700
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Colon(4)
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143,460
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51,690
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23,300
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8,900
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Bladder
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73,510
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14,880
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7,800
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1,850
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Breast
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229,060
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39,920
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22,900
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5,100
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Ovarian
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22,280
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15,500
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2,600
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1,750
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Prostate
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241,740
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28,170
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26,500
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4,100
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Lymphomas
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79,190
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20,130
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8,740
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2,800
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(5)
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Leukemias
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47,150
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23,540
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5,600
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2,600
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(1) Source: Cancer Facts & Figures 2012, American Cancer Society.
(2) Source: Canadian Cancer Statistics 2012, Canadian Cancer Society.
(3) Source: Cancer Facts & Figures 2012. Estimates include lung and bronchus combined.
(4) Source: Cancer Facts & Figures 2012. Estimates include colon and rectal cancers combined.
(5) Source: Canadian Cancer Statistics 2012. Estimate includes only non-Hodgkin’s lymphoma.
MGCD265 Market Overview
The commercial successes of leading small molecule kinase inhibitor oncology therapeutics, serve as evidence of the effective use of small molecule kinase inhibitors for targeted treatment of cancer. BCC Research data indicates that the global kinase inhibitor market was $29.1 billion in 2011, and is expected to reach $40.2 billion by 2016. The following table lists retail sales figures and prescriptions filled for selected small molecule kinase inhibitors.
2012 Worldwide Retail Sales Figures of Selected Small Molecule Kinase Inhibitors
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Brand Name
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2012 Worldwide Sales(1) (in millions)
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Gleevec
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$
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4,675
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Tarceva
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$
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1,401
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Sutent
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$
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1,236
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Sprycel
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$
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1,019
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Tykerb
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$
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380
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Nexavar
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$
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1,046
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(3)
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Zelboraf(2)
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$
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249
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Xalkori(2)
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$
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123
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(1) Source: Thomson Pharma
(2) Launched in 2011
(3) Assumes exchange rate as of December 31, 2012
Although many tumor types may respond to treatment with MGCD265, four are of particular relevance to demonstrate the clinical activity of MGCD265. The selection of these indications is based on the expression or over expression of markers such as c-Met, VEGFR and Axl. Key features of these markets are shown in the table below.
Estimated Worldwide Market Size of Certain Cancer Therapies
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Indication
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Supporting
Rationale
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Precedents for Success of a
Targeted Therapy
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Estimated Market Size
(Worldwide)
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Renal Cell Carcinoma
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Over expression of Met, VEGF, Axl
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VEGFR / RTK inhibitors: sunitinib, sorafenib, axitinib, bevacizumab/IFN
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$
$
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1.3B 2009
3.3B projected 2017(1)
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Lung Cancer
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Over expression of Met, VEGF and Axl
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Met inhibitor onartuzumab (MetMab) in ph II (including patient selection)
VEGFR inhibitor bevacizumab in ph III
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$
$
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10.3B 2011
13.3B projected 2015(2)
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Liver Cancer
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Over expression of Met, VEGF and Axl
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Met inhibitor tivantinib in ph II
(including patient selection)
RTK inhibitor sorafenib (Phase III)
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$
$
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380M 2009
2B projected 2015(3)
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Gastric Cancer
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Over expression of Met, VEGF
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HGF inhibitor rilotumumab in ph II (including patient selection)
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$
$
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800M $2010
1.4B projected 2021(4)
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(1) Source: Global Industry Analysts Inc. 2011
(2) Source: Global Industry Analysts Inc. 2009
(3) Source: Global Industry Analysts Inc. 2010, Global Data 2010
(4) Source: Decision Resources, 2011, Global Data 2010
Mocetinostat Market Overview
The use of HDAC inhibitors for the treatment of cancer continues to draw interest following FDA approval of two agents for T-cell lymphoma. Our clinical studies with mocetinostat indicate that this agent may have promising activity in hematological malignancies such as lymphomas and leukemias. Indications currently under consideration include MDS, Hodgkin’s lymphoma, or HL, and non-Hodgkin’s lymphomas, or NHL, (including diffuse large B-cell and follicular lymphoma).
MDS is a complex disease, divided into subgroups with differing therapy objectives. In high risk MDS, there are three different therapies available: (1) hypomethylating agents (such as azacitidine), (2) intensive chemotherapy and (3) allogeneic stem-cell transplantation. Allogeneic stem cell transplantation is restricted to patients with excellent performance status and an appropriate donor. It is not appropriate for elderly patients over 70 years of age with poorer performance status, which is the population mainly affected by MDS. Prognosis for high risk MDS patients is poor, and there is a significant medical need for therapeutic regimens that will improve clinical outcomes. According to the National Comprehensive Cancer Network, the incidence of MDS among patients over 70 years of age is estimated at 22 to 45 cases per 100,000 people per year.
HL is most common among adolescents and young adults. Treatments usually include chemotherapy, radiation and stem cell transplantation. Chemotherapy followed by consolidation radiation therapy is the most effective treatment for early-stage HL. Current approaches seek to balance efficacy against risk of long term complications such as cardiac disease and other types of cancer. Patients with refractory HL have few therapeutic options. Such patients are usually treated with high dose chemotherapy followed by stem cell transplant and brentuximab vedotin (anti-CD30 conjugated to cytotoxin).
NHL (including the aggressive diffuse large B-cell lymphoma and follicular lymphoma) is the most common form of blood cancer. The National Cancer Institute estimates that 70,000 patients will be diagnosed each year and that the incidence has grown annually over the past ten years. Aggressive NHL is treated with rituximab (anti-CD20) plus chemotherapy which is effective in about 50% of cases, but relapsed or refractory aggressive NHL has a poor outlook with limited therapeutic options.
Clinical Product Candidate MGCD265 Multi-targeted Kinase Inhibitor for Oncology
MGCD265 is a rationally designed, orally-available, potent small molecule multi-tyrosine kinase inhibitor of Met, Axl and 3 VEGFR RTKs in development for the treatment of cancer.
RTKs are a family of signaling kinases, and although needed in normal cell functioning, RTKs may be inappropriately regulated in cancerous tissues resulting in uncontrolled tumor cell growth. MGCD265 potently inhibits Met, Axl and VEGF-R 1, 2 and 3, (low single digit nanomolar) as well as the Tie-2 and Ron RTKs. These kinases have been shown to play key roles in tumor development, tumor survival, tumor escape and blood vessel formation (angiogenesis).
MGCD265 has a unique spectrum of activity against RTKs, including the kinase targets Met, Axl and
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VEGFR 1, 2 and 3. It also showed little to no activity against a panel of over 400 other RTKs. We believe this profile provides MGCD265 the following potential advantages:
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reduced risk of side effects due to off-target activity;
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therapeutic action against an underserved and novel target (Axl);
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an opportunity to select for patients that express specific markers allowing a predictive and tailored therapeutic strategy (companion diagnostics); and
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an efficient clinical design structure (trial enrichment).
Background
The Met receptor is a protein that is found on the cell’s surface. When not properly regulated (i.e. over active) it plays a key role in the growth, survival and metastasis of various types of cancers. The Met target has become one of intense scientific and pharmaceutical interest because of its direct involvement in tumor cell survival and angiogenesis. Met is believed to be over expressed in as much as 10% of all cancers and there is strong evidence that Met levels are associated with several major tumor types including “NSCLC”, gastric, prostate, colorectal, bladder, breast and ovarian cancers. Met activation may also be associated with resistance to EGFR inhibitors such as Tarceva and Iressa. In tumors with Met over expression, persistent activation of EGFR-dependent signals may be sustained constituting an escape mechanism leading to EGFR-inhibitor resistance. Inhibition of both the Met and VEGFR targets appears to effectively block the Met-driven escape mechanism used by tumor cells when treated with other targeted cancer therapies.
Axl is an RTK expression of which has been shown to be correlated with clinical stage and lymph node status in NSCLC. Recent data has also shown that Axl is involved in the mechanism of resistance to EGFR inhibitors such as Tarceva. Axl is expressed in other tumor types and may be a significant driver in RCC, ovarian, pancreatic and other tumors.
The illustration below depicts the multiple roles of Met, Axl and VEGFRs in tumorigenesis, as well as the roles of other key RTKs.
Mechanism of Action of RTKs in Tumorigenesis
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MGCD265 Preclinical Development
Our preclinical experiments, in a variety of in vivo tumor models, have demonstrated that MGCD265 has relatively low toxicity and in many cases appears equal or more potent in vivo than some of the leading multi-targeted kinase inhibitors which have recently been approved or are in clinical trials, including Sutent, Nexavar, Xalkori and Zactima.
MGCD265 Clinical Trials
In December 2011, we completed a Phase I clinical trial of intermittent dosing of MGCD265 in patients with advanced malignancies (Trial 265-102 and one single dose bioavailability study of MGCD265 in healthy volunteers, Trial 265-105). Another Phase I clinical trial (Trial 265-101, continuous dosing) and a Phase I/II clinical trial of MGCD265 in combination with docetaxel or erlotinib (Trial 265-103) are ongoing. All clinical trials in cancer patients were designed to enroll adult patients with advanced or unresectable malignancies that are refractory to standard therapy and/or are unlikely to benefit from standard or existing therapies.
Three schedules of continuous dosing of MGCD265 were evaluated sequentially in the ongoing monotherapy and combination studies: once daily (QD), twice daily (BID) and three times daily (TID). MGCD265 has been generally well tolerated at all doses and schedules tested to date, both as monotherapy and in combination with either docetaxel or erlotinib.
Trial 265-101: Phase I Clinical Trial Evaluating MGCD265 in Solid Tumors (Ongoing)
Trial 265-101 is an ongoing Phase I, open-label, dose escalating clinical trial in patients with advanced solid tumors. In this trial, MGCD265 is administered orally every day in repeated 21-day cycles. The primary objective is to determine the safety profile including the MTD and corresponding maximum tolerated exposure and the dose-limiting toxicities, or DLTs, of MGCD265. As of February 11, 2013, 78 patients have been enrolled. Data is available for 76 patients who were treated with MGCD265 in doses escalating from 24 mg/m(2) QD to the current flat dose of 600 mg TID. Nine patients achieved stable disease for more than four months and up to nine months. One of these patients, who had squamous cell cancer, experienced a partial response after ten cycles of treatment based on one target axillary lesion. The non-target bone lesions remained stable. To date, the safety profile continues to be favorable in this ongoing Phase I program. Adverse events have been mostly mild. The most frequent treatment-related adverse events, observed in greater than 10% of patients, or grade 3 adverse events occurring in more than one patient, are summarized in the table below. Additional cycle 1 DLTs in this clinical trial include pituitary hemorrhage in a patient with a previously undiagnosed pituitary adenoma (n=1), grade 2 hypertension (per protocol definition) (n=1), and increased AST (n=1). No grade 4 toxicities have been reported.
Adverse Events Observed in MGCD265 Monotherapy
Monotherapy 265-101 (n=76)
|
Most frequent treatment-related adverse events
(>10%, all grades)
|
|
AEs of Grade 3 occurring in > 1 patient
|
|
Diarrhea
|
49%
|
|
Diarrhea
|
|
n=3 (DLT n=1)
|
|
Fatigue
|
29%
|
|
Fatigue
|
|
n=3 (DLT n=1)
|
|
Nausea
|
26%
|
|
Lipase elevation
|
|
n=2 (DLT n=1)
|
|
Anorexia
|
22%
|
|
Alk phosphatase elevation
|
|
n=2
|
|
Vomiting
|
20%
|
|
|
|
|
Source: Mirati Therapeutics, Inc.
Trial 265-102: Phase I Clinical Trial Evaluating MGCD265 in Solid Tumors (Complete)
In December 2011, we completed an open label Phase I clinical trial with dose-escalation of MGCD265 in patients with advanced solid tumors. We enrolled 47 patients with advanced solid tumors in this clinical trial. Oral MGCD265 was administered intermittently on alternating weeks in repeating 28-day cycles. The primary
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objectives were to determine the safety profile including the MTD and DLTs of MGCD265. MGCD265 was administered once a day or QD in the initial cohorts and then twice daily, or BID, in the last two cohorts with increased exposure following the introduction of the BID schedule. MGCD265 was found to have a terminal half-life of approximately 23 hours. Exposure on the QD schedule appeared to increase with increasing doses from 24 mg/m
2
up to 96 mg/m
2
and with a more modest increase in exposures thereafter. Patients received doses up to 340 mg/m
2
. Four patients (papillary renal cell, sarcomatoid bladder, neuroendocrine, and head & neck cancers) had prolonged stable disease (range: ~4-10.5 months). The patient with sarcomatoid bladder cancer was stable for 7.5 months and exhibited decreases in Met and phospho-Met protein expression, as well as a change in intact vascular structures, in a post-treatment biopsy sample. The most frequent treatment-related adverse events, occurring in greater than 10% of patients, included diarrhea (32%), nausea (28%), and fatigue (26%). Most of these adverse events were reported as grade 1 or 2 in severity. The observed DLTs were grade 3 mood alteration (n=1) and grade 3 fatigue in the same patient and grade 3 hemoptysis (n=1) all at the dose of 170 mg/m
2
BID (n=6). An additional grade 3 adverse event of increased lipase was also reported at a dose of 192 mg/m
2
(n=1).
Therefore, the previously tested dose level of 128 mg/m
2
BID was determined to be the MTD. In conclusion, this clinical trial indicates that MGCD265 is safe and well tolerated when using the intermittent schedule of administration. As MGCD265 was administered safely at doses higher than 170 mg/ m
2
in other studies, the continuous schedule has been chosen for further evaluation.
Trial 265-103: Phase I/II Clinical Trial Evaluating MGCD265 in Combination with erlotinib (Tarceva) or docetaxel (Taxotere) (Ongoing)
This dose-escalating Phase I/II clinical trial is evaluating MGCD265 in combination with the approved anticancer agents docetaxel (Taxotere) and erlotinib (Tarceva). The study consists of two parallel arms to evaluate multiple ascending doses of MGCD265 in combination with erlotinib or docetaxel. Key objectives for this study are to evaluate the safety of the combination treatments, to measure the pharmacodynamic and pharmacokinetic characteristics and to determine, in each treatment arm, the MTD (and used corresponding maximum tolerated exposure) to be used in future combination studies.
In the MGCD265 plus docetaxel combination, MGCD265 is administered every day over a 3-week cycle and docetaxel (starting at 50 then 75 mg/m
2
for subsequent dose levels) is given intravenously once every 3 weeks. The starting dose level for MGCD265 was 96 mg/m
2
QD. As of February 11, 2013, 53 patients have been treated and enrollment is ongoing at a dose of 700 mg flat dose BID. The MTD of this combination appeared to be exceeded at 96 mg/m
2
BID (fatigue in one patient and diarrhea & lipase elevation in the other patient). However, based on pharmacokinetic data and availability of new formulation, the dose was reduced and dose escalation was resumed. The MTD has not been reached and dose escalation continues.
Data is available for 47 patients treated with MGCD265 at doses of up to 450 mg BID (flat dose with meals) in combination with full dose docetaxel. Treatment to date has generally been well tolerated. Overall, stable disease (SD) for 6 months or more (6-18 months) was observed in 9 patients: NSCLC (n=5), ovarian, prostate, pancreatic and head and neck cancer (n=1 each). Objective partial responses were observed in 2/12 patients with NSCLC, 1/4 patients with prostate cancer, 1/2 patients with head & neck cancer and 1/1 patient with endometrial cancer. Thus, to date, anti-cancer activity supporting Phase II development of the combination has been observed.
The most common treatment related non-hematologic adverse events observed to date have been constitutional or gastro-intestinal related and are summarized in the table below. Expected docetaxel associated adverse events of anemia (n=1, grade 3), leucopenia (n=5, grade 3-4) and neutropenia (n=29, grade 3 and 4) and one case of febrile neutropenia have also been observed. Grade 3 or higher adverse events occurring in more than one patient are summarized in the table below. In addition, one patient was reported to have pulmonary embolism (grade 4) that was an incidental finding on CT scan. Another patient who had advanced NSCLC and was oxygen dependent at baseline, was diagnosed with fatal pneumonitis (inflammation of the lung tissue) (grade 5) in the context of worsening pleural effusion and increasing parenchymal consolidation. Additional cycle 1 DLTs reported in this study include elevated AST (n=1) and pancreatitis (n=1) in a patient with grade 3 lipase at baseline consistent with chronic pancreatitis.
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Adverse Events Observed in MGCD265 Combination Therapy
Combination Therapy 265-103 + docetaxel (n=47)
|
Most frequent treatment-related Adverse Events
(>10%, all grades)
|
|
Adverse Events of Grade 3 or higher
occurring in > 1 patient
|
|
|
Fatigue
|
|
53%
|
|
Neutropenia
|
|
n=29
|
|
|
Alopecia
|
|
45%
|
|
Leucopenia
|
|
n=5
|
|
|
Diarrhea
|
|
38%
|
|
Diarrhea
|
|
n=3 (DLT n=1)
|
|
|
Nausea
|
|
32%
|
|
Hypophosphatemia
|
|
n=2
|
|
|
Anorexia
|
|
23%
|
|
Elevated lipase
|
|
n=2 (DLT n=2)
|
|
|
Constipation
|
|
17%
|
|
|
|
|
|
|
Taste disturbance
|
|
15%
|
|
|
|
|
|
|
Vomiting
|
|
15%
|
|
|
|
|
|
|
Myalgia
|
|
11%
|
|
|
|
|
|
|
Mucosal Inflammation
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Mirati Therapeutics, Inc.
In the MGCD265 plus erlotinib combination, both drugs are administered every day over a three-week cycle. As of February 11, 2013, 66 patients have been treated in the MGCD265 plus erlotinib arm of our combination trial, and enrollment is ongoing at a MGCD265 flat dose of 700 mg BID in combination with full dose erlotinib. Erlotinib was started at a dose level of 100 mg (first dose level) and then escalated to 150 mg in combination with 96 mg/m
2
QD of MGCD265. The MTD of this combination was exceeded at 162 mg/m
2
BID fasting (rhabdomyolysis and diarrhea; n=2, DLTs). However, based on MGCD265 exposure levels, a decision was made to decrease dose and re-escalate with fed cohorts, with the expectation that food may mitigate the diarrhea observed with this regimen. The MTD has not been reached as doses have continued to be increased.
Data is available for 61 patients treated with MGCD265 at doses of up to 500 mg BID (flat dose with meals). To date, seven patients with a variety of tumors have experienced stable disease for six months or more. This includes two NSCLC patients, one of whom had a partial response (also positive for EGFR activating mutation). Three out of nine patients with gastroesophageal cancer remained on study for ~11-27 months (one patient is still on study). MGCD265 has been well tolerated in combination with full-dose erlotinib. The activity of MGCD265 plus erlotinib supports Phase II development of the combination.
The most common treatment related adverse events are consistent with known erlotinib toxicity and include skin-cutaneous or gastro-intestinal related events. The most frequent treatment related adverse events are summarized in the table below. Most of these toxicities were mild. Grade 3 adverse events occurring in more than one patient are summarized below. Other grade 3 toxicities (n=1 each) include dermatitis acneiform, rash (DLT), rhabdomyolysis (DLT), decreased ejection fraction, hypokalemia, hypomagnesemia and hypophosphatemia. A DLT of grade 3 diarrhea was reported at the ongoing 700 mg BID dose level. No grade 4 toxicities have been reported in the erlotinib combination study.
Adverse Events Observed in MGCD265 Combination Therapy + Erlotinib
Combination Therapy 265-103 + erlotinib (n=61)
|
Most frequent treatment-related adverse events
(>10%, all grades)
|
|
Adverse Events of Grade 3 occurring in >
1 patient
|
|
|
Diarrhea
|
|
75%
|
|
Diarrhea
|
|
n=8 (DLT n=3)
|
|
|
Fatigue
|
|
39%
|
|
Fatigue
|
|
n=2 (DLT n=1)
|
|
|
Rash
|
|
33%
|
|
|
|
|
|
|
Anorexia
|
|
21%
|
|
|
|
|
|
|
Nausea
|
|
18%
|
|
|
|
|
|
|
Dermatitis acneiform
|
|
15%
|
|
|
|
|
|
|
Dry skin
|
|
15%
|
|
|
|
|
|
Source: Mirati Therapeutics, Inc.
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Trial 265-105: Phase I Clinical Trial Evaluating the Pharmacokinetics of MGCD265 in Healthy Volunteers in a Fed versus Fasted State (Complete)
In 2012, a fourth Phase I study in healthy volunteers (n=14) was conducted to compare the pharmacokinetics of a single 100 mg dose of MGCD265 underfed conditions versus those after a 10-hr overnight fast. Blood samplings for the pharmacokinetic evaluation were done from pre-dose to up to 96 hrs post-dose. Safety was evaluated in all subjects for seven days after each single dose. Using nominal timepoints, on average, the fed condition was associated with a ~3 fold increase in exposure. All treatment related adverse events were mild except for one patient who reported moderate diarrhea when dosed under fasting conditions.
MGCD265 Developmental Initiatives and Objectives
Our Phase I development program is ongoing. We plan to continue enrolling patients in our monotherapy and combination trials with docetaxel or erlotinib until an MTD is reached. In order to achieve higher exposures of MGCD265, define the MTD and reduce the impact of food on exposure, formulation work is underway. The new formulation with improved properties will be introduced into the dose escalation studies in 2013.
Upon reaching an MTD, we intend to initiate a series of open label expansion cohorts (of 12 to 20 Met-positive and/or Axl-positive patients each) to better characterize the effects seen in our early trials. We also plan to run randomized controlled combination trials in second line gastric cancer (Met-positive and/or Axl-positive) and second line NSCLC (Met-positive and/or Axl-positive). We believe that the pre-selection of patients that express MGCD265 target proteins Met and Axl will enrich our patient pool for likelihood of response. This type of enrichment strategy is precedented in the Met-targeted drug development programs for onartuzumab and tivantinib.
We are developing Axl assays for use in the clinical trials and should have an assay sufficient for Phase 1 and 2 trials ready by the end of 2013. We are also exploring with outside organizations options for the development of plans to scale an Axl assay for Phase 3 use and commercialization if needed. MGCD265 has the potential to be the first-in-class Axl inhibitor for patients whose tumors have increased expression of Axl.
Pipeline Product — Mocetinostat
Mocetinostat (previously referred to as MGCD0103) is a non-hydroxamate HDAC inhibitor that potently inhibits the HDAC isoforms 1, 2, 3 and 11, with greatest potency for isoforms 1 and 2.
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Mocetinostat Background
The deacetylation of histones associated with tumor suppressor genes leads to their silencing which may in turn result in the progression of cancer. HDAC inhibitors appear to modulate the inappropriate deacetylation of genes and the “switching on” of tumor suppressor genes. HDAC is a family of 11 enzymes (isoforms) that appear to act as a master regulator of genes affecting many diseases, including cancer. Inhibition of HDACs may result in multiple anti-cancer effects such as (1) the inhibition of cancer cell proliferation, (2) the induction of apoptosis of cancer cells, (3) improved cell cycle regulation, and (4) the induction of tumor suppressor genes. These multiple effects may provide an advantage for HDAC inhibitors in cancer.
HDAC inhibitors that have been approved, or are currently in clinical trials, have shown activity and continue to draw interest as an emerging class of molecular targeted anti-tumor agents. Two HDAC inhibitors, vorinostat (marketed by Merck & Co., Inc. as Zolinza) and romidepsin (marketed by Glouchester Pharmaceuticals Inc. as Istodax), are approved for T-cell lymphoma. Our clinical studies with mocetinostat indicate that this agent may have promising activity in hematological malignancies such as lymphomas and leukemias.
Mocetinostat Clinical Development
We have completed 13 clinical trials with mocetinostat in 437 patients, either as a single agent or in combination with azacitidine or gemcitabine, in advanced solid tumors and hematological malignancies (including NHL, acute myelogenous leukemia, or AML, MDS, lymphocytic leukemia and HL).
Mocetinostat Efficacy Highlights
Clinical efficacy was observed with mocetinostat as a single agent in HL (33% RR), as well as in NHL including diffuse large B-cell and follicular lymphoma (17% RR). Efficacy was also observed in combination studies: high risk MDS and AML in combination with azacitidine (43.5% RR) and pancreatic cancer with gemcitabine (17% RR). Stable disease was observed in a variety of solid tumors.
Clinical Benefits Observed in Mocetinostat Monotherapy and Combination Therapy
|
Type
|
|
Indication
|
|
Clinical Benefit
|
|
Mono
|
|
Heavily pre-treated, refractory or relapsed Hodgkin’s Lymphoma
|
|
35% ORR (2 CR, 6 PR);Tumor shrinkage in 86% of pts (110mg)
13% ORR (2 PR, 1 SD);Tumor shrinkage in 80% of pts (85mg)
|
|
Mono
|
|
Refractory or relapsed diffuse large B-cell lymphoma
|
|
15% ORR (1 CR, 5 PR); Tumor shrinkage in 60% of pts
|
|
Mocetinostat+
azacitidine
|
|
High Risk MDS
|
|
47% ORR at Phase II dose (90mg);
Duration of response: 4-28 weeks (median = 8 wks)
|
Source: Mirati Therapeutics, Inc.
Mocetinostat Safety and Voluntary Clinical Hold
The tolerability of different dosage regimens was tested (daily, 3x weekly and 2x weekly), and a maximum tolerated dose of 85-110mg was reached with 3x weekly dosing. DLTs included fatigue and other major adverse events included nausea, vomiting and diarrhea.
Mocetinostat was subjected to a voluntary clinical hold to new patient enrollment by Celgene in July 2008, which was accepted by the FDA in August 2008. The voluntary clinical hold was put in place in response to pericarditis and pericardial effusion (inflammation of the pericardium, the fibrous sac surrounding the heart, and accumulation of fluid around the heart).
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Table of Contents
We provided the FDA with a comprehensive and integrated analysis of pericardial events identified in mocetinostat clinical studies. A causal association of mocetinostat with pericardial events was not established and the observed events could be related to the patient population and their prior therapy. Of the 437 patients treated with mocetinostat, there have been a total of 19 patients (4.3%) who had significant adverse events, or SAEs, where a pericardial adverse event was mentioned, and a total of 46 patients (10.5%) who had pericardial findings, which included the 19 SAE findings as well as 27 incidental findings identified through reviews of on-study CT scans, database searches and prospective echocardiogram monitoring, which did not have significant clinical sequellae. Based on literature reviews and other investigator-driven reviews, the rate of pericardial findings is approximately 10% of cancer patients, but rates have been reported to vary from 3% to approximately 40% for patients with advanced cancers, who may have received multiple previous anticancer therapies. However, the potential exists for a relationship with treatment, and the possibility of mocetinostat being a contributing factor to the occurrence of pericardial events has not been excluded.
The conditions agreed to between us and the FDA for new patient enrollment in mocetinostat clinical trials include both the exclusion of patients who are diagnosed with cardiac abnormalities prior to starting mocetinostat therapy (i.e. myocardial infarction, congestive heart failure, and pericardial disease) and patient monitoring by electrocardiogram and echocardiography at baseline and while on study. These diagnostic tests are non-invasive and relatively common procedures. Our complete response accepted by the FDA included specific guidance for identifying patients at potential risk for, and guidance to manage patients who develop pericarditis or pericardial effusions. The partial clinical hold for new patient enrollment was lifted in September 2009.
Mocetinostat Developmental Initiatives and Objectives
In light of exploratory trials which have indicated that mocetinostat has clinical activity and since it is being developed to treat life threatening conditions with unmet medical needs, we are considering further clinical investigations with mocetinostat. We have concluded that it is safe to proceed with enrollment of patients with advanced cancers under the proposed safety monitoring plan. We are evaluating opportunities for further development of mocetinostat and believe that the combination treatment of mocetinostat with azacytidine may provide clinical benefit for patients with MDS. Our planning for potential expanded development of mocetinostat in this indication is underway including planned discussions with key opinion leaders and the FDA.
Pipeline Product MGCD516 — A Novel Multi-targeted Kinase Inhibitor for Cancer
MGCD516 is a selective multi-targeted RTK inhibitor with a distinct profile from MGCD265. The profile of MGCD516 includes the inhibition of a novel spectrum of targets: members of the Eph receptor family, Ret, Met, and VEGFR 2. We believe that coverage of the Eph receptors and Ret differentiate MGCD516 from MGCD265 and other RTK inhibitors. Eph receptors are involved in cell migration and invasion and are overexpressed in several cancers including gastric, breast, prostate and esophageal. Eph receptors are also associated with resistance to HER2 inhibitors. Ret is expressed and has a role in hereditary thyroid cancer, and recent data suggests a possible role in NSCLC.
MGCD516 shows potent inhibition in vitro of cell proliferation, cell motility and angiogenesis. In animal studies, MGCD516 shows good oral bioavailability in mice, rats and dogs, and excellent anti-tumor activities in multiple human xenograft tumor models in mice. MGCD516 is in advanced preclinical development and ready to commence IND-enabling studies.
Other Assets
MG96077 — Our Novel, Broad-Spectrum Beta-Lactamase Inhibitor for Infectious Diseases
MG96077 is a novel, broad spectrum, non-beta-lactam beta-lactamase inhibitor designed to overcome beta-lactamase mediated antibiotic resistance. MG96077 possesses a broad-spectrum inhibitory profile for both class A and class C beta-lactamase enzymes. In addition, the compound overcomes resistance in beta-lactam-resistant organisms such as
Pseudomonas aeruginosa
and
Klebsiella pneumoniae
. MG96077 is in advanced preclinical development and ready to commence IND-enabling studies.
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We have regained the rights to Merck’s beta-lactamase inhibitor program to overcome beta-lactamase mediated antibiotic resistance. As our focus is on our oncology programs, no significant research and development resources are being invested in the beta-lactamase program and we are seeking to partner this program.
Kinase Inhibitors for Ocular Diseases
A subset of our kinase inhibitors has been evaluated for ocular diseases with Otsuka. We have demonstrated that a set of our molecules can inhibit neovascularization in in vivo models of eye disease. On March 27, 2008, we announced that we entered into a worldwide research collaboration and license agreement with Otsuka for the development of novel, small molecule, kinase inhibitors for the local delivery and treatment of ocular disease, excluding cancer. Research funding from Otsuka for our internal efforts directed at this collaboration continued until September 2009, but Otsuka extended the research term of the collaboration to the end of March 2010, resulting in additional funding to us. The research portion of our collaboration with Otsuka ended in June of 2011 and no funding is currently being received; however, we will receive a milestone payment from Otsuka should they move the lead ophthalmology candidate into IND-enabling toxicity studies.
HDAC Inhibitors for Neurodegenerative and Other Diseases
We have leveraged our HDAC knowledge and expertise to evaluate our library of isoform selective HDAC inhibitors in diseases other than cancer where the inappropriate regulation of HDACs appears to play a role. Potential non-oncology indications for HDAC inhibitors include, but are not limited to, neurodegenerative diseases (such as Alzheimer’s, Parkinson’s, Huntington’s), central nervous system, or CNS, diseases, inflammatory diseases, metabolic disorders and fungal infections. As part of this effort, we have granted EnVivo Pharmaceuticals, Inc., or EnVivo, exclusive rights to its HDAC inhibitors for specific neurodegenerative diseases. As has been publicly disclosed, EVP-0334 represents a first-in-class, CNS-penetrant HDAC inhibitor in development expressly for neurodegenerative diseases that has successfully and safely completed Phase I clinical trials. This compound was co-discovered under our collaboration with EnVivo.
Strategic Alliances and Commercial Agreements
Collaboration with Celgene Corporation
Under the terms of the original Collaborative Research, Development and Commercialization Agreement dated January 30, 2006, or the Celgene Collaboration Agreement, between us and Celgene (successor to Pharmion Corporation), we received up-front payments totaling $25.0 million, consisting of a $20.0 million license fee and a $5.0 million equity investment in our shares of common stock. The shares of common stock were purchased at a subscription price of CND$156.25 (or US$137.00, as converted), which represented a 25% premium over the market closing price on January 27, 2006. In addition, Celgene made a milestone payment of $4.0 million to us in 2006 relating to the start of the first Phase II trial of mocetinostat. Celgene also provided one year of research support of $2.0 million, which concluded as planned in March 2007, for a team of eight of our scientists dedicated to identifying second generation HDAC inhibitors. We funded 40% of the non-clinical and clinical development for mocetinostat required to obtain marketing approval in North America while Celgene funded 60% of such costs.
In August 2007, we entered into a second research collaboration for the development of novel small molecule inhibitors targeting sirtuins, a separate and distinct class of histone deacetylase enzymes (Class 3 HDACs). Celgene paid us $4.8 million of research support for our scientists.
In September 2008, we informed Celgene that we would exercise our right to convert the Celgene Collaboration Agreement, subject to a 90-day notice period. As a result of the conversion, we would no longer have the right to co-promote and profit-share on commercialization in North America, but instead would receive future royalty and milestone payments. As a result of our conversion and the subsequent termination of the agreement, Celgene was then responsible for 100% of development costs for mocetinostat for the period from December 17, 2008 to January 22, 2009, inclusive, and we were responsible for any future development costs
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thereafter. Celgene was also responsible for funding the sirtuin research program up to January 22, 2009 inclusively.
In October 2008, Celgene informed us that they were terminating our agreement subject to a 90-day transition period.
In January 2009, our agreement with Celgene terminated and we reacquired exclusive rights for our HDAC inhibitor program for cancer, including mocetinostat and sirtuin inhibitors for cancer in the territories previously licensed to Celgene (North America, Europe, the Middle East and certain other markets). We received over the course of our collaboration an up-front payment, equity investment, milestone payments, contract research payments and clinical support payments totaling $47.4 million from Celgene in support of mocetinostat, our HDAC program for cancer, and sirtuin inhibitors for cancer. This amount includes the net co-development expense portion of clinical trials funded by Celgene.
Collaboration with Taiho Pharmaceutical Co. Ltd., or Taiho
In October 2003, we entered into a license and research and development collaboration agreement with Taiho, a leading Japanese specialty oncology company, for mocetinostat and our small molecule HDAC inhibitor program for oncology for Japan, South Korea, Taiwan, and China. Under the terms of the agreement, we received an up-front license fee, equity investment and a contract research payment of $3.8 million. In addition, we may receive milestone payments based on successful development, regulatory approval, and commercialization of an HDAC oncology product totaling up to $16.2 million. Taiho provided us with contract research payments for scientists for two years at $2.0 million per year as well as funding for contract preclinical and contract clinical development costs in North America for mocetinostat, which totaled, in the aggregate, $5.4 million. Upon the execution of our agreement with Celgene, Taiho no longer had any funding responsibility for clinical trials in North America. In addition, Taiho’s collaboration entailed in-kind support in their research laboratories in order to select a next generation compound, and in some cases, will support a portion of preclinical development costs in North America. There is currently no effort by Taiho or us to further advance next generation cancer compounds into the clinic. Taiho is responsible for the development and commercialization costs in its territory, and we will receive royalties based on sales of HDAC oncology products in these territories. We have received $15.0 million to date including a $1.5 million milestone payment relating to the start of the first Phase II trial with mocetinostat. Taiho also has retained rights in its territories to any sirtuin inhibitors for cancer. Taiho will contribute to preclinical costs if a second HDAC inhibitor and/or sirtuin inhibitor for cancer is identified as a clinical candidate and accepted by Taiho. Such a compound will also be subject to potential development milestones and royalties. We are in ongoing discussions with Taiho to amend the agreement.
Collaboration with Otsuka
In March 2008, we entered into a worldwide research collaboration and license agreement with Otsuka, a global Japanese pharmaceutical company, for the development of novel, small molecule, kinase inhibitors for local delivery and treatment of ocular diseases, excluding cancer. We were responsible for the design, characterization and initial screening of kinase inhibitors and control over determining which compounds to synthesize. Otsuka was responsible for funding efficacy and toxicity studies, as well as preclinical and clinical development of compounds. Otsuka is also responsible for the global commercialization of any resulting product. Under the terms of the agreement, we received an up-front license fee of $2.0 million. We may receive additional payments based on successful development, regulatory, commercialization and sales milestones that could total over $50.0 million and we will receive royalties on net sales. Otsuka provided $1.9 million in research funding for the initial 18 months of the research collaboration, which was extended on three occasions: September, 2009; April 2010 and June 2010. The research component of the agreement ended on June 30, 2011. We received a total of $4.5 million in research funding from the research component of this agreement. In October 2009, Otsuka made, in connection to the terms of the agreement, a $1.5 million equity investment in our shares of common stock at a share price of CND$21.30 (or US$20.27, as converted), which was a 20% premium over the five-day volume-weighted average closing price at the date of the transaction. On June 30, 2010, the collaboration agreement was amended to, among certain other changes, provide Otsuka the rights to synthesize a limited number of compounds predetermined by us. A lead molecule was selected in June 2011 for further
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development. The research portion of the collaboration between us and Otsuka concluded on June 30, 2011. Otsuka is currently advancing the lead compound through late preclinical development.
Collaboration with EnVivo
In March 2004, we entered into a proof of concept and option agreement with EnVivo, a private U.S. biotechnology company focusing on the treatment and prevention of neurodegenerative diseases, to exploit our HDAC inhibitors in diseases such as Huntington’s, Parkinson’s and Alzheimer’s. In February 2005 we signed an exclusive research, collaboration and license agreement. Over the course of 2005, EnVivo paid us $0.6 million for research, plus a $0.5 million license fee, for a total of $1.1 million. As part of this agreement, EnVivo received a warrant to purchase 1,050 shares of common stock at an exercise price of CND$214.30 (or US$170.62, as converted). The warrant expired in March 2007. In February 2008, we exercised our right to opt-out of the program. As a result, we granted EnVivo exclusive rights to our HDAC inhibitors for neurodegenerative diseases and we will cease research and development funding for this program. We will receive royalties on net sales of any approved compound and will share in any sublicense income from future partnerships that EnVivo may enter into.
Intellectual Property
Patents and Proprietary Technology
Our goal is to obtain, maintain and enforce patent protection for our product candidates, formulations, processes, methods and any other proprietary technologies and operate without infringing on the proprietary rights of other parties, both in the United States and in other countries. Our practice is to actively seek to obtain, where appropriate, the best intellectual property protection possible for our current product candidates and any future product candidates, proprietary information and proprietary technology through a combination of contractual arrangements, protection of trade secrets, and patents, both in the United States and abroad. However, patent protection may not afford us with complete protection against competitors who seek to circumvent our patents. We also depend upon the skills, knowledge, experience and know-how of our management and research and development personnel as well as that of our advisors, consultants and other contractors. To help protect our proprietary know-how, which is not patentable, we require all of our employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business.
We typically file for patents in the United States with counterparts in certain countries in Europe and certain key market countries in the rest of the world, thereby covering the major pharmaceutical markets. As of March 30, 2013, we own, co-own, or have a license or a sub-license to, 54 U.S. patents and patent applications and their foreign counterparts, including 24 issued U.S. patents as reflected in the following table:
Granted and Pending United States Patents
|
Program
|
|
Granted (U.S.)
|
|
Pending (U.S.)
|
|
|
Kinase
|
|
6
|
|
12
|
|
|
Hos 2 and HDAC
|
|
11
|
|
16
|
|
|
Beta-Lactamase
|
|
6
|
|
2
|
|
|
DNMT
|
|
1
|
|
0
|
|
|
TOTAL
|
|
24
|
|
30
|
|
Kinase — (6 granted U.S. patents; 12 pending U.S. patent applications)
We have six issued patents and twelve pending patent applications in the United States covering inhibitor compounds and methods of use. Of these issued patents, one covers multiple series of kinase inhibitors and protects MGCD265 generically. Another issued patent protects a selection of compounds including MGCD265, as well as methods of inhibiting VEGF and HGF receptor signaling, methods of treating
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angiogenesis-mediated cell proliferative disease or inhibiting solid tumor growth. Exclusivity for MGCD265 extends to at least 2026, prior to legal or regulatory extensions. Another four issued patents cover several distinct classes of compounds, including MG516, both generically and specifically, and methods of use of such compounds. Exclusivity for MG516 extends to at least 2029.
Our pending patent applications seek coverage of a broader scope of kinase inhibitors both for oncology and for the treatment of ophthalmic diseases. Methods of use of these inhibitors, such as methods of inhibiting VEGF and HGF receptor signaling, methods of treating angiogenesis-mediated cell proliferative disease or inhibiting solid tumor growth, are covered as well. Two more pending patent applications claim processes of manufacturing kinase inhibitors such as MGCD265 as well as synthetic intermediates required for the purpose.
Hos2 and HDAC Programs — (11 granted U.S. patents; 16 pending U.S. patent applications)
Our patent estate covering multiple series of HDAC inhibitors, including MGCD290 and mocetinostat, comprises 11 granted patents and 16 pending patent applications in the United States protecting composition of matter, biology, and utility. One issued patent covers the Hos2 inhibitor MGCD290 both generically and specifically. Exclusivity for MGCD290 extends to at least 2020, and exclusivity for combination of MGCD290 with antifungal agents extends to 2026, prior to legal or regulatory extensions. Exclusivity for mocetinostat extends to 2022 prior to legal or regulatory extensions.
In aggregate, these U.S. patents and patent applications cover the following inventions: novel HDAC inhibitors, including mocetinostat (eight issued patents and nine patent applications), methods of inhibiting HDACs, methods for treating cell proliferative disease or cancer, specific methods for treating colon, lung and pancreatic cancers, methods for treating polyglutamine expansion diseases (such as Huntington’s disease) and methods for treating fungal infection. Three applications claim compositions of HDAC/Hos2 inhibitors with antifungal compounds, methods of enhancing the activity of the antifungal compounds with HDAC/Hos2 inhibitors, and methods of treating fungal infection. One pending application also seeks protection of the analogs of MGCD290 as well as prodrugs of HDAC/Hos2 inhibitors and their use; while another pending application claims methods for identifying/screening potentiators of antifungal compounds, the inhibitors of ergosterol biosynthesis. A provisional application is directed to novel HDAC/Hos2 inhibitors and their use.
Beta-Lactamase — (6 granted U.S. patents; 2 pending U.S. patent applications)
For our beta-lactamase inhibitor program, we co-filed two patent applications with Merck & Co., Inc., or Merck, and Merck has since returned all rights to these patents to us. In line with our corporate objectives to promote the partnering and development of our lead beta-lactamase inhibitor, MG96077, we are currently supporting the prosecution of only one granted patent (coverage until 2027) that protects this molecule both specifically and generically. The majority of the other patents are in the process of abandonment.
DNMT Program — (1 granted U.S. patent)
In our DNA methyltransferase program, we own one U.S. patent specifically covering MG98. This U.S. patent covers MG98 and methods for inhibiting tumor growth with it. We may abandon this patent in the future as we are no longer pursing this program.
Licensing Agreements
We have one ongoing license agreement which provides us with certain intellectual property. We may enter into additional license or sub-license agreements when we believe such license is required to pursue a specific program. Such arrangements will provide intellectual property that enhances our own capabilities.
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Competition
Competitors in Oncology — Small Molecule Kinase Inhibitors
A large number of kinase inhibitors are currently in clinical trials, with many more in the early research stage. Biotechnology and pharmaceutical companies are also developing monoclonal antibodies to kinase targets and their ligands.
The Met kinase inhibitor field has recently generated intense scientific and industry interest. We believe that most of the biotechnology and pharmaceutical companies developing small molecule drugs for cancer have significant and active kinase inhibitor programs (including Met programs) that may be competitive with our own and these competitors are described below. Our MGCD265 program is attractively positioned in the pipeline of Met-targeted molecules and is characterized by potential advantages including: a unique kinase spectrum including the emerging RTK target Axl; a lack of activity against over 400 off-target kinases, supporting a favorable safety profile; and excellent tolerability to date with other anti-cancer agents (including chemotherapy), thus optimizing the potential for combination therapy approaches.
Companies with Met inhibitors believed to be in late preclinical or clinical development include, but are not limited to: Amgen Inc., ArQule Inc. and its partners Kyowa Hakko Kirin Pharma Inc. and Daiichi Sankyo Company Limited, Aveo Pharmaceuticals Inc., Bristol-Myers Squibb Company, Exelixis Inc., F. Hoffman-LaRoche Ltd., GlaxoSmithKline PLC, Novartis AG and Pfizer Inc.
Axl is a newly emergent RTK target. However, a small number of RTK inhibitors that are launched or in development are believed to inhibit Axl. These include foretinib (in Phase II by Exelixis Inc.) and crizotinib (marketed by Pfizer Inc. as Xalkori).
Many companies have filed, and continue to file, patent applications which may or could affect our program. Some of these patent applications may have already been allowed or granted. These companies include, but are not limited to: Bristol-Myers Squibb Company, Compugen Limited, Exelixis Inc., GlaxoSmithKline PLC., Novartis and Pfizer Inc. Since this area is competitive and of strong interest to pharmaceutical and biotechnology companies, there will most likely be additional patent applications published and filed in the future, as well as additional research and development programs expected in the future.
Competitors in Oncology - Mocetinostat Competitors
We believe that a key differentiating feature of mocetinostat is its spectrum of activity, covering only isoforms 1, 2, 3 and 11, the most relevant HDAC isoforms in human disease. Other companies that are developing spectrum-selective HDAC inhibitors in development include but are not limited to Acetylon Pharmaceuticals, Inc., Chroma Therapeutics Ltd., Shenzen Chipscreen Biosciences Ltd. and Syndax Pharmaceuticals Inc.
Companies with Pan-HDAC inhibitors, which are HDAC inhibitors that have an effect across a broader range of HDAC isoforms and therefore not as selective as molecules like mocetinostat, include but are not limited to: Celgene Corporation, Curis Inc., MEI Pharma Inc., Merck, Novartis AG, Pharmacyclics Inc. and others.
Competitors in Oncology — General Competitors
In addition to companies that have HDAC inhibitors or kinase inhibitors addressing oncology indications, our competition also includes hundreds of private and publicly-traded companies that operate in the area of oncology but have therapeutics with different mechanisms of action. The oncology market in general is highly competitive, with over 1,000 molecules currently in clinical development. Other important competitors, in addition to those mentioned above, include, but are not limited to: small and large biotechnology companies, including but not limited to Amgen Inc., Ariad Pharmaceuticals Inc., ArQule Inc., Biogen Idec Inc, Celgene Corporation, Exelixis Inc. and Onyx Pharmaceuticals Inc.; and specialty and regional pharmaceutical companies
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and multinational pharmaceutical companies, including but not limited to, Abbott Laboratories Inc., Astellas Pharma Inc., AstraZeneca plc, Bayer-Schering Pharmaceutical, Boehringer Ingelheim AG, Bristol-Myers Squibb Company, Eisai Co. Ltd., Eli Lilly and Company, F. Hoffmann-LaRoche Ltd., GlaxoSmithKline plc, Johnson & Johnson, Merck & Co, Inc., Novartis AG, Pfizer Inc., Sanofi-Aventis, Taiho Pharmaceutical and Takeda Pharmaceutical Co.
MG96077 Competitors
In addition to marketed beta-lactamase inhibitors by GlaxoSmithKline PLC (Augmentin), and Pfizer Inc. (Unasyn, Zosyn), there are several programs in development including those by Amura Holdings Ltd., Astra Zeneca PLC, AstraZeneca PLC in collaboration with Forest Laboratories Inc, Basilea Pharmaceutica Ltd., F. Hoffman-LaRoche, Pfizer Inc. and Sumitomo Pharmaceuticals.
Manufacturing
We do not own or operate manufacturing facilities for the production of MGCD265, mocetinostat or any of our other product candidates, nor do we plan to develop our own manufacturing operations in the foreseeable future. We currently depend on third party contract manufacturers for all of our required raw materials, API and finished products for our preclinical and clinical trials.
Manufacturers of our products are required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations. cGMP regulations require, among other things, quality control and quality assurance as well as corresponding maintenance of records and documentation. Pharmaceutical product manufacturers and other entities involved in the manufacture and distribution of approved pharmaceutical products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA, including withdrawal of the product from the market. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented.
Government Regulation
The Regulatory Process for Drug Development
The production and manufacture of our product candidates and our research and development activities are subject to regulation by various governmental authorities around the world. In the United States, drugs and products are subject to regulation by the FDA. There are other comparable agencies in Canada, Europe and other parts of the world. Regulations govern, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products. Applicable legislation requires licensing of manufacturing and contract research facilities, carefully controlled research and testing of products, governmental review and/or approval of results prior to marketing therapeutic products. Additionally, adherence to good laboratory practices, or GLP, good clinical practices, or GCP, during clinical testing and good manufacturing practices, GMP, during production is required. The system of new drug approval in the United States is generally considered to be the most rigorous in the world and is described in further detail below under “United States Pharmaceutical Product Development Process”. In Canada, these activities are regulated by the Food and Drug Act and the rules and regulations promulgated thereunder, which are enforced by the Therapeutic Products Directorate, or TPD of Health Canada.
United States Pharmaceutical Product Development Process
In the United States, the FDA regulates pharmaceutical products under the Federal Food, Drug and Cosmetic Act and implementing regulations. Pharmaceutical products are also subject to other federal, state
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and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
It normally takes an average of 10 to 15 years for a typical experimental drug to go from concept to approval. The process required by the FDA before a pharmaceutical product may be marketed in the United States generally includes the following:
·
Completion of preclinical laboratory tests and animal studies. The latter often conducted according to GLPs or other applicable regulations, as well as synthesis and drug formulation development leading ultimately to clinical drug supplies manufactured according to current GMPs;
·
Submission to the FDA of an IND, which must become effective before human clinical trials may begin in the United States;
·
Performance of adequate and well-controlled human clinical trials according to the FDA’s current GCPs, to establish the safety and efficacy of the proposed pharmaceutical product for its intended use;
·
Submission to the FDA of an NDA for a new pharmaceutical product;
·
Satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the pharmaceutical product is produced to assess compliance with the FDA’s cGMP, to assure that the facilities, methods and controls are adequate to preserve the pharmaceutical product’s identity, strength, quality and purity;
·
Potential FDA audit of the preclinical and clinical trial sites that generated the data in support of the NDA; and
·
FDA review and approval of the NDA.
The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources and approvals are inherently uncertain.
Preclinical Studies
: Prior to preclinical studies, a research phase takes place which involves demonstration of target and function, design, screening and synthesis of inhibitors. Preclinical studies include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to evaluate efficacy and activity, toxic effects, pharmacokinetics and metabolism of the pharmaceutical product candidate and to provide evidence of the safety, bioavailability and activity of the pharmaceutical product candidate in animals. The conduct of the preclinical safety evaluations must comply with federal regulations and requirements including GLPs. The results of the formal IND-enabling preclinical studies, together with manufacturing information, analytical data, any available clinical data or literature as well as the comprehensive descriptions of proposed human clinical studies, are then submitted as part of the IND application to the FDA.
The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the IND on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a pharmaceutical product candidate at any time before or during clinical trials due to safety concerns or non-compliance. Accordingly, we cannot be certain that submission of an IND will result in the FDA allowing
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clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such clinical trial.
Clinical Trials
: Clinical trials involve the administration of the pharmaceutical product candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by the sponsor. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety. Each protocol must be submitted to the FDA if conducted under a U.S. IND. Clinical trials must be conducted in accordance with the FDA’s GCP requirements. Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, or ethics committee at or servicing each institution at which the clinical trial will be conducted. An IRB or ethics committee is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB or ethics committee also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed.
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
Phase I Clinical Trials
: Phase I clinical trials are usually first-in-man trials, take approximately one to two years to complete and are generally conducted on a small number of healthy human subjects to evaluate the drug’s activity, schedule and dose, pharmacokinetics and pharmacodynamics. However, in the case of life-threatening diseases, such as cancer, the initial Phase I testing may be done in patients with the disease. These trials typically take longer to complete and may provide insights into drug activity.
Phase II Clinical Trials
: Phase II clinical trials can take approximately one to three years to complete and are carried out on a relatively small to moderate number of patients (as compared to Phase III) in a specific indication. The pharmaceutical product is evaluated to preliminarily assess efficacy, to identify possible adverse effects and safety risks, and to determine optimal dose, regimens, pharmacokinetics, pharmacodynamics and dose response relationships. This phase also provides additional safety data and serves to identify possible common short-term side effects and risks in a larger group of patients. Phase II clinical trials sometimes include randomization of patients.
Phase III Clinical Trials
: Phase III clinical trials take approximately two to five years to complete and involve tests on a much larger population of patients (several hundred to several thousand patients) suffering from the targeted condition or disease. These studies usually include randomization of patients and blinding of both patients and investigators at geographically dispersed test sites (multi-center trials). These trials are undertaken to further evaluate dosage, clinical efficacy and safety and are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labeling. Generally, two adequate and well-controlled Phase III clinical trials are required by the FDA for approval of an NDA or foreign authorities for approval of marketing applications.
Post-approval studies, or Phase IV clinical trials, may be conducted after initial marketing approval. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and may be required by the FDA as a condition of approval.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events or for any finding from tests in laboratory animals that suggests a significant risk for human subjects. Phase I, Phase II and Phase III clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor or, if used, its data safety and monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB or ethics committee can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s or ethics committee’s requirements or if the pharmaceutical product has been associated with unexpected serious harm to patients.
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Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the pharmaceutical product, as well as finalize a process for manufacturing the product in commercial quantities in accordance with GMP requirements. The manufacturing process must be capable of consistently producing quality batches of the pharmaceutical product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final pharmaceutical product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the pharmaceutical product candidate does not undergo unacceptable deterioration over its shelf life.
U.S. Pharmaceutical Review and Approval Process
New Drug Application
: Upon completion of pivotal Phase III clinical studies, the sponsor assembles all the product development, preclinical and clinical data along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the pharmaceutical product, proposed labeling and other relevant information, and submits it to the FDA as part of an NDA. The submission or application is then reviewed by the regulatory body for approval to market the product. This process takes eight months to one year to complete. The FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical data or other data and information. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling.
Post-Approval Requirements
Any pharmaceutical products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, promoting pharmaceutical products for uses or in patient populations that are not described in the pharmaceutical product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities and promotional activities involving the internet. Failure to comply with FDA requirements can have negative consequences, including adverse publicity, enforcement letters from the FDA, mandated corrective advertising or communications with doctors and civil or criminal penalties.
The FDA also may require post-marketing testing, known as Phase IV testing, risk evaluation and mitigation strategies and surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product.
Other Healthcare Laws and Compliance Requirements
In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services and other divisions of the United States government, including, the Department of Health and Human Services, the U.S. Department of Justice and individual U.S. Attorney offices within the Department of Justice, and state and local governments. For example, if a drug product is reimbursed by Medicare, Medicaid, or other federal or state healthcare programs, our company, including our sales, marketing and scientific/educational grant programs, must comply with the federal False Claims Act, as amended, the federal Anti-Kickback Statute, as amended, and similar state laws. If a drug product is reimbursed by Medicare or Medicaid, pricing and rebate programs must comply with, as applicable, the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, or OBRA, and the Medicare Prescription Drug Improvement and Modernization Act of 2003. Among other things, OBRA requires drug manufacturers to pay rebates on prescription drugs to state Medicaid programs and empowers states to negotiate rebates on pharmaceutical prices, which may result in prices for our future products that will likely be lower than the prices we might
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otherwise obtain. Additionally, the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010, collectively, PPACA, substantially changes the way healthcare is financed by both governmental and private insurers. Among other cost containment measures, PPACA establishes: an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents; a new Medicare Part D coverage gap discount program; and a new formula that increases the rebates a manufacturer must pay under the Medicaid Drug Rebate Program. There may continue to be additional proposals relating to the reform of the U.S. healthcare system, in the future, some of which could further limit coverage and reimbursement of drug products. If drug products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements may apply.
Pharmaceutical Coverage, Pricing and Reimbursement
In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of coverage and adequate reimbursement from third-party payers, including government health administrative authorities, managed care providers, private health insurers and other organizations. In the United States, private health insurers and other third-party payers often provide reimbursement for products and services based on the level at which the government (through the Medicare or Medicaid programs) provides reimbursement for such treatments. Third-party payers are increasingly examining the medical necessity and cost-effectiveness of medical products and services in addition to their safety and efficacy and, accordingly, significant uncertainty exists as to the coverage and reimbursement status of newly approved therapeutics. In particular, in the United States, the European Union and other potentially significant markets for our product candidates, government authorities and third-party payers are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies, which has resulted in lower average selling prices. Further, the increased emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement controls in the European Union will put additional pressure on product pricing, reimbursement and usage, which may adversely affect our future product sales and results of operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general. As a result, coverage and adequate third party reimbursement may not be available for our products to enable us realize an appropriate return on our investment in research and product development.
The market for our product candidates for which we may receive regulatory approval will depend significantly on access to third-party payers’ drug formularies, or lists of medications for which third-party payers provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payers may refuse to include a particular branded drug in their formularies or may otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available. In addition, because each third-party payer individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-consuming and costly process. We would be required to provide scientific and clinical support for the use of any product to each third-party payer separately with no assurance that approval would be obtained, and we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our products. This process could delay the market acceptance of any of our product candidates for which we may receive approval and could have a negative effect on our future revenues and operating results. We cannot be certain that our product candidates will be considered cost-effective. If we are unable to obtain coverage and adequate payment levels for our product candidates from third-party payers, physicians may limit how much or under what circumstances they will prescribe or administer them and patients may decline to purchase them. This in turn could affect our ability to successfully commercialize our products and impact our profitability, results of operations, financial condition, and future success.
The Development Process for Orphan Drugs
The United States Orphan Drug Act encourages the development of orphan drugs, which are intended to treat “rare diseases or conditions” within the meaning of this Act (i.e., those that affect fewer than 200,000 persons in the United States). The provisions of the Act are intended to stimulate the research, development and
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approval of products that treat rare diseases. Orphan Drug Designation provides a sponsor with several potential benefits: (1) sponsors are granted seven years of marketing exclusivity after approval of the orphan-designated indication for the drug product; (2) sponsors are granted U.S. tax incentives for clinical research; (3) the FDA’s office of orphan products development co-ordinates research study design assistance for sponsors of drugs for rare diseases; and (4) grant funding can be obtained to defray costs of qualified clinical testing.
There are a number of potential oncology indications for which mocetinostat treatment may qualify for orphan drug status. To date, mocetinostat has been granted orphan drug status by the United States and by the European Medicines Agency, or EMA for the treatment of HL and AML. We may file orphan drug designation requests on potentially qualifying oncology indications and any additional disease indications that may qualify for this status.
Priority Review
Priority Review is a designation for an NDA after it has been submitted to the FDA for review. Reviews for NDAs are designated as either “Standard” or “Priority.” A Standard designation sets the target date for completing all aspects of a review and the FDA taking an action on 90% of applications (i.e., approve or not approve) at 12 months after the date it was submitted. A Priority designation sets the target date for the FDA action on 90% of applications at eight months after submission. A Priority designation is intended for those products that address unmet medical needs.
Accelerated Approval
Accelerated Approval or Subpart H Approval is a program described in the NDA regulations that is intended to make promising products for life threatening diseases available on the basis of evidence of effect on a surrogate endpoint prior to formal demonstration of patient benefit. A surrogate marker is a measurement intended to substitute for the clinical measurement of interest, usually prolongation of survival in oncology that is considered likely to predict patient benefit. The approval that is granted may be considered a provisional approval with a written commitment to complete clinical studies that formally demonstrate patient benefit.
Employees
As of March 31, 2013, we had 36 employees including both permanent and contract employees, and we also utilize the services of consultants on a regular basis. Twenty-five employees are engaged in drug development activities and eleven are in support administration, including business development and finance. None of our employees are represented by labor unions or covered by collective bargaining agreements.
Item 1A. Risk Factors.
Risks Relating to Our Financial Position and Capital Requirements
We are a clinical stage company with no approved products and no historical product revenues. We cannot predict when we will generate significant revenues and may never achieve or maintain profitability.
We are an early-stage development company that has incurred losses since its inception and expect to continue to incur substantial losses in the foreseeable future.
Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty.
Our actual financial condition and operating results have varied significantly in the past and are expected to continue to fluctuate significantly from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include:
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the success of our clinical trials through all phases of clinical development;
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delays in the commencement, enrollment and timing of clinical trials;
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our ability to secure and maintain collaborations, licensing or other arrangements for the future development and/or commercialization of our product candidates, as well as the terms of those arrangements;
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our ability to obtain, as well as the timeliness of obtaining, additional funding to develop our product candidates;
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the results of clinical trials or marketing applications for product candidates that may compete with our product candidates;
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competition from existing products or new products that may receive marketing approval;
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potential side effects of our product candidates that could delay or prevent approval or cause an approved drug to be taken off the market;
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any delays in regulatory review and approval of our product candidates;
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our ability to identify and develop additional product candidates;
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the ability of patients or healthcare providers to obtain coverage or sufficient reimbursement for our products;
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our ability, and the ability of third parties such as Clinical Research Organizations, or CROs, to adhere to clinical study and other regulatory requirements;
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the ability of third-party manufacturers to manufacture our product candidates and key ingredients needed to conduct clinical trials and, if approved, successfully commercialize our products;
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the costs to us, and our ability as well as the ability of any third-party collaborators, to obtain, maintain and protect our intellectual property rights;
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costs related to and outcomes of potential intellectual property litigation;
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our ability to adequately support future growth;
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our ability to attract and retain key personnel to manage our business effectively; and
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our ability to build our finance infrastructure and improve our accounting systems and controls.
Accordingly, the likelihood of our success must be evaluated in light of many potential challenges and variables associates with an early-stage drug development company, many of which are outside of our control, and past operating or financial results should not be relied on as an indication of future results. If one or more of our product candidates is approved for commercial sale and we retain commercial rights, we anticipate incurring significant costs associated with commercializing any such approved product candidate. Therefore, even if we are able to generate revenues from the sale of any approved product, we may never become profitable. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing or amount of expenses and when we will be able to achieve or maintain profitability, if ever.
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We have never generated any revenue from product sales and may never be profitable.
We have derived limited revenues from our research and licensing agreements which have not been sufficient to cover the substantial expenses we have incurred in our efforts to develop our products. Consequently,
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we have accumulated net losses since inception in 1995. Our net loss for the first quarter of 2013 was $4.2 million and for 2012 and 2011 it was $20.3 million and $9.8 million, respectively. As of March 31, 2013, we had an accumulated deficit of $149.7 million. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Such losses are expected to increase in the future as we continue the development of our product candidates and seek regulatory approval and commercialization for our product candidates. We are unable to predict the extent of any future losses or when we will become profitable, if ever. Even if we do achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis.
We do not anticipate generating revenues from sales of products for the foreseeable future, if ever. If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our ability to generate future revenues from product sales depends heavily on our success in:
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completing development and clinical trial programs for our product candidate MGCD265;
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entering into collaboration and license agreements;
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seeking and obtaining marketing approvals for any product candidates that successfully complete clinical trials;
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establishing and maintaining supply and manufacturing relationships with third parties;
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successfully commercializing any product candidates for which marketing approval is obtained; and
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successfully establishing a sales force, marketing and distribution infrastructure.
We will require additional financing and may be unable to raise sufficient capital, which could lead us to delay, reduce or abandon development programs or commercialization.
Our operations have consumed substantial amounts of cash since inception. Our net research and development expenses were $5.5 million for the first quarter of 2013, and $15.1 million and $8.9 million for 2012 and 2011, respectively. We believe that our current cash will sustain our operations into the second quarter of 2014. We will require substantial additional capital to pursue additional clinical development for our lead clinical programs, including conducting clinical trials, manufacturing clinical supplies and potentially developing other assets in our pipeline, and, if we are successful, to commercialize any of our current product candidates. If the FDA or any foreign regulatory agency, such as the European Medicines Agency, or EMA, requires that we perform studies or trials in addition to those that we currently anticipate with respect to the development of MGCD265, or repeat studies or trials, our expenses would further increase beyond what we currently expect. Any delay resulting from such further or repeat studies or trials could also result in the need for additional financing. There is no assurance that we can adequately finance our development programs, which could lead to delays, limit our ability to move our programs forward in a timely and satisfactory manner or abandon the programs, any of which would harm our business, financial condition and results of operations.
We currently do not have sufficient cash to complete advanced clinical development of any of our product candidates or, if applicable, to prepare for commercializing any product candidate that is approved. Accordingly, we will require substantial additional capital to continue our clinical development activities and potentially engage in commercialization activities. Because successful development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to complete research and development and commercialize our product candidates.
If we are unable to obtain funding from equity offerings or debt financings, including on a timely basis, we may be required to (1) seek collaborators for one or more of our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; (2) relinquish or license on
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unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves; or (3) significantly curtail one or more of our research or development programs or cease operations altogether.
Raising additional funds through debt or equity financing will be dilutive and raising funds through licensing agreements may be dilutive, restrict operations or relinquish proprietary rights.
To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in substantial dilution for our current stockholders and the terms may include liquidation or other preferences that adversely affect the rights of our current stockholders. Existing stockholders may not agree with our financing plans or the terms of such financings. Moreover, the incurrence of debt financing could result in a substantial portion of our operating cash flow being dedicated to the payment of principal and interest on such indebtedness and could impose restrictions on our operations. In addition, if we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish potentially valuable rights to our products or proprietary technologies, or grant licenses on terms that are not favorable to us. Additional funding may not be available to us on acceptable terms, or at all.
We may incur losses associated with foreign currency fluctuation.
Our head office is located in Canada and many of our material contracts were entered into in Canada. A significant portion of our expenditures are in foreign currencies, most notably in Canadian dollars; therefore, we are subject to foreign currency fluctuations which may, from time to time, impact (positively or negatively) our financial position and results. Exchange rates can fluctuate significantly and cannot be easily predicted; thus, we may experience significant shifts in currency exchange variances in the future. We maintain bank accounts in both Canadian and United States dollars and do not hedge our positions. Our functional currency at December 31, 2012 was the Canadian dollar and based on extensive analysis of projected expenses we have changed the functional currency to the United States dollar effective January 1, 2013.
As a public company in the United States, we will be subject to the Sarbanes-Oxley Act. We can provide no assurance that we will, at all times, in the future be able to report that our internal controls over financial reporting are effective.
Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires management to establish and maintain a system of internal control over financial reporting and annual reports on Form 10-K filed under the Exchange Act to contain a report from management assessing the effectiveness of a company’s internal control over financial reporting.
As a smaller reporting company as defined in the Exchange Act we will be required to comply with Section 404 of the Sarbanes-Oxley Act although, as an emerging growth company and a smaller reporting company, we are not required to comply with Section 404(b) which requires attestation from our external auditors on our internal control over financial reporting. We will, however, be subject to Section 404(a) which requires management to provide a report regarding the effectiveness of internal controls. We have been listed on the TSX since June 2004 and have been subject to similar governance requirements under Multi-lateral Instrument 52-109. We will be reviewing all of our control processes to align them to the SOX 404 requirements. Failure to provide assurance that our financial controls are effective could lead to lack of confidence by investors which could lead to a lower share price.
When and if we are a “large accelerated filer” or an “accelerated filer” and are no longer an “emerging growth company,” (each as defined in the Exchange Act or the Securities Act), our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. To comply with the requirements of being a reporting company under the Exchange Act, we may need to upgrade our systems including information technology, implement additional financial and management controls, reporting systems, and procedures, and hire additional accounting and finance staff.
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We will incur significant increased costs as a result of operating as a U.S. public company and maintaining a dual listing on the TSX.
Although we intend to eventually de-list from the TSX, we will continue to be subject to Canadian reporting obligations even if we de-list from the TSX. Our Canadian reporting obligations will continue until we meet certain prescribed thresholds which would allow us to apply to cease being a Canadian “reporting issuer”. We may incur significant additional accounting, reporting and other expenses in order to maintain a dual listing on both The NASDAQ Stock Market, LLC and the TSX. For example, we may incur additional expenses if we are required to continue to present our financial information according to International Financial Reporting Standards in Canada, as well as according to U.S. GAAP in the United States. In addition, as a U.S. listed public company, we will incur significant additional legal, accounting and other expenses that we did not incur as a company listed on the TSX. Shareholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, any new regulations or disclosure obligations may increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Our operating results may fluctuate significantly, and any failure to meet financial expectations may disappoint securities analysts or investors and result in a decline in the price of our securities.
We have a history of operating losses. Our operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our share price to decline. Due to fluctuations in our operating results, we believe that period-to-period comparisons of our results are not indicative of our future performance. It is possible that in some future quarter or quarters, our operating results will be above or below the expectations of securities analysts or investors. In this case, the price of our securities could decline.
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an emerging growth company. Under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We plan to avail ourselves of this exemption from new or revised accounting standards and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”
For as long as we continue to be an emerging growth company, we also intend to take advantage of certain other exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory stockholder vote on executive compensation and any golden parachute payments not previously approved, exemption from the requirement of auditor attestation in the assessment of our internal control over financial reporting and exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board. If we do, the information that we provide stockholders may be different than what is available with respect to other public companies. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We will remain an emerging growth company until the earliest of (1) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of the end of the second fiscal quarter, (2) the end of the fiscal year in which we have total annual gross revenues of $1 billion or more during such fiscal year, (3) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (4) the end of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement filed under the Securities Act.
Decreased disclosures in our SEC filings due to our status as an “emerging growth company” may make it
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harder for investors to analyze our results of operations and financial prospects.
We are a smaller reporting company and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.
We are currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In the event that we are still considered a “smaller reporting company”, at such time are we cease being an “emerging growth company”, we will be required to provide additional disclosure in our SEC filings. However, similar to “emerging growth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports and in a registration statement under the Exchange Act on Form 10.
Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.
Risks Relating to Our Business and Industry
Our research and development programs and processes are at an early stage of development. As a result we are unable to predict if or when we will successfully commercialize our products.
Our clinical product candidates as well as our other pipeline assets are at an early stage of development and will require significant further investment and regulatory approvals prior to commercialization. Even if we obtained the required financing we cannot assure successful product development or that we will obtain regulatory approval or successfully commercialize any of our product candidates and generate revenues.
All of our clinical candidates will be subject to extensive regulation which can be costly and time consuming, cause delays or prevent approval of the products for commercialization.
The clinical development of product candidates is subject to extensive regulations by the FDA in the United States and by comparable regulatory authorities in Canada and other foreign markets. Product development is a very lengthy and expensive process and can vary significantly based upon the product candidate’s novelty and complexity. Regulations are subject to change and regulatory agencies have significant discretion in the approval process.
Numerous statutes and regulations govern human testing and the manufacture and sale of human therapeutic products in the United States, Canada and other countries where we intend to market our products. Such legislation and regulation bears upon, among other things, the approval of protocols and human testing, the approval of manufacturing facilities, safety of the product candidates, testing procedures and controlled research, review and approval of manufacturing, preclinical and clinical data prior to marketing approval including adherence to GMP during production and storage as well as regulation of marketing activities including advertising and labeling.
In order to obtain regulatory clearance for the commercial sale of any of our product candidates, we must demonstrate through preclinical studies and clinical trials that the potential product is safe, efficacious for use in humans for each target indication and, in many cases, that it has significant advantages compared to existing approved treatments. The failure to adequately demonstrate the safety, efficacy, or superiority of a product under development could delay or prevent regulatory clearance of the product candidates.
No assurance can be given that current regulations relating to regulatory approval will not change or become more stringent in the United States, Canada or other foreign markets. The agencies may also require
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additional trials be run in order to provide additional information regarding the safety, efficacy or equivalency of any compound for which we seek regulatory approval. Moreover, any regulatory approval of a drug which is eventually obtained may entail limitations on the indicated uses for which that drug may be marketed. Furthermore, product approvals may be withdrawn or limited in some way if problems occur following initial marketing or if compliance with regulatory standards is not maintained. Regulatory agencies could become more risk adverse to any side effects or set higher standards of safety and efficacy prior to reviewing or approving a product. This could result in a product not being approved.
We rely upon third-party contractors and service providers for the execution of some aspects of our development programs. Failure of these collaborators to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of our development programs.
We outsource certain functions, tests and services to CROs, medical institutions and collaborators as well as outsourcing manufacturing to collaborators and/or contract manufacturers and we rely on third parties for quality assurance, clinical monitoring, clinical data management and regulatory expertise. We may also engage a CRO to run all aspects of a clinical trial on our behalf. There is no assurance that such individuals or organizations will be able to provide the functions, tests, drug supply or services as agreed upon or in a quality fashion and we could suffer significant delays in the development of our products or processes.
In some cases there may be only one or few providers of such services, including clinical data management or manufacturing services. In addition, the cost of such services could be significantly increased over time. We rely on third parties and collaborators as mentioned above to enroll qualified patients and conduct, supervise and monitor our clinical trials. Our reliance on these third parties and collaborators for clinical development activities reduces our control over these activities. Our reliance on these parties, however, does not relieve us of our regulatory responsibilities, including ensuring that our clinical trials are conducted in accordance with GCP regulations and the investigational plan and protocols contained in the regulatory agency applications. In addition, these third parties may not complete activities on schedule or may not manufacture compounds under GMP conditions. Pre-clinical studies may not be performed or completed in accordance with GLP regulatory requirements or our trial design. If these third parties or collaborators do not successfully carry out their contractual duties or meet expected deadlines, obtaining regulatory approval for manufacturing and commercialization of our product candidates may be delayed or prevented. We rely substantially on third party data managers for our clinical trial data. There is no assurance that these third parties will not make errors in the design, management or retention of our data or data systems. There is no assurance these third parties will pass FDA or regulatory audits, which could delay or prohibit regulatory approval.
The timelines of our clinical trials may be impacted by numerous factors and any delays may adversely affect our ability to execute our current business strategy.
Our expectations regarding the success of our product candidates, including our clinical candidates and lead compounds, and our business are based on projections which may not be realized for many scientific or business reasons. We therefore cannot assure investors that we will be able to adhere to our current schedule. We set goals and make public statements that forecast the accomplishment of objectives material to our success: selecting clinical candidates, product candidates, timing of events, failures in research, the inability to identify or advance lead compounds, identifying target patient groups or clinical candidates, the commencement and completion of clinical trials, including reaching the MTD within a certain timeframe, and anticipated regulatory approval. The actual timing of these events can vary dramatically due to factors such as slow enrollment of patients in studies, difficulty in finding an MTD particularly for an oncology product candidate, uncertainties in scale-up, manufacturing and formulation of our compounds, failures in research, the inability to identify clinical candidates, failures in our clinical trials, and uncertainties inherent in the regulatory approval process and regulatory submissions. Decisions by our partners or collaborators may also affect our timelines and delays in achieving manufacturing capacity and marketing infrastructure sufficient to commercialize our biopharmaceutical products. The length of time necessary to complete clinical trials and to submit an application for marketing approval by applicable regulatory authorities may also vary significantly based on the type, complexity and novelty of the product candidate involved, as well as other factors. The duration of a Phase I clinical trial program can be significantly extended as the attainment of an appropriate dose may be delayed, resulting in additional costs and overall program delays. If a trial or phase of a trial has commenced, it could be placed on clinical hold if the regulatory authorities determine a trial or its design
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may be unsafe or require clarifications regarding protocol design.
We are and continue to be subject to stringent government regulations concerning the clinical testing of our products. We will also continue to be subject to government regulation of any product that receives regulatory approval.
Numerous statutes and regulations govern human testing and the manufacture and sale of human therapeutic products in Canada, the United States and other countries where we intend to market our products. Such legislation and regulation bears upon, among other things, the approval of protocols and human testing, the approval of manufacturing facilities, testing procedures and controlled research, the review and approval of manufacturing, preclinical and clinical data prior to marketing approval, including adherence to GMP during production and storage, and marketing activities including advertising and labeling.
Clinical trials may be delayed or suspended at any time by us or by the TPD, the FDA or by other similar regulatory authorities if it is determined at any time that patients may be or are being exposed to unacceptable health risks, including the risk of death, or if compounds are not manufactured under acceptable GMP conditions or with acceptable quality. Current regulations relating to regulatory approval may change or become more stringent. The agencies may also require additional trials be run in order to provide additional information regarding the safety, efficacy or equivalency of any compound for which we seek regulatory approval. Moreover, any regulatory approval of a drug which is eventually obtained may entail limitations on the indicated uses for which that drug may be marketed. Furthermore, product approvals may be withdrawn or limited in some way if problems occur following initial marketing or if compliance with regulatory standards is not maintained. Similar restrictions are imposed in foreign markets other than the United States and Canada. Regulatory agencies could become more risk adverse to any side effects or set higher standards of safety and efficacy prior to reviewing or approving a product. This could result in a product not being approved.
If we, or any future marketing collaborators or contract manufacturers, fail to comply with applicable regulatory requirements, we may be subject to sanctions including fines, product recalls or seizures and related publicity requirements, injunctions, total or partial suspension of production, civil penalties, suspension or withdrawals of previously granted regulatory approvals, warning or untitled letters, refusal to approve pending applications for marketing approval of new products or of supplements to approved applications, import or export bans or restrictions, and criminal prosecution and penalties. Any of these penalties could delay or prevent the promotion, marketing or sale of our products and product candidates.
We have no experience in commercial manufacturing and depend on others for the production of our product candidates at suitable levels of quality and quantity. Any problems or delays in the manufacture of our products would have a negative impact on our ability to successfully execute our development and commercialization strategies.
There are no assurances we can scale-up, formulate or manufacture any compound in sufficient quantities with acceptable specifications for the regulatory agencies to grant approval. We have not yet commercialized any products and have no commercial manufacturing experience. To be successful, our products must be properly formulated, scalable, stable and safely manufactured in clinical trial and commercial quantities in compliance with GMP and other regulatory requirements and at acceptable costs. Should any of our suppliers or our collaborators be unable to supply or be delayed in supplying us with sufficient supplies, no assurance can be given that we will be able to find alternative means of supply in a short period of time. Should such parties’ operations suffer a material adverse effect, the manufacturing of our products would also be adversely affected. Furthermore, key raw materials could become scarce or unavailable. There may be a limited number of third parties who can manufacture our products. We may not be able to meet specifications previously established for compounds during scale-up and manufacturing.
We rely on collaborators and/or third parties for development, scale-up, formulation, optimization, management of clinical trial and commercial scale manufacturing and commercialization. This will expose us and our partners to risks including the following, any of which could delay or prevent the commercialization of our products, result in higher costs, or deprive us of potential product revenues:
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·
Contract manufacturers can encounter difficulties in achieving the scale-up, optimization, formulation, volume production of a compound as well as maintaining quality control with appropriate quality assurance. They may also experience shortages of qualified personnel. Contract manufacturers are required to undergo a satisfactory GMP inspection prior to regulatory approval and are obliged to operate in accordance with TPD, FDA, ICH, European and other nationally mandated GMP regulations and/or guidelines governing manufacturing processes, stability testing, record keeping and quality standards. A failure of these contract manufacturers to follow GMP and to document their adherence to such practices or failure of an inspection by a regulatory agency may lead to significant delays in the availability of material for clinical study, leading to delays in our trials.
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For each of our current product candidates we will initially rely on a limited number of contract manufacturers. Changing these or identifying future manufacturers may be difficult. Changing manufacturers requires re-validation of the manufacturing processes and procedures in accordance with FDA, ICH, European and other nationally mandated GMP regulations and/or guidelines. Such re-validation may be costly and time-consuming. It may be difficult or impossible for us to quickly find replacement manufacturers on acceptable terms, if at all.
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Our contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to produce, store and distribute our products successfully.
The successful commercialization of our product candidates will depend on achieving market acceptance and we may not be able to gain sufficient acceptance to generate significant revenues.
Even if our product candidates are successfully developed and receive regulatory approval, they may not gain market acceptance among physicians, patients, healthcare payers such as private insurers or governments and other funding parties and the medical community. The degree of market acceptance for any of our products will depend on a number of factors, including:
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demonstration of the clinical efficacy and safety of our products;
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the prevalence and severity of any adverse side effects;
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limitations or warnings contained in the product’s approved labeling;
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cost-effectiveness and availability of acceptable pricing;
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competitive product profile versus alternative treatment methods and the superiority of alternative treatment or therapeutics;
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the effectiveness of marketing and distribution methods and support for the products; and
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coverage and reimbursement policies of government and third-party payers to the extent that our products could receive regulatory approval but not be approved for coverage or adequate reimbursement by government or quasi government agencies.
Disease indications for which regulatory approval is sought may be small or large. These indications may be small subsets of a disease that could be parsed into smaller and smaller indications as different subsets of diseases are defined. This increasingly fine characterization of diseases could have negative consequences, including creating an approved indication that is so small as not to have a viable market for us. If future technology allows characterization of a disease in a way that is different from the characterization used for large pivotal studies, it may make those studies invalid or reduce their usefulness, and may require repeating all or a portion of the studies. Future technology may supply better prognostic ability which could reduce the portion of patients projected to need a new therapy. Even after being cleared by regulatory authorities, a product may later be shown to be unsafe or not to have its purported effect, thereby preventing its widespread use or requiring withdrawal from the market.
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If we fail to obtain adequate healthcare reimbursement for our products, our revenue-generating ability will be diminished and there is no assurance that the anticipated market for our products will be sustained.
We believe that there will be many different applications for products successfully derived from our technologies and that the anticipated market for products under development will continue to expand. However, due to competition from existing or new products and the yet to be established commercial viability of our products, no assurance can be given that these beliefs will prove to be correct. Physicians, patients, formularies, payers or the medical community in general may not accept or utilize any products that we or our collaborative partners may develop. Other drugs may be approved during our clinical testing which could change the accepted treatments for the disease targeted and make our compound obsolete.
Our ability to commercialize our products with success may depend, in part, on the extent to which coverage and adequate reimbursement to patients for the cost of such products and related treatment will be available from governmental health administration authorities, private health coverage insurers and other organizations, as well as the ability of private payers to pay for or afford our drugs. No assurance can be given that adequate third party coverage will be available to patients that will allow us to maintain price levels sufficient for the realization of an appropriate return on our investment in product development.
Coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payers is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Even if we obtain coverage for our product candidates, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are unlikely to use our product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates.
In the United States, in Canada and in many other countries, pricing and/or profitability of some or all prescription pharmaceuticals and biopharmaceuticals are subject to varying degrees of government control. Healthcare reform and controls on healthcare spending may limit the price we charge for any products and the amounts thereof that we can sell. In particular, in the United States, the federal government and private insurers have changed and have considered ways to change, the manner in which healthcare services are provided. In March 2010, PPACA became law in the United States. PPACA substantially changes the way healthcare is financed by both governmental and private insurers and significantly affects the healthcare industry. The provisions of PPACA of importance to our potential product candidates include the following:
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an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs, beginning in 2011;
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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, retroactive to January 1, 2010, to 23% and 13% of the average manufacturer price for most branded and generic drugs, respectively;
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expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;
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extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals beginning in 2014 and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level, thereby potentially increasing manufacturers’ Medicaid rebate liability;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
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new requirements to report annually certain financial arrangements with physicians, certain other healthcare professionals, and teaching hospitals, as defined in PPACA and its implementing regulations, including reporting any “payments or transfers of value” made or distributed to physicians, certain other healthcare providers, and teaching hospitals, and reporting any ownership and investment interests held by physicians and certain other healthcare providers and their immediate family members and applicable group purchasing organizations during the preceding calendar year, with data collection to be required beginning August 1, 2013 and reporting to the Centers for Medicare and Medicaid Services to be required by March 31, 2014 and by the 90th day of each subsequent calendar year;
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a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
In addition, other legislative changes have been proposed and adopted since PPACA was enacted. On August 2, 2011, the Budget Control Act of 2011, created, among other things, measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations.
We anticipate that PPACA will result in additional downward pressure on the reimbursement we may receive for any approved and covered product, and could seriously harm our business. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payers. In the future, the U.S. government may institute further controls and different reimbursement schemes and limits on Medicare and Medicaid spending or reimbursement that may affect the payments we could collect from sales of any products in the United States. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.
If we fail to comply with federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.
As a pharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payers, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which constrains our marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities, by prohibiting, among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, either the referral of an individual or the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information; and
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state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of available statutory and regulatory exceptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. To the extent that any of our product candidates is ultimately sold in countries other than the United States, we may be subject to similar laws and regulations in those countries. If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, imprisonment, exclusion of products from reimbursement under U.S. federal or state healthcare programs, and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could materially adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.
Competition in our targeted market area is intense and this field is characterized by rapid technological change. Therefore developments by competitors may substantially alter the predicted market or render our product candidates uncompetitive.
There are several hundred drugs in clinical development today in the area of oncology therapeutics. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. In the oncology market, our major competitors include, but are not limited to: Amgen Inc.; ArQule Inc. and its partners Kyowa Hakko Kirin Pharma Inc. and Daiichi Sankyo Company Limited; Aveo Pharmaceuticals Inc.; Bristol-Myers Squibb Company; Exelixis Inc.; F. Hoffman-LaRoche Ltd.; GlaxoSmithKline PLC.; Novartis AG; and Pfizer Inc., among others.
Many companies have filed, and continue to file, patent applications in oncology which may or could affect our program. Some of these patent applications may have already been allowed or granted. These companies include, but are not limited to: Bristol-Myers Squibb Company; Compugen Limited; Exelixis Inc.; GlaxoSmithKline PLC.; Novartis; and Pfizer Inc. Since this area is competitive and of strong interest to pharmaceutical and biotechnology companies, there will most likely be additional patent applications published and filed in the future,
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and additional research and development programs expected in the future.
In addition to companies that have HDAC inhibitors or kinase inhibitors addressing oncology indications, our competition also includes hundreds of private and publicly-traded companies that operate in the area of oncology but have therapeutics with different mechanisms of action. The oncology market in general is highly competitive with over 1,000 molecules currently in clinical development.
Developments by others may render our products or technologies non-competitive or obsolete or we may not be able to keep pace with technological developments. Our competitors may have developed or may be developing technologies which may be the basis for competitive products. Some of these products may prove to be more effective and less costly than the products developed or being developed by us. Our competitors may obtain regulatory approval for their products more rapidly than we do which may change the standard of care in the indications we are targeting, rendering our technology or products non-competitive or obsolete. Others may develop treatments or cures superior to any therapy we are developing or will develop. Moreover, alternate, less toxic forms of medical treatment may be developed which may be competitive with our products.
Most of the organizations which could be considered to be our competitors have substantially more financial and technical resources, more extensive discovery research, preclinical research and development capabilities and greater manufacturing, marketing, distribution, production and human resources than we do. Many of our current or potential competitors have more experience than us in research, preclinical testing and clinical trials, drug commercialization, manufacturing and marketing, and in obtaining domestic and foreign regulatory approvals. In addition, failure, unacceptable toxicity, lack of sales or disappointing sales or other issues regarding competitors’ products or processes could have a material adverse effect on our product candidates, including our clinical candidates or our lead compounds. Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA, EMA or other regulatory approval or discovering, developing and commercializing medicines before we do, which would have a material adverse impact on our business.
We will not be able to successfully commercialize our product candidates without establishing sales and marketing capabilities internally or through collaborators.
We currently have no sales and marketing staff. We may not be able to find suitable sales and marketing staff and collaborators for all of our product candidates. The marketing collaborators we work with may not be adequate, successful or could terminate or materially reduce the effort they direct to our products. The development of a marketing and sales capability will require significant expenditures, management resources and time. The cost of establishing such a sales force may exceed any potential product revenues, or our marketing and sales efforts may be unsuccessful. If we are unable to develop an internal marketing and sales capability or if we are unable to enter into a marketing and sales arrangement with a third party on acceptable terms, we may be unable to successfully develop and seek regulatory approval for our product candidates and/or effectively market and sell approved products, if any.
We are subject to competition for our skilled personnel and may experience challenges in identifying and retaining key personnel that could impair our ability to conduct our operations effectively.
Our future success depends on our ability to retain our executive officers and to attract, retain and motivate qualified personnel. If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy. Although we have not experienced problems attracting and retaining highly qualified personnel in the recent past, our industry has experienced a high rate of turnover of management personnel in recent years. Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, especially Charles M. Baum, M.D., Ph.D., our President and Chief Executive Officer, Mark J. Gergen, our Executive Vice President and Chief Operations Officer, Rachel Humphrey, M.D., our Executive Vice President and Chief Medical Officer, and
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Jamie A. Donadio, our Vice President of Finance, whose services are critical to the successful implementation of our product candidate acquisition, development and regulatory strategies. We are not aware of any present intention of any of these individuals to leave our Company. In order to induce valuable employees to continue their employment with us, we have provided stock options that vest over time. The value to employees of stock options that vest over time is significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.
Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could harm our business, financial condition and prospects. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel.
We may also experience growth in the number of our employees and the scope of our operations, especially in clinical development. This growth will place a significant strain on our management, operations and financial resources and we may have difficulty managing this future potential growth. No assurance can be provided that we will be able to attract new employees to assist in our growth. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. We also may employ consultants or part-time and contract employees. There can be no assurance that these individuals are retainable. While we have been able to attract and retain skilled and experienced personnel and consultants in the past, no assurance can be given that we will be able to do so in the future.
We may become subject to the risk of product liability claims.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. Human therapeutic products involve the risk of product liability claims and associated adverse publicity. Currently, the principal risks we face relate to patients in our clinical trials, who may suffer unintended consequences. Claims might be made by patients, healthcare providers or pharmaceutical companies or others. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates, if approved. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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decreased demand for our product candidates;
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injury to our reputation;
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withdrawal of clinical trial participants;
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initiation of investigations by regulators;
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costs to defend the related litigation;
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a diversion of management’s time and our resources;
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substantial monetary awards to trial participants or patients;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
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loss of revenues from product sales; and
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the inability to commercialize any our product candidates, if approved.
We may not have or be able to obtain or maintain sufficient and affordable insurance coverage, and without sufficient coverage any claim brought against us could have a materially adverse effect on our business, financial condition or results of operations. We run clinical trials through investigators that could be negligent through no fault of our own and which could affect patients, cause potential liability claims against us and result in delayed or stopped clinical trials. We are required in many cases by contractual obligations, to indemnify collaborators, partners, third party contractors, clinical investigators and institutions. These indemnifications could result in a material impact due to product liability claims against us and/or these groups. We currently carry CND$10 million in product liability insurance in Canada, which we believe is appropriate for our clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
Our business involves the controlled use of hazardous materials and as such we are subject to environmental and occupational safety laws. Continued compliance with these laws may incur substantial costs and failure to maintain compliance could result in liability for damages that may exceed our resources.
Our preclinical research, manufacturing and development processes involve the controlled use of hazardous and radioactive materials. We are subject to federal, provincial and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. The risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages that result, and any such liability could exceed our resources. We may not be adequately insured against this type of liability. We may be required to incur significant costs to comply with environmental laws and regulations in the future, and our operations, business or assets may be materially adversely affected by current or future environmental laws or regulations.
We may have to dedicate resources to the settlement of litigation.
Securities legislation in both Canada and the United States make it relatively easy for stockholders to sue. This could lead to frivolous law suits which could take substantial time, money, resources and attention or force us to settle such claims rather than seek adequate judicial remedy or dismissal of such claims.
If we are required to defend patent infringement actions brought by third parties, or if we sue to protect our own patent rights or otherwise to protect our proprietary information and to prevent its disclosure, we may be required to pay substantial litigation costs and managerial attention may be diverted from business operations even if the outcome is in our favor. If we are required to defend our patents or trademarks against infringement by third parties, we may be required to pay substantial litigation costs, managerial attention and financial resources may be diverted from our research and development operations even if the outcome is in our favor.
We may be vulnerable to disruption, damage and financial obligation as a result of system failures.
Despite the implementation of security measures, any of the internal computer systems belonging to us, our collaborators or our third party service providers are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failure. Any system failure, accident or security breach that causes interruptions in our own, in collaborators’ or in third party service vendors’ operations could result in a material disruption of our drug discovery programs. To the extent that any disruption or security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or
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proprietary information, we may incur liability as a result, our drug discovery programs may be adversely affected and the further development of our product candidates may be delayed. Furthermore, we may incur additional costs to remedy the damages caused by these disruptions or security breaches. In addition our employees could become ill through pandemic diseases or other events that could materially interfere with, or stop, our operations.
We may not be successful in establishing development and commercialization collaborations which could adversely affect, and potentially prohibit, our ability to develop our product candidates.
Because developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and marketing approved products are expensive, we may seek to enter into collaborations with companies that have more resources and experience and we may become dependent upon the establishment and successful implementation of collaboration agreements. We also may be required due to financial or scientific constraints to enter into additional corporate collaboration agreements to research and/or to develop and commercialize our compounds and/or our product candidates. The establishment and realization of such collaborative agreements may be not be possible or may be problematic. There can be no assurance, however, that we will be able to establish such additional collaborations on favorable terms, if at all, or that our current or future collaborative arrangements will be successful or maintained for any specific project or indication. If we are unable to reach successful agreements with suitable partners for our product candidates, we would face increased costs, we may be forced to limit the scope and number of our product candidates we can commercially develop or the territories in which we commercialize them and we might fail to commercialize products or programs for which a suitable partner cannot be found. If we fail to achieve successful partnerships, our operating results and financial condition will be materially and adversely affected.
In addition collaboration agreements may place restrictions or additional obligations on our ability to license additional compounds in different indications, diseases or geographical locations. If we fail to comply with or breach any provision of a collaborative or license agreement, a collaborator may have the right to terminate, in whole or in part, such agreement or to seek damages.
Some of our collaboration agreements are complex and involve sharing of certain data, know-how and intellectual property rights amongst the various parties. Accordingly our collaborators could interpret certain provisions differently than we or our other partners which could lead to unexpected or inadvertent disputes with partners. In addition, these agreements might make additional partnering or mergers and acquisitions difficult.
There is no assurance that a collaborator who is acquired by a third party would not attempt to change certain contract provisions that could negatively affect our collaboration. The acquiring company may also not accept the terms or assignment of our contracts and may seek to terminate the agreements. Any one of our partners could breach covenants, restrictions and/or sub-license agreement provisions leading us into disputes and potential breaches of our agreements with other partners.
Risks Relating to Our Intellectual Property
We may not obtain adequate protection for our products through patents and other intellectual property rights and as such our competitive advantage in the marketplace may be compromised.
Our success depends, in part, on our ability to secure and protect our patents, trade secrets, trademarks and other intellectual property rights and to operate without infringing on the proprietary rights of others or having third parties circumvent the rights that we own or license. We have filed and are actively pursuing patent applications in the United States, Canada, Japan, Europe and other major markets via the Patent Cooperation Treaty or directly in countries of interest. The patent positions of healthcare companies, biopharmaceutical companies, including ours, and universities are uncertain and involve complex questions of law and fact for which important legal issues may remain unresolved. Therefore, there is no assurance that our pending patent applications will result in the issuance of patents or that we will develop additional proprietary products which are patentable. Moreover, patents issued or to be issued to us may not provide us with any competitive advantage. Our patents may be challenged by third parties in patent litigation. In addition, it is possible that third parties with products that are very similar to ours will circumvent our patents by means of alternate designs or processes or file applications or be granted patents that would block or hurt our efforts. There are no assurances that our patent counsel, lawyers or advisors have given us
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correct advice or counsel. Opinions from such patent counsel or lawyers may not be correct or based on incomplete facts. We cannot be certain that we are the first to invent the inventions covered by pending patent applications and, if we are not, we may be subject to priority disputes. We may be required to disclaim part or all of the term of certain patents or all of the term of certain patent applications. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that our patents would be declared by a court to be valid or enforceable or that a competitor’s technology or product would be found by a court to infringe our patents. We may analyze our competitors’ patents or patent applications and believe we are free to operate but there could be claims granted to our competitors, potentially in unrelated patents, which block our efforts or cause us to infringe such claims. The possibility exists that others will develop products which have the same effect as our products on an independent basis or will design around products that we patented. The steps we have taken to protect our intellectual property may not prevent the appropriation of our proprietary information and technologies, particularly in foreign countries where laws or law enforcement practices may not protect proprietary rights as fully as in Canada, the United States or Europe. Unauthorized disclosure of our proprietary information could also harm our competitive position. We could also inadvertently use our collaborators’ data inappropriately which could lead to liability. We may file patent applications but have claims restricted or we may not be able to supply sufficient data to satisfy a patent office to support our claims and, as a result, may not obtain the original claims desired or we may receive restricted claims. Alternatively, it is possible that we may not receive any patent protection from an application. We could inadvertently abandon a patent or patent application (or trademark or trademark application), resulting in the loss of protection of certain intellectual property rights in a certain country. We, our collaborators or our patent counsel may take action resulting in a patent or patent application becoming abandoned which may not be able to be reinstated or if reinstated, may suffer patent term adjustments. Any of these outcomes could hurt our ability to gain full patent protection for our products. Registered trademarks in Canada, the United States and other countries that belong to us are subject to the same risks as described above for patents and patent applications.
Many of our collaboration agreements are complex and may call for licensing or cross-licensing of potentially blocking patents, know-how or intellectual property. Due to the potential overlap of data, know-how and intellectual property rights there can be no assurance that one of our collaborators will not dispute our right to send data or know-how or other intellectual property rights to third parties and this may potentially lead to liability or termination of a program. There are no assurances that the actions of our collaborators would not lead to disputes or cause us to default with other collaborators. We cannot be certain that a collaborator will not challenge the validity of licensed patents.
We cannot be certain that any country’s patent and/or trademark office will not implement new rules which could seriously affect how we draft, file, prosecute and/or maintain patents and patent applications. We cannot be certain that increasing costs for drafting, filing, prosecuting and maintaining patent applications and patents will not restrict our ability to file for patent protection. We may be forced to abandon or return the rights to specific patents due to a lack of financial resources There is no assurance that we could enter into licensing arrangements at a reasonable cost, or develop or obtain alternative technology in respect of patents issued to third parties that incidentally cover our products. Any inability to secure licenses or alternative technology could result in delays in the introduction of some of our products or even lead to prohibition of the development, manufacture or sale of certain products by us.
We have filed applications for trademark registrations in connection with our product candidates in various jurisdictions, including the United States. We intend to file further applications for other possible trademarks for our product candidates. No assurance can be given that any of our trademark applications will be registered in the United States or elsewhere, or that the use of any registered or unregistered trademarks will confer a competitive advantage in the marketplace. Furthermore, even if we are successful in our trademark registrations, the FDA and regulatory authorities in other countries have their own process for drug nomenclature and their own views concerning appropriate proprietary names. No assurance can be given that the FDA or any other regulatory authority will approve of any of our trademarks or will not request reconsideration of one of our trademarks at some time in the future. The loss, abandonment, or cancellation of any of our trademarks or trademark applications could negatively affect the success of the product candidates to which they relate.
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Moreover, some of our know-how technology which is not patented or not patentable may constitute trade secrets. Therefore, we require our consultants, advisors and collaborators to enter into confidentiality agreements and our employees to enter into invention, non-disclosure and non-compete agreements. However, no assurance can be given that such agreements will provide for a meaningful protection of our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure of information. Furthermore, we cannot provide assurance that any of our employees, consultants, contract personnel, or collaborators, either accidentally or through willful misconduct, may cause serious impact to our programs and/or our strategy. All of our employees have signed confidentiality agreements but there can be no assurance that they will not inadvertently or through their misconduct give trade secrets away.
We may be required to reduce the scope of our intellectual property due to third-party intellectual property infringement claims. Patent litigation, including defense against third-party intellectual property claims may incur substantial costs.
Patent applications which may relate to or affect our business may have been filed by others. Such patent applications or patents resulting therefrom may conflict with our technologies, patents or patent applications and reducing the scope of our patent protection. Such events could cause us to stop or change the course of our research and development. We could also become involved in interference proceedings in connection with one or more of our patents or patent applications to determine priority of invention. There can be no guarantees that an interference proceeding would be successful or that such an outcome could be reversed on appeal.
No assurance can be given that our patents, once issued, would be declared by a court to be valid or enforceable, or that we would not be found to infringe a competitor’s patent.
Third parties may assert that we are using their proprietary information without authorization. Third parties may also have or obtain patents and may claim that technologies licensed to or used by us infringe their patents. In addition, any legal action that seeks damages or an injunction to stop us from carrying on our commercial activities relating to the affected technologies could subject us to monetary liability and require us or any third-party licensors to obtain a license to continue to use the affected technologies. We cannot predict whether we would prevail in any of these types of actions or that any required license would be available on commercially acceptable terms or at all. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources.
Our intellectual property may be infringed upon by a third party.
Third parties may infringe one or more of our issued patents or trademarks. We cannot predict if, when or where a third party may infringe one or more of our issued patents or trademarks. We may attempt to invalidate a competitor’s patent. There is no assurance such action will ultimately be successful and even if initially successful; it could be overturned upon appeal. There is no assurance that we would be successful in a court of law to prove that a third party is infringing one or more of our issued patents. Even if we are successful in proving in a court of law that a third party is infringing one or more of our issued patents there can be no assurance that we would be successful in halting their infringing activities, for example, through a permanent injunction, or that we would be fully or even partially financially compensated for any harm to our business. We may be forced to enter into a license or other agreement with the infringing third party at terms less profitable or otherwise commercially acceptable to us than if the license or agreement were negotiated under conditions between those of a willing licensee and a willing licensor. We may not become aware of a third party infringer within legal timeframes for compensation or at all, thereby possibly losing the ability to be compensated for any harm to our business. Such a third party may be operating in a foreign country where the infringer is difficult to locate and/or the patent laws may be more difficult to enforce. Some third party infringers may be able to sustain the costs of complex patent infringement litigation more effectively than we can because they have substantially greater resources. Any inability to stop third party infringement could result in loss in market share of some of our products or even lead to a delay, reduction and/or inhibition of the development, manufacture or sale of certain products by us. There is no assurance that a product produced and sold by a third party infringer would meet our or other regulatory standards or would be safe for use. Such third party infringer products could irreparably harm the reputation of our products thereby resulting in substantial loss in market share and profits.
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Risks Relating to Our Shares of Common Stock
Our share price is volatile and may be influenced by numerous factors that are beyond our control.
A low share price and low market valuation may make it difficult to raise sufficient additional cash due to the significant dilution to current stockholders. Market prices for shares of biotechnology and biopharmaceutical companies such as ours are often volatile. Factors such as clinical and regulatory developments regarding our products or processes, developments regarding potential or future third-party collaborators, announcements of technological innovations, new commercial products, patents, the development of proprietary rights by us or by others or any litigation relating to these rights, regulatory actions, general conditions in the biotechnology and pharmaceutical industries, failure to meet analysts’ expectations, publications, financial results or public concern over the safety of biopharmaceutical and biotechnological products, economic conditions in the United States, Canada or abroad, terrorism and other factors could have a significant effect on the share price for our shares of common stock. Any setback or delay in the clinical development of our programs could result in a significant decrease in our share price. In recent years the stock of other biotechnology and biopharmaceutical companies has experienced extreme price fluctuations that have been unrelated to the operating performance of the affected companies. There can be no assurance that the market price of our shares of common stock will not experience significant fluctuations in the future, including fluctuations that are unrelated to our performance. These fluctuations may result due to macroeconomic and world events, national or local events, general perception of the biotechnology industry or to a lack of liquidity. In addition other biotechnology companies or our competitors’ programs could have positive or negative results that impact their stock prices and their results, or stock fluctuations could have a positive or negative impact on our stock price regardless whether such impact is direct or not.
Stockholders may not agree with our business, scientific, clinical and financial strategy, including additional dilutive financings, and may decide to sell their shares or vote against such proposals. Such actions could materially impact our stock price. In addition, portfolio managers of funds or large investors can change or change their view on us and decide to sell our shares. These actions could have a material impact on our stock price. In order to complete a financing, or for other business reasons, we may elect to consolidate our shares of common stock. Investors may not agree with these actions and may sell the shares. We may have little or no ability to impact or alter such decisions.
A small number of stockholders control the majority of our shares, and their actions may significantly influence the share price.
As of March 31, 2013, eleven stockholders beneficially owned approximately 89% of our outstanding common stock, or approximately 90.1% assuming exercise of outstanding warrants to purchase shares of common stock and stock options (vested and unvested). Baker Bros. Advisors LLC and Tavistock Life Sciences and their affiliates collectively own approximately 40% of our outstanding common stock. In addition, in conjunction with certain financing transactions, we granted to Baker Brothers and Tavistock each the right to nominate a member of our Board of Directors and the right to appoint an observer on our Board of Directors. As a result, each of Baker Brothers and Tavistock has significant influence over matters submitted to our stockholders for approval, including the election and removal of directors and the approval of any merger, consolidation, or sale of all or substantially all of our assets. Furthermore, as a thinly traded stock, if Baker Brothers, Tavistock, or any of other of our major stockholders determine to exit from the industry or from their holdings in us, for whatever reason, the impact on the share price could be detrimental over a prolonged period of time.
Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, would be our stockholders’ only source of gain.
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, capital appreciation, if any, of our common stock would be our stockholders’ sole source of gain on their investment in our common stock for the foreseeable future.
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Item 2. Financial Information.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Statements in the following discussion and throughout this Registration Statement that are not historical in nature are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. You can identify forward-looking statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,” “will,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described under Item 1A “Risk Factors.” We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. Please see the section titled “Forward-Looking Statements” at the beginning of this Registration Statement.
We were incorporated under the laws of the State of Delaware on April 29, 2013. On May 8, 2013, our Board of Directors approved and we entered into an arrangement agreement with MethylGene Canada. Subject to the terms and conditions of the arrangement agreement, the shareholders of MethylGene Canada will receive one share of our common stock in exchange for every 50 common shares of MethylGene Canada, which will have the effect of a 50-for-1 reverse split of the common shares pursuant to a court-approved plan of arrangement under Section 192 of the
Canada Business Corporations Act
. Such transaction is referred to herein as the Arrangement. In addition, all outstanding options and warrants to purchase common shares of MethylGene Canada will become exercisable on a 50-for-1 basis for shares of our common stock, and a proportionate adjustment will be made to the exercise price or conversion price, as applicable. Upon completion of the Arrangement, MethylGene Canada will become our wholly-owned subsidiary. As a result, the discussion contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects the consolidated operations of MethylGene Canada.
The Arrangement is subject to court and shareholders’ approval and is expected to close on or around June 28, 2013.
Our historical functional currency was Canadian dollars as of December 31, 2012. Effective January 1, 2013, our functional currency is U.S. dollars. Our reporting currency is U.S. dollars and prior to January 1, 2013, for presentation purposes, assets and liabilities have been translated to U.S. dollars at exchange rates at the reporting date. Income and expenses have been translated to U.S. dollars at the average exchange rate for the period in which the transactions occurred. Equity transactions have been translated at the spot exchange rates on the date the transactions occurred. Exchange rate differences are recognized in a separate component of stockholders’ equity titled accumulated other comprehensive income.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this Registration Statement.
Overview
We are a biopharmaceutical company engaged in the development and commercialization of novel therapeutics for the treatment of cancer. Our compounds result from internal chemistry efforts targeting the active sites of enzymes that are key drivers of tumor growth. Our lead program in clinical development is MGCD265, a multi-targeted small molecule kinase inhibitor for treatment of oncology patients with solid tumors. We are also evaluating development opportunities for pipeline programs for the treatment of cancer. Our common shares have been listed on the Toronto Stock Exchange since June 29, 2004 under the ticker symbol “MYG”.
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Our clinical stage product candidates are MGCD265, an oral small molecule, multi-targeted kinase inhibitor for oncology, and mocetinostat, an oral small molecule, selective inhibitor of certain histone deacetylase, or HDAC, enzymes relevant for oncology.
We are actively developing MGCD265 and are evaluating opportunities to begin new studies with mocetinostat and the potential to advance preclinical product candidates into clinical development. We own all rights to MGCD265 and have certain royalty and licensing arrangements pursuant to a previous partnership with Taiho Pharmaceutical Co. Ltd. covering mocetinostat in certain Asian territories. In addition, we have partnerships with Otsuka Pharmaceutical Co. Ltd. and EnVivo Pharmaceuticals, Inc. for other pipeline programs.
We have not generated any revenues from product sales. To date, we have funded our operations primarily through the sale of our common stock and through up-front payments, research funding and milestone payments from our collaboration arrangements.
We have incurred losses in each year since our inception. Our net losses were $4.2 million for the three months ended March 31, 2013, and $20.3 million and $9.8 million for 2012 and 2011, respectively. As of March 31, 2013 we had an accumulated deficit of $149.7 million. Substantially all of our operating losses resulted from expenses incurred in connection with our drug candidate development programs, our research activities and general and administrative costs associated with our operations.
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. In the near term, we anticipate that our expenses will increase as we:
·
advance the ongoing clinical development of MDCD265 for oncology;
·
evaluate opportunities for the potential initiation of further clinical development of mocetinostat for oncology;
·
evaluate opportunities for the potential clinical development of our preclinical programs for oncology;
·
continue our translational science research efforts;
·
maintain, expand and protect our intellectual property portfolio; and
·
provide general and administrative support for our operations.
To fund future operations we will need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential new development programs and related general and administrative support. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration agreements. We cannot assure you that anticipated additional financing will be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our equity securities offerings, there can be no assurance that we will be able to do so in the future.
Financial Operations Overview
Revenues
To date, we have not generated any revenues from product sales and do not expect to do so for a number of years. Revenues to date have been generated substantially from our research collaborations and license agreements. Since our inception through March 31, 2013, we have generated $84.7 million in revenues under our various collaboration arrangements. We do not anticipate significant revenue from our existing collaboration arrangements in the foreseeable future. We may never generate revenues from MCGD265, mocetinostat or any of our preclinical development programs, as we may never succeed in obtaining regulatory approval or commercializing any of these product candidates.
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Research and Development Expenses
Research and development expenses consist primarily of salaries, benefits, stock-based compensation and related personnel costs, fees paid to external service providers such as contract research organizations and contract manufacturing organizations related to clinical trials, contractual obligations for clinical development, clinical sites, manufacturing and scale-up, formulation of clinical drug supplies, and costs for facilities and amortization of equipment. We expense research and development expenses as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expense when the service has been performed or when the goods have been received. Since our inception, we have spent a total of $217.0 million in research and development expenses through March 31, 2013. At this time, due to the risks inherent in the clinical development process and the early stage of our product development programs we are unable to estimate with any certainty the costs we will incur in the continued development of MCGD265, the potential further development of mocetinostat or any of our preclinical development programs. We expect that our research and development expenses may increase if we are successful in advancing MCGD265, mocetinostat or any of our preclinical programs into advanced stages of clinical development. The process of conducting clinical trials necessary to obtain regulatory approval and manufacturing scale-up to support expanded development and potential future commercialization is costly and time consuming. Any failure by us or delay in completing clinical trials, manufacturing scale up or in obtaining regulatory approvals could lead to increased research and development expense and, in turn, have a material adverse effect on our results of operations.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation related to our executive, finance, business development and support functions. Other general and administrative expenses include rent and utilities, travel expenses and professional fees for auditing, tax and legal services. We expect that general and administrative expenses may increase in the future as we expand our operating activities. In addition, general and administrative costs in 2013 are expected to reflect increased costs associated with the our listing as a publicly traded company in the United States, our associated transition to becoming a Delaware corporation, and the potential need to maintain listing status on both Canadian and U.S. exchanges for several quarters.
Other Income, Net
Other income consists primarily of interest income, foreign exchange gains and losses and fair value gains and losses on our warrant liability.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements which we have prepared in accordance with generally accepted accounting principles in the U.S. (GAAP). In preparing our consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We have identified the following accounting policies that we believe require application of management’s most subjective judgments, often requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our actual results could differ from these estimates and such differences could be material. Additionally, we are an emerging growth company. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We plan to avail ourselves of this exemption from new or revised accounting standards and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”
While our significant accounting policies are described in more detail in Note 2 of our annual consolidated financial statements included in this Registration Statement, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.
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Revenue Recognition
We recognize revenue from various research, collaboration and license agreements which may include multiple elements, such as when the contracted services are performed or when milestones are achieved, in accordance with the terms of the specific agreements. Up-front payments for the use of technology where further services are to be provided or fees received upon the signing of research agreements are recognized over the period of performance of the related activities, and as such, require estimates. Up-front licensing revenue is deferred and recognized over the term during which we maintain substantive contractual obligations, which may also involve estimates from management. In the event the substantive obligation changes, an appropriate adjustment will be made to the amortization of deferred revenue. Amounts received in advance of revenue recognition are included in deferred revenue. Milestone payments are recognized as they are earned. Revenue that is recognized but has not been invoiced to partners is recorded as unbilled revenue.
Accrued Research and Development Expenses
We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on the facts and circumstances known to us at that time. Our expense accruals for clinical trials are based on estimates of the fees associated with services provided by clinical trial investigational sites and Clinical Research Organizations. Payments under some of the contracts we have with such parties depend on factors such as successful enrollment of patients, site initiation and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If possible, we obtain information regarding unbilled services directly from these service providers. However, we may be required to estimate these services based on other information available to us. If we underestimate or overestimate the activity or fees associated with a study or service at a given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, our estimated accrued expenses have approximated actual expense incurred. Subsequent changes in estimates may result in a material change in our accruals.
Government Assistance
We incur research and development expenditures, which are eligible for refundable investment tax credits, or ITCs. The ITCs recorded are based on our estimates of amounts expected to be recovered and are subject to an audit by the taxation authorities, which may result in material differences. We claimed refundable ITCs from the provincial tax authority in 2012 and 2011. As we are a public company, federal ITCs are not refundable.
Stock-Based Compensation
We account for stock-based compensation expense related to stock options granted to employees and members of our Board of Directors by estimating the fair value of each stock option at the date of the grant using the Black-Scholes option-pricing model. For awards subject to time-based vesting conditions, we recognize stock-based compensation expense ratably over the vesting period of the options. Awards with graded vesting are considered multiple awards for fair value measurement and stock-based compensation calculation. In determining the expense, we deduct the number of options that are expected to be forfeited at the time of a grant and revise this estimate, if necessary, in subsequent years if actual forfeitures differ from those estimated.
We recognized stock-based compensation expense as follows (in thousands):
|
|
|
Three months ended March 31,
|
|
Year ended December 31,
|
|
|
|
|
2013
|
|
2012
|
|
2012
|
|
2011
|
|
|
Research and development
|
|
$
|
141
|
|
$
|
220
|
|
$
|
817
|
|
$
|
268
|
|
|
General and administrative
|
|
321
|
|
170
|
|
1,192
|
|
672
|
|
|
|
|
$
|
462
|
|
$
|
390
|
|
$
|
2,009
|
|
$
|
940
|
|
Key assumptions
We utilize the Black-Scholes option-pricing model, which requires the input of highly subjective
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assumptions, including the risk-free interest rate, the expected dividend yield of our common stock, the expected volatility of the price of our common stock and the expected life of the option. These estimates involve inherent risk and uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.
The fair value of options granted is estimated at the date of grant using the Black-Scholes option pricing model and the following assumptions:
|
|
|
Three months ended March 31,
|
|
Year ended December 31,
|
|
|
Weighted Average
|
|
2013
|
|
2012
|
|
2012
|
|
2011
|
|
|
Risk-free interest rate
|
|
1.52
|
%
|
1.23
|
%
|
1.18
|
%
|
2.04
|
%
|
|
Dividend yield
|
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
|
Volatility factor
|
|
104.24
|
%
|
117.61
|
%
|
116.43
|
%
|
116.79
|
%
|
|
Expected life (years)
|
|
7
|
|
4.38
|
|
4.42
|
|
4.27
|
|
These assumptions are estimated as follows:
Risk-free interest rate:
We utilize the risk-free interest rate for periods equal to the expected life of share options based on the Canadian Treasury Yield in effect at the time of the grant.
Expected Dividend Yield:
We base the expected dividend yield assumption on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. Consequently, we used an expected dividend of zero.
Expected Volatility:
The expected stock price volatility is estimated by taking the average historic price volatility of our shares of common stock based on the grant date and on daily pricing observations over a period equivalent to the expected term of the stock option grants.
Expected life:
The expected life represents the period of time that the options are expected to be outstanding based on management’s best estimates on its current programs’ success and milestones to be achieved within the term of the options granted, as well as consideration of historical data.
Pre-Vesting Forfeitures:
Estimates of pre-vesting forfeitures are based on historical experience. The difference between actual forfeitures and estimated forfeitures is recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.
Functional Currency
Historically, our functional currency has been the Canadian dollar and the functional currency of our subsidiaries, MethylGene Canada and MethylGene US Inc., has also been the Canadian dollar. Management undertakes a detailed review of the appropriateness of the status of our functional currency on a quarterly basis. Our reporting currency is U.S. dollars.
Management also undertook a detailed review by operating department for 2013. As we do not have revenue, the primary factor in determining functional currency relates to the currency in which we incur most of our expenditures. Based on the projected level of spending on clinical trials, which are predominantly denominated in U.S. dollars coupled with the increase in U.S.-based employees, we concluded that spending in U.S. dollars will exceed that in Canadian dollars for 2013 and onwards. As we do not foresee a reversal of this trend, management has transitioned the functional currency to the U.S. dollar effective January 1, 2013.
In 2011 and 2012, we issued common stock purchase warrants in connection with the issuance of common stock through private placements with exercise prices denominated in Canadian dollars. Upon the issuance of these common stock purchase warrants, we allocated the net proceeds to common stock and warrants based on their relative fair values, and calculated the fair value of the issued common stock purchase warrants utilizing the Black-Scholes option-pricing model. The allocated fair value was then recorded as warrants within stockholders’ equity on the consolidated balance sheet. The fair value was not remeasured in periods subsequent to the date of issuance.
The change in our functional currency to the U.S. dollar effective January 1, 2013 changed how we account for our warrants which have exercise prices denominated in Canadian dollars. Upon the change in functional currency, we classified these warrants as a current liability and recorded a warrant liability of $16.2 million which represents the fair market value of the warrants at that date in accordance with Accounting Standards Codification, or ASC, 815, “
Derivatives and Hedging
”. The initial fair value recorded as warrants within stockholders’ equity of $11.2 million was reversed. The change in fair value related to periods prior to January 1, 2013 of $5.0 million was recorded as an adjustment to accumulated deficit. At each reporting period subsequent to January 1, 2013, we will adjust the fair value of the warrant liability and any corresponding increase or decrease to the warrant liability will be recorded as a component of other income (expense) on the consolidated statement of operations and comprehensive loss. The estimated fair value is determined using the Black-Scholes option-pricing model based on the estimated value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock. The fair value of the warrant liability was $11.8 million at March 31, 2013 and we recorded a gain of $4.4 million for the three months ended March 31, 2013 which is included in other income in the consolidated statement of operations and comprehensive loss.
Transactions and Balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency
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transactions and from the remeasurement of monetary assets and liabilities denominated in currencies other than our functional currency are recognized in the other income (expense).
Net Operating Loss Carryforwards and Investment Tax Credits
As of December 31, 2012, we had Canadian net operating loss carryforwards of $25.5 million for federal income tax purposes and $25.7 million for provincial income tax purposes, which both begin to expire in 2030.
As of December 31, 2012, we recorded Canadian provincial refundable investment tax credits of $1.7 million as a reduction of research and development expenditures. In addition, we had Canadian federal non-refundable investment tax credits of $3.0 million as at December 31, 2012, which may be utilized to reduce future federal income taxes payable. The non-refundable Canadian federal investment tax credits begin to expire in 2030.
Recent Accounting Pronouncements
See Item 15 “Notes to Consolidated Financial Statements—Note 3—“Recent Accounting Pronouncements” of our annual consolidated financial statements.
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Results of Operations
Comparison of the Three Months Ended March 31, 2013 and 2012
The following table summarizes our results of operations for the three months ended March 31, 2013 and 2012 (in thousands):
|
|
|
For the Three Months
Ended March 31,
|
|
|
|
|
|
|
2013
|
|
2012
|
|
Variance
|
|
|
Research collaborations and contract revenues
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
License and up-front fees
|
|
—
|
|
—
|
|
—
|
|
|
Research and development, net
|
|
|
5,475
|
|
|
2,204
|
|
|
(3,271
|
)
|
|
General and administrative
|
|
2,524
|
|
1,220
|
|
(1,304
|
)
|
|
Other income, net
|
|
3,801
|
|
68
|
|
3,733
|
|
Revenues
Research Collaborations and Contract Revenues
There were no research collaborations and contract revenues in either the three months ended March 31, 2013 or 2012.
License and Up-front Fees
There were no license and up-front fees in either the three months ended March 31, 2013 or 2012.
Research and Development Expenses
Net research and development expenses were $5.5 million for the three months ended March 31, 2013 compared to $2.2 million for the same period in 2012, an increase of $3.3 million. The increase is primarily due to costs of $1.3 million associated with the manufacturing of drug product and formulation work for MGCD265, the completing of the Phase 2 clinical trial for MGCD290 and increased costs related to translational sciences. The increase also reflects a $1.1 million decrease in investment tax credits due to a favorable adjustment of prior year’s calculations subsequent to the completion of an audit by the provincial tax authority. Also reflected in the increase, to a lesser extent, is the cost relating to the departure of our Chief Scientific Officer of $0.8 million.
General and Administrative Expenses
General and administrative expenses were $2.5 million for the three months ended March 31, 2013 compared to $1.2 million for the same period in 2012. The increase of $1.3 million primarily reflects increased expenses related to recent management changes of $0.8 million including the departures of several executives. The increase also reflects additional professional fees of $0.5 million incurred in connection with the Arrangement and in preparation for the listing of our shares of common stock on The NASDAQ Stock Market LLC.
Other Income, Net
Other income, net was $3.8 million for the three months ended March 31, 2013 compared to $68,000 for the same period in 2012. The increase primarily reflects a gain of $4.4 million from the change in fair value of our warrant liability, partially offset by a $644,000 increase in foreign exchange loss primarily due to the transition to the U.S. dollar as the functional currency.
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Comparison of the Years Ended December 31, 2012 and 2011
The following table summarizes the results of our operations for the years ended December 31, 2012 and 2011 (in thousands):
|
|
|
For the Year Ended
December 31,
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
Research collaborations and contract revenues
|
|
$
|
—
|
|
$
|
811
|
|
$
|
(811
|
)
|
|
License and up-front fees
|
|
—
|
|
2,333
|
|
(2,333
|
)
|
|
Research and development, net
|
|
15,081
|
|
8,891
|
|
6,190
|
|
|
General and administrative
|
|
5,394
|
|
4,340
|
|
1,054
|
|
|
Other income, net
|
|
228
|
|
309
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Research Collaborations and Contract Revenues
Research collaborations and contract revenues were $2,000 in 2012, compared to $811,000 in 2011. Research collaboration and contract revenues in 2011 reflect reimbursed development expenses from Otsuka $809,000. There were no revenues in 2012 as the research component of our collaboration agreement ended on June 30, 2011.
License and Up-front Fees
There were no license and up-front fees in 2012 compared to $2.3 million in 2011. We had recorded license and up-front revenues in 2011 in connection with both the Otsuka and Taiho agreements ($1.7 million and $660,000, respectively). When our substantial obligations ended under both agreements, we amortized the remaining deferred revenue under the Otsuka and Taiho agreements in the second and fourth quarters of 2011, respectively.
Research and Development Expenses
Net research and development expenses were $15.1 million in 2012 compared to $8.9 million in 2011. The increase of $6.2 million primarily reflects $5.0 million of increased costs associated with the two ongoing Phase I clinical trials of MGCD265 and the recently completed Phase II clinical trial of MDCD290. The increase also reflects, to a lesser extent, $1.8 million of increased employee expenses associated with the hiring of a Chief Medical Officer and several additional senior management staff during 2012. Partially offsetting these increased expenses was an increase in investment tax credits of $0.9 million due primarily to a favorable adjustment of prior year calculations subsequent to the completion of an audit by the provincial tax authority.
General and Administrative Expenses
General and administrative expenses were $5.4 million in 2012 compared to $4.3 million in 2011. The increase of $1.1 million primarily reflects an increase in employee expenses of $1.0 million for costs associated with the resignation of our former Chief Executive Officer and the appointment of our current Chief Executive Officer.
Other Income, Net
Other income, net was $0.2 million in 2012 compared to $0.3 million in 2011. The decrease of $0.1 million primarily reflects lower interest income of $25,000 due to lower average cash balances in 2012 and 2011 and the unfavorable impact of foreign exchange rates between the U.S. and Canadian dollar of $55,000.
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Table of Contents
Liquidity and Capital Resources
Since our inception, our operations have been primarily financed through public and private sales of our equity and payments received under our collaboration arrangements. Since inception, we have devoted our resources to funding research and development programs, including discovery research, preclinical and clinical development activities.
We have incurred operating losses in each year since our inception and we expect to continue to incur operating losses into the foreseeable future as we advance the ongoing development of our lead product candidate MCGD265; evaluate opportunities for the potential initiation of further clinical development of mocetinostat; evaluate opportunities for the potential clinical development of our pre-clinical programs and continue our research efforts. To fund future operations we will need to raise additional capital. The amount and timing of future funding requirements will depend on many factors including the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential new development programs and related general and administrative support. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration agreements. Additional financing may not be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our equity securities offerings, we may not be able to do so in the future. If we are not able to secure adequate additional financings we may be forced to make reductions in spending and/or liquidate assets where possible. Any of these actions could harm our business and our results of operations.
At March 31, 2013 we had $29.9 million of cash, cash equivalents and marketable securities compared to $37.4 million at December 31, 2012.
Cash
Flows
for the Three Months Ended March 31, 2013 and 2012 and the Years Ended December 31, 2012 and 2011
Operating Activities
Cash used for operating activities for the three months ended March 31, 2013 was $7.3 million compared to $4.5 million for the three months ended March 31, 2012. The increase relates primarily to the increased operating costs in the first three months of 2013 versus the first three months of 2012 discussed above.
Cash used for operating activities for 2012 was $16.9 million, compared to $11.6 million in 2011, an increase of $5.3 million. This increase relates primarily to lower revenues from collaborative arrangements and higher clinical development costs in 2012 versus 2011.
Investing Activities
Investing activities consist primarily of purchases, sales and maturities of marketable securities and purchases of property and equipment. Investing activities used cash of $70,000 for the three months ended March 31, 2013 and used cash of $99,000 for the three months ended March 31, 2012. We acquired $90,000 of property and equipment in the three months ended March 31, 2013 compared to $2,000 in the three months ended March 31, 2012. This increase reflects higher capital expenditures for information technology.
Investing activities provided cash of $326,000 for 2012 and used cash of $19.2 million for 2011. We acquired $230,000 of property and equipment during 2012 compared to $110,000 in 2011, an increase of $120,000. The increase relates primarily to higher spending on information technology equipment along with some office equipment for our U.S. subsidiary located in Princeton, New Jersey.
Financing Activities
Financing activities consist primarily of net proceeds from the sale of common stock and warrants and proceeds from the exercise of stock options and warrants. There were no financing activities for the three months ended March 31, 2013. We used $3,000 of cash for reorganization costs for the three months ended March 31, 2012.
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Financing activities generated cash flows of $24.8 million in 2012 compared to $33.6 million in 2011, a decrease of $8.8 million. Cash flows from financing activities included net proceeds from private placements of our common stock of $24.8 million and $33.6 million in 2012 and 2011, respectively.
As of March 31, 2013 we had restricted cash equivalents and marketable securities of $376,000, compared to $374,000 at December 31, 2012. We expect the restricted cash equivalents and marketable securities to reduce to $72,000 by the end of November 2013. The remaining restricted cash equivalents and marketable securities of $72,000 relates to a moveable hypothec in favor of the TD Bank in connection with our credit cards.
We believe that our current cash and cash equivalents, marketable securities and restricted cash equivalents and marketable securities are sufficient to carry out our currently planned clinical development and operating plans into the second quarter of 2014.
Off-Balance Sheet Arrangements
During 2011 and 2012 and the three months ended March 31, 2013, we did not have any off-balance sheet arrangements (as defined by applicable SEC regulations) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Internal Control Over Financial Reporting
Pursuant to Section 404(a) of the Sarbanes-Oxley Act, commencing the year following our first annual report required to be filed with the SEC, our management will be required to report on the effectiveness of our internal control over financial reporting. While we have been subject to similar requirements pursuant to applicable Canadian requirements for companies listed on the Toronto Stock Exchange, the rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. To comply with the requirements of being a reporting company under the Exchange Act, we may need to upgrade our systems, including information technology, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff.
Item 3. Properties.
Our Canadian office is located at 7150 Frederick Banting Street, Suite 200, Montreal, Québec, H4S 2A1, and we occupy approximately 10,000 square feet of office and laboratory space. Our U.S. subsidiary is located at 125 Village Boulevard, Princeton, New Jersey 08540 with 1,983 square feet of office space and we also have an office located at 4660 La Jolla Village Drive, Suite 500, San Diego, California 92122 where we occupy four offices at an executive office center. The term of our lease at Frederick Banting Street, Montreal expires on August 31, 2014 with an option to extend the lease by six months. The term of our lease at Village Boulevard, Princeton expires on April 30, 2015 with an option to renew the lease for five years. The term of our lease at La Jolla Village Drive, San Diego expired on March 31, 2013 but automatically renewed for an additional three months. Rental payments are approximately $15,000 per month for our Montreal office, approximately $5,000 per month for our Princeton office and approximately $5,000 per month for our San Diego office.
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Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information concerning the beneficial ownership of our common stock as of March 31, 2013, by:
·
each person, or group of affiliated persons, known by us to beneficially own more than 5% our common stock;
·
each of our directors;
·
each of our named executive officers; and
·
all of our executive officers and directors as a group.
We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
Applicable percentage ownership prior to the offering is based on 9,957,739 shares of common stock outstanding at March 31, 2013. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options, warrants or other convertible securities held by that person or entity that are currently exercisable or will be exercisable within 60 days of March 31, 2013. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Except as otherwise noted below, the address for each person or entity is c/o Mirati Therapeutics, Inc., 4660 La Jolla Village Drive, Suite 500, San Diego, California 92122.
|
Name and Address of
Beneficial Owner
|
|
Shares Beneficially
Owned
|
|
Percentage of
Total
Voting Power
|
|
|
|
|
|
|
|
|
|
Directors and Named Executive Officers:
|
|
|
|
|
|
|
Martin
Godbout, O.C., Ph.D.(1)
|
|
9,651
|
|
*
|
|
|
Henry
Fuchs, M.D.(2)
|
|
2,190
|
|
*
|
|
|
Margaret Mulligan(3)
|
|
2,190
|
|
*
|
|
|
Charles M. Baum, M.D., Ph.D.(4)
|
|
38,152
|
|
*
|
|
|
Peter Thompson, M.D.(5)
|
|
3,390
|
|
*
|
|
|
Jeffrey M. Besterman, Ph.D.(6)
|
|
22,253
|
|
*
|
|
|
Mark J. Gergen
|
|
—
|
|
—
|
|
|
Rachel Humphrey, M.D.(7)
|
|
24,798
|
|
*
|
|
|
Klaus Kepper(8)
|
|
19,443
|
|
*
|
|
|
Jamie A. Donadio(9)
|
|
6,000
|
|
*
|
|
|
Joseph Walewicz(10)
|
|
16,889
|
|
*
|
|
|
Rodney Lappe, Ph.D.(11)
|
|
2,563,587
|
|
19.1
|
%
|
|
All executive officers and directors as a group (12 persons)(12)
|
|
146,746
|
|
1.2
|
%
|
|
|
|
|
|
5% Stockholders:
|
|
|
Baker Brothers Life Sciences, L.P.(13)
|
|
2,574,097
|
|
18.9
|
%
|
|
Tavistock Life Sciences(14)
|
|
2,561,797
|
|
19.1
|
%
|
|
Tang Capital Partners, L.P.(15)
|
|
1,583,787
|
|
11.8
|
%
|
|
OrbiMed Private Investments IV, L.P.(16)
|
|
1,494,131
|
|
11.2
|
%
|
|
QVT Fund, L.P.(17)
|
|
834,328
|
|
5.9
|
%
|
|
BVF Investments, L.L.C.(18)
|
|
773,400
|
|
5.9
|
%
|
|
RA Capital Healthcare Fund, L.P.(19)
|
|
717,240
|
|
5.5
|
%
|
*
Represents beneficial ownership of less than 1% of our outstanding shares of common stock.
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Table of Contents
(1)
Includes 7,596 shares subject to options exercisable within 60 days of March 31, 2013. Also includes 2,020 shares owned by Hodran Consultants Inc., of which Dr. Godbout may be deemed to share voting and investment control. The address for Martin Godbout is 4 Jardins Merici, Quebec, Quebec, G1S 4M4, Canada.
(2)
Includes 2,190 shares subject to options exercisable within 60 days of March 31, 2013.
(3)
Includes 2,190 shares subject to options exercisable within 60 days of March 31, 2013.
(4)
Includes 38,152 shares subject to options exercisable within 60 days of March 31, 2013.
(5)
Includes 3,390 shares subject to options exercisable within 60 days of March 31, 2013.
(6)
Includes 21,583 shares subject to options exercisable within 60 days of March 31, 2013. Effective as of April 13, 2013, Dr. Besterman resigned as our Executive Vice President Research and Development and Chief Scientific Officer.
(7)
Includes 24,798 shares subject to options exercisable within 60 days of March 31, 2013.
(8)
Includes 19,263 shares subject to options exercisable within 60 days of March 31, 2013. Effective as of April 30, 2013, Mr. Kepper resigned as our Vice President of Finance and Chief Financial Officer.
(9)
Includes 6,000 shares subject to options exercisable within 60 days of March 31, 2013.
(10)
Includes 15,489 shares subject to options exercisable within 60 days of March 31, 2013. Effective as of April 13, 2013, Mr. Walewicz resigned as our Vice President, Business and Corporate Development.
(11)
Includes 1,790 shares subject to options exercisable within 60 days of March 31, 2013. Also includes 1,590,733 shares of common stock and 462,662 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by Boxer Capital, L.L.C. and 389,341 shares of common stock and 119,061 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by MVA Investors, L.L.C. Also includes 24,828 shares subject to warrants that are not exercisable to the extent that any such exercise would increase the stockholder’s beneficial ownership percentage in excess of 19.99% of our outstanding common stock, except in limited circumstances. Tavistock Life Sciences is the investment manager of Boxer Capital, L.L.C. and MVA Investors, L.L.C. and may be deemed to beneficially own Boxer Capital, L.L.C.’s and MVA Investors, L.L.C.’s shares of common stock and shares subject to warrants that are exercisable within 60 days of March 31, 2013. Dr. Lappe is the Senior Vice President of Tavistock Life Sciences and may be deemed to control Tavistock Life Sciences. Dr. Lappe disclaims beneficial ownership of all shares held by Tavistock Life Sciences.
(12)
Includes the shares and shares subject to options exercisable within 60 days of March 31, 2013 referred to in footnotes (1), (2), (3), (4), (5), (6), (8), (9), (10), (11) and (12).
(13)
Includes 1,866,932 shares of common stock and 559,805 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by Baker Brother Sciences, L.P., 81,556 shares of common stock and 24,467 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by 667, L.L.P., 31,587 shares of common stock and 9,476 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by 14159, L.L.P, and 274 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by Baker Bros. Investments II, L.L.P Also includes 581,022 shares subject to warrants that are not exercisable to the extent that any such exercise would increase the stockholder’s beneficial ownership percentage in excess of 19.99% of our outstanding common stock, except in limited circumstances. Baker Bros. Advisors, L.L.C. advises Baker Brother Life Sciences, L.P., 667, L.P., 14159, L.P., and Baker Bros. Investments II, L.P. and may be deemed to beneficially own Baker Brother Life Sciences, L.P.’s, 667, L.P.’s, 14159, L.P.’s, and Baker Bros. Investments II, L.P.’s shares of common stock and shares subject to warrants that are exercisable within 60 days of March 31, 2013. The address for Baker Brothers Life Sciences, L.P., 667 Madison Avenue, 21st Floor, New York, NY 10065.
(14)
Includes 1,590,733 shares of common stock and 462,662 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by Boxer Capital, L.L.C. and 389,341 shares of common stock and 119,061 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by MVA Investors, L.L.C. Also includes 568,723 shares subject to warrants that are not exercisable to the extent that any such exercise would increase the stockholder’s beneficial ownership percentage in excess of 19.99% of our outstanding common stock, except in limited circumstances. Tavistock Life Sciences is the investment manager of Boxer Capital, L.L.C. and MVA Investors, L.L.C. and may be deemed to beneficially own Boxer Capital, L.L.C.’s and MVA Investors, L.L.C.’s shares of common stock and shares subject to warrants that are exercisable within 60 days of March 31, 2013. The address for Tavistock Life Sciences is 445 Marine View Avenue, Suite 100, Del Mar, CA 92014.
(15)
Includes 1,218,298 shares of common stock and 365,489 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by Tang Capital Partners, L.P. Does not include 365,489 shares subject to warrants that are not exercisable to the extent that any such exercise would increase the stockholder’s beneficial ownership percentage in excess of 9.99% of our outstanding common stock, except in limited circumstances. Tang Capital Management, L.L.C., is the General Partner of Tang Capital Partners, L.P., and may be deemed to beneficially own Tang Capital Partner L.P.’s shares of common stock and shares subject to warrants that are exercisable within 60 days of March 31, 2013. The address for Tang Capital Partners, L.P. is 47 Executive Drive, Suite 510 San Diego, CA 92121.
(16)
Includes 1,149,332 shares of common stock and 344,799 shares subject to warrants that are exercisable within 60 days of March 31, 2013. Also includes 344, 799 shares subject to warrants that would not be exercisable to the extent that any such exercise would increase the stockholder’s beneficial ownership percentage in excess of 19.99% of our outstanding common stock, except in limited circumstances. OrbiMed Capital GP IV L.L.C. is the sole general partner of OrbiMed Private Investments IV, L.P. and as such may be deemed to indirectly beneficially own the shares held by OrbiMed Private Investments IV, L.P. OrbiMed Advisors L.L.C. pursuant to its authority as the sole managing member of
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Table of Contents
OrbiMed Capital GP IV L.L.C. may be deemed to indirectly beneficially own the shares held by OrbiMed Private Investments IV, L.P. Samuel D. Isaly is the managing member of and owner of a controlling interest in OrbiMed Advisors, L.L.C. Accordingly, OrbiMed Advisors, L.L.C. and Mr. Isaly may be deemed to have voting and investment power over the shares held by OrbiMed Private Investments IV, L.P. and OrbiMed Advisors, L.L.C. Mr. Isaly disclaims beneficial ownership with respect to such shares, except to the extent of their pecuniary interest therein, if any. The address for OrbiMed Private Investments IV, L.P. is 767 3rd Avenue, 30th Floor, New York, NY 10017.
(17)
Includes 74,734 shares of common stock and 22,420 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by QVT Fund IV L.P., 438,140 shares of common stock and 131,442 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by QVT Fund V L.P., and 63,457 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by QVT Fund L.P. and 80,104 shares of common stock and 24,031 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by Quintessence Fund L.P. Also includes an aggregate of 241, 351shares subject to warrants that would not be exercisable to the extent that any such exercise would increase the stockholder’s beneficial ownership percentage in excess of 9.99% of our outstanding common stock, except in limited circumstances. QVT Financial L.P. is the investment manager to QVT Fund L.P., QVT Fund IV L.P., QVT Fund V L.P. and Quintessence Fund L.P. (collectively, the “Funds”) and may be deemed to beneficially own the Funds’ shares of common stock and shares subject to warrants that are exercisable within 60 days of March 31, 2013. QVT Financial G.P. L.L.C., as general partner of QVT Financial L.P., may be deemed to beneficially own the shares of common stock and shares subject to warrants that are exercisable within 60 days of March 31, 2013 beneficially owned by QVT Financial L.P. QVT Associates G.P. L.L.C., as general partner of the Funds, also may be deemed to beneficially own the shares of common stock and shares subject to warrants that are exercisable within 60 days of March 31, 2013 owned by the Funds. The address for QVT Fund, L.P. is c/o Walkers, 87 Mary Street, George Town, Grand Cayman KY 1-9005 Cayman Islands.
(18)
Includes 177,900 shares of common stock and 53,370 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by BVF Investments LLC; 213,122 shares of common stock and 64,358 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by Biotechnology Value Fund L.P.; 122,684 shares of common stock and 37,191 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by Biotechnology Value Fund II L.P.; and 37,058 shares of common stock and 24,179 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by Investment 10 LLC. The foregoing 179,298 shares subject to warrants would not be exercisable to the extent that any such exercise would increase the stockholder’s beneficial ownership percentage in excess of 9.99% of our outstanding common stock, except in limited circumstances. The address for BVF Investments, L.L.C. is One Sansome Street, 30th Floor, San Francisco, CA 94104.
(19)
Includes 345,379 shares of common stock and 103,614 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by RA Capital Healthcare Fund, L.P. and 206,344 shares of common stock and 61,903 shares subject to warrants that are exercisable within 60 days of March 31, 2013 by Blackwell Partners, LLC. RA Capital Management, L.L.C. is the general partner of RA Capital Healthcare Fund, L.P. and the investment adviser of Blackwell Partners, LLC. Peter Kolchinsky is the sole manager of RA Capital Management, LLC and Mr. Kolchinsky may be deemed to have voting and investment power over the shares held by RA Capital Healthcare Fund, L.P. and Blackwell Partners, LLC. Mr. Kolchinsky disclaims beneficial ownership with respect to such shares, except to the extent of their pecuniary interest therein, if any. The address for RA Capital Healthcare Fund, L.P. is 20 Park Plaza, Suite 1200, Boston, MA 02116.
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Table of Contents
Item 5. Directors and Executive Officers.
The following table sets forth information about our executive officers and directors as of April 30, 2013.
|
Name
|
|
Age
|
|
Position
|
|
|
Charles M. Baum, M.D., Ph.D.
|
|
55
|
|
President and Chief Executive Officer, Director
|
|
|
Mark J. Gergen
|
|
51
|
|
Executive Vice President and Chief Operations Officer
|
|
|
Rachel Humphrey, M.D.
|
|
51
|
|
Executive Vice President and Chief Medical Officer
|
|
|
Jamie A. Donadio
|
|
38
|
|
Vice President of Finance
|
|
|
Martin Godbout, O.C., Ph.D.(1)(2)(3)
|
|
56
|
|
Chairman of the Board and Director
|
|
|
Henry J. Fuchs, M.D.(3)
|
|
55
|
|
Director
|
|
|
Rodney W. Lappe, Ph.D.(3)
|
|
58
|
|
Director
|
|
|
Margaret Mulligan(1)(2)
|
|
54
|
|
Director
|
|
|
Peter Thompson, M.D.(1)(2)
|
|
53
|
|
Director
|
|
(1)
Member of the Audit Committee.
(2)
Member of the Compensation Committee.
(3)
Member of the Nominating and Corporate Governance Committee.
Executive Officers
Charles M. Baum, M.D., Ph.D.
has served as our President and Chief Executive Officer and member of our Board of Directors since November 2012. From June 2003 to September 2012, he was at Pfizer Inc. (Pfizer) as Senior Vice President for Biotherapeutic Clinical Research within Pfizer’s Worldwide Research & Development division and as Vice President and Head of Oncology Development and Chief Medical Officer for Pfizer’s Biotherapeutics and Bioinnovation Center. From 2000 to 2003, he was responsible for the development of several oncology compounds at Schering-Plough Corporation (acquired by Merck & Co.). His career has included academic and hospital positions at Stanford University and Emory University, as well as positions of increasing responsibility within the pharmaceutical industry at SyStemix, Inc. (acquired by Novartis AG), G.D. Searle & Company (acquired by Pfizer), Schering-Plough Corporation and Pfizer. Dr. Baum received his M.D. and Ph.D. (Immunology) degrees from Washington University School of Medicine in St. Louis, Missouri and completed his post-doctoral work and residency at Stanford University, California.
Dr. Baum’s experience in the pharmaceutical industry provides our Board of Directors with subject matter expertise. In addition, through his position as Chief Medical Officer for Pfizer’s Biotherapeutics and Bioinnovation Center, Dr. Baum has acquired the operational expertise which we believe qualifies him to serve on our Board of Directors.
Mark J. Gergen
has served as our Executive Vice President and Chief Operations Officer since February 2013. From September 2006 to November 2013, he was Senior Vice President, Corporate Development for Amylin Pharmaceuticals, Inc. Starting in January 2005, he was Executive Vice President of CardioNet, Inc. From June 1999 to May 2003, he served as Chief Financial and Development Officer and later Chief Restructuring Officer of Advanced Tissue Sciences, Inc. From August 1994 to June 1999, he was Division Counsel at Medtronic, Inc. Mr. Gergen received a B.A. in Business Administration from Minot State University and a J.D. from the University of Minnesota Law School.
Rachel Humphrey, M.D.
has served as our Executive Vice President and Chief Medical Officer since January 2012 and leads the development of our clinical programs. From May 2003 to January 2012, she was Vice President, Global Development Lead, Immuno-Oncology at Bristol-Myers Squibb Company. From 1997 to 2003, Dr. Humphrey held increasingly senior clinical development positions at Bayer AG. From 1992 to 1997, Dr. Humphrey worked at the U.S. National Cancer Institute (NCI), first as a Clinical Oncology Fellow and later as a Staff Physician/Scientist in the NCI’s HIV and AIDS Malignancy Branch. Dr. Humphrey received a B.A. in Biochemistry from Harvard University, an M.D. from Case Western Reserve University, and completed her medical residency at the Johns Hopkins Hospital.
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Table of Contents
Jamie A. Donadio
joined us in March 2013 as our Vice President of Finance. Prior to joining us, Mr. Donadio was at Amylin Pharmaceuticals, Inc. from April 2001 through January 2013. From November 2011 to January 2013, Mr. Donadio served as Senior Director of Finance at Amylin Pharmaceuticals, Inc.
From December 2010 to November 2011, he served as Director of Corporate Financial Planning and Analysis at Amylin Pharmaceuticals, Inc. from March 2007 to December 2010 he served as Director of SEC Reporting and from April 2001 to March 2007 he held various corporate accounting roles at Amylin Pharmaceuticals, Inc.
From December 2000 to April 2001, Mr. Donadio was senior accountant at Novatel Wireless, Inc. From August 1997 to December 2000, Mr. Donadio was with Ernst & Young LLP, last serving as an audit senior. Mr. Donadio holds a B.S. in Accounting from Babson College and is a certified public account (inactive) in the State of California.
Non-Employee Directors
Henry J. Fuchs, M.D.
has served as a member of our Board of Directors since February 2012. Since March 2009, Dr. Fuchs has served as the Executive Vice President and Chief Medical Officer of BioMarin Pharmaceutical Inc. From September 2005 to December 2008, Dr. Fuchs was Executive Vice President and Chief Medical Officer of Onyx Pharmaceuticals, Inc.. From 1996 to 2005, Dr. Fuchs served in multiple roles of increasing responsibility at Ardea Biosciences, Inc., first as Vice President, Clinical
Affairs
, then as President and Chief Operating Officer, and finally as Chief Executive Officer. From 1987 to 1996, Dr. Fuchs held various positions at Genentech Inc. From 1996 to 2012, Dr. Fuchs was on the Board of Directors of Ardea Biosciences, Inc. Dr. Fuchs received a B.A. in Biochemical Sciences from Harvard University, and an M.D. from George Washington University.
We believe that Dr. Fuchs’ experience as
an
executive and his breadth of knowledge and valuable understanding of the pharmaceutical industry qualify him to serve on our Board of Directors.
Martin Godbout, O.C., Ph.D.
has served as a member of our Board of Directors since September 2002, and as Chairman of the Board since September 2010. Since October 2009, Dr. Godbout has served as the President of Hodran Inc. From April 2000 to October 2009, Dr. Godbout was the Founder, President and Chief Executive Officer of Genome Canada, a private, not-for-profit
corporation
, dedicated to investing and implementing a national strategy in genomics and proteomics research in Canada. From May 1997 to January 1999, Dr. Godbout was the Senior Vice-President of BioCapital, a Canadian venture capital firm. From May 1994 to May 1997, he was President and General Manager of Société Innovatech Québec, a technology investment fund. In 1994 he founded BioContact Québec, an international biopharmaceutical partnership symposium. From December 1993 to April 1994, he was Assistant Managing Director responsible for biopharmaceutical industry relations at the Research Centre of Centre Hospitalier de l’Université Laval (CHUL). In 1991, Dr. Godbout came back to Laval University as an Asssistant Professor at the Department of Psychiatry at the Faculty of Medicine. From 1985 to 1990, he received a postdoctoral fellowship from the Medical Research Council (MRC) of Canada and went to San Diego, California, where he was trained in Neuromolecular Biology at The Scripps Research Institute. Dr. Godbout is presently a member of the Board of Directors of several Canadian biopharmaceutical companies, foundations and scientific Canadian organizations, including Acasti Pharma Inc., AmorChem Financial Inc., AngioChem Inc., AsmaCure Ltd., MethylGene Inc.
(chairman), Génome Québec (chairman), BioContact, BioQuébec FQRS, Montréal In Vivo et la Fondation de l’ataxie de Charlevoix.
Dr. Godbout has been a member of the Board of Directors of the “Conseil de la Science et de la Technologie du Québec” from 1996 to 2004 and of the National Science and Engineering Research Council of Canada from 1999 to 2002. Dr. Godbout holds a B.Sc. in biochemistry (1979) and a Ph.D. in physiology and molecular endocrinology from Laval University in Québec City.
Based on Dr. Godbout’s experience in the biopharmaceutical industry and his scientific background, we believe Dr. Godbout has the appropriate set of skills to serve on our Board of Directors.
Rodney Lappe, Ph.D.
has served as a member of our Board of Directors since June 2012. Since January 2012, Dr. Lappe has served as the Senior Vice President of Tavistock Life Sciences, a private investment firm. From January 2004 to December 2011, Dr. Lappe was Group Senior Vice President, Pfizer Worldwide Research and Development and Chief Scientific Officer for CovX in San Diego, California. Dr. Lappe joined Pfizer with the CovX acquisition in 2008. From 2000 to 2002, Dr. Lappe served as Vice President for cardiovascular and metabolic diseases at Pharmacia. He was also site leader for Pharmacia in St. Louis. Prior to joining Pharmacia, he held
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Table of Contents
positions of increasing responsibility with Wyeth, Rorer Central Research, CIBA Geigy and Searle Pharmaceuticals. Dr. Lappe received his B.A. from Blackburn College and his Ph.D. in Pharmacology from Indiana University.
We believe Dr. Lappe’s extensive experience managing pharmaceutical and biotech companies bring important strategic insight and qualifies him to serve on our Board of Directors.
Margaret Mulligan
has served as a member of our Board of Directors since March 2012. From September 2008 until December 2010, Ms. Mulligan was Executive Vice President and Chief Financial Officer of Valeant Pharmaceuticals International, Inc. (previously Biovail Corporation). From September 2007 to September 2008, she was a Principal at Priiva Consulting Corporation, and before this she served as Executive Vice President and Chief Financial Officer of Linamar Corporation from November 2005 to March 2007. From 1994 to 2004, Ms. Mulligan was with the Bank of Nova Scotia as Executive Vice President, Systems and Operations and Senior Vice President, Audit and Chief Inspector. From June 1990 to June 1994, she was an Audit Partner with PricewaterhouseCoopers LLP in Toronto, Ontario. Ms. Mulligan holds a B. Math (Honours) from the University of Waterloo and was named a Fellow of the Institute of Chartered Accountants (FCA) of Ontario in 2003. Ms. Mulligan currently serves on the Board of Directors of Capital Power Corporations.
We believe Ms. Mulligan’s knowledge and background in finance and accounting allow her to provide guidance to our Board of Directors in overseeing financial and accounting aspects of our operations and qualify her to serve on our Board of Directors.
Peter Thompson, M.D.
has served as a member of our Board of Directors since June 2011. Since August 2010 he has been a Venture Partner at Orbimed Advisors LLC, a healthcare dedicated investment firm, and the founder and Managing Director of Strategicon Partners, LLC, an investment and management services company. In 2002, he co-founded Trubion Pharmaceuticals, and served as its Chief Executive Officer and Chairman until 2009. Dr. Thompson is the former Vice President & General Manager of Chiron Informatics at Chiron Corporation and held various executive positions in Becton, Dickinson, and Company, including Vice President, Research and Technology Department. Dr. Thompson is a co-founder of iMetrikus, Inc. (now Numera, Inc.), a clinical decision support company, where he served as Chief Executive Officer and Chairman. He serves as a director on the Boards of Anthera Pharmaceuticals Inc., Response Biomedical Inc., Cleave Biosciences Inc. (co-founder), Principia Biosciences Inc., & CoDa Therapeutics Inc. Dr. Thompson is an Ernst & Young LLP Entrepreneur of the Year awardee, an inventor of numerous patents, a board-certified internist and oncologist, and an Affiliate Professor of Neurosurgery at the University of Washington. He was on faculty at the National Cancer Institute, trained in internal medicine training at Yale University, and received his M.D. from Brown University.
We believe Dr. Thompson’s leadership and experience in the pharmaceutical industry and his success as a venture capitalist qualify him to serve on our Board of Directors.
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Table of Contents
Item 6. Executive Compensation.
Overview
The Compensation Committee of the Board of Directors administers our compensation programs on behalf of the Board of Directors. Although focused on executive compensation, the Compensation Committee also sets the annual compensation guidelines for all employees. The Compensation Committee has a charter that is reviewed and updated annually, or as may be warranted from time to time. The members of the Compensation Committee are Dr. Martin Godbout (Chair), Dr. Peter Thompson and Ms. Margaret Mulligan.
This section addresses the compensation of:
·
Dr. Charles M. Baum, President and Chief Executive Officer;
·
Dr. Rachel W. Humphrey, Executive Vice President and Chief Medical Officer;
·
Dr. Jeffrey M. Besterman, former Executive Vice President of Research & Development and Chief Scientific Officer, who resigned in April 2013; and
·
Charles Grubsztajn, former President and Chief Executive Officer, who resigned in September 2012.
The above executive officers are collectively referred to as the named executive officers.
The elements of the compensation program for the named executive officers include: base salary; a non-equity incentive plan; a long-term, equity-based incentive plan; and other compensation, including certain health, welfare and retirement benefits and when determined necessary, limited perquisites. The named executive officers also have termination and change of control benefits in their respective employment agreements (see “Potential Payments Upon Termination or Change of Control” and “Employment Agreements” below).
Base Salary
The compensation of our named executive officers is generally determined and approved by our Board of Directors, based on the recommendation of the Compensation Committee. Our Board of Directors approved the following 2012 base salaries for our named executive officers:
|
Name
|
|
Base Salary
|
|
|
Dr. Baum
|
|
$
|
500,000
|
|
|
Dr. Humphrey
|
|
$
|
350,000
|
|
|
Dr. Besterman
|
|
$
|
308,284
|
|
|
Mr. Grubsztajn
|
|
$
|
310,000
|
|
Prior to his appointment as President and Chief Executive Officer in November 2012, Dr. Baum was paid consulting fees totaling $67,885 in 2012.
Non-Equity Incentive Plan Bonus
Our named executive officers are eligible to receive annual performance-based cash bonuses. The annual performance-based bonus each named executive officer is eligible to receive is based on (1) the individual’s target bonus, as a percentage of base salary, (2) our achievement of corporate goals and (3) the named executive officers’ achievement of individual goals.
The maximum bonus that each named executive officer can earn is typically based on the named executive officer’s title and guideline ranges set by the Board of Directors. The maximum bonus that each of the named executive officer could earn for 2012 as a percentage of their base salary, or maximum bonus percentage, were as follows: 40% for Dr. Humphrey; 35% for Dr. Besterman (who is entitled to a minimum bonus of 10% of his base
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salary); and 50% for Mr. Grubsztajn. With the exception of Dr. Besterman, there is no minimum bonus established for the named executive officers. Dr. Baum was not eligible to receive a bonus in 2012 because he commenced his employment in November 2012. Mr. Grubsztajn was not eligible to receive a bonus in 2012 because he resigned in September 2012. However, under the terms of his Termination Agreement and Release, Mr. Grubsztajn received a cash payment of $132,721 in respect of his 2012 bonus.
In early 2012, the Compensation Committee established both corporate and individual bonus goals for the named executive officer bonus awards, which were more heavily dependent upon the achievement of corporate goals than individual goals. The corporate goals were to implement and manage each of our two lead programs (MGCD265and MGCD290), meet timelines and quality standards and prepare the clinical development plan and budget for subsequent studies for such programs and to achieve an increase in our share price. The individual bonus goals varied for each individual named executive officer and included identifying, selecting and developing biomarkers for MGCD265 and conducting preclinical experiments that could impact future clinical development; and presenting and implementing a new clinical organizational plan and initiating further trials with MGCD290. In early 2013, the Compensation Committee considered our overall performance and the performance of each named executive officer and determined that several of the corporate and individual goals had not been met but other goals had been met or exceeded through important events, such as the completion of the private placement in November 2012, and good progress on MGCD290, including our achievement of top line results for the randomized Phase II trial in March 2013. Therefore, the Compensation Committee made a recommendation to the Board of Directors based on a subjective review of all the corporate and individual goal achievements in determining the final bonus payouts to the named executive officers for 2012. The Board of Directors approved the following bonus payments:
·
Dr. Humphrey was awarded a bonus of $84,000 largely because of the progress on MGCD290, on which her corporate and individual goals were primarily dependent; and
·
Dr. Besterman was awarded a bonus of $30,828 because although progress was made on MGCD290, Dr. Besterman did not fully achieve his individual goals.
Long-term Incentive Program
In connection with the long-term stock option award program, we use stock options to incentivize the named executive officers over a number of years. The exercise price, vesting and term of the stock options awarded are based on the terms of the Stock Option Plan. The Compensation Committee often makes initial stock option grants upon an executive’s commencement of employment and may make annual stock option grants to some or all executives. The initial level of the long-term equity component is determined on a case-by-case basis and is more subjective than the other components of compensation. In determining the initial option award, the Board of Directors considers the most recent market evaluations that it has commissioned and other factors such as the candidate’s expectations and any unique situation that may exist at the time of hiring. Annual stock option awards are determined by the Board of Directors based on availability of options, performance, current individual holdings and overall compensation.
In 2012, the Compensation Committee approved the following stock option award grants to the named executive officers. In connection with his commencement of employment as President and Chief Executive Officer, Dr. Baum was granted an option to purchase 190,760 shares on November 13, 2012 at an exercise price of CND $8.50 (or US$8.53, as converted) per share. Pursuant to the terms of his employment agreement as further described below, Dr. Baum will be awarded additional stock options once a sufficient amount of shares are approved for grant under our Stock Option Plan. In connection with her commencement of employment, Dr. Humphrey was granted an option to purchase 41,328 shares on January 4, 2012 at an exercise price of CND$15.50 (or US$15.30, as converted) per share and an option to purchase 41,335 shares on July 17, 2012 at an exercise price of CND$12.50 (or US$12.32, as converted) per share. On July 17, 2012, Dr. Besterman was granted an option to purchase 26,811 shares and Mr. Grubsztajn was granted an option to purchase 78,128 shares, in both cases at an exercise price of CND$12.50 (or US$12.32, as converted) per share. All of the stock options granted in 2012 vest 20% on the date of grant and 20% on each of the next four anniversary dates, subject to the named executive officer’s continued service with us through such dates.
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Perquisites, Health, Welfare and Retirement Benefits
Our named executive officers are eligible to participate in all of our employee benefit plans, including our medical, dental, group life and disability insurance plans and our retirement plans, which are funded entirely by us, with the exception of the life insurance premiums, which are funded equally by our employees and us, and are provided to the named executive officers on the same basis as other employees. The retirement plans we sponsor are a registered retirement savings program, or RRSP, for Canadian-based employees and, beginning effective January 1, 2013, a 401(k) plan for U.S.-based employees.
The RRSP is a personal retirement plan for Canadians that provides for tax deductions under Canadian tax law. We offer its Canadian-based employees a benefit to match 5% of an employee’s salary, up to a maximum of CND$2,500 per year, in the employee’s personal RRSP account. Individuals may choose to contribute up to a maximum contribution of 18% of annual salary subject to a maximum annual contribution of CND$22,500 (for 2012) into their personal RRSP account. The 401(k) plan is a retirement savings defined contribution plan established in accordance with Section 401 of the Internal Revenue Code that provides our U.S.-based employees with the opportunity to defer their eligible compensation on a pre-tax basis, up to statutorily prescribed annual limits and have this amount contributed to the 401(k) plan. In 2013, we will provide a matching contribution of 4% up to a maximum contribution of CND$2,500.
The named executive officers generally do not receive any material perquisites. However, Dr. Baum, Dr. Humphrey and Dr. Besterman receive payments to equalize their taxes between Canadian and U.S. tax rates. Each of Dr. Baum, Dr. Humphrey and Dr. Besterman receive an annual grossed-up payment from us representing the difference between (1) the aggregate income taxes due and payable in Canada (federal plus provincial) and in the U.S. (federal plus state) and (2) the aggregate income taxes they would have otherwise been due and payable in the U.S. (federal plus state) had the executive not been required to pay income taxes in Canada. Dr. Besterman is also entitled to have his tax preparation costs for his annual tax returns paid by us and a 10% flexible benefit payment to be used for travel, insurance coverage, educational needs or retirement programs under the terms of his employment agreement.
Summary Compensation Table
The
following table presents summary information regarding the total compensation awarded to, earned by, or paid to each of our named executive officers for services rendered in all capacities for the year ended December 31, 2012.
|
Name & Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Option-
based
Awards(1)
|
|
Non-equity
Incentive Plan
Compensation
|
|
All Other
Compensation
|
|
Total
Compensation
|
|
|
Charles M. Baum, M.D., Ph.D.,
President and Chief Executive Officer
(2)
|
|
2012
|
|
$
|
135,438
|
|
$
|
—
|
|
$
|
1,309,824
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,445,262
|
|
|
Rachel Humphrey, M.D.,
Executive Vice President and Chief Medical Officer
(3)
|
|
2012
|
|
350,000
|
|
275,000
|
|
888,324
|
|
84,000
|
|
26,637
|
|
1,623,961
|
|
|
Jeffrey M. Besterman, Ph.D.,
Former Executive Vice President, Research & Development and Chief Scientific Officer
(4)
|
|
2012
|
|
308,284
|
|
—
|
|
253,589
|
|
30,828
|
|
126,013
|
|
718,714
|
|
|
Charles Grubsztajn,
Former President and Chief Executive Officer
(5)
|
|
2012
|
|
255,808
|
|
—
|
|
739,192
|
|
—
|
|
466,054
|
|
1,461,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
In accordance with SEC rules, this column reflects the aggregate grant date fair value of the option awards granted during 2012 computed in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718 for stock-based compensation transactions, or ASC 718. Assumptions used
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in the calculation of these amounts are included in Note 13 to our consolidated financial statements appearing elsewhere in this prospectus. These amounts do not reflect the actual economic value that will be realized by the named executive officer upon the vesting of the stock options, the exercise of the stock options, or the sale of the shares of common stock underlying such stock options. The value of all option awards in the table above was originally calculated in Canadian dollars and was converted to the U.S. dollar amount in the table above using the average monthly U.S. dollar per Canadian dollar conversion rate from the Bank of Canada for the month in which the grant date occurred, which was 0.9869, 0.9863 and 1.0030 for January, July and November 2012 grant dates, respectively.
(2)
Dr. Baum joined us in November 2012 as our President and Chief Executive Officer. Dr. Baum served as a consultant from September 24, 2012 through November 8, 2012. Dr. Baum’s base salary is paid in U.S. dollars and the amount listed in the “Salary” column for Dr. Baum includes $67,885 paid to him during 2012 in consulting fees. Dr. Baum’s consulting fees were paid in Canadian dollars and converted to the U.S. dollar amount in the table above using
the weekly average U.S. dollar per Canadian dollar conversion rate from the Bank of Canada during the period of his consulting contract, which was 1.0086.
(3)
Dr. Humphrey joined us in January 2012 as Executive Vice President and Chief Medical Officer. Dr. Humphrey’s base salary and bonus is paid in U.S. dollars. The “Bonus” column for Dr. Humphrey reflects a signing bonus earned by Dr. Humphrey of $275,000. The “All Other Compensation” column for Dr. Humphrey reflects a tax equalization payment of $10,623 that relates to her 2012 compensation, including a related gross up payment of $16,014, as further described under “Employment Agreements” below. Dr. Humphrey’s tax equalization and gross up payment was paid in Canadian dollars and converted to the U.S. dollar amount in the table above using the average weekly U.S. dollar per Canadian dollar conversion rate from the Bank of Canada for 2012, which was 1.0006.
(4)
Dr. Besterman’s compensation is paid in U.S. dollars. The “All Other Compensation” column for Dr. Besterman reflects (1) matching contributions to the RRSP in the amount of $2,502, (2) the flexible benefit payment in the amount of $29,917, and (3) a tax equalization payment that relates to his 2012 compensation, and a related gross up payment of $41,847. The tax equalization payment and flexible benefit payments are pursuant to the terms of Dr. Besterman’s employment agreement as further described under “Employment Agreements” below. Dr. Besterman’s RRSP contribution tax equalization and gross up payment was paid in Canadian dollars and converted to the U.S. dollar amount in the table above using the average weekly U.S. dollar per Canadian dollar conversion rate from the Bank of Canada for 2012, which was 1.0006.
(5)
Mr. Grubsztajn resigned in September 2012. The amount listed in “Salary” column for Mr. Grubsztajn represents the salary and vacation earned by and paid to Mr. Grubsztajn, through his resignation date. The “All Other Compensation” column represents the value of severance benefits (base salary, bonus, legal fees and continued benefits) provided to Mr. Grubsztajn in accordance with the terms of his termination agreement and release. Mr. Grubsztajn’s base salary, and severance payments were paid in Canadian dollars and converted to the U.S. dollar amounts in the table above using,
for base salary and bonus payments, the average weekly U.S. dollar per Canadian dollar conversion rate from the Bank of Canada over the period payments were made, which was 0.9980 and for termination payments, the average monthly U.S. dollar per Canadian dollar conversion rate from the Bank of Canada for September 2012, the date the severance payment was made, which was 1.0222.
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Outstanding Equity Awards at Fiscal Year-End
The following table presents for each named executive officer, information regarding outstanding stock options held as of December 31, 2012.
|
|
|
|
|
Option Awards
|
|
|
Name
|
|
Grant Date
|
|
Number of
securities
underlying
unexercised
options
(#)
exercisable(1)
|
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable(3)
|
|
Option
exercise
price(4)
|
|
Option
expiration date
|
|
|
Charles M. Baum, M.D.
|
|
11/13/2012
|
|
38,152
|
|
152,608
|
|
$
|
8.53
|
|
11/12/2017
|
|
|
Rachel Humphrey, M.D.
|
|
01/04/2012
07/17/2012
|
|
8,265
8,267
|
|
33,062
33,068
|
|
15.30
12.32
|
|
01/3/2017
07/16/2017
|
|
|
Jeffrey M. Besterman, Ph.D.
|
|
02/21/2004
06/29/2004
12/15/2004
03/11/2008
12/18/2008
03/31/2009
07/21/2011
07/17/2012
|
|
204
2,450
700
350
1,500
700
10,666
5,362
|
|
—
—
—
—
—
—
10,666
21,449
|
|
152.87
157.74
125.44
113.05
7.08
14.42
17.57
12.32
|
|
02/20/2014
06/28/2014
12/14/2014
03/10/2013
12/17/2013
03/30/2014
07/20/2016
07/16/2017
|
|
|
Charles Grubsztajn(2)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The options have not been, and may never be, exercised and actual gains, if any, on exercise will depend on the value of the shares of common stock on the date of exercise.
(2)
All options that were previously awarded to Mr. Grubsztajn expired in connection with his termination and he had no outstanding options as December 31, 2012.
(3)
The 10,666 shares underlying unexercisable options held by Dr. Besterman were granted on July 21, 2011 and have a vesting schedule of 25% on the date of grant and 25% on each of the next three anniversary dates so that the option will be fully vested on the four year anniversary of the grant date, subject to Dr. Besterman’s continued service through each such vesting date. All other unexercisable options reflected in the above table were granted in 2012 and vest 20% on the date of grant and 20% on each of the next four anniversary dates so that the option will be fully vested on the four year anniversary of the grant date, subject to the executive’s continued service through each such vesting date.
(4)
The exercise price reflected above is converted from the closing sale price of our shares of common stock on the TSX on the day before the date of grant to U.S. Dollars using the U.S. dollar per Canadian dollar conversation rate from the Bank of Canada for the date of grant.
We did not engage in any repricings or other modifications or cancellations to any of our named executive officers’ outstanding option awards during the year ended December 31, 2012.
Employment Agreements
We have entered into employment agreements with each of our named executive officers, as further described below. The employment agreements provide that: (1) the officer will receive a base salary; (2) the officer will be eligible to receive an annual performance-based bonus; and (3) the officer will be eligible to receive grants of stock options which will be reviewed annually in accordance with our policies and will be eligible to participate in our fringe benefit programs. The employment agreements have an indefinite term.
Furthermore, the employment agreements provide for, among other things, specific non-competition and non-solicitation covenants, which remain in effect for one year following termination, as well as a confidentiality covenant which remains in effect indefinitely or until the confidential information is publicly-disclosed. In addition,
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there are covenants stipulating that any intellectual property developed in the course of their employment is our property.
Dr. Baum
We entered into an employment agreement with Dr. Baum in November 2012 in connection with his appointment as President and Chief Executive Officer. Prior to this appointment, Dr. Baum served as a consultant to us from September 2012 to November 2012. The employment agreement provides for:
·
an annual base salary of $500,000;
·
an annual non-equity incentive plan bonus of up to 50% of his annual base salary;
·
an initial equity component of 398,310 options representing 4% of the total outstanding shares immediately after the private placement financing which closed on November 21, 2012 of which Dr. Baum was awarded options to purchase approximately 190,760 shares on November 13, 2012 and will receive the remainder of the equity component of his compensation representing options to purchase 207,550 shares once additional shares are available for grant under our Stock Option Plan or upon the effectiveness of our 2013 Equity Plan, as applicable; and
·
participation in our fringe benefit programs that are available to all U.S.-based employees, which include health benefits and a 401(k) plan.
Dr. Baum is also entitled to annual tax equalization payments equal to the difference between the aggregate Canadian and United States taxes due and payable by Dr. Baum as a result of his compensation and the aggregate United States taxes that would otherwise have been due if Dr. Baum had not been required to pay Canadian taxes. We will pay this amount after the end of each calendar year and will also pay a gross up to Dr. Baum on the equalization payment. Dr. Baum also is entitled to termination benefits that are described in the “Potential Payments Upon Termination or Change of Control” below.
Dr. Humphrey
We entered into an employment agreement with Dr. Humphrey in January 2012 which provides for:
·
an annual base salary of $350,000;
·
an annual non-equity incentive plan bonus up to 40% of her annual base salary;
·
a singing bonus of $275,000, of which $150,000 was payable upon commencement of employment and up to $125,000 was payable on the one year anniversary of Dr. Humphrey’s start date, unless she resigned prior to this date; and
·
participation in our fringe benefit programs that are available to all U.S.-based employees, which include health benefits and a 401(k) plan.
We also provide Dr. Humphrey with annual tax equalization payments similar to those provided to Dr. Baum and Dr. Besterman. Dr. Humphrey also is entitled to termination benefits that are described in the “Potential Payments Upon Termination or Change of Control” below.
Dr. Besterman
We entered into an employment agreement with Dr. Besterman in January 1997 that was amended most recently in December 2008. The employment agreement provided for:
·
an annual base salary of $270,000, which may be increased each year;
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·
a flexible benefit payment of 10% of base salary to be used for travel, insurance coverage, educational needs or retirement programs, an annual non-equity incentive plan bonus up to 35% and not less than 10% of his annual base salary;
·
participation in our fringe benefit programs that are available to all employees, which include health benefits and the RRSP;
·
assistance and payment to prepare income tax returns and Canadian employment forms; and
·
reimbursement for French language lessons.
Dr. Besterman was also entitled to annual tax equalization payments and related tax gross up payments similar to the benefits described above for Dr. Baum and Dr. Humphrey. Dr. Besterman was also entitled to certain termination benefits.
In connection with Dr. Besterman’s termination in April 2013, we entered into a new agreement with him that superseded the terms of his employment agreement and provided the following termination benefits, a $679,072 payment equivalent to two years of base salary plus fringe benefits; a $50,000 lump sum payment for moving and travel expenses; a $115,000 lump sum payment to cover tax equalization, and tax gross up and tax liability resulting from Dr. Besterman’s deemed distribution of certain assets and continued health benefit coverage for one year following his termination date.
Mr. Grubsztajn
We entered into an employment agreement with Mr. Grubsztajn in May 2005, that was amended most recently in May 2011, which provided for:
·
a base salary of $260,000 Canadian dollars, which may be increased each year;
·
a non-equity incentive plan bonus of up to 50% of his annual base salary; and
·
participation in our Stock Option Plan.
We entered into a termination agreement and release with Mr. Grubsztajn upon his resignation in September 2012 that superseded the terms of his employment agreement. Under the termination agreement and release, in exchange for a release of claims against us, Mr. Grubsztajn received total compensation of $466,054, which represented:
·
a $316,878 lump sum payment, which was equal to 12 months of his base salary;
·
a $136,705 lump sum payment that the Board of Directors determined should be paid in respect of his 2012 bonus;
·
a $7,360 payment for his legal fees; and
·
an amount of $5,111 to cover his ongoing medical coverage under our medical, dental and life insurance plans, excluding short term and long term disability, for 12 months after the resignation date.
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Pursuant to the terms of our Stock Option Plan, all of Mr. Grubsztajn’s non-vested options expired on September 21, 2012 and all of Mr. Grubsztajn’s unexercised options that had vested on the date of his termination terminated on December 20, 2012.
Mr. Gergen
We entered into an employment agreement with Mr. Gergen in February 2013, which provides for:
·
an annual base salary of $375,000;
·
a non-equity incentive plan bonus up to 40% of his annual base salary;
·
an initial stock option award to purchase 132,000 shares which he will receive once additional shares are available for grant under our Stock Option Plan or upon the effectiveness of our 2013 Equity Plan, as applicable; and
·
participation in our fringe benefit programs that are available to all U.S.-based employees, which include health benefits and a 401(k) plan.
Mr. Gergen also is entitled to receive termination benefits that are described in the “Potential Payments Upon Termination or Change of Control” below.
Potential Payments Upon Termination or Change of Control
The
employment agreements stipulate that in the event of the named executive officer’s death or disability, we will pay all earned and accrued salary, bonus and vacation payments to the executive or the executive’s estate. Additionally, Dr. Baum’s employment agreement provides that he will be entitled to his annual bonus, pro rated to the date of his death or incapacity.
The
employment agreements for Dr. Baum and Dr. Humphrey provide that in the event of a termination without cause or, in the case of Dr. Baum, his resignation for good reason, we will pay:
·
any earned and accrued base salary, bonus and vacation pay;
·
base salary payments equal to 12 months of base salary (for Dr. Baum, payable in a lump sum cash payment and for Dr. Humphrey, payable in equal monthly installments) and 24 months of base salary;
·
with respect to Dr. Baum, prorated target bonus payments (equal to 50% of the annual bonus target);
·
with respect to Dr. Baum, a target bonus payment equal to 50% of his annual target bonus;
·
with respect to Dr. Baum, continued vesting of all stock options for 12 months following termination; and
·
continued participation in the health, medical and life insurance programs for 12 months.
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The
employment agreements also provide for termination benefits in connection with a change of control. The following benefits are provided to Dr. Baum, in the event of his termination for any reason within six months following a change of control or termination by Dr. Baum within three months following a change of control, and Dr. Humphrey in the event of termination without cause within 12 months following a change of control:
·
any earned and accrued base
salary and vacation pay;
·
payments equal to 12 months of base salary and one times his annual target bonus (for Dr. Baum, payable in a lump sum if he resigns for good reason within three months following a change of control) or 24 months of base salary and two times his annual target bonus (for Dr. Baum, payable in a lump sum if he resigns for good reason or is terminated by us within six months following a change of control); and 18 months of base salary (for Dr. Humphrey, payable in equal monthly installments);
·
with respect to Dr. Baum, pro rated target bonus payments;
·
with respect to Dr. Baum, full vesting acceleration of all stock options; and
·
continued participation in the health, medical and life insurance programs (for Dr. Baum, for 12 months and for Dr. Humphrey, for 18 months).
Under the terms of Mr. Gergen’s employment agreement entered into in 2013, he is entitled to receive continued base salary payments for 12 months upon a termination without cause or resignation for good reason or, if such termination or resignation occurs within the twelve months following a change of control, a severance payment equal to 18 months of his base salary.
Under the terms of our Stock Option Plan, options held by our executive officers may be subject to acceleration, termination or other treatment in connection with a change of control transaction or their termination of employment, as described in the section titled “Equity Plans” below.
Equity Plans
Stock Option Plan
Our Board of Directors and stockholders originally approved our Stock Option Plan in 1997 and approved various amendments, most recently in June 2012. As of December 31, 2012 we had 700,000 shares of common stock reserved for issuance under the Stock Option Plan. As of December 31, 2012, 2,556 shares of common stock had been issued under the Stock Option Plan and 559,815 shares were issuable under outstanding options granted under the Stock Option Plan.
As of March 31, 2013, we had 700,000 shares of common stock reserved for issuance under the Stock Option Plan of which 587,272 options have been granted and are outstanding under the Stock Option Plan, and 110,170 options remained available for grants under the Stock Option Plan.
Pursuant to the Stock Option Plan, options may be granted to our employees, officers, directors and
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consultants and is available to U.S. residents, and the term, exercise price, number of shares of common stock covered by each option, as well as the permitted frequency of the exercise of such options, is determined by the Board of Directors (or committee thereof) at the time the options are granted, in accordance with the criteria set out in the Stock Option Plan.
The exercise price of any option granted is based on our closing stock price as reported on the TSX at the end of the day prior to the option award date. In the event that there is no trading on the day prior to the option award date then the exercise price of the option award is determined by the volume-weighted average price on the five previous days on which the shares were traded. The period during which an option is exercisable and the vesting period of options are determined by the Board of Directors, in its sole discretion, at the time of granting the particular option award. The period during which an option is exercisable shall not, subject to the provisions of the Stock Option Plan, exceed 10 years from the date the option is granted. Since 2005, most options granted under the Stock Option Plan expire five years after the date the option is granted. However, if the term of an option expires during, or within ten business days after the expiration of, a blackout period (as that term is defined in the Stock Option Plan), then the term of such option or the unexercised portion thereof, shall be extended by ten business days after the expiration of the blackout period (the “Blackout Expiration Term”), provided that the Blackout Expiration Term will be reduced by the number of days between the date of the expiration of the term of the option and the end of the blackout period. The Board of Directors determined that effective January 1, 2012 that stock options vest 20% on the date of award and then equally over four years, unless specifically stated otherwise. Previously options vested 25% on the date of award and then equally over three years, unless specifically stated otherwise. The Board of Directors determined that effective March 20, 2013 the term of an option would be seven years from the previous term of five years. Under certain circumstances, including mergers, amalgamations and consolidations or in the event of an offer to purchase the shares of common stock, the exercise period of an option may be accelerated.
Options are not transferable and may be exercised by optionees while such optionees remain an employee, officer, director or consultant. If an optionee resigns his/her employment or if he/she ceases to be a director or consultant for any reason other than death, as the case may be, his/her non-vested options expire on the date termination while vested options expire 90 days after the date of his/her termination subject to the Board of Directors’ right to alter any vesting period. If an optionee’s employment, directorship or consulting agreement, as the case may be, is terminated by reason of death, his/her options will expire 180 days following the date of such termination subject to the Board of Directors’ right to alter any vesting period. Upon an optionee’s employment or a consultant’s consultation agreement being terminated for just cause or resignation or termination at a time at which grounds for dismissal or termination for just cause exist, or upon an optionee being removed from office as a director, any option or the unexercised portion thereof granted to him/her shall terminate forthwith subject to the Board of Directors’ right to alter any vesting period.
The Stock Option Plan provides for the following limitations on the number of shares of common stock issuable thereunder:
·
the aggregate number of shares of common stock reserved for issuance to any one optionee under the Stock Option Plan or any other share compensation arrangement, if any, shall not exceed 5% of the total number of shares of common stock issued and outstanding from time to time;
·
the aggregate number of shares of common stock which may be issued to any one insider and such insider’s associates under the Stock Option Plan or any other share compensation arrangement, within any one-year period, is limited to 5% of the total issued and outstanding shares of common stock;
·
the aggregate number of shares of common stock issuable at any time to insiders under the Stock Option Plan and any other share compensation arrangement is limited to 10% of the total issued and outstanding shares of common stock; and
·
the aggregate number of shares of common stock issued to insiders under the Stock Option Plan and any other share compensation arrangement, within any one-year period, is limited to 10% of the total issued and outstanding shares of common stock.
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The Stock Option Plan provides optionees with an election for a cashless exercise of an optionee’s vested and exercisable options. The number of shares of common stock to be acquired under a cashless exercise shall be equal to the quotient obtained when the difference between the volume-weighted average price of the shares of common stock on the five previous days on which the shares of common stock were traded (the “Market Price”) and the exercise price of the options is divided by the Market Price, multiplied by the number of options exercised.
The Stock Option Plan provides that, upon the exercise of an option, the optionee shall make arrangements to our satisfaction regarding payment of any taxes of any kind required by law to be paid in connection with the exercise of the option. In order to satisfy our obligation, if any, to remit an amount to a taxation authority on account of the optionee’s taxes in respect of the exercise, transfer or other disposition of an option, we have the right, at our sole discretion, to: (1) withhold amounts from any amounts owing to the optionee, whether under the Stock Option Plan or otherwise; (2) require the optionee to pay us the withholding tax amount as a condition of exercise of the option by an optionee; or (3) withhold from the shares of common stock otherwise deliverable to the optionee on exercise of the option such number of shares of common stock as have a market value not less than the withholding tax amount and cause such withheld shares of common stock to be sold on the optionee’s behalf to fund the withholding tax amount, provided that any proceeds from such sale in excess of the withholding tax amount shall be promptly paid over to the optionee. Notwithstanding the foregoing, nothing precludes us and the optionee from agreeing to use a combination of the methods described above or some other method to fund the withholding tax amount.
Under the Stock Option Plan, the Board of Directors may, at any time, subject to regulatory approval, amend, suspend or terminate the Stock Option Plan in whole or in part. Without obtaining stockholder approval, the Stock Option Plan may be amended by the Board of Directors for any purpose whatsoever, including, without limitation for the purpose of:
·
amendments of a “housekeeping” nature;
·
a change to the vesting provisions of an option;
·
a change to the termination provisions of an option or the Stock Option Plan which does not entail an extension beyond the original expiration date;
·
the addition of a cashless exercise feature payable in cash or securities; and
·
the addition of any form of financial assistance under the Stock Option Plan; provided, however, that no such amendment may:
·
increase the maximum number of shares of common stock issuable pursuant to the Stock Option Plan;
·
change the manner of determining the minimum option price;
·
alter the blackout expiration term;
·
reduce the option price per common share for options granted to insiders under the Stock Option Plan;
·
extend the term of an option granted to insiders under the Stock Option Plan (subject to the blackout expiration term);
·
remove or exceed the insider participation limit under the Stock Option Plan;
·
amend the amending provision of the Stock Option Plan; or
·
without the consent of the optionee, adversely alter or impair any option previously granted to an optionee under the Stock Option Plan, without the consent of our stockholders, except to the extent
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required by law or by the regulations, rules, by-laws or policies of any regulatory authority or stock exchange.
In the event we propose to consolidate, merge, amalgamate, reorganize, be arranged or undergo an internal reorganization (other than with our wholly-owned subsidiary or to liquidate, dissolve or wind-up, or in the event an offer to purchase the shares of common stock or any part thereof shall be made to all holders of shares of common stock (hereinafter individually referred to as an “Event”), we shall have the right, upon written notice thereof to each optionee holding options under the Stock Option Plan, to permit the exercise of all such options within the 30-day period next following the date of such notice and to determine that upon the expiration of such 30-day period, all rights of optionees to such options or to exercise same (to the extent not theretofore exercised) shall ipso facto terminate and cease to have further force or effect whatsoever, provided, however, that if any Event results in a party or parties acting in concert obtaining control (as that term is defined in the Stock Option Plan) of us, we will give notice to each optionee of the acquisition of control and all unexercised options, including all options which have not yet vested, will immediately become exercisable at the option price for the 30-day period following the date of the Event, at the expiration of which period all unexercised options will be deemed to have vesting periods and vesting conditions originally applicable prior to such Event.
2013 Equity Incentive Plan
In May, 2013 our Board of Directors adopted the 2013 Equity Incentive Plan, or the 2013 Equity Plan. We are soliciting approval of the 2013 Equity Plan by our stockholders prior to the effective date of this Registration Statement. If approved, the 2013 Equity Plan will become effective upon the effectiveness of this Registration Statement. The 2013 Equity Plan will be a continuation of and successor to the Stock Option Plan and no further grants will be made under the Stock Option Plan following the effective date of the 2013 Equity Plan.
Stock Awards.
The 2013 Equity Plan provides for the grant of incentive stock options, or ISOs, nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensation (collectively, stock awards), all of which may be granted to employees, including officers, non-employee directors and consultants of us and our affiliates. Additionally, the 2013 Equity Plan provides for the grant of performance cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, and to non-employee directors and consultants.
Share Reserve.
Initially, the aggregate number of shares of our common stock that may be issued pursuant to stock awards under the 2013 Equity Plan after the 2013 Equity Plan becomes effective is (1) 400,000 shares, plus (2) the number of shares remaining available for grant under our Stock Option Plan at the time our 2013 Equity Plan becomes effective, plus (3) any shares subject to outstanding stock options or other stock awards that would have otherwise returned to our Stock Option Plan (such as upon the expiration or termination of a stock award prior to vesting). The maximum number of shares that may be issued upon the exercise of ISOs under our 2013 Equity Plan is 1,097,444 shares.
No person may be granted stock awards covering more than 500,000 shares of our common stock under our 2013 Equity Plan during any calendar year pursuant to stock options, stock appreciation rights and other stock awards whose value is determined by reference to an increase over an exercise or strike price of at least 100% of the fair market value on the date the stock award is granted. Additionally, no person may be granted in a calendar year a performance stock award covering more than 500,000 shares or a performance cash award having a maximum value in excess of $1,000,000. Such limitations are designed to help assure that any deductions to which we would otherwise be entitled with respect to such awards will not be subject to the $1,000,000 limitation on the income tax deductibility of compensation paid to any covered executive officer imposed by Section 162(m) of the Internal Revenue Code.
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If a stock award granted under the 2013 Equity Plan expires or otherwise terminates without being exercised in full, or is settled in cash, the shares of our common stock not acquired pursuant to the stock award again will become available for subsequent issuance under the 2013 Equity Plan. In addition, the following types of shares under the 2013 Equity Plan may become available for the grant of new stock awards under the 2013 Equity Plan: (1) shares that are forfeited to or repurchased by us prior to becoming fully vested; (2) shares withheld to satisfy income or employment withholding taxes; or (3) shares used to pay the exercise or purchase price of a stock award. Shares issued under the 2013 Equity Plan may be previously unissued shares or reacquired shares bought by us on the open market. As of the date hereof, no awards have been granted and no shares of our common stock have been issued under the 2013 Equity Plan.
Administration.
Our Board of Directors, or a duly authorized committee thereof, has the authority to administer the 2013 Equity Plan. Our Board of Directors may also delegate to one or more of our officers the authority to (1) designate employees (other than other officers) to be recipients of certain stock awards, and (2) determine the number of shares of common stock to be subject to such stock awards. Subject to the terms of the 2013 Equity Plan, our Board of Directors or the authorized committee, referred to herein as the plan administrator, determines recipients, dates of grant, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting schedule applicable to a stock award. Subject to the limitations set forth below, the plan administrator will also determine the exercise price, strike price or purchase price of awards granted and the types of consideration to be paid for the award.
The plan administrator has the authority to modify outstanding awards under our 2013 Equity Plan. Subject to the terms of our 2013 Equity Plan, the plan administrator has the authority to reduce the exercise, purchase or strike price of any outstanding stock award, cancel any outstanding stock award in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accounting principles, with the consent of any adversely affected participant. However, for as long as we are listed on the TSX, no amendment of the plan administrator may (1) increase the maximum number of shares issuable under the 2013 Equity Plan, (2) change the minimum exercise or strike price of a stock option or stock appreciation right, (3) reduce the exercise or strike price of a stock option granted to certain insiders as defined in the Toronto Stock Exchange Company Manual, which we refer to as Insiders, (4) extend the term of a stock option granted to Insiders; (5) amend the amending provision of the 2013 Equity Plan, (6) make any change to the participants who would have the potential for broadening of increasing Insider participation in the plan or (7) increase any limit on the total number of shares that may be acquired by Insiders and acquired within a one year period.
Stock Options.
Incentive and nonstatutory stock options are granted pursuant to stock option agreements adopted by the plan administrator. The plan administrator determines the exercise price for a stock option, within the terms and conditions of the 2013 Equity Plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2013 Equity Plan vest at the rate specified by the plan administrator.
The plan administrator determines the term of stock options granted under the 2013 Equity Plan, up to a maximum of ten years. Unless the terms of an option holder’s stock option agreement provide otherwise, if an option holder’s service relationship with us, or any of our affiliates, ceases for any reason other than disability, death or cause, the option holder may generally exercise any vested options for a period of three months following the cessation of service. The option term may be extended in the event that exercise of the option following such a termination of service is prohibited by applicable securities laws or our insider trading policy. If an optionholder’s service relationship with us or any of our affiliates ceases due to disability or death, or an optionholder dies within a certain period following cessation of service, the optionholder or a beneficiary may generally exercise any vested options for a period of 12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, options generally terminate immediately upon the termination of the individual for cause. In no event may an option be exercised beyond the expiration of its term.
Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the plan administrator and may include (1) cash, check, bank draft or money order, (2) a broker-assisted cashless exercise, (3) the tender of shares of our common stock previously owned by the optionholder, (4) a net exercise of the option if it is an NSO, and (5) other legal consideration approved by the plan administrator.
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Unless the plan administrator provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, or pursuant to a domestic relations order. An optionholder may designate a beneficiary, however, who may exercise the option following the optionholder’s death.
Tax Limitations On Incentive Stock Options.
The aggregate fair market value, determined at the time of grant, of our common stock with respect to ISOs that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (1) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and (2) the term of the ISO does not exceed five years from the date of grant.
Restricted Stock Awards.
Restricted stock awards are granted pursuant to restricted stock award agreements adopted by the plan administrator. Restricted stock awards may be granted in consideration for (1) cash, check, bank draft or money order, (2) services rendered to us or our affiliates, or (3) any other form of legal consideration. Common stock acquired under a restricted stock award may, but need not, be subject to a share repurchase option in our favor in accordance with a vesting schedule to be determined by the plan administrator. Rights to acquire shares under a restricted stock award may be transferred only upon such terms and conditions as set by the plan administrator. Except as otherwise provided in the applicable award agreement, restricted stock unit awards that have not vested will be forfeited upon the participant’s cessation of continuous service for any reason.
Restricted Stock Unit Awards.
Restricted stock unit awards are granted pursuant to restricted stock unit award agreements adopted by the plan administrator. Restricted stock unit awards may be granted in consideration for any form of legal consideration. A restricted stock unit award may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the plan administrator, or in any other form of consideration set forth in the restricted stock unit award agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement, restricted stock units that have not vested will be forfeited upon the participant’s cessation of continuous service for any reason.
Stock Appreciation Rights.
Stock appreciation rights are granted pursuant to stock appreciation grant agreements adopted by the plan administrator. The plan administrator determines the strike price for a stock appreciation right, which generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Upon the exercise of a stock appreciation right, we will pay the participant an amount equal to the product of (1) the excess of the per share fair market value of our common stock on the date of exercise over the strike price, multiplied by (2) the number of shares of common stock with respect to which the stock appreciation right is exercised. A stock appreciation right granted under the 2013 Equity Plan vests at the rate specified in the stock appreciation right agreement as determined by the plan administrator.
The plan administrator determines the term of stock appreciation rights granted under the 2013 Equity Plan, up to a maximum of ten years. Unless the terms of a participant’s stock appreciation right agreement provides otherwise, if a participant’s service relationship with us or any of our affiliates ceases for any reason other than cause, disability or death, the participant may generally exercise any vested stock appreciation right for a period of three months following the cessation of service. The stock appreciation right term may be further extended in the event that exercise of the stock appreciation right following such a termination of service is prohibited by applicable securities laws. If a participant’s service relationship with us, or any of our affiliates, ceases due to disability or death, or a participant dies within a certain period following cessation of service, the participant or a beneficiary may generally exercise any vested stock appreciation right for a period of 12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, stock appreciation rights generally terminate immediately upon the occurrence of the event giving rise to the termination of the individual for cause. In no event may a stock appreciation right be exercised beyond the expiration of its term.
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Performance Awards.
The 2013 Equity Plan permits the grant of performance-based stock and cash awards that may qualify as performance-based compensation that is not subject to the $1,000,000 limitation on the income tax deductibility of compensation paid to a covered executive officer imposed by Section 162(m) of the Internal Revenue Code. To help assure that the compensation attributable to performance-based awards will so qualify, our Compensation Committee can structure such awards so that stock or cash will be issued or paid pursuant to such award only after the achievement of certain pre-established performance goals during a designated performance period.
The performance goals that may be selected include one or more of the following: (1) earnings (including earnings per share and net earnings); (2) earnings before interest, taxes and depreciation; (3) earnings before interest, taxes, depreciation and amortization; (4) total stockholder return; (5) return on equity or average stockholder’s equity; (6) return on assets, investment, or capital employed; (7) stock price; (8) margin (including gross margin); (9) income (before or after taxes); (10) operating income; (11) operating income after taxes; (12) pre-tax profit; (13) operating cash flow; (14) sales or revenue targets; (15) increases in revenue or product revenue; (16) expenses and cost reduction goals; (17) improvement in or attainment of working capital levels; (18) economic value added (or an equivalent metric); (19) market share; (20) cash flow; (21) cash flow per share; (22) share price performance; (23) debt reduction; (24) implementation or completion of projects or processes; (25) customer satisfaction; (26) stockholders’ equity; (27) capital expenditures; (28) debt levels; (29) operating profit or net operating profit; (30) workforce diversity; (31) growth of net income or operating income; (32) billings; and (33) to the extent that an award is not intended to comply with Section 162(m) of the Internal Revenue Code, other measures of performance selected by our Board of Directors.
The performance goals may be based on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless specified otherwise (1) in the award agreement at the time the award is granted or (2) in such other document setting forth the performance goals at the time the goals are established, we will appropriately make adjustments in the method of calculating the attainment of performance goals as follows: (1) to exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects; (3) to exclude the effects of changes to generally accepted accounting principles; (4) to exclude the effects of any statutory adjustments to corporate tax rates; (5) to exclude the effects of any “extraordinary items” as determined under generally accepted accounting principles. In addition, we retain the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of the goals. The performance goals may differ from participant to participant and from award to award.
Other Stock Awards.
The plan administrator may grant other awards based in whole or in part by reference to our common stock. The plan administrator will set the number of shares under the stock award and all other terms and conditions of such awards.
Changes to Capital Structure.
In the event that there is a specified type of change in our capital structure, such as a stock split or recapitalization, appropriate adjustments will be made to (a) the class and maximum number of shares reserved for issuance under the 2013 Equity Plan, (b) the class and maximum number of shares that may be issued upon the exercise of ISOs, (c) the class and maximum number of shares subject to stock awards that can be granted in a calendar year (as established under the 2013 Equity Plan pursuant to Section 162(m) of the Internal Revenue Code) and (d) the class and number of shares and exercise price, strike price, or purchase price, if applicable, of all outstanding stock awards.
Corporate Transactions.
In the event of certain specified significant corporate transactions, the plan administrator has the discretion to take any of the following actions with respect to stock awards:
·
arrange for the assumption, continuation or substitution of a stock award by a surviving or acquiring entity or parent company;
·
arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring entity or parent company;
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·
accelerate the vesting of the stock award and provide for its termination prior to the effective time of the corporate transaction;
·
arrange for the lapse of any reacquisition or repurchase right held by us;
·
cancel or arrange for the cancellation of the stock award in exchange for such cash consideration, if any, as our Board of Directors may deem appropriate; or
·
make a payment equal to the excess of (a) the value of the property the participant would have received upon exercise of the stock award over (b) the exercise price otherwise payable in connection with the stock award.
Our plan administrator is not obligated to treat all stock awards, even those that are of the same type, in the same manner.
Under the 2013 Equity Plan, a corporate transaction is generally the consummation of (1) a sale or other disposition of all or substantially all of our consolidated assets, (2) a sale or other disposition of at least 90% of our outstanding securities, (3) a merger, consolidation or similar transaction following which we are not the surviving corporation, or (4) a merger, consolidation or similar transaction following which we are the surviving corporation but the shares of our common stock outstanding immediately prior to such transaction are converted or exchanged into other property by virtue of the transaction.
Change of Control.
The plan administrator may provide, in an individual award agreement or in any other written agreement between a participant and us that the stock award will be subject to additional acceleration of vesting and exercisability in the event of a change of control. Under the 2013 Equity Plan, a change of control is generally (1) the acquisition by a person or entity of more than 50% of our combined voting power other than by merger, consolidation or similar transaction; (2) a consummated merger, consolidation or similar transaction immediately after which our stockholders cease to own more than 50% of the combined voting power of the surviving entity; (3) a consummated sale, lease or exclusive license or other disposition of all or substantially of our consolidated assets; or (4) when a majority of the Board of Directors becomes comprised of individuals whose nomination, appointment, or election was not approved by a majority of the Board of Directors members or their approved successors.
Amendment and Termination.
Our Board of Directors has the authority to amend, suspend, or terminate our 2013 Equity Plan, provided that such action does not materially impair the existing rights of any participant without such participant’s written consent. No ISOs may be granted after the tenth anniversary of the date our Board of Directors adopted our 2013 Equity Plan.
2013 Employee Stock Purchase Plan
Our Board of Directors adopted the MethylGene, Inc. 2013 Employee Stock Purchase Plan, or the ESPP, in May 8, 2013 and we are soliciting approval of the ESPP by our stockholders prior to the effective date of this Registration Statement. If approved by our stockholders, the ESPP will become effective immediately upon the effective date of this Registration Statement. The purpose of the ESPP is to retain the services of new employees and secure the services of new and existing employees while providing incentives for such individuals to exert maximum efforts toward our success and that of our affiliates.
Share Reserve
. The ESPP authorizes the issuance of 300,000 shares of our common stock pursuant to purchase rights granted to our employees or to employees of any of our designated affiliates. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code. As of the date hereof, no shares of our common stock have been purchased under the ESPP.
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Administration
. Our Board of Directors, or a duly authorized committee thereof, has the authority to administer the ESPP. The ESPP is implemented through a series of offerings of purchase rights to eligible employees. Under the ESPP, we may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of our common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances.
Payroll Deductions
. Generally, all regular employees, including executive officers, employed by us or by any of our designated affiliates, may participate in the ESPP and may contribute, normally through payroll deductions, up to 15% of their earnings for the purchase of our common stock under the ESPP. Unless otherwise determined by our Board of Directors, common stock will be purchased for accounts of employees participating in the ESPP at a price per share equal to the lower of (a) 85% of the fair market value of a share of our common stock on the first date of an offering or (b) 85% of the fair market value of a share of our common stock on the date of purchase.
Limitations
. Employees may have to satisfy one or more of the following service requirements before participating in the ESPP, as determined by our Board of Directors: (a) customarily employed for more than 20 hours per week, (b) customarily employed for more than five months per calendar year or (c) continuous employment with us or one of our affiliates for a period of time (not to exceed two years). No employee may purchase shares under the ESPP at a rate in excess of $25,000 worth of our common stock based on the fair market value per share of our common stock at the beginning of an offering for each year such a purchase right is outstanding. Finally, no employee will be eligible for the grant of any purchase rights under the ESPP if immediately after such rights are granted, such employee has voting power over 5% or more of our outstanding capital stock measured by vote or value pursuant to Section 424(d) of the Internal Revenue Code.
Changes to Capital Structure
. In the event that there occurs a change in our capital structure through such actions as a stock split, merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or similar transaction, the Board of Directors will make appropriate adjustments to (a) the number of shares reserved under the ESPP and (b) the number of shares and purchase price of all outstanding purchase rights.
Corporate Transactions
. In the event of certain significant corporate transactions, including: (1) a sale of all our assets, (2) the sale or disposition of 90% of our outstanding securities, (3) the consummation of a merger or consolidation where we do not survive the transaction, and (4) the consummation of a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding immediately prior to such transaction are converted or exchanged into other property by virtue of the transaction, any then-outstanding rights to purchase our stock under the ESPP may be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue or substitute for such purchase rights, then the participants’ accumulated payroll contributions will be used to purchase shares of our common stock within ten business days prior to such corporate transaction, and such purchase rights will terminate immediately.
Plan Amendments, Termination
. Our Board of Directors has the authority to amend or terminate our ESPP, provided that except in certain circumstances any such amendment or termination may not materially impair any outstanding purchase rights without the holder’s consent. We will obtain stockholder approval of any amendment to our ESPP as required by applicable law or listing requirements. For as long as we are listed on the TSX, no amendment of the ESPP may (1) increase the maximum number of shares issuable under the ESPP, (2) reduce the exercise or strike price of a stock option granted to Insiders, (3) extend the term of a purchase right granted to Insiders; (4) amend the amending provision of the ESPP, (5) make any change to the eligible employees who would have the potential for broadening of increasing Insider participation in the ESPP.
Non-Executive Director Compensation
The Compensation Committee reviews and recommends the compensation of non-employee directors to the Board of Directors on an annual basis. The following table summarizes the compensation earned by or paid to
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each of the non-employee directors in 2012:
|
Name
|
|
Fees earned
or paid in
cash(2)
|
|
Option
awards
(1)(10)
|
|
All other
compensation(2)
|
|
Total
(2)
|
|
|
Martin Godbout, O.C., Ph.D.(3)
|
|
$
|
77,684
|
|
$
|
131,572
|
|
$
|
19,919
|
(4)
|
$
|
229,175
|
|
|
Peter Thompson, M.D.
|
|
43,000
|
|
65,786
|
|
—
|
|
108,786
|
|
|
Henry J. Fuchs, M.D.(5)
|
|
37,643
|
|
88,991
|
|
—
|
|
126,634
|
|
|
Margaret Mulligan(3)(6)
|
|
39,966
|
|
89,011
|
|
—
|
|
128,977
|
|
|
Rodney Lappe, Ph.D.(7)
|
|
20,000
|
|
83,259
|
|
—
|
|
103,259
|
|
|
Louis Lacasse(3)(9)
|
|
47,308
|
|
65,786
|
|
—
|
|
113,094
|
|
|
Colin R. Mallet(3)(9)
|
|
48,801
|
|
65,786
|
|
—
|
|
114,588
|
|
|
David J. Drutz, M.D.(8)
|
|
24,000
|
|
—
|
|
—
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Each newly appointed non-executive director received options upon his/her appointment. Directors were also granted an annual stock option award on July 17, 2012.
In accordance with SEC rules, this column reflects the aggregate grant date fair value of the option awards granted during 2012 computed in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718 for stock-based compensation transactions (ASC 718). Assumptions used in the calculation of these amounts are included in Note 13 to our consolidated financial statements appearing elsewhere in this prospectus. These amounts do not reflect the actual economic value that will be realized by the non-executive directors upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options
.
The value of all option awards in the table above was originally calculated in Canadian dollars and was converted to the U.S. dollar amount in the table above using the average monthly U.S. dollar per Canadian dollar conversion rate from the Bank of Canada for the month in which the grant date occurred, which was 0.9869,1.0035, 1.0062, 0.9727 and 0.9863 for January, February, March, June and July 2012 grant dates, respectively. The vesting period was changed effective January 1, 2012 to 20% on the date of the award and then 20% on each of the next four anniversary dates.
(2)
Payments to directors resident in the United States are paid in U.S. dollars while payments to Canadian directors are paid in Canadian dollars. The conversion rate used to convert Canadian payments to U.S. dollars in the table above was the weekly average U.S. dollar per Canadian dollar conversion rate from the Bank of Canada for each week in which a payment was made.
(3)
Dr. Godbout, Ms. Mulligan and Messers. Lacasse and Mallet were paid in Canadian dollars and no amount in U.S. dollars.
(4)
This amount represents an additional discretionary amount paid to Dr. Godbout in recognition for his efforts in connection with the transition period relating to the change of our Chief Executive Officer.
(5)
Dr. Fuchs was appointed to the Board of Directors in February 2012.
(6)
Ms. Mulligan was appointed to the Board of Directors in March 2012.
(7)
Dr. Lappe was elected to the Board of Directors at our Annual General Meeting in June 2012.
(8)
Dr. Drutz did not stand for re-election and his mandate as a director terminated in June 2012.
(9)
Messrs. Lacasse and Mallet resigned from the Board of Directors in November 2012.
(10)
The following table lists the aggregate number of outstanding stock options (whether vested or unvested) held by each of our non-employee directors as of December 31, 2012:
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|
Name
|
|
Total number of shares underlying
outstanding stock options
(#)
|
|
|
Martin Godbout, O.C., Ph.D.
|
|
22,833
|
|
|
Peter Thompson, M.D.
|
|
10,953
|
|
|
Henry J. Fuchs, M.D.
|
|
8,953
|
|
|
Margaret Mulligan
|
|
8,953
|
|
|
Rodney Lappe, Ph.D.
|
|
8,953
|
|
|
Colin R. Mallet
|
|
4,515
|
|
|
Louis Lacasse
|
|
4,400
|
|
|
David J. Drutz, M.D.
|
|
—
|
|
|
Total
|
|
69,560
|
|
The following table summarizes the annual compensation for non-executive directors in 2012:
|
Cash Compensation
|
|
|
|
Stock-Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board of Directors annual retainer
|
|
$
|
40,000
|
|
Number of shares underlying stock option
|
|
|
|
|
Incremental annual retainer for the Chairman
|
|
$
|
25,000
|
|
granted upon joining the Board
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
Committee Chair annual retainer
|
|
|
|
Number of shares underlying annual stock
|
|
|
|
|
Audit
|
|
$
|
10,000
|
|
options awarded in 2012
|
|
|
|
|
Compensation
|
|
$
|
5,000
|
|
Directors
|
|
6,953
|
|
|
Corporate Governance and Nominating
|
|
$
|
5,000
|
|
Incremental to the Chairman
|
|
6,953
|
|
|
|
|
|
|
|
|
|
|
|
Committee member annual retainer
|
|
|
|
|
|
|
|
|
Audit
|
|
$
|
5,000
|
|
|
|
|
|
|
Compensation
|
|
$
|
3,000
|
|
|
|
|
|
|
Corporate Governance and Nominating
|
|
$
|
3,000
|
|
|
|
|
|
The above cash retainers are paid in U.S. dollars for U.S.-based directors and in Canadian dollars for Canadian-based directors. Director’s fees are prorated to the date the director is appointed or elected. In addition, directors are reimbursed for all reasonable and documented travel-related expenses incurred by them in order to attend Board of Directors and committee meetings, subject to our travel policy.
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Table of Contents
Item 7. Certain Relationships and Related Transactions, and Director Independence, Related Party Transactions.
The following is a description of transactions since January 1, 2011 to which we have been a party, in which the amount involved exceeded or will exceed the lesser of $120,000 or 1% of the average of our total assets at year end for the last two years, and in which any of our executive officers, directors or holders of more than 5% of our common stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest, other than compensation, termination and change in control arrangements, which are described under “Executive and Director Compensation.”
Stock Issuances
2012 Private Placements
In November 2012, we entered into a securities purchase agreement, or the 2012 Securities Purchase Agreement, pursuant to which we sold 3,593,819 units at a subscription price per unit of CND$7.25 (or US$7.28, as converted), with each unit consisting of one share of common stock and thirty one-hundredths (0.30) of a warrant to purchase a share of common stock, exercisable until November 21, 2017 at an exercise price of CND$8.70 (or US$8.73, as converted) (being 120% of the subscription price), for net proceeds of $24.8 million. The issuance costs of the units amounted to $1.3 million.
|
Name
|
|
Units
|
|
Shares of
Common Stock
|
|
Warrants
|
|
Purchase
Price
|
|
|
Baker Bros. Advisors, LLC
|
|
934,218
|
|
934,218
|
|
280,265
|
|
US$ 6,801,107
|
|
|
Tavistock Life Sciences
|
|
893,222
|
|
893,222
|
|
267,966
|
|
US$ 6,502,656
|
|
|
RA Capital Healthcare Fund, L.P.
|
|
551,724
|
|
551,724
|
|
165,517
|
|
US$ 4,016,551
|
|
|
Tang Capital Partners, L.P.
|
|
413,793
|
|
413,793
|
|
124,138
|
|
US$ 3,012,413
|
|
|
OrbiMed Advisors LLC
|
|
344,827
|
|
344,827
|
|
103,448
|
|
US$ 2,510,341
|
|
|
BVF Investments L.L.C.
|
|
275,862
|
|
275,862
|
|
82,758
|
|
US$ 2,008,275
|
|
Each of Baker Brothers, Tavistock and Tang Capital agreed that it will not exercise any portion of its warrants acquired under the 2012 Securities Purchase Agreement to the extent that, after giving effect to such exercise, it would beneficially own in excess of 19.99%, in the case of Baker Brothers and Tavistock, or 9.99%, in the case of Tang Capital, of the shares of our common stock, except in certain limited circumstances. Pursuant to the 2012 Securities Purchase Agreement, we granted to Baker Brothers and Tavistock, for so long as each owns at least 10% of our issued and outstanding capital stock on a partially diluted basis (assuming only the exercise of any convertible securities or rights to acquire shares of common stock of each of Bakers Brothers and Tavistock), the right to nominate a member to our Board of Directors and the right to appoint an observer to our Board of Directors. For more information, see “Item 11. Description of Registrant’s Securities to be Registered — Board Observer and Nomination Rights.”
2011 Private Placement
In April 2011, we entered into a securities purchase agreement, or the 2011 Securities Purchase Agreement, pursuant to which we sold 5,549,895 units at a subscription price per unit of CND$6.22 (or US$6.42, as converted), with each unit consisting of one share of common stock and thirty one-hundredths (0.30) of a warrant to purchase a share of common stock, exercisable until April 4, 2016 at an exercise price of CND$7.46 (or US$7.71, as converted) (being 120% of the subscription price), for net proceeds of $33.7 million. This includes the conversion of convertible debentures that were issued by us in March 2011 to an affiliate of Baker Brothers and Tavistock, for each to acquire 61,561 units for $783,869. The issuance costs of the units amounted to $2.0 million.
83
Table of Contents
|
Name
|
|
Units
|
|
Shares of
Common Stock
|
|
Warrants
|
|
Purchase
Price
|
|
|
Baker Bros. Advisors, LLC
|
|
1,045,856
|
|
1,045,856
|
|
313,757
|
|
US$ 6,714,396
|
|
|
Tavistock Life Sciences
|
|
1,045,856
|
|
1,045,856
|
|
313,757
|
|
US$ 6,714,396
|
|
|
OrbiMed Advisors LLC
|
|
804,505
|
|
804,505
|
|
241,351
|
|
US$ 5,164,922
|
|
|
Tang Capital Partners, L.P.
|
|
804,505
|
|
804,505
|
|
241,351
|
|
US$ 5,164,922
|
|
|
QVT Fund, L.P.
|
|
804,505
|
|
804,505
|
|
241,351
|
|
US$ 5,164,922
|
|
|
BVF Investments L.L.C.
|
|
321,802
|
|
321,802
|
|
96,540
|
|
US$ 2,065,969
|
|
Each of Baker Brothers, Tavistock, OrbiMed, Tang Capital, QVT Fund and BVF Fund has agreed that it will not exercise any portion of its warrants acquired under the 2011 Securities Purchase Agreement to the extent that, after giving effect to such exercise, it would beneficially own in excess of 19.99%, in the case of Baker Brothers, Tavistock and OrbiMed, or 9.99%, in the case of Tang Capital, QVT or BVF, of our shares of common stock, except in certain limited circumstances. Pursuant to the 2011 Securities Purchase Agreement, we granted to Baker Brothers and Tavistock, for a period of two years following the closing of the transaction, the right to nominate a member to our Board of Directors and the right to appoint an observer to our Board of Directors. These rights, however, were superseded by the right to appoint an observer to our Board of Directors and nominate a member to our Board of Directors granted to Baker Brothers and Tavistock in the 2012 private placement described above.
Stock Options Granted to Executive Officers and Directors
We have granted stock options to our executive officers and directors, as more fully described in the section titled “Executive and Director Compensation.”
Indemnification Agreements
We have entered, and intend to continue to enter, into separate indemnification agreements with each of our directors and executive officers, as described in “Executive and Director Compensation—Limitation of Liability and Indemnification.”
Director Independence
Board of Directors Leadership Structure
The Board of Directors has a Chairman of the Board, Dr. Godbout, who has authority, among other things, to call and preside over Board of Directors meetings, to set meeting agendas, and to determine materials to be distributed to the Board of Directors. Accordingly, the Chairman has substantial ability to shape the work of the Board of Directors. We believe that separation of the positions of Chairman and Chief Executive Officer reinforces the independence of the Board of Directors in its oversight of our business and affairs. In addition, we have a separate chair for each committee of the Board of Directors. The chairs of each committee are expected to report annually to the Board of Directors on the activities of their committee in fulfilling their responsibilities as detailed in their respective charters or specify any shortcomings should that be the case. We believe that separation of the positions of Chairman and Chief Executive Officer reinforces the independence of the Board of Directors in its oversight of our business and affairs. In addition, we believe that having a separate Chairman creates an environment that is more conducive to objective evaluation and oversight of management’s performance, increasing management accountability and improving the ability of the Board of Directors to monitor whether management’s actions are in the best interests of us and our stockholders. As a result, we believe that having a separate Chairman can enhance the effectiveness of the Board of Directors as a whole.
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Table of Contents
Role of the Board of Directors in Risk Oversight
The Audit Committee of the Board of Directors is primarily responsible for overseeing our risk management processes on behalf of the Board of Directors. Going forward, we expect that the Audit Committee will receive reports from management at least quarterly regarding our assessment of risks. In addition, the Audit Committee reports regularly to the Board of Directors, which also considers our risk profile. The Audit Committee and the Board of Directors focus on the most significant risks we face and our general risk management strategies. While the Board of Directors oversees our risk management, management is responsible for day-to-day risk management processes. Our Board of Directors expects management to consider risk and risk management in each business decision, to proactively develop and monitor risk management strategies and processes for day-to-day activities and to effectively implement risk management strategies adopted by the Audit Committee and the Board of Directors. We believe this division of responsibilities is the most effective approach for addressing the risks we face and that our Board of Directors leadership structure, which also emphasizes the independence of the Board of Directors in its oversight of its business and affairs, supports this approach.
Board of Directors Committees
Our
Board of Directors has established three committees, each with its own charter and each committee is comprised of independent directors.
Audit Committee
The principal duties of the Audit Committee of the Board of Directors include assisting the Board of Directors in its oversight of:
·
the quality and integrity of our financial statements and reports;
·
our accounting and financial reporting process, system of internal controls over financial reporting and audit process;
·
compliance with, and process for monitoring compliance with, legal and regulatory requirements;
·
the independent auditors’ qualifications, independence and performance;
·
our legal, regulatory and ethical compliance programs as established by management and the Board of Directors; and
·
pre-approval of all audit and non-audit services provided by the independent registered public accounting firm.
The current members of the Audit Committee are Ms. Mulligan (chair), Dr. Godbout and Dr. Thompson. Our Board of Directors has determined that each member of the Audit Committee is an independent director under NASDAQ Listing Rules and under Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Each member of our Audit Committee can read and understand fundamental financial statements in accordance with NASDAQ audit committee requirements and is financially literate, as required by Canadian securities laws. In arriving at this determination, the Board of Directors has examined each Audit Committee member’s scope of experience and the nature of their employment in the corporate finance sector.
Our Board of Directors has determined that Ms. Mulligan qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the NASDAQ Listing Rules. In making this determination, our Board of Directors has considered formal education and the nature and scope of experience each has previously had with public companies. Both our independent registered public accounting firm and management periodically meet privately with our Audit Committee.
85
Table of Contents
The Audit Committee charter can be found on our website at www.methylgene.com in the Corporate Governance section. The inclusion of our website address in this Registration Statement does not include or incorporate by reference the information on our website.
Compensation Committee
The principal duties of the Compensation Committee of the Board of Directors include:
·
reviewing and approving our overall compensation strategy and policies;
·
reviewing and approving corporate performance goals, compensation and other terms of employment of our executive officers;
·
reviewing the compensation of our non-employee directors;
·
administering our stock option and purchase plans; and
·
preparing the annual report on executive compensation for purposes of disclosure to our stockholders.
In addition, the Compensation Committee reviews and approves overall compensation strategies and policies. In exercising these duties the Compensation Committee ensures that our compensation programs, particularly in connection with bonus targets, is aligned with the interests of our stockholders and other stakeholders. The majority of the named executive officers’ bonus targets are based on corporate-based goals that strive to increase stockholder value and, to a lesser extent, to individual goals that help drive the corporate goals. The Compensation Committee regularly enlists the services of a third-party company to conduct an evaluation of current market practices to benchmark against our current practices. The last such review was undertaken by Towers Watson in May 2011.
The current members of the Compensation Committee are Dr. Godbout (chair), Ms. Mulligan and Dr. Thompson. Our Board of Directors has determined that each of Dr. Godbout, Ms. Mulligan and Dr. Thompson are independent under the NASDAQ Listing Rules and Canadian securities laws, are “non-employee directors” as defined in Rule 16(b)-3 promulgated under the Exchange Act and are “outside directors” as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended.
The Compensation Committee charter can be found on our website at www.methylgene.com in the Corporate Governance section. The inclusion of our website address in this Registration Statement does not include or incorporate by reference the information on our website.
Nominating and Corporate Governance Committee
The principal duties of the Nominating and Corporate Governance Committee of the Board of Directors are to develop and implement a set of corporate governance principles and policies, including a code of business conduct and ethics, assess the performance of the Board of Directors, its committees and the contributions of individual directors, and review and oversee management succession planning. As part of this process the Nominating and Corporate Governance Committee periodically reviews and assesses these policies and principles and their application and recommends to the Board of Directors any changes to such policies and principles. The principal duties of the Nominating and Corporate Governance Committee in connection with the nomination of directors are to evaluate the size of the Board of Directors; identify the skill sets currently available and skill sets that may be required; and recommend to the Board of Directors the director nominees to be put before the stockholders at our annual general meeting.
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Table of Contents
The current members of the Nominating and Corporate Governance Committee are Dr. Godbout (chair), Dr. Fuchs and Dr. Lappe. Our Board of Directors has determined that all such members are independent under the NASDAQ Listing Rules and Canadian securities laws, are “non-employee directors” as defined in Rule 16(b)-3 promulgated under the Exchange act and are “outside directors” as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended.
The Nominating and Corporate Governance Committee charter can be found on our website at www.methylgene.com in the Corporate Governance section. The inclusion of our website address in this Registration Statement does not include or incorporate by reference the information on our website.
87
Table of Contents
Item 8. Legal Proceedings.
We are not party to any pending legal proceedings.
88
Table of Contents
Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.
Toronto Stock Exchange Market Information
Our shares are traded on the Toronto Stock Exchange, or TSX, under the symbol “MYG.” The following table sets forth the high and low sales prices for our common stock for the periods indicated, as reported on the TSX and have been adjusted to reflect the 1-for-50 share exchange that will occur upon the consummation of the Arrangement.
The closing price of our shares of common stock on the TSX as of May 8, 2013, was $4.50. We have converted these amounts to U.S. dollars using the exchange rate on the date of the corresponding high or low sales price. In quarters in which the high or low sales price occurred on multiple dates the exchange rate for the latest occurrence is used for purposes of converting the U.S. dollar amount.
|
|
|
CND$
|
|
US$
|
|
CND$
|
|
US$
|
|
|
2011
|
|
High
|
|
High
|
|
Low
|
|
Low
|
|
|
First Quarter
|
|
$
|
12.00
|
|
$
|
12.23
|
|
$
|
6.00
|
|
$
|
6.15
|
|
|
Second Quarter
|
|
30.00
|
|
31.37
|
|
11.00
|
|
11.33
|
|
|
Third Quarter
|
|
18.50
|
|
19.30
|
|
10.00
|
|
9.72
|
|
|
Fourth Quarter
|
|
16.00
|
|
15.69
|
|
9.50
|
|
9.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
High
|
|
High
|
|
Low
|
|
Low
|
|
|
First Quarter
|
|
$
|
19.50
|
|
$
|
18.96
|
|
$
|
12.00
|
|
$
|
12.06
|
|
|
Second Quarter
|
|
15.00
|
|
15.21
|
|
9.50
|
|
9.24
|
|
|
Third Quarter
|
|
22.00
|
|
21.91
|
|
10.00
|
|
10.21
|
|
|
Fourth Quarter
|
|
13.50
|
|
13.71
|
|
7.00
|
|
7.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
High
|
|
High
|
|
Low
|
|
Low
|
|
|
First Quarter
|
|
$
|
10.00
|
|
$
|
9.74
|
|
$
|
6.50
|
|
$
|
6.39
|
|
|
Second Quarter (through May 8, 2013)
|
|
6.75
|
|
6.64
|
|
3.00
|
|
2.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Stock Market Information
We intend to apply for the listing of shares of common stock on The NASDAQ Stock Market LLC under the symbol “MRTX”.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare Trust Company, N.A. The transfer agent and registrar’s address is 250 Royall Street, Canton MA 02021.
Share Capital
Our authorized share capital consists of 110,000,000 shares, 100,000,000 of which are common stock with a par value of $0.001 and 10,000,000 of which are preferred stock, with a par value of $0.001.
Equity Compensation Plans
We expect that in the future we will file a registration statement on Form S-8 under the Securities Act registering (1) the common stock subject to outstanding options under our Stock Option Plan, (2) the common stock subject to outstanding options or reserved for issuance under our 2013 Equity Incentive Plan, and (3) the common stock outstanding and reserved for issuance under our 2013 Employee Stock Purchase Plan. That registration statement will become effective immediately upon filing, and shares covered by that registration statement will thereupon be eligible for sale in the public markets, subject to grant of the underlying awards, vesting provisions and Rule 144 limitations applicable to our affiliates.
89
Table of Contents
Holders
As of March 31, 2013, there were 9,957,739 shares of common stock outstanding, which were held by approximately 726 record stockholders.
As of the date of this Registration Statement, we have no present commitments to issue shares of our capital stock to any 5% holder, director or nominee, other than pursuant to the exercise of outstanding options and warrants.
Dividends
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business and do not intend to declare or pay any cash dividends in the foreseeable future. As a result, our stockholders will likely need to sell their shares of common stock to realize a return on their investment, and they may not be able to sell their shares at or above the price they paid for them.
Stock Not Registered Under the Securities Act
Our common stock, including our common stock underlying outstanding warrants, have not been registered under the Securities Act. Accordingly, the shares of common stock issued and outstanding and the shares of common stock issuable upon the exercise of any warrants may not be resold absent registration under the Securities Act and applicable state securities laws or an available exemption thereunder.
Rule 144
Shares of our common stock that are restricted securities will be eligible for resale in compliance with Rule 144 or Rule 701 of the Securities Act, subject to the requirements described below. “Restricted Securities,” as defined under Rule 144, were issued and sold by us in reliance on exemptions from the registration requirements of the Securities Act. These shares may be sold in the public market only if registered or if they qualify for an exemption from registration, such as Rule 144 or Rule 701. Below is a summary of the requirements for sales of our common stock pursuant to Rule 144, as in effect on the date of this Registration Statement, after the effectiveness of this Registration Statement.
Affiliates
Affiliates will be able to sell their shares of common stock under Rule 144 beginning 90 days after the effectiveness of this Registration Statement, subject to all other requirements of Rule 144. In general, under Rule 144, an affiliate would be entitled to sell within any three-month period a number of shares that does not exceed one percent of the number of shares of our common stock then outstanding. Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. Persons who may be deemed to be our affiliates generally include individuals or entities that control, or are controlled by, or are under common control with, us and may include our directors and officers, as well as our significant stockholders.
Non-Affiliates
For a person who has not been deemed to have been one of our affiliates at any time during the 90 days preceding a sale, sales of our shares of common stock held longer than six months, but less than one year, will be subject only to the current public information requirement and can be sold under Rule 144 beginning 90 days after the effectiveness of this Registration Statement. A person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least one year, is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144 upon the effectiveness of this Registration Statement.
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Table of Contents
Rule 701
Under Rule 701, shares of our common stock acquired upon the exercise of currently outstanding options or pursuant to other rights granted under our compensatory plans may be resold by:
·
persons other than affiliates, beginning 90 days after the effective date of this Registration Statement of which this prospectus is a part, subject only to the manner-of-sale provisions of Rule 144; and
·
our affiliates, beginning 90 days after the effective date of this Registration Statement, subject to the manner-of-sale and volume limitations, current public information and filing requirements of Rule 144, in each case, without compliance with the six-month holding period requirement of Rule 144.
Canadian Resale Restrictions
As long as we continue to be considered a “reporting issuer” under applicable Canadian securities law, the sale of any of our shares of common stock which constitutes a “control distribution” under applicable Canadian securities laws (generally a sale by a person or a group of persons holding 20% or more of our outstanding voting securities) must be qualified by a prospectus filed with Canadian securities regulatory authorities or, in the alternative, made in reliance on an applicable prospectus exemption. The sale of shares of common stock pursuant to the use of a prospectus exemption will generally result in the sold shares of common stock being subject to a four month hold period.
Securities Authorized for Issuance Upon the Exercise of Warrants
As of March 31, 2013, there were outstanding warrants to purchase 2,733,460 shares of our common stock at a weighted average exercise price of $8.12 per share. For more information about the material terms of these warrants, please see “Item 11. Description of Registrant’s Securities to be Registered.”
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information regarding our equity compensation plans as of December 31, 2012. There are no equity compensation plans that have not been approved by our securityholders.
|
Plan Category
|
|
Number of securities to
be issued upon exercise
of outstanding options
|
|
Weighted-average
exercise price of
outstanding options
|
|
Number of securities
remaining available for
future issuance under
equity compensation
plans
|
|
|
Equity compensation plans approved by securityholders
|
|
559,815
|
|
$
|
15.00
|
|
137,628
|
|
|
Equity compensation plan not approved by securityholders
|
|
—
|
|
—
|
|
—
|
|
|
Total
|
|
559,815
|
|
$
|
15.00
|
|
137,628
|
|
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Table of Contents
Item 10. Recent Sales of Unregistered Securities.
Set forth below is information regarding securities issued and options granted by us since March 31, 2010 that were not registered under the Securities Act. Also included is the consideration, if any, received by us, for such securities and options and information relating to the Securities Act, or rule of the SEC, under which exemption from registration was claimed.
(1)
In April 2011, pursuant to the 2011 Securities Purchase Agreement, we issued 5,549,895 units at a subscription price per unit of CND$6.22 (or US$6.42, as converted), each unit consisting of one share of common stock and thirty one-hundredths (0.30) of a warrant to purchase a share of common stock, at an exercise price of CND$7.46 (or US$7.71, as converted).
(2)
In November 2012, pursuant to the 2012 Securities Purchase Agreement, we issued 3,593,819 units at a subscription price per unit of CND$7.25 (or US$7.28, as converted), each unit consisting of one share of common stock and thirty one-hundredths (0.30) of a warrant to purchase a share of common stock, at an exercise price of CND$8.70 (or US$8.73, as converted).
(3)
In April 2011, each of Baker Brothers and Tavistock were issued 61,561 units at a conversion price of CND$6.22 (or US$6.42, as converted), in connection with the conversion of convertible debentures purchased by them in March 2011 for $391,934.
(4)
From May 1, 2010 through March 31, 2013, we granted stock options under our Stock Option Plan to purchase an aggregate of 727,436 shares of common stock at a weighted-average exercise price of CND$12.35 per share (or US$12.26, as converted), to certain employees, consultants and directors.
The offers, sales and issuances of the securities described in paragraphs (1), (2) and (3) were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) (or Regulation D promulgated thereunder), in that the issuance of securities to the accredited investors did not involve a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor under Rule 501 of Regulation D. No underwriters were involved in these transactions.
The offers, sales and issuances of the securities described in paragraph (4) were deemed to be exempt from registration under the Securities Act in reliance on Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of such securities were our employees, directors or bona fide consultants and received the securities under our Stock Option Plan.
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Table of Contents
Item 11. Description of Registrant’s Securities to be Registered.
Common Stock
As of May 8, 2013, we had 100,000,000 authorized shares of common stock, par value $0.001 per share.
As of May 8, 2013, there were
9,957,739
shares of common stock outstanding. As of May 8, 2013, there were 3,215,802 shares of common stock subject to outstanding options and warrants to purchase shares of common stock. Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of the stockholders, including the election of directors. Our amended and restated certificate of incorporation and bylaws do not provide for cumulative voting rights. Other than as described below, holders of our common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that are outstanding or that we may designate and issue in the future. All of our outstanding shares of common stock are fully paid and nonassessable.
Preferred Stock
As of May 8, 2013, we had 10,000,000 authorized shares of preferred stock, par value $0.001 per share.
As of May 8, 2013, there were no shares of preferred stock outstanding. Our Board of Directors may authorize the issuance of shares of preferred stock from time to time in one or more series, each series comprising the number of shares, designation, rights, privileges, restrictions and conditions determined by our Board of Directors. The preferred shares may have voting or conversion rights that could have the effect of restricting dividends on our shares of common stock, diluting the voting power of our shares of common stock, impairing the rights of our shares of common stock in the event of our dissolution, liquidation or winding-up or otherwise adversely affect the rights of holders of our shares of common stock. The issuance of preferred shares, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change of control and may adversely affect the market price of our shares of common stock and may preclude stockholders from realizing a potential premium over the market value of their shares. The holders of preferred shares are entitled to receive notice of any meeting of our stockholders and to attend and vote, except as otherwise provided in the rights and restrictions attached to the shares by the Board of Directors. As at the date hereof, there were no preferred shares issued and outstanding.
Warrants
As of May 8, 2013, there were warrants to purchase 2,733,460 shares of common stock outstanding, which expire between April 2016 and November 2017. Each of these warrants entitles the holder to purchase one share of common stock at prices ranging between CND$7.46 (or US$7.71, as converted) and CND$8.70 (or US$8.73, as converted), per share of common stock. Each of these warrants has a net exercise provision under which its holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of our shares of common stock at the time of exercise of the warrant after deduction of the aggregate exercise price. Each of these warrants also contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant in the event of dividends, stock splits, reorganizations and reclassifications and consolidations. Certain of these warrants may be subject to an acceleration of their expiration dates if certain conditions are met.
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Pre-Emptive Rights
Under the terms of the 2012 Securities Purchase Agreement and the 2011 Securities Purchase Agreement, certain investors have pre-emptive rights with respect to any proposed future issuances of our securities. In the event that the we propose to issue any class or series of our equity securities, any voting securities, or any securities convertible or exchangeable into, or entitling purchase of, any of the foregoing. we must provide written notice to each investor that purchased, together with such investor’s affiliates, at least CND$4.0 million (or US$4.1 million as converted) of the units sold under the 2012 Securities Purchase Agreement or CND$3.0 million (or US$3.0 million, as converted) of the units sold under the 2011 Securities Purchase Agreement, specifying the terms and conditions of the proposed issue. Each such investor has the right, by written notice within four business days from the date of receipt of our notice, in the case of a private placement, or within two business days from the date of the receipt of the our notice in the case of a public offering, to subscribe for up to their pro rata share of offered securities, which share is calculated in proportion to the aggregate holding of securities by such investor in relation to the total number of securities issued and outstanding immediately prior to the issuance of offered securities.
The pre-emptive rights described above continue until, in the case of pre-emptive rights arising under the 2012 Securities Purchase Agreement, November 12, 2016 and, in the case of pre-emptive rights arising under the 2011 Securities Purchase Agreement, April 4, 2015. Such rights do not apply, however, to issuances of securities pursuant to:
·
our Stock Option Plan, our 2013 Equity Incentive Plan, or our 2013 Employee Stock Purchase Plan;
·
any collaboration agreements entered into by us;
·
a public offering of our securities at a price per security at least 100% greater than the respective subscription price, in connection with which the securities being sold are listed on the New York Stock Exchange or the NASDAQ Stock Market, for total proceeds of at least CND$50,000,000 (or US$49,117,500, as converted) and conducted by a recognized, full service investment banking firm;
·
in the case of pre-emptive rights arising under the 2012 Securities Purchase Agreement,
the exercise of the warrants issued under such agreement; or
·
in the case of pre-emptive rights arising under the 2011 Securities Purchase Agreement, the
exercise of warrants issued under such agreement.
Baker Brothers Life Sciences, L.P. and Tavistock Life Sciences also have a right to acquire any offered securities that are subject to the pre-emptive rights but which are not otherwise purchased by an eligible investor pursuant to such pre-emptive rights. Each of the Baker Brothers and Tavistock may exercise its right to purchase such shares by stating in its notice of exercise of pre-emptive rights that it will acquire up to its pro rata share of such securities. In the event that either Baker Brothers or Tavistock does not exercise its additional rights, the other such stockholder has the right to acquire the remaining offered securities that are subject to the pre-emptive rights but that are not otherwise purchased by the other investors.
Under the terms of the 2012 Securities Purchase Agreement, for any investor that qualified for pre-emptive rights or additional rights under the 2011 Securities Purchase Agreement that also qualified for such rights under the 2012 Securities Purchase Agreement, the terms of such investor’s pre-emptive rights or additional rights as applied to all shares acquired under the 2011 Securities Purchase Agreement and the 2012 Securities Purchase Agreement are governed solely by the terms of the 2012 Securities Purchase Agreement.
Board Observer and Nomination Rights
As long as either Baker Brothers or Tavistock beneficially owns at least 10% of our issued and outstanding shares of common stock, calculated on a partially diluted basis (assuming only the exercise of any convertible securities or rights to acquire shares of common stock of common stock of such shareholders), then Baker Brothers and Tavistock, as the case may be, has the right to appoint an observer to the Board of Directors. Each observer has the right to receive notice of and attend the meetings of the Board of Directors, and has the right to address the Board of Directors at any of its meetings, but does not have any right to vote at any meeting of the Board of Directors.
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In addition to appointing an observer, as long as either Baker Brothers or Tavistock owns at least 10% of the issued and outstanding shares of common stock, calculated on a partially diluted basis (assuming only the exercise of any convertible securities or rights to acquire shares of common stock of such shareholders), then Baker Brothers and Tavistock, as the case may be, has the right, but not the obligation, to nominate one person to the Board of Directors. We are required to include each of Baker Brothers’ and Tavistock’s director nominees in our proposed slate of directors at each annual or special (if applicable) meeting and recommend that stockholders vote in favor of such nominee.
Anti-Takeover Provisions
Our amended and restated certificate of incorporation and bylaws contain provisions that might have an anti-takeover effect. These provisions, which are summarized below, may have the effect of delaying, deterring or preventing a change in control of our company. They could also impede a transaction in which our stockholders might receive a premium over the then-current market price of our common stock and our stockholders’ ability to approve transactions that they consider to be in their best interests.
Our amended and restated certificate of incorporation permits our Board of Directors to issue preferred stock. We could authorize the issuance of a series of preferred stock which would grant to holders preferred rights to our assets upon liquidation, the right to receive dividend coupons before dividends would be declared to holders of shares of our existing preferred stock and our existing preferred stock and common stock. Our current stockholders have no redemption rights. In addition, as we have a large number of authorized but unissued shares, our Board of Directors could issue large blocks of voting stock to fend off unwanted tender offers or hostile takeovers without further stockholder approval.
We are subject to Section 203 of the Delaware General Corporation Law. In general, Section 203, subject to specific exceptions, prohibits a publicly-held Delaware corporation from engaging in any “business combination” with any “interested stockholder” for a period of three years following the date that the stockholder became an interested stockholder, unless:
·
prior to that date, the Board of Directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
·
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85 percent of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by directors, officers and specific employee stock plans; or
·
on or after that date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of the holders of at least 66 2/3 percent of the outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines “business combination” to include:
·
any merger or consolidation involving the corporation and the interested stockholder;
·
any sale, lease, exchange, mortgage, transfer, pledge or other disposition of 10 percent or more of the assets of the corporation involving the interested stockholder;
·
subject to limited exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
·
any transaction involving the corporation that has the effect of increasing the proportionate share of the corporation’s stock of any class or series beneficially owned by the interested stockholder; and
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·
the receipt by the “interested stockholder” of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
In general, an “interested stockholder” is an entity or individual who, together with affiliates and associates, owns, or within three years prior to the determination of the “interested stockholder” status owned, 15 percent or more of a corporation’s outstanding voting stock.
The provisions of Section 203 could encourage companies interested in acquiring us to negotiate in advance with our Board of Directors since the stockholder approval requirement would be avoided if our Board of Directors approves either the business combination or the transaction that results in the stockholder becoming an interested stockholder. These provisions also could have the effect of preventing changes in our management or could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
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Item 12. Indemnification of Directors and Officers.
Bylaws
Pursuant to our bylaws, our directors and officers will be indemnified to the fullest extent allowed under the laws of the State of Delaware for their actions in their capacity as our directors and officers.
We must indemnify any person made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, each a Proceeding, by reason of the fact that he or she is or was a director, against judgments, penalties, fines, settlements and reasonable expenses (including attorney’s fees) collectively Expenses, actually and reasonably incurred by him or her in connection with such Proceeding if: (a) he or she conducted himself or herself in good faith, and: (1) in the case of conduct in his or her own official capacity with us, he or she reasonably believed his conduct to be in our best interests, or (2) in all other cases, he or she reasonably believes his conduct to be at least not opposed to our best interests; and (b) in the case of any criminal Proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful.
We must indemnify any person made a party to any Proceeding by or in the right of us, by reason of the fact that he or she is or was a director, against reasonable expenses actually incurred by him or her in connection with such proceeding if he or she conducted himself in good faith, and: (a) in the case of conduct in his or her official capacity with us, he or she reasonably believed his conduct to be in our best interests; or (b) in all other cases, he or she reasonably believed his or her conduct to be at least not opposed to our best interests; provided that no such indemnification may be made in respect of any proceeding in which such person shall have been adjudged to be liable to us.
No indemnification will be made by unless authorized in the specific case after a determination that indemnification of the director is permissible in the circumstances because he has met the applicable standard of conduct.
Reasonable expenses incurred by a director who is party to a proceeding may be paid or reimbursed by us in advance of the final disposition of such Proceeding in certain cases.
We have the power to purchase and maintain insurance on behalf of any person who is or was our director, officer, employee, or agent or is or was serving at our request as an officer, employee or agent of another corporation, partnership, joint venture, trust, other enterprise, or employee benefit plan against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his status as such, whether or not we would have the power to indemnify him or her against such liability under the provisions of the bylaws.
Delaware Law
We are incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any persons who are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was an officer, director, employee or agent of such corporation, or is or was serving at the request of such person as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of
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another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses which such officer or director has actually and reasonably incurred. Our amended and restated certificate of incorporation and bylaws provide for the indemnification of our directors and officers to the fullest extent permitted under the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any:
·
transaction from which the director derives an improper personal benefit;
·
act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
·
unlawful payment of dividends or redemption of shares; or
·
breach of a director’s duty of loyalty to the corporation or its stockholders.
Our amended and restated certificate of incorporation and bylaws include such a provision. Expenses incurred by any officer or director in defending any such action, suit or proceeding in advance of its final disposition shall be paid by us upon delivery to us of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified by us.
Section 174 of the Delaware General Corporation Law provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved, or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the Board of Directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.
Indemnification Agreements
As permitted by the Delaware General Corporation Law, we have entered, and intend to continue to enter, into separate indemnification agreements with each of our directors and executive officers, that require us to indemnify such persons against any and all costs and expenses (including attorneys’ fees), witness fees, or other professional fees) damages, judgments, fines, settlements and other amounts incurred by such persons (including expenses of a derivative action) in connection with any action, suit or proceeding (including derivative actions), whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director, an officer or an employee of us or any of our affiliated enterprises, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder. At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or preceding that may result in a claim for indemnification.
We have an insurance policy covering its officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act or otherwise.
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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or controlling persons, we have been advised that in the opinion of the SEC this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
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Item 13. Financial Statements and Supplementary Data.
The information required by this item may be found beginning on page F-1 of this Registration Statement.
I
tem 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a)
Financial Statements filed as part of this registration statement:
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2012 and 2011.
Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2012 and 2011.
Consolidated Statements of Changes in Stockholders’ Equity for the year ended December 31, 2012 and 2011.
Consolidated Statements of Cash Flows for the year ended December 31, 2012 and 2011.
Notes to Consolidated Financial Statements as of December 31, 2012 and 2011.
Unaudited Condensed Consolidated Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2013 and 2012.
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012.
Notes to Unaudited Condensed Consolidated Financial Statements.
(b)
Exhibits.
See the Exhibit Index attached hereto which is incorporated by reference.
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Table of Contents
Index to Financial Statements of
Mirati Therapeutics, Inc.
TABLE OF CONTENTS
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Mirati Therapeutics, Inc.
We have audited the accompanying consolidated balance sheets of Mirati Therapeutics, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
Mirati Therapeutics, Inc
. at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
|
Montreal, Canada
|
Ernst & Young LLP
|
|
May 8, 2013, except for Note 21, as to which the date is June , 2013
|
|
The foregoing report is in the form that will be signed upon the completion of the Arrangement as described in Note 21 to the consolidated financial statements.
|
Montreal, Canada
|
|
/s/ Ernst & Young LLP
(1)
|
|
May 8, 2013
|
|
(1)
CPA auditor, CA, public accountancy permit no. A120254
F-2
Table of Contents
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
December 31,
|
|
|
|
|
2012
|
|
2011
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,403
|
|
$
|
9,882
|
|
|
Marketable securities and term deposits
|
|
18,580
|
|
18,563
|
|
|
Restricted cash equivalents and marketable securities
|
|
302
|
|
295
|
|
|
Interest and other receivables
|
|
507
|
|
172
|
|
|
Other current assets
|
|
1,537
|
|
1,548
|
|
|
Total current assets
|
|
39,329
|
|
30,460
|
|
|
|
|
|
|
|
|
|
Security deposits
|
|
67
|
|
54
|
|
|
Restricted cash equivalents and marketable securities
|
|
72
|
|
349
|
|
|
Property and equipment, net
|
|
333
|
|
219
|
|
|
Total assets
|
|
$
|
39,801
|
|
$
|
31,082
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
5,272
|
|
3,749
|
|
|
Current portion of other liability
|
|
68
|
|
—
|
|
|
Total current liabilities
|
|
5,340
|
|
3,749
|
|
|
|
|
|
|
|
|
|
Other liability
|
|
45
|
|
28
|
|
|
Total liabilities
|
|
5,385
|
|
3,777
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized; none issued and outstanding at December 31, 2012 and 2011, respectively
|
|
—
|
|
—
|
|
|
Common stock, $0.001 par value; 100,000,000 authorized; 9,957,739 and 6,358,267 issued and outstanding at December 31, 2012 and 2011, respectively
|
|
10
|
|
6
|
|
|
Warrants
|
|
11,153
|
|
6,247
|
|
|
Additional paid-in capital
|
|
154,224
|
|
132,312
|
|
|
Accumulated other comprehensive income
|
|
9,520
|
|
8,945
|
|
|
Accumulated deficit
|
|
(140,491
|
)
|
(120,205
|
)
|
|
Total stockholders’ equity
|
|
34,416
|
|
27,305
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
39,801
|
|
$
|
31,082
|
|
Subsequent events
(Note 21)
See accompanying notes
F-3
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands except for share and per share amounts)
|
|
|
Years ended December 31,
|
|
|
|
|
2012
|
|
2011
|
|
|
Revenue
|
|
|
|
|
|
|
Research collaborations and contract revenues
|
|
$
|
—
|
|
$
|
811
|
|
|
License and up-front fees
|
|
—
|
|
2,333
|
|
|
Total revenue
|
|
—
|
|
3,144
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Research and development, net
|
|
15,081
|
|
8,891
|
|
|
General and administrative
|
|
5,394
|
|
4,340
|
|
|
Total operating expenses
|
|
20,475
|
|
13,231
|
|
|
Loss from operations
|
|
(20,475
|
)
|
(10,087
|
)
|
|
Other income, net
|
|
228
|
|
309
|
|
|
Loss before income taxes
|
|
(20,247
|
)
|
(9,778
|
)
|
|
Income tax expense
|
|
39
|
|
—
|
|
|
Net loss and comprehensive loss for the year
|
|
$
|
(20,286
|
)
|
$
|
(9,778
|
)
|
|
Basic and diluted net loss per share
|
|
$
|
(3.00
|
)
|
$
|
(1.98
|
)
|
|
Weighted average number of shares used in computing net loss per share, basic and diluted
|
|
6,762,985
|
|
4,944,184
|
|
See accompanying notes
F-4
Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Additional
|
|
other
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
Stock
|
|
paid-in
|
|
comprehensive
|
|
Accumulated
|
|
stockholders’
|
|
|
|
|
Shares
|
|
Amount
|
|
Warrants
|
|
capital
|
|
income
|
|
deficit
|
|
equity
|
|
|
Balance at January 1, 2011
|
|
808,372
|
|
$
|
1
|
|
$
|
—
|
|
$
|
104,010
|
|
$
|
10,498
|
|
$
|
(110,427
|
)
|
$
|
4,082
|
|
|
Net loss for the year
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(9,778
|
)
|
(9,778
|
)
|
|
Stock-based compensation expense
|
|
—
|
|
—
|
|
—
|
|
940
|
|
—
|
|
—
|
|
940
|
|
|
Costs of reorganization
|
|
—
|
|
—
|
|
—
|
|
(33
|
)
|
—
|
|
—
|
|
(33
|
)
|
|
Issuance of common stock, net of costs
|
|
5,549,895
|
|
5
|
|
—
|
|
27,395
|
|
—
|
|
—
|
|
27,400
|
|
|
Issuance of warrants, net of costs
|
|
—
|
|
—
|
|
6,247
|
|
—
|
|
—
|
|
—
|
|
6,247
|
|
|
Foreign currency translation
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,553
|
)
|
—
|
|
(1,553
|
)
|
|
Balance at
December 31, 2011
|
|
6,358,267
|
|
6
|
|
6,247
|
|
132,312
|
|
8,945
|
|
(120,205
|
)
|
27,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(20,286
|
)
|
(20,286
|
)
|
|
Stock-based compensation expense
|
|
—
|
|
—
|
|
—
|
|
2,009
|
|
—
|
|
—
|
|
2,009
|
|
|
Costs of reorganization
|
|
—
|
|
—
|
|
—
|
|
(15
|
)
|
—
|
|
—
|
|
(15
|
)
|
|
Issuance of common stock, net of costs
|
|
3,593,819
|
|
4
|
|
—
|
|
19,882
|
|
—
|
|
—
|
|
19,886
|
|
|
Issuance of warrants, net of costs
|
|
—
|
|
—
|
|
4,942
|
|
—
|
|
—
|
|
—
|
|
4,942
|
|
|
Exercise of warrants
|
|
5,653
|
|
—
|
|
(36
|
)
|
36
|
|
—
|
|
—
|
|
—
|
|
|
Foreign currency translation
|
|
—
|
|
—
|
|
—
|
|
—
|
|
575
|
|
—
|
|
575
|
|
|
Balance at
December 31, 2012
|
|
9,957,739
|
|
$
|
10
|
|
$
|
11,153
|
|
$
|
154,224
|
|
$
|
9,520
|
|
$
|
(140,491
|
)
|
$
|
34,416
|
|
See accompanying notes
F-5
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
Years ended December 31,
|
|
|
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
Net loss for the year
|
|
$
|
(20,286
|
)
|
$
|
(9,778
|
)
|
|
Non-cash adjustments reconciling net loss to operating cash flows
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
123
|
|
197
|
|
|
Write-off of property and equipment
|
|
—
|
|
77
|
|
|
Gain on disposal of property and equipment
|
|
—
|
|
(30
|
)
|
|
Reversal of provision for lease resiliation
|
|
—
|
|
(52
|
)
|
|
Stock —based compensation expense
|
|
2,009
|
|
940
|
|
|
License and up-front fees
|
|
—
|
|
(2,333
|
)
|
|
Lease incentive
|
|
85
|
|
28
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
Interest and other receivables
|
|
(331
|
)
|
150
|
|
|
Other current assets
|
|
45
|
|
(553
|
)
|
|
Accounts payable and accrued liabilities
|
|
1,434
|
|
(353
|
)
|
|
Change in provision for lease abandonment costs
|
|
—
|
|
(346
|
)
|
|
Unbilled revenue
|
|
—
|
|
409
|
|
|
Cash flows used for operating activities
|
|
(16,921
|
)
|
(11,644
|
)
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
(230
|
)
|
(110
|
)
|
|
Purchases of marketable securities and term deposits
|
|
(29,431
|
)
|
(44,670
|
)
|
|
Security deposit
|
|
(12
|
)
|
61
|
|
|
Restricted cash equivalents and marketable securities
|
|
283
|
|
604
|
|
|
Disposal and maturities of marketable securities and term deposits
|
|
29,716
|
|
24,827
|
|
|
Proceeds from disposal of property and equipment
|
|
—
|
|
77
|
|
|
Cash flows provided by/(used for) investing activities
|
|
326
|
|
(19,211
|
)
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
Issuance of common stock
|
|
20,966
|
|
29,032
|
|
|
Common stock issuance costs
|
|
(1,080
|
)
|
(1,632
|
)
|
|
Issuance of warrants
|
|
5,180
|
|
6,619
|
|
|
Warrant issuance costs
|
|
(238
|
)
|
(372
|
)
|
|
Costs of reorganization
|
|
(15
|
)
|
(33
|
)
|
|
Cash flows provided by financing activities
|
|
24,813
|
|
33,614
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
8,218
|
|
2,759
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
303
|
|
(278
|
)
|
|
Cash and cash equivalents, beginning of year
|
|
9,882
|
|
7,401
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
18,403
|
|
$
|
9,882
|
|
|
Income taxes paid
|
|
$
|
34
|
|
$
|
—
|
|
|
Interest paid
|
|
6
|
|
1
|
|
See accompanying notes
F-6
Table of Contents
1. DESCRIPTION OF BUSINESS
Mirati Therapeutics, Inc. (“Mirati” or the “Company”) is a biopharmaceutical company and its primary business purpose is to develop and commercialize novel therapeutics for cancer and infectious disease. Mirati’s common stock has been listed on the Toronto Stock Exchange since June 29, 2004 under the ticker symbol “MYG”.
MethylGene US Inc., a wholly-owned subsidiary was incorporated in Princeton, New Jersey, USA on December 20, 2011, started business activity in 2012. The Company also has a wholly-owned subsidiary in Canada, MethylGene, Inc., (“MethylGene”). Refer to Note 2 under the heading Basis of presentation for further discussion of the Company’s corporate structure.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These consolidated financial statements include the accounts of the Company, MethylGene US Inc. and MethylGene. All significant inter-company transactions, balances, revenues and expenses have been eliminated upon consolidation.
Mirati was incorporated under the laws of the State of Delaware on April 29, 2013. The Company was created to enter into an arrangement agreement described below.
On May 8, 2013, the Company’s Board of Directors approved and the Company entered into an arrangement agreement with MethylGene. Subject to the terms and conditions of the arrangement agreement, the shareholders of MethylGene will receive one share of the Company’s common stock in exchange for every 50 common shares of MethylGene, which will have the effect of a 50 for 1 reverse split of the common shares pursuant to a court-approved plan of arrangement under Section 192 of the Canada Business Corporations Act. Such transaction is referred to herein as the Arrangement. In addition, all outstanding options and warrants to purchase common shares of MethylGene will become exercisable on a 50-for-1 basis for shares of our common stock, and a proportionate adjustment will be made to the exercise price or conversion price, as applicable. Upon completion of the Arrangement, MethylGene will become the Company’s wholly-owned subsidiary. The shares of the Company’s common stock to be issued at the closing of the Arrangement are being issued in reliance upon the exemption from registration under Section 3(A)(10) of the Securities Act of 1933, as amended. These financial statements are prepared on the basis that the Arrangement has been completed (refer to note 21).
The Arrangement is subject to court and shareholders’ approval and is expected to close on or around June 28, 2013.
Foreign currency translation
Foreign currency transactions are initially recorded by the Company using the exchange rates prevailing at the date of the transaction. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated at the period-end rates of exchange. Non-monetary assets and liabilities are translated at the historical exchange rates. Exchange gains and losses arising from the translation of foreign currency items are included in other income in the consolidated statements of operations and comprehensive loss. The Company recognized net foreign exchange losses of $12 thousand and net foreign exchange gains of $44 thousand in other income in the consolidated statement of operations and comprehensive loss for the years ended December 31, 2012 and 2011 respectively.
Reporting currency
The Company’s functional currency is the Canadian dollar and its reporting currency is the U.S. dollar. For presentation purposes, assets and liabilities are translated to U.S. dollars at exchange rates at the reporting date. Income and expenses are translated to U.S. dollars at the average exchange rate for the period in which the transactions occur. Equity transactions are translated at the spot exchange rates on the date the transactions occur. Exchange rate differences are recognized in a separate component of stockholders’ equity titled accumulated other comprehensive income.
F-7
Table of Contents
Cash and cash equivalents
Cash is comprised of cash on hand and cash equivalents. Cash equivalents are marketable securities comprised of bankers’ acceptances and other short-term investment vehicles that are highly liquid and are readily convertible to known amounts of cash, which are subject to an insignificant risk of change in value, and have a maturity of less than 90 days from the date of purchase.
Marketable securities and term deposits
Marketable securities consist of bankers’
acceptances and other investment vehicles that are highly liquid and are readily convertible to known amounts of cash, which are subject to an insignificant risk of change in value, and have an original maturity of greater than 90 days.
Property and equipment
Property and equipment is stated at historical cost less accumulated depreciation and/or accumulated impairment losses, if any. Historical cost includes expenditures that are directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to net loss during the financial period in which they are incurred.
Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, as follows:
|
Computer equipment
|
|
3 years
|
|
Office and other equipment
|
|
6 years
|
|
Laboratory equipment
|
|
6 years
|
|
Leasehold improvements
|
|
Over the life of the lease
|
On disposal of property and equipment, the cost and related accumulated depreciation and impairments are removed from the financial statements and the net amount, less any proceeds, is included in net loss.
Impairment of property and equipment
The Company assesses its property and equipment for impairment whenever events or changes in circumstances (a “triggering event”) indicate that the carrying value of a group of long-lived assets may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, including its eventual residual value, is compared to the carrying value to determine whether impairment exists. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their estimated fair values. Fair value is estimated through discounted cash flow models to project cash flows from the asset. The Company did not recognize an impairment charge related to its property and equipment during 2012 and 2011.
Stock-based compensation plan
The Company has a stock option compensation plan in which the fair value of stock options granted is determined at the date of the grant using the Black-Scholes option-pricing model and is expensed over the vesting period of the options. Awards with graded vesting are considered multiple awards for fair value measurement and stock-based compensation calculation. In determining the expense, the Company deducts the number of options that are expected to be forfeited at the time of a grant and revises this estimate, if necessary, in subsequent years if actual forfeitures differ from those estimated. Any amounts paid by employees on exercise of the stock options and subsequent purchase of stock are credited to common stock.
Common stock issue costs
Common stock issue costs incurred by the Company are recorded as a reduction of common stock.
F-8
Table of Contents
Revenue recognition
The Company recognizes revenue from research collaboration agreements and licensing arrangements.
Revenues from research collaboration agreements recognized as separate units of accounting are recognized as the contracted services are performed, in accordance with the terms of the specific agreements and when collection is reasonably assured.
Revenue recognized but not invoiced to partners is recorded as unbilled revenue. Combined elements, including up-front payments for the use of technology where further services are to be provided or fees received on the signing of research agreements, are recognized over the period of performance of the related activities. As such, up-front licensing revenue is deferred and recognized over the term during which the Company maintains substantive contractual obligations and amounts received in advance of recognition of revenue are reported as deferred revenue.
In the event that the period of the substantive obligations changes, the appropriate adjustment will be made to the amortization of deferred revenue.
Research collaboration agreements and licensing arrangements may include multiple elements. Revenue arrangements with multiple elements are reviewed in order to determine whether the multiple elements can be divided into separate units of accounting. If separable, the consideration received is allocated among the separate units of accounting based on their relative fair values, and the applicable revenue recognition criteria are applied to each of the separate units. Otherwise, the applicable revenue recognition criteria are applied to combined elements as a single unit of accounting.
The Company applies a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows: (i) vendor-specific objective evidence (“VSOE”) of fair value, (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of the selling price (“ESP”). Where VSOE and TPE are not available, the Company’s process for determining ESP includes multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable.
The Company executes collaborative agreements which may contain milestone payments. Revenues from milestones, if they are considered substantive, are recognized upon successful accomplishment of the milestones. Determining whether a milestone is substantive involves judgment, including an assessment of its involvement in achieving the milestones and whether the amount of the payment is commensurate to its performance. If not considered substantive, milestones are initially deferred and recognized over the remaining performance obligation.
Investment tax credits
The Company’s accounts include claims for investment tax credits (“ITCs”) relating to scientific research and experimental development activities of the Company. The qualification and recording of these activities for investment tax credit purposes are established by the Canadian federal and Provincial Tax Acts and are subject to audit by the taxation authorities. Refundable ITCs are reflected as reductions of expenses or reductions of the cost of the assets to which they relate when there is reasonable assurance that the assistance will be received and all conditions have been complied with. The non-refundable ITCs are carried forward to a time and will be recognized when it is more likely than not that the Company will become subject to Canadian federal taxes, at which time, said ITCs are applied as a reduction of tax expense.
Research and development expenses
Research and development expenditures are charged to net loss in the period in which they are incurred and comprise of the following types of costs incurred in performing research and development activities and those incurred in connection with research and development revenue: salaries and benefits, allocated overhead and occupancy costs, clinical trial and related clinical manufacturing costs, contract services, and other outside costs.
Income taxes
Income taxes have been accounted for using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable
F-9
Table of Contents
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if, based upon the weight of all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. For uncertain tax positions that meet “a more likely than not” threshold, the Company recognizes the benefit of uncertain tax positions in the consolidated financial statements.
Sales tax
Revenues, expenses and assets are recognized net of the amount of sales tax, except where the sales tax incurred on a purchase of assets or services that is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable. The net amount of sales tax recoverable from, or payable to the taxation authority is included as part of other current assets or accounts payable in the Consolidated Balance Sheet.
Net loss per share
Loss per share is calculated using the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is calculated giving effect to the exercise of all dilutive factors, and assumes that any proceeds that could be obtained upon the exercise of options would be used to purchase shares of common stock at the average market price during the year. Common stock equivalents from stock options and warrants are excluded from the calculation of net loss per share for all periods presented because the effect is anti-dilutive.
Financial instruments
Fair value
Cash equivalents, marketable securities and restricted cash equivalents and marketable securities are held for trading as they are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the investments is provided internally on that basis to key management personnel. Unrealized gains/losses are included in other income in the statement of operations and comprehensive loss. Transaction costs are expensed. The amortization of acquisition premiums and discounts is recorded as a deduction from or addition to interest earned on those financial assets, respectively.
Other financial assets
Other financial assets are initially recorded at fair value and are subsequently measured at amortized cost using the effective interest rate method less impairment. The Company’s other financial assets consist of interest receivable, other receivables and security deposits. The carrying amount of these financial assets is a reasonable approximation of their fair value due to the short-term nature of these financial assets.
Other financial liabilities
All financial liabilities are recognized initially at fair value and subsequently measured at amortized cost. The Company’s financial liabilities include accounts payable and accrued liabilities. The carrying value of the accounts payable and accrued liabilities approximates their fair value due to the short-term nature of these financial liabilities.
Interest Income
Interest income earned on cash equivalents and marketable securities balances is recognized on an accrual basis as earned and reported in other income in the statement of operations and comprehensive loss. The Company recognized net interest income of $0.2 million and $0.3 million for the years ended December 31, 2012 and 2011, respectively.
Use of Estimates
The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts or revenues and expenses during the reporting period.
Reported amounts and note disclosures reflect the overall economic conditions that are most likely to occur and anticipated measures management intends to take. Actual results could differ materially from those estimates. Estimates and assumptions are reviewed quarterly. All revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
F-10
Table of Contents
3. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2011, in an effort to assist in the convergence of U.S. GAAP and International Financial Reporting Standards (“IFRS”), the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update related to “Fair Value Measurements: Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs.” The standard expands existing disclosure requirements for fair value measurements and makes certain other amendments, including a requirement to categorize, by level in the fair value hierarchy, items that are required to be disclosed, but not measured, at fair value. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied prospectively. The Company adopted this standard as of January 1, 2012 and its adoption did not have a material effect on its consolidated financial statements.
4. COLLABORATION AGREEMENTS
Taiho Pharmaceutical Co., Ltd.
In October 2003, the Company entered into a license, research and development collaboration agreement with Taiho Pharmaceutical Co. Ltd. (Taiho) for mocetinostat, its clinical candidate, and its small molecule HDAC inhibitor program for oncology for Japan, South Korea, Taiwan, and China. Under the terms of the agreement, the Company received an up-front license fee, equity investment and a contract research payment of $3.8 million. In addition, the Company received $9.3 million for preclinical and clinical funding through January 2006 and $2.0 million for milestone payments in 2006 resulting in total proceeds of $15.0 million. In addition, the Company may receive milestone payments based on successful development, regulatory approval, and commercialization of an HDAC oncology product, and will receive royalties based on sales of HDAC oncology products in these territories. The duration of the agreement is subject to future events. Termination can occur due to breach which is not cured within 30 days; due to insolvency; or upon 30 days written notice from Taiho for any reason; or when the royalty term for all licensed products ends. There was no revenue recognized from this agreement in 2012. In the year ended December 31, 2011 the Company recognized the remaining deferred revenue of $420 thousand to license and up-front fees as the Company determined to stop the development of mocetinistat in 2011 which ended its substantive obligations in connection to this program.
Otsuka Pharmaceutical Co. Ltd.
On March 25, 2008, the Company entered into a worldwide research collaboration and license agreement with Otsuka Pharmaceutical Co. Ltd. (Otsuka) for the development of novel, small molecule, kinase inhibitors for local delivery and treatment of ocular diseases, excluding cancer. The Company was responsible for the design, characterization and initial screening of kinase inhibitors and determining which compounds to synthesize. Otsuka was responsible for funding efficacy and toxicity studies, as well as preclinical and clinical development of compounds. Otsuka is also responsible for the global commercialization of any resulting product. Under the terms of the agreement, the Company received an up-front license fee of $2.0 million. There was no revenue recognized from this agreement in 2012. In 2011, the Company recognized $1.7 million revenue from the amortization of the up-front license fee. The Company may receive additional payments based on successful development, regulatory, commercialization and sales milestones and will receive royalties on net sales. Otsuka provided the Company with $1.9 million in research funding for the initial 18 months of the research collaboration which was then extended on three occasions: September 10, 2009; April 23, 2010 and June 30, 2010. The research component of the agreement ended on June 30, 2011, subsequent to which the Company no longer has any significant ongoing obligations. The Company received a total of $4.5 million in research funding from the research component of this agreement. In October 2009, Otsuka made, in relation to the terms of the agreement, a $1.5 million equity investment in the Company’s shares of common stock at a share price of CND$21.30 (or $20.27, as converted) in which was a 20% premium over the five-day volume-weighted average closing price at the date of the transaction. Total proceeds in connection with this agreement, including the equity component amounts to $8.0 million. On June 30, 2010, the collaboration agreement was amended to, among certain other changes, provide Otsuka the rights to synthesize a limited number of compounds predetermined by the Company. A lead molecule was selected in June 2011 for further development. Otsuka is currently advancing the lead compound through late preclinical development. The duration of the agreement is subject to future events. Termination can occur by a material breach by either party which is not cured within up to 120 days; or in the event Otsuka has not exercised its right to designate at least one Selected Compound (as defined in the agreement) during the Selection Period (as defined in the agreement); or Otsuka may at its option, terminate the agreement by giving the Company 90 days’ prior written notice after the first two years of the agreement. Termination of Otsuka’s Rights, in the event of a breach by Otsuka in one of its territories, will not affect its rights in non-breached territories.
F-11
Table of Contents
EnVivo Pharmaceuticals
In March 2004, the Company entered into a proof of concept and option agreement with EnVivo Pharmaceuticals, Inc. (EnVivo) focusing on the treatment and prevention of neurodegenerative diseases, to exploit its HDAC inhibitors in diseases such as Huntington’s, Parkinson’s, and Alzheimer’s. On February 7, 2005 the Company signed an exclusive research, collaboration and license agreement. During the year ended December 31, 2005, EnVivo paid the Company $600 thousand for research, plus a $500 thousand license fee for a total of $1.1 million. As part of this agreement, EnVivo received a warrant to purchase 1,050 shares of common stock of the Company at an exercise price of CND$214.30 (or $170.62, as converted). The warrant expired on March 4, 2007. On February 6, 2008, the Company exercised its right to opt-out of the program. As a result, the Company has granted EnVivo exclusive rights to its HDAC inhibitors for neurodegenerative diseases and the Company ceased research and development funding for this program. The Company will receive royalties on net sales of any approved compound and will share in any sublicense income from future partnerships that EnVivo may enter into. The duration of the agreement is subject to future events. Termination can occur due to a material breach which is not cured within 30 days; or insolvency; or the agreement terminates upon mutual agreement by the parties or when no product is under development or being commercialized. We did not recognize any revenues in connection with this agreement in either 2012 or 2011. We do not have any significant ongoing obligations in connection with this agreement.
5. CASH AND CASH EQUIVALENTS
|
|
|
December 31,
|
|
|
(in thousands)
|
|
2012
|
|
2011
|
|
|
Cash at bank and on hand
|
|
$
|
2,823
|
|
$
|
1,287
|
|
|
Bankers’ acceptances
|
|
1,369
|
|
5,501
|
|
|
Treasury bills
|
|
5,026
|
|
492
|
|
|
Promissory notes
|
|
6,020
|
|
639
|
|
|
Commercial papers
|
|
753
|
|
1,963
|
|
|
Term deposit notes
|
|
2,714
|
|
—
|
|
|
|
|
18,705
|
|
9,882
|
|
|
Less: restricted cash equivalents
|
|
(302
|
)
|
—
|
|
|
|
|
$
|
18,403
|
|
$
|
9,882
|
|
F-12
Table of Contents
6. MARKETABLE SECURITIES AND TERM DEPOSITS
|
|
|
December 31,
|
|
|
(in thousands)
|
|
2012
|
|
2011
|
|
|
Bankers’ acceptances issued in Canadian currency, earning interest at 1.20%
(1.15% in 2011)
and maturing on February 19, 2013
(
on various dates from May 28, 2012 to August 29, 2012 in 2011
).
|
|
$
|
72
|
|
$
|
644
|
|
|
Commercial papers issued in Canadian currency, earning interest at rates ranging from 1.01% to 1.12% (0.85% to 1.01% in 2011) and maturing on various dates from February 21, 2013 to May 14, 2013 (March 29, 2012 to April 12, 2012 in 2011).
|
|
5,026
|
|
1,081
|
|
|
Treasury bills issued in Canadian currency, earning interest at rates ranging from 0.85% to 0.90% and maturing on various dates from January 18, 2012 to June 13, 2012
.
|
|
—
|
|
2,282
|
|
|
Guaranteed investment certificates issued in Canadian currency, earning interest at rates ranging from 1.15% to 1.35% (1.25% to 1.30% in 2011) and maturing on various dates from January 7, 2013 to September 16, 2013 (April 12, 2012 to November 26, 2012 in 2011).
|
|
6,518
|
|
12,840
|
|
|
Term deposits issued in Canadian currency, earning interest at rates ranging from 1.30% to 1.33% (1.22% to 1.30% in 2011) and maturing on various dates from March 18, 2013 to April 15, 2013 (January 11, 2012 to February 1, 2012 in 2011)
.
|
|
7,036
|
|
2,360
|
|
|
|
|
18,652
|
|
19,207
|
|
|
Less restricted
marketable securities
|
|
(72
|
)
|
(644
|
)
|
|
|
|
$
|
18,580
|
|
$
|
18,563
|
|
7. RESTRICTED CASH EQUIVALENTS AND MARKETABLE SECURITIES
In connection with obligations arising from an arrangement that became effective on May 19, 2010, the Company has a a letter of guarantee that is collateralized by a charge on a specific security in the amount of $302 thousand and $590 thousand included in restricted cash
equivalents and marketable securities
at December 31, 2012 and 2011, respectively.
The Company has established a letter of guarantee in relation to credit limits on its credit cards that is collateralized by a charge on a specific security in the amount of $72 thousand and $54 thousand included in restricted cash
equivalents and marketable securities
at December 31, 2012 and 2011, respectively.
Restricted cash
equivalents and marketable securities
are comprised of cash equivalents and marketable securities as follows (in thousands):
|
|
|
December 31,
|
|
|
|
|
2012
|
|
2011
|
|
|
Cash equivalents
|
|
$
|
302
|
|
$
|
—
|
|
|
Marketable securities
|
|
72
|
|
644
|
|
|
Less:
|
|
374
|
|
644
|
|
|
Current portion
|
|
(302
|
)
|
(295
|
)
|
|
|
|
$
|
72
|
|
$
|
349
|
|
F-13
Table of Contents
8. INTEREST AND OTHER RECEIVABLES
|
|
|
December 31,
|
|
|
(in thousands)
|
|
2012
|
|
2011
|
|
|
Other receivables
|
|
$
|
425
|
|
$
|
60
|
|
|
Interest receivable
|
|
82
|
|
112
|
|
|
|
|
$
|
507
|
|
$
|
172
|
|
9. OTHER CURRENT ASSETS
|
|
|
December 31,
|
|
|
(in thousands)
|
|
2012
|
|
2011
|
|
|
Refundable research and development tax credits
|
|
$
|
593
|
|
$
|
1,104
|
|
|
Commodity taxes
|
|
165
|
|
176
|
|
|
Prepaid expenses
|
|
779
|
|
268
|
|
|
|
|
$
|
1,537
|
|
$
|
1,548
|
|
Research and development tax credits include a receivable of $311 thousand from 9222-9129 Québec Inc. at December 31, 2011.
10. SECURITY DEPOSITS
Security deposits were $67 thousand and $54 thousand at December 31, 2012 and 2011, respectively and are comprised of cash held in escrow that serves to guarantee certain obligations reflected in an employment contract and deposits issued to the landlords in Canada and the United States.
11. PROPERTY AND EQUIPMENT
|
|
|
December 31,
|
|
|
(in thousands)
|
|
2012
|
|
2011
|
|
|
Computer equipment
|
|
$
|
1,421
|
|
$
|
1,324
|
|
|
Office and other equipment
|
|
89
|
|
66
|
|
|
Laboratory equipment
|
|
1,794
|
|
1,769
|
|
|
Leasehold improvements
|
|
56
|
|
52
|
|
|
|
|
3,360
|
|
3,211
|
|
|
Less: Accumulated depreciation
|
|
(3,027
|
)
|
(2,992
|
)
|
|
|
|
$
|
333
|
|
$
|
219
|
|
Depreciation expenses of $97 thousand and $26 thousand were included in research and development expenses and in general and administrative expenses, respectively, for the year ended December 31, 2012
.
Depreciation expenses of $186 thousand and $11 thousand were included in research and development expenses and in general and administrative expenses, respectively for the year ended December 31, 2011.
12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
December 31,
|
|
|
|
|
2012
|
|
2011
|
|
|
Accounts payable
|
|
$
|
1,752
|
|
$
|
767
|
|
|
Accrued expenses
|
|
2,686
|
|
2,457
|
|
|
Accrued compensation and benefits
|
|
834
|
|
525
|
|
|
|
|
$
|
5,272
|
|
$
|
3,749
|
|
F-14
Table of Contents
13. STOCKHOLDERS’ EQUITY
Warrants — issued and outstanding
|
Issue date
|
|
Expiry date
|
|
Exercise price
|
|
Number of warrants
|
|
|
April 4, 2011
|
|
April 4, 2016
|
|
$
|
7.71
|
|
1,655,314
|
|
|
November 21, 2012
|
|
November 21, 2017
|
|
$
|
8.73
|
|
1,078,145
|
|
On November 21, 2012, the Company completed a private placement resulting in gross proceeds of $26.1 million. Under the terms of the offering the Company issued a total of 3,593,819 units at a subscription price of CND$7.25 (or $7.28, as converted), each unit consisting of one share of common stock and thirty one-hundredths (0.30) of a common stock purchase warrant, exercisable for a period of five years from the date of issuance at an exercise price of CND$8.70 (or $8.73, as converted) (representing 120% of the subscription price). The issuance costs of the units amounted to $1.3 million. The net proceeds were allocated to common stock and warrants based on their relative fair values.
The fair value of the warrants issued on November 21, 2012 was estimated at the date of grant using the Black-Scholes option pricing model and the following assumptions: weighted average risk-free interest rate of 1.34%; dividend yield of nil; volatility factor of 115.5% and the expected life of the warrants of five years. The fair value allocated to the warrants amounted to $4.9 million and $19.9 million was recorded as an increase to common stock, net of costs.
On August 16, 2012, 9,654 common stock purchase warrants issued on April 4, 2011 in conjunction with the private placement were exercised. The number of shares issued in the cashless exercise transaction consisted of 5,653 shares of common stock. The fair value of the exercised warrants estimated at the date of grant using the Black-Scholes option pricing model was $36.
On April 4, 2011, the Company completed a private placement resulting in gross proceeds of $35.7 million. Under the terms of the offering, the Company issued 5,549,895 units including 123,121 units relating to the conversion of the convertible debt, which was issued on March 24, 2011 and which converted automatically on closing, at a subscription price of CND$6.22 (or $6.42, as converted); each unit consisting of one share of common stock and thirty one-hundredths (0.30) of a share of common stock purchase warrant, exercisable for a period of five years from the date of issuance at an exercise price of CND$7.46 (or $7.71 as converted) (representing 120% of the market price). The issuance costs of the units amounted to $2.0 million. The net proceeds were allocated to common stock and warrants based on their relative fair values.
The fair value of the warrants issued on April 4, 2011 was estimated at the date of grant using the Black-Scholes option pricing model and the following assumptions: weighted average risk-free interest rate of 2.76%; dividend yield of nil; volatility factor of 86.2% and the expected life of the warrants of five years. The fair value allocated to the warrants amounted to $6.2 million and $27.4 million was recorded as an increase to common stock.
Stock-based compensation plan
The Company has in place a stock option plan (the “Plan”) for the benefit of employees, directors, officers and consultants of the Company, which was amended by resolution of the shareholders of the Company on September 17, 2002, April 23, 2004, April 19, 2007, June 14, 2011 and most recently on June 27, 2012. The Plan was amended to increase the authorized share options available to be purchased to 700,000 from 240,000. As of December 31, 2012, there were 137,628 stock options available to be issued.
Most options vest over a period of four years, 20% on the date of award and 20% on each of the next four anniversary dates. The vesting period of the stock options is at the discretion of the Company’s Board of Directors. The exercise price of any option granted under the Plan is based on the fair market value of common stock, determined by the closing sale price of the shares of common stock on the Toronto Stock Exchange, on the day before the stock options are granted, or if no sale is reported on that day, the “Market price” shall be deemed to be the volume weighted average trading price for the shares of common stock for the five days preceding the date of grant during which the shares of common stock were traded. The term of an option will not exceed ten years from the date of the grant and all options awarded after March 2005 have a five-year term.
F-15
Table of Contents
The changes to the number of stock options granted by the Company and their weighted average exercise price are as follows:
|
|
|
2012
|
|
2011
|
|
|
|
|
Number of
options
|
|
Weighted
average
exercise
price
|
|
Number of
options
|
|
Weighted
average
exercise
price
|
|
|
Balance, beginning of year
|
|
177,364
|
|
$
|
26.50
|
|
43,036
|
|
$
|
130.00
|
|
|
Granted
|
|
532,304
|
|
11.00
|
|
157,333
|
|
17.50
|
|
|
Forfeited
|
|
(147,112
|
)
|
15.00
|
|
(20,251
|
)
|
145.00
|
|
|
Expired
|
|
(2,741
|
)
|
167.00
|
|
(2,754
|
)
|
181.50
|
|
|
Exercised
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Balance, end of year
|
|
559,815
|
|
15.00
|
|
177,364
|
|
26.50
|
|
|
Options exercisable, end of year
|
|
159,017
|
|
$
|
22.50
|
|
59,454
|
|
$
|
47.50
|
|
The Company recorded stock-based compensation expense of $0.8 million and $1.2 million in research and development expenses and general and administrative expenses, respectively during the year ended December 31, 2012. The Company recorded stock-based compensation expense of $0.3 million and $0.7 million in research and development expenses and general and administrative expenses, respectively during the year ended December 31, 2011.
In the years ended December 31, 2012 and 2011, no stock-based compensation expense was capitalized and there were no recognized tax benefits associated with the stock-based compensation charge.
The fair value of options granted is estimated at the date of grant using the Black-Scholes option pricing model and the following assumptions:
|
|
|
Year ended December 31,
|
|
|
Weighted average
|
|
2012
|
|
2011
|
|
|
Risk-free interest rate
|
|
1.18
|
%
|
2.04
|
%
|
|
Dividend yield
|
|
0
|
%
|
0
|
%
|
|
Volatility factor
|
|
116.43
|
%
|
116.79
|
%
|
|
Expected life in years
|
|
4.42
|
|
4.27
|
|
The estimated fair value of the options is amortized to expense over the option’s vesting period. The weighted average fair value of stock options granted under the Black-Scholes option pricing model and the above assumptions amounted to $8.50 and $13.50 in the year ended December 31, 2012 and 2011, respectively. The expected life of the options is based on historical data and current expectation and is not necessarily indicative of exercise patterns that may occur. Volatility is determined based on historical share price history, over a period similar to the expected life of the options, which may also not be necessarily indicative of the actual outcome. The risk-free interest rate is the rate for periods equal to the expected term of share option based on the Canadian Treasury yield in effect at the time of grant.
|
Vested and unvested expected to vest at
December 31, 2012
|
|
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term (in years)
|
|
|
Outstanding at December 31, 2012
|
|
559,815
|
|
$
|
15.00
|
|
4.34
|
|
|
Exercisable at December 31, 2012
|
|
159,017
|
|
22.50
|
|
3.94
|
|
|
|
|
|
|
|
|
|
|
|
The total compensation cost not yet recognized as of December 31, 2012 related to non-vested option awards was $2.4 million which will be recognized over a weighted-average period of 2.13 years.
F-16
Table of Contents
14. TAXATION
Tax expense
The income tax expense reported differs from the amount of the tax expense (recovery) computed by applying Canadian federal and the applicable provincial statutory rates to loss before income taxes. The Canadian combined statutory rates were 26.90% in 2012 and 28.40% in 2011. The reasons for the differences and the related tax effects are as follows (in thousands):
|
|
|
For the years ended
December 31,
|
|
|
|
|
2012
|
|
2011
|
|
|
Statutory federal and provincial taxes
|
|
$
|
(5,446
|
)
|
$
|
(2,777
|
)
|
|
Increase (decrease) in taxes recoverable resulting from:
|
|
|
|
|
|
|
Effect of change in valuation allowance
|
|
5,145
|
|
2,829
|
|
|
Non-deductible stock-based compensation
|
|
539
|
|
267
|
|
|
Non-deductible expenses for tax purposes
|
|
3
|
|
2
|
|
|
Tax credits not taxable in Quebec
|
|
(70
|
)
|
(106
|
)
|
|
Share issue costs
|
|
(183
|
)
|
(112
|
)
|
|
Tax benefits on capitalized expenses
|
|
(1
|
)
|
(24
|
)
|
|
Effect of foreign jurisdiction tax expense
|
|
39
|
|
—
|
|
|
Other differences
|
|
13
|
|
(79
|
)
|
|
Income tax expense
|
|
$
|
39
|
|
$
|
—
|
|
The provision for the income tax expense, which relates to the United States, are as follows and relate to the wholly-owned subsidiary MethylGene US Inc. (in thousands):
|
|
|
For the years ended
December 31,
|
|
|
|
|
2012
|
|
2011
|
|
|
Current income tax expense
|
|
|
|
|
|
|
Current period
|
|
$
|
39
|
|
$
|
—
|
|
|
Income tax expense
|
|
$
|
39
|
|
$
|
—
|
|
Deferred tax
Deferred tax relates to the following (in thousands):
|
|
|
December 31,
|
|
|
Deferred tax asset
|
|
2012
|
|
2011
|
|
|
Assets
|
|
|
|
|
|
|
Tangible and intangible depreciable assets
|
|
$
|
853
|
|
$
|
833
|
|
|
Inventory
|
|
757
|
|
474
|
|
|
Provisions
|
|
30
|
|
8
|
|
|
Financing fees
|
|
628
|
|
414
|
|
|
Net operating loss carry forwards
|
|
6,883
|
|
3,490
|
|
|
Scientific research and experimental development expenditures
|
|
4,245
|
|
2,406
|
|
|
Deferred tax assets
|
|
13,396
|
|
7,625
|
|
|
Valuation allowance
|
|
(13,396
|
)
|
(7,625
|
)
|
|
Net deferred tax assets
|
|
$
|
—
|
|
$
|
—
|
|
Total valuation allowance increased by $5.8 million for the year ended December 31, 2012. The Company has evaluated positive and negative evidence bearing upon the ability of its deferred tax assets to be realized. The Company has determined that it is more likely than not that it will not recognize the benefits of its federal and provincial deferred tax assets and, as a result, has established a full valuation allowance against its deferred tax assets as of December 31, 2012.
F-17
Table of Contents
For Canadian I.C. Federal income tax purposes, the Company’s Canadian federal scientific research and experimental development expenditures amounted to $15.1 million and $8.5 million for the years ended December 31, 2012 and 2011, respectively and for provincial income tax purposes amounted to $16.6 million and $9.4 million for the years ended December 31, 2012 and 2011, respectively. These expenditures are available to reduce future taxable income and have an unlimited carry forward period. Scientific research and development expenditures are subject to verification by the taxation authorities, and accordingly, these amounts may vary by a material amount.
The Company’s net operating loss carry forwards (“NOLs”) for Canadian federal income tax purposes, were $25.5 million and $13.0 million at December 31, 2012 and 2011, respectively. The Company’s NOLs were $25.7 million and $13.1 million at December 31, 2012 and 2011, respectively, for provincial tax purposes.
The NOLs are available to offset future taxable income from Canadian federal and provincial tax sources and the tax benefits of which have not been recognized in the consolidated financial statements. The NOLs expire as follows (in thousands):
|
|
|
Federal
|
|
Provincial
|
|
|
Expires in:
|
|
|
|
|
|
|
2030
|
|
$
|
5,907
|
|
$
|
5,984
|
|
|
2031
|
|
7,059
|
|
7,066
|
|
|
2032
|
|
12,547
|
|
12,632
|
|
|
|
|
$
|
25,513
|
|
$
|
25,682
|
|
The Company’s Canadian operations have been audited for provincial tax purposes up to and including December 31, 2009. For Canadian federal tax purposes, the Company remains subject to audit for the December 31, 2008 and subsequent taxation years. Where taxation years remain open, the Company considers it reasonably possible that issues may be raised or tax positions agreed to with the taxation authorities, which may result in increases or decreases of the balance of non-refundable ITCs and NOLs. However, an estimate of such increases and decreases cannot be currently made.
A reconciliation of the beginning and ending gross amounts of unrecognized tax positions adopted by the Company are as follows (in thousands):
|
|
|
Federal
|
|
Provincial
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
|
Unrecognized tax positions, beginning of year
|
|
$
|
157
|
|
$
|
155
|
|
$
|
3
|
|
$
|
1
|
|
|
Gross decrease — current period tax positions
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Gross increase — current period tax positions
|
|
2
|
|
2
|
|
2
|
|
2
|
|
|
Unrecognized tax positions, end of year
|
|
$
|
159
|
|
$
|
157
|
|
$
|
5
|
|
$
|
3
|
|
The Company had no accrual for interest or penalties on tax matters as at December 31, 2012 and 2011 and the Company had no ongoing tax audits as of December 31, 2012.
15. INVESTMENT TAX CREDITS
The Company is eligible to claim Canadian federal and provincial ITCs for eligible scientific research and development expenditures. The Company records ITCs based on management’s best estimates of the amount to be recovered and ITCs claimed are subject to audit by the taxation authorities and accordingly, may vary by a material amount.
The Company recorded provincial refundable ITCs as a reduction of research and development expenditures of $1.7 million (including a $1.1 million favorable adjustment resulting from a statutory audit), and $0.9 million for the years ended December 31, 2012 and 2011, respectively.
The Company’s non-refundable Canadian federal ITCs amount to $3.0 million and $1.8 million at December 31, 2012 and 2011, respectively, and relate to scientific research and development expenditures, which may be utilized to reduce Canadian federal income taxes payable in future years. The benefits of the non-refundable Canadian federal ITCs have not been recognized in the financial statements and will be recorded as reduction of tax expense when realized.
F-18
Table of Contents
The non-refundable investment tax credits expire as follows (in thousands):
|
|
|
Federal ITC
|
|
|
Expires in:
|
|
|
|
|
2030
|
|
$
|
760
|
|
|
2031
|
|
1,000
|
|
|
2032
|
|
1,266
|
|
|
|
|
$
|
3,026
|
|
16. NET LOSS PER SHARE
Basic and diluted
Net loss per share is calculated by dividing the net loss of the Company by the weighted average number of shares of common stock outstanding during the year.
|
|
|
Year ended December 31,
|
|
|
(in thousands except for share and per share amounts)
|
|
2012
|
|
2011
|
|
|
Net loss and comprehensive loss for the year
|
|
$
|
(20,286
|
)
|
$
|
(9,778
|
)
|
|
Weighted average number of shares of common stock
|
|
6,762,985
|
|
4,944,184
|
|
|
Basic and diluted net loss per share
|
|
$
|
(3.00
|
)
|
$
|
(1.98
|
)
|
Common stock equivalents from warrants and options were excluded from weighted average number of shares of common stock outstanding for the purpose of calculating diluted net loss per share, because the effect is anti-dilutive.
17. COMMITMENTS AND CONTINGENCIES
(i) Operating leases
The Company is committed under operating leases for the lease of its premises and certain office equipment. Future minimum annual payments required over the next three years are as follows (in thousands):
|
|
|
Minimum
Lease
Payments
|
|
|
2013
|
|
$
|
203
|
|
|
2014
|
|
153
|
|
|
2015
|
|
17
|
|
|
|
|
$
|
373
|
|
During the year ended December 31, 2011, the Company entered into a lease agreement with the landlord for a 36-month term from September 1, 2011 to August 31, 2014, which included an element of free rent that will be amortized over the term of the lease. Expense of $85 thousand and $28 thousand was recorded in the consolidated statement of operations and comprehensive loss for the years ended December 31, 2012 and 2011, respectively.
The Company entered into a lease agreement in Princeton, New Jersey regarding MethylGene US Inc. The lease term is 36 months which started May 1, 2012 and will end April 30, 2015.
Lease expense was $305 thousand and $190 thousand for the years ended December 31, 2012 and 2011, respectively.
F-19
Table of Contents
(ii) Research and development contracts
The Company is committed to several ongoing clinical development supplier contracts. Future commitments relating to these contracts at December 31, 2012 amounted to approximately $392 thousand which is expected to be paid in 2013.
(iii) Other guarantees
The Company regularly enters into agreements with third parties that include indemnification provisions that are customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of third-party intellectual property claims or damages arising from the use of the intellectual property. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions is unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. The Company has granted indemnifications to corporate partners, contract research organizations, contract manufacturers and clinical trial sites and others.
Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.
18. SEGMENT INFORMATION
The Company operates in a single business segment from one facility in Canada and one in the USA.
The Company’s revenues were derived from collaboration partners located as follows (in thousands):
|
|
|
Year ended December 31,
|
|
|
|
|
2012
|
|
2011
|
|
|
United States
|
|
$
|
—
|
|
$
|
3
|
|
|
Japan
|
|
—
|
|
3,141
|
|
|
|
|
$
|
—
|
|
$
|
3,144
|
|
The Company’s long lived assets are located as follows (in thousands):
|
|
|
Year ended December 31,
|
|
|
|
|
2012
|
|
2011
|
|
|
Canada
|
|
$
|
299
|
|
$
|
219
|
|
|
United States
|
|
34
|
|
—
|
|
|
|
|
$
|
333
|
|
$
|
219
|
|
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following tables present information about assets that are measured at fair value on a recurring basis for the periods presented and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value.
In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.
Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves.
Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
F-20
Table of Contents
There were no transfers in or out of Level 1 or Level 2 measurements for the periods presented as follows (in thousands):
|
|
|
December 31,
2012
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
Cash equivalents
|
|
$
|
15,580
|
|
$
|
—
|
|
$
|
15,580
|
|
$
|
—
|
|
|
Marketable securities and term deposits
|
|
$
|
18,580
|
|
$
|
—
|
|
$
|
18,580
|
|
$
|
—
|
|
|
Restricted cash equivalents and marketable securities
|
|
$
|
374
|
|
$
|
—
|
|
$
|
374
|
|
$
|
—
|
|
|
|
|
December 31,
2011
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
Cash equivalents
|
|
$
|
8,595
|
|
$
|
—
|
|
$
|
8,595
|
|
$
|
—
|
|
|
Marketable securities and term deposits
|
|
$
|
18,563
|
|
$
|
—
|
|
$
|
18,563
|
|
$
|
—
|
|
|
Restricted cash equivalents and marketable securities
|
|
$
|
644
|
|
$
|
—
|
|
$
|
644
|
|
$
|
—
|
|
20. CONCENTRATION OF CREDIT RISK
The maximum exposure to credit risk of the Company at December 31, 2012 is the carrying value of its cash and cash equivalents, marketable securities, restricted cash equivalents and marketable securities, interest receivable, other receivables and security deposits. The Company has an investment policy that monitors the safety and preservation of investments made, which requires them to be highly rated and which limits the amount invested in any one issuer. The investments are reviewed quarterly by the Audit Committee.
The Company also manages credit risk by maintaining bank accounts with reputable banks and financial institutions and investing only in investments from banking, governmental or highly rated companies with securities that are traded on active markets and are capable of immediate liquidation, subject to some minor market price variations upon sale.
Cash and cash equivalents and restricted cash are comprised of bankers’ acceptances, treasury bills, commercial papers, promissory notes and term deposits at December 31, 2012 (bankers’ acceptances, treasury bills, commercial papers and promissory notes at December 31, 2011). Cash and cash equivalents and restricted cash as of December 31, 2012 and 2011are held in two Canadian chartered banks and are as follows (in thousands):
|
|
|
December 31,
|
|
|
|
|
2012
|
|
2011
|
|
|
Cash and cash equivalents
|
|
$
|
18,403
|
|
$
|
9,882
|
|
|
Restricted cash equivalents and marketable securities
|
|
374
|
|
644
|
|
|
|
|
$
|
18,777
|
|
$
|
10,526
|
|
Management has determined that other receivables are collectible and has not recorded a provision against these amounts.
The Company continues to have ongoing license and collaboration agreements with three partners. As per the term of these agreements there were no revenues or expenses with these partners in 2012. In 2011 two corporate partners accounted for 78% and 11%, of revenues and expenses, respectively.
21. SUBSEQUENT EVENTS
For its financial statements as of December 31, 2012 and for the year then ended, the Company evaluated subsequent events through May 8, 2013, the date on which those financial statements were originally available to be issued.
The Company regularly reviews its functional currency. Based on a detailed analysis of projected expenses the Company has determined that it will transition to the United States dollar as its functional currency effective January 1, 2013.
F-21
Table of Contents
Mirati was incorporated under the laws of the State of Delaware on April 29, 2013. The Company was created to enter
into an arrangement agreement described below.
On May 8, 2013, the Company’s Board of Directors approved and the Company entered into an arrangement agreement with MethylGene. Subject to the terms and conditions of the arrangement agreement, the shareholders of MethylGene will receive one share of the Company’s common stock in exchange for every 50 common shares of MethylGene, which will have the effect of a 1 for 50 reverse split of the common shares pursuant to a court-approved plan of arrangement under Section 192 of the Canada Business Corporations Act. Such transaction is referred to herein as the Arrangement.
In addition, all outstanding options and warrants to purchase common shares of MethylGene will become exercisable on a 50-for-1 basis for shares of our common stock, and a proportionate adjustment will be made to the exercise price or conversion price, as applicable.
Upon completion of the Arrangement, MethylGene will become the Company’s wholly-owned subsidiary. The shares of the Company’s common stock to be issued at the closing of the Arrangement are being issued in reliance upon the exemption from registration under Section 3(A)(10) of the Securities Act of 1933, as amended.
The Arrangement is subject to court and shareholders’ approval and is expected to close on or around June 28, 2013.
F-22
Table of Contents
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
|
|
|
March 31,
2013
|
|
December 31,
2012
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,993
|
|
$
|
18,403
|
|
|
Marketable securities and term deposits
|
|
18,504
|
|
18,580
|
|
|
Restricted cash equivalents and marketable securities
|
|
295
|
|
302
|
|
|
Interest and other receivables
|
|
166
|
|
507
|
|
|
Other current assets
|
|
1,563
|
|
1,537
|
|
|
Total current assets
|
|
31,521
|
|
39,329
|
|
|
|
|
|
|
|
|
|
Security deposits
|
|
121
|
|
67
|
|
|
Restricted cash equivalents and marketable securities
|
|
81
|
|
72
|
|
|
Property and equipment, net
|
|
401
|
|
333
|
|
|
Total assets
|
|
$
|
32,124
|
|
$
|
39,801
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
5,739
|
|
5,272
|
|
|
Current portion of other liability
|
|
68
|
|
68
|
|
|
Warrant liability
|
|
11,823
|
|
—
|
|
|
Total current liabilities
|
|
17,630
|
|
5,340
|
|
|
|
|
|
|
|
|
|
Other liability
|
|
27
|
|
45
|
|
|
Total liabilities
|
|
17,657
|
|
5,385
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized; none issued and outstanding at both March 31, 2013 and December 31, 2012
|
|
—
|
|
—
|
|
|
Common stock, $0.001 par value; 100,000,000 authorized; 9,957,739 issued and outstanding at both March 31, 2013 and December 31, 2012
|
|
10
|
|
10
|
|
|
Warrants
|
|
—
|
|
11,153
|
|
|
Additional paid-in capital
|
|
154,686
|
|
154,224
|
|
|
Accumulated other comprehensive income
|
|
9,520
|
|
9,520
|
|
|
Accumulated deficit
|
|
(149,749
|
)
|
(140,491
|
)
|
|
Total stockholders’ equity
|
|
14,467
|
|
34,416
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
32,124
|
|
$
|
39,801
|
|
Subsequent event
(Note 14)
See accompanying notes
F-23
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands except for share and per share amounts)
(Unaudited)
|
|
|
Three months ended March 31,
|
|
|
|
|
2013
|
|
2012
|
|
|
Expenses
|
|
|
|
|
|
|
Research and development, net
|
|
5,475
|
|
2,204
|
|
|
General and administrative
|
|
2,524
|
|
1,220
|
|
|
Total operating expenses
|
|
7,999
|
|
3,424
|
|
|
Loss from operations
|
|
(7,999
|
)
|
(3,424
|
)
|
|
Other income, net
|
|
3,801
|
|
68
|
|
|
Loss before income taxes
|
|
(4,198
|
)
|
(3,356
|
)
|
|
Income tax expense
|
|
19
|
|
—
|
|
|
Net loss and comprehensive loss
|
|
$
|
(4,217
|
)
|
$
|
(3,356
|
)
|
|
Basic and diluted net loss per share
|
|
$
|
(0.42
|
)
|
$
|
(0.53
|
)
|
|
Weighted average number of shares used in computing net loss per share, basic and diluted
|
|
9,957,739
|
|
6,358,267
|
|
F-24
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
Three months ended
March 31,
|
|
|
|
|
2013
|
|
2012
|
|
|
Operating activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,217
|
)
|
$
|
(3,356
|
)
|
|
Non-cash adjustments reconciling net loss to operating cash flows
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
22
|
|
33
|
|
|
Stock -based compensation expense
|
|
462
|
|
390
|
|
|
Change in fair value of warrant liability
|
|
(4,371
|
)
|
—
|
|
|
Lease incentive
|
|
(18
|
)
|
21
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
Interest and other receivables
|
|
341
|
|
(19
|
)
|
|
Other current assets
|
|
(26
|
)
|
(461
|
)
|
|
Accounts payable and accrued liabilities
|
|
467
|
|
(1,069
|
)
|
|
Cash flows used for operating activities
|
|
(7,340
|
)
|
(4,461
|
)
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
(90
|
)
|
(2
|
)
|
|
Purchases of marketable securities and term deposits
|
|
(16,021
|
)
|
(3,592
|
)
|
|
Security deposit
|
|
(54
|
)
|
—
|
|
|
Restricted cash equivalents and marketable securities
|
|
(2
|
)
|
—
|
|
|
Disposal and maturities of marketable securities and term deposits
|
|
16,097
|
|
3,495
|
|
|
Cash flows used for investing activities
|
|
(70
|
)
|
(99
|
)
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
Costs of reorganization
|
|
—
|
|
(3
|
)
|
|
Cash flows used for financing activities
|
|
—
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
(7,410
|
)
|
(4,563
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
—
|
|
176
|
|
|
Cash and cash equivalents, beginning of period
|
|
18,403
|
|
9,882
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
10,993
|
|
$
|
5,495
|
|
See accompanying notes
F-25
Table of Contents
1. DESCRIPTION OF BUSINESS
Mirati Therapeutics, Inc. (“Mirati” or the “Company”) is a biopharmaceutical company and its primary business purpose is to develop and commercialize novel therapeutics for cancer. Mirati’s common shares have been listed on the Toronto Stock Exchange since June 29, 2004 under the ticker symbol “MYG”.
MethylGene US Inc., a wholly-owned subsidiary incorporated in Princeton, New Jersey, USA on December 20, 2011, started business activity in 2012. The Company has a subsidiary in Canada, MethylGene Inc., (“MethylGene”). Refer to Note 2 under the heading Basis of presentation for further discussion of the Company’s corporate structure.
2. BASIS OF PRESENTATION
These unaudited interim consolidated financial statements as of March 31, 2013, and for the three months ended March 31, 2013 and 2012 have been prepared using significant accounting policies that are consistent with the policies used in preparing the Company’s audited consolidated financial statements included in this Registration Statement. In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet at December 31, 2012 has been derived from the audited consolidated financial statements at that date, but does not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For more complete financial information, these financial statements should be read in conjunction with the audited consolidated financial statements included in Mirati’s Registration Statement on Form 10 filed with the Securities and Exchange Commission.
Mirati was incorporated under the laws of the State of Delaware on April 29, 2013. The Company was created to enter into an arrangement agreement described below.
On May 8, 2013, the Company’s Board of Directors approved and the Company entered into an arrangement agreement with MethylGene. Subject to the terms and conditions of the arrangement agreement, the shareholders of MethylGene will receive one share of the Company’s common stock in exchange for every 50 common shares of MethylGene, which will have the effect of a 1 for 50 reverse split of the common shares pursuant to a court-approved plan of arrangement under Section 192 of the Canada Business Corporations Act. Such transaction is referred to herein as the “Arrangement”. In addition, all outstanding options and warrants to purchase common shares of MethylGene will become exercisable on a 50-for-1 basis for shares of our common stock, and a proportionate adjustment will be made to the exercise price or conversion price, as applicable. Upon completion of the Arrangement, MethylGene will become the Company’s wholly-owned subsidiary. The shares of the Company’s common stock to be issued at the closing of the Arrangement are being issued in reliance upon the exemption from registration under Section 3(A)(10) of the Securities Act of 1933, as amended. These financial statements are prepared on the basis that the Arrangement has been completed (refer to note 14).
The arrangement agreement is subject to court and shareholders’ approval and is expected to close on or around June 28, 2013.
These condensed interim consolidated financial statements are presented in U.S. dollars, which effective January 1, 2013, is also the functional currency of the Company.
The Company has not early adopted any standard or amendment that has been issued but not yet effective.
3. SIGNIFICANT ACCOUNTING POLICIES
Foreign Currency Transactions
Foreign currency transactions are initially recorded by the Company using the exchange rates prevailing at the date of the transaction. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated at the period-end rates of exchange. Non-monetary assets and liabilities are translated at the historical exchange rates. Exchange gains and losses arising from the translation of foreign currency items are included in other income in the consolidated statements of operations and comprehensive loss. The Company recognized net foreign exchange losses of $644 thousand and zero in other income in the consolidated statement of operations and comprehensive loss for the three months ended March 31, 2013 and 2012, respectively.
Reclassification of Warrants
In 2011 and 2012, the Company issued common stock purchase warrants in connection with the issuance of common stock through private placements with exercise prices denominated in Canadian dollars, referred to as the 2011 Warrants and 2012 Warrants, respectively. Upon the issuance of these common stock purchase warrants, the Company allocated the net proceeds to common stock and warrants based on their relative fair values, and calculated the fair value of the issued common stock purchase warrants utilizing the Black-Scholes option-pricing model. The allocated fair value was then recorded as warrants within stockholders’ equity on the consolidated balance sheet. The fair value was not remeasured in periods subsequent to the date of issuance.
The change in its functional currency to the U.S. dollar effective January 1, 2013 changed how the Company accounts for its warrants which have exercise prices denominated in Canadian dollars. Upon the change in functional currency, the Company classified these warrants as a current liability and recorded a warrant liability of $16.2 million which represents the fair market value of the warrants at that date in accordance with Accounting Standards Codification, or ASC, 815, “
Derivatives and Hedging
”. The initial fair value recorded as warrants within stockholders’ equity of $11.2 million was reversed. The change in fair value related to periods prior to January 1, 2013 of $5.0 million was recorded as an adjustment to accumulated deficit. At each reporting period subsequent to January 1, 2013, the Company will adjust the fair value of the warrant liability and any corresponding increase or decrease to the warrant liability will be recorded as a component of other income (expense) on the consolidated statement of operations and comprehensive loss. The estimated fair value is determined using the Black-Scholes option-pricing model based on the estimated value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock. The fair value of the warrant liability was $11.8 million at March 31, 2013 and we recorded a gain of $4.4 million for the three months ended March 31, 2013 which is included in other income in the consolidated statement of operations and comprehensive loss.
F-26
Table of Contents
4. COLLABORATION AGREEMENTS
Taiho Pharmaceutical Co., Ltd.
In October 2003, the Company entered into a license, research and development collaboration agreement with Taiho Pharmaceutical Co. Ltd. (Taiho) for mocetinostat, its clinical candidate, and its small molecule HDAC inhibitor program for oncology for Japan, South Korea, Taiwan, and China. Under the terms of the agreement, the Company received an up-front license fee, equity investment and a contract research payment of $3.8 million. In addition, the Company received $9.3 million for preclinical and clinical funding through January 2006 and $2.0 million for milestone payments in 2006 resulting in total proceeds of $15.0 million. In addition, the Company may receive milestone payments based on successful development, regulatory approval, and commercialization of an HDAC oncology product, and will receive royalties based on sales of HDAC oncology products in these territories. The duration of the agreement is subject to future events. Termination can occur due to breach which is not cured within 30 days; due to insolvency; or upon 30 days written notice from Taiho for any reason; or when the royalty term for all licensed products ends. Following its determination to stop the development of mocetinistat in 2011 the Company’s substantive obligations in connection to this program ended. There was no revenue recognized from this agreement in either the three months ended March 31, 2013 or 2012.
Otsuka Pharmaceutical Co. Ltd.
On March 25, 2008, the Company entered into a worldwide research collaboration and license agreement with Otsuka Pharmaceutical Co. Ltd. (Otsuka) for the development of novel, small molecule, kinase inhibitors for local delivery and treatment of ocular diseases, excluding cancer. The Company was responsible for the design, characterization and initial screening of kinase inhibitors and determining which compounds to synthesize. Otsuka was responsible for funding efficacy and toxicity studies, as well as preclinical and clinical development of compounds. Otsuka is also responsible for the global commercialization of any resulting product. Under the terms of the agreement, the Company received an up-front license fee of $2.0 million. There was no revenue recognized from this agreement in either the three months ended March 31, 2013 or 2012. The Company may receive additional payments based on successful development, regulatory, commercialization and sales milestones and will receive royalties on net sales. Otsuka provided the Company with $1.9 million in research funding for the initial 18 months of the research collaboration which was then extended on three occasions: September 10, 2009; April 23, 2010 and June 30, 2010. The research component of the agreement ended on June 30, 2011, subsequent to which the Company no longer has any significant ongoing obligations. The Company received a total of $4.5 million in research funding from the research component of this agreement. In October 2009, Otsuka made, in relation to the terms of the agreement, a $1.5 million equity investment in the Company’s shares of common stock at a share price of CND$21.30 (or $20.75, as converted) in which was a 20% premium over the five-day volume-weighted average closing price at the date of the transaction. Total proceeds in connection with this agreement, including the equity component amounts to $8.0 million. On June 30, 2010, the collaboration agreement was amended to, among certain other changes, provide Otsuka the rights to synthesize a limited number of compounds predetermined by the Company. A lead molecule was selected in June 2011 for further development. Otsuka is currently advancing the lead compound through late preclinical development. The duration of the agreement is subject to future events. Termination can occur by a material breach by either party which is not cured within up to 120 days; or in the event Otsuka has not exercised its right to designate at least one Selected Compound (as defined in the agreement) during the Selection Period (as defined in the agreement); or Otsuka may at its option, terminate the agreement by giving the Company 90 days’ prior written notice after the first two years of the agreement. Termination of Otsuka’s Rights, in the event of a breach by Otsuka in one of its territories, will not affect its rights in non-breached territories.
EnVivo Pharmaceuticals
In March 2004, the Company entered into a proof of concept and option agreement with EnVivo Pharmaceuticals, Inc. (EnVivo) focusing on the treatment and prevention of neurodegenerative diseases, to exploit its HDAC inhibitors in diseases such as Huntington’s, Parkinson’s, and Alzheimer’s. On February 7, 2005 the Company signed an exclusive research, collaboration and license agreement. During the year ended December 31, 2005, EnVivo paid the Company $600 thousand for research, plus a $500 thousand license fee for a total of $1.1 million. As part of this agreement, EnVivo received a warrant to purchase 1,050 shares of common stock of the Company at an exercise price of CND$214.30 (or $171.55, as converted). The warrant expired on March 4, 2007. On February 6, 2008, the Company exercised its right to opt-out of the program. As a result, the Company has granted EnVivo exclusive rights to its HDAC inhibitors for neurodegenerative diseases and the Company ceased research and development funding for this program. The Company will receive royalties on net sales of any approved compound and will share in any sublicense income from future partnerships that EnVivo may enter into. The duration of the agreement is subject to future events. Termination can occur due to a material breach which is not cured within 30 days; or insolvency; or the agreement terminates upon mutual agreement by the parties or when no product is under development or being commercialized. The Company did not recognize any revenues in connection with this agreement in either the three months ended March 31, 2013 or 2012. The Company does not have any significant ongoing obligations in connection with this agreement.
F-27
Table of Contents
5. CASH AND CASH EQUIVALENTS
|
(in thousands)
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
Cash at bank and on hand
|
|
$
|
3,170
|
|
$
|
2,823
|
|
|
Bankers’ acceptances
|
|
982
|
|
1,369
|
|
|
Treasury bills
|
|
4,922
|
|
5,026
|
|
|
Promissory notes
|
|
—
|
|
6,020
|
|
|
Commercial papers
|
|
1,181
|
|
753
|
|
|
Term deposit notes
|
|
738
|
|
2,714
|
|
|
|
|
10,993
|
|
18,705
|
|
|
|
|
|
|
|
|
|
Less: restricted cash equivalents
|
|
—
|
|
(302
|
)
|
|
|
|
10,993
|
|
$
|
18,403
|
|
|
|
|
|
|
|
|
|
|
6. MARKETABLE SECURITIES AND TERM DEPOSITS
|
(i
n thousands)
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
Bankers’ acceptances issued in Canadian currency, earning interest at rates ranging from 1.05% to 1.12%
(1.20% in 2012)
and maturing on various dates from May 24, 2013 to June 7, 2013
(
February 19, 2013 in 2012
).
|
|
$
|
376
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
|
Commercial papers issued in Canadian currency, earning interest at rates ranging from 1.01% to 1.12% (1.01% to 1.12% in 2012) and maturing on various dates from April 30, 2013 to August 15, 2013 (February 21, 2013 to May 14, 2013 in 2012).
|
|
4,032
|
|
5,026
|
|
|
|
|
|
|
|
|
|
Commercial papers issued in U.S. currency, earning interest at 0.15% and maturing on April 25, 2013.
|
|
989
|
|
—
|
|
|
|
|
|
|
|
|
|
Treasury bills issued in Canadian currency, earning interest at 1.056% and maturing on July 31, 2013
.
|
|
1,045
|
|
—
|
|
|
|
|
|
|
|
|
|
Guaranteed investment certificates issued in Canadian currency, earning interest at rates ranging from 1.15% to 1.20% (1.15% to 1.35% in 2012) and maturing on various dates from May 13, 2013 to September 16, 2013 (January 7, 2013 to September 16, 2013 in 2012).
|
|
6,434
|
|
6,518
|
|
|
|
|
|
|
|
|
|
Term deposits issued in Canadian currency, earning interest at rates ranging from 1.33% to 1.38% (1.30% to 1.33% in 2012) and maturing on various dates from April 15, 2013 to June 17, 2013 (March 18, 2013 to April 15, 2013 in 2012)
.
|
|
6,004
|
|
7,036
|
|
|
|
|
18,880
|
|
18,652
|
|
|
Less restricted marketable securities
|
|
(376
|
)
|
(72
|
)
|
|
|
|
$
|
18,504
|
|
$
|
18,580
|
|
7. INTEREST AND OTHER RECEIVABLES
|
(in thousands)
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
Other receivables
|
|
$
|
107
|
|
$
|
425
|
|
|
Interest receivable
|
|
59
|
|
82
|
|
|
|
|
$
|
166
|
|
$
|
507
|
|
F-28
Table of Contents
8. OTHER CURRENT ASSETS
|
(in thousands)
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
Refundable research and development tax credits
|
|
$
|
809
|
|
$
|
593
|
|
|
Commodity taxes
|
|
204
|
|
165
|
|
|
Prepaid expenses
|
|
550
|
|
779
|
|
|
|
|
$
|
1,563
|
|
$
|
1,537
|
|
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
(in thousands)
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
Accounts payable
|
|
$
|
1,197
|
|
$
|
1,752
|
|
|
Accrued compensation and benefits
|
|
1,808
|
|
834
|
|
|
Accrued expenses
|
|
2,734
|
|
2,686
|
|
|
|
|
$
|
5,739
|
|
$
|
5,272
|
|
10. INVESTMENT TAX CREDITS
For the three-month period ended March 31, 2013, the Company recorded $229 related to refundable investment tax credits as a reduction of research and development expenses.
11. NET LOSS PER SHARE
Basic and diluted
Net loss per share is calculated by dividing the net loss of the Company by the weighted average number of shares of common stock outstanding during the year.
|
|
|
Three months ended
March 31,
|
|
|
(in thousands except for share and per share amounts)
|
|
2013
|
|
2012
|
|
|
Net loss and comprehensive loss for the year
|
|
$
|
(4,217
|
)
|
$
|
(3,356
|
)
|
|
Weighted average number of common shares
|
|
9,957,739
|
|
6,358,267
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.42
|
)
|
$
|
(0.53
|
)
|
Common stock equivalents from warrants and options were excluded from weighted average number of shares of common stock outstanding for the purpose of calculating diluted net loss per share, because the effect is anti-dilutive.
12. FAIR VALUE MEASUREMENT AND FINANCIAL INSTRUMENTS
The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis for the periods presented and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value.
In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.
Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves.
Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
F-29
Table of Contents
There were no transfers in or out of Level 1, Level 2 or Level 3 measurements for the periods presented (in thousands):
|
|
|
March 31, 2013
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
Cash equivalents
|
|
$
|
7,823
|
|
—
|
|
$
|
7,823
|
|
$
|
—
|
|
|
Marketable securities
|
|
18,504
|
|
—
|
|
18,504
|
|
—
|
|
|
Restricted cash equivalents and marketable securities
|
|
376
|
|
—
|
|
376
|
|
—
|
|
|
Warrant liability
|
|
11,823
|
|
—
|
|
—
|
|
11,823
|
|
|
|
|
$
|
38,526
|
|
$
|
—
|
|
$
|
26,703
|
|
$
|
11,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
Cash equivalents
|
|
$
|
15,580
|
|
$
|
—
|
|
$
|
15,580
|
|
$
|
—
|
|
|
Marketable securities
|
|
18,580
|
|
$
|
—
|
|
18,580
|
|
—
|
|
|
Restricted cash equivalents and marketable securities
|
|
374
|
|
—
|
|
374
|
|
—
|
|
|
Warrant liability
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
$
|
34,534
|
|
$
|
—
|
|
$
|
34,534
|
|
$
|
—
|
|
The following table presents a reconciliation of the warrant liability measured at fair value using significant unobservable inputs (Level 3) from January 1, 2013 to March 31, 2013 (in thousands):
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2013
|
|
2012
|
|
|
Liabilities:
|
|
|
|
|
|
|
Balance at beginning of period:
|
|
$
|
16,194
|
|
$
|
—
|
|
|
Change in fair value of warrant liability included in other income
|
|
4,371
|
|
—
|
|
|
Balance at end of period:
|
|
$
|
11,823
|
|
$
|
—
|
|
The fair value of the warrant liability was calculated utilizing the Black-Scholes option-pricing model, using the following assumptions:
|
|
|
January 1, 2013
|
|
March 31, 2013
|
|
|
|
|
2011 Warrants
|
|
2012 Warrants
|
|
2011 Warrants
|
|
2012 Warrants
|
|
|
Risk-free interest rate
|
|
1.2
|
%
|
1.4
|
%
|
1.1
|
%
|
1.3
|
%
|
|
Volatility
|
|
107.5
|
%
|
116.3
|
%
|
110.4
|
%
|
114.8
|
%
|
|
Dividend Yield
|
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
|
Expected life in years
|
|
3.3
|
|
4.9
|
|
3.0
|
|
4.6
|
|
Other financial assets
The Company’s other financial assets consist of interest receivable, other receivables and security deposits. The carrying amount of these financial assets is a reasonable approximation of their fair value due to the short-term nature of these financial assets.
Other financial liabilities
The Company’s other financial liabilities include accounts payable and accrued liabilities. The carrying value of the accounts payable and accrued liabilities approximates their fair value due to the short-term nature of these financial liabilities.
13. CONCENTRATION OF CREDIT RISK
The maximum exposure to credit risk of the Company at December 31, 2012 is the carrying value of its cash and cash equivalents, marketable securities, restricted cash equivalents and marketable securities, interest receivable, other receivables and security deposits. The Company has an investment policy that monitors the safety and preservation of investments made, which requires them to be highly rated and which limits the amount invested in any one issuer. The investments are reviewed quarterly by the Audit Committee.
The Company also manages credit risk by maintaining bank accounts with reputable banks and financial institutions and investing only in investments from banking, governmental or highly rated companies with securities that are traded on active markets and are capable of immediate liquidation, subject to some minor market price variations upon sale.
Cash and cash equivalents and restricted cash are comprised of bankers’ acceptances, treasury bills, commercial papers, promissory notes and term deposits at March 31, 2013 (bankers’ acceptances, treasury bills, commercial papers and promissory notes at December 31, 2012). Cash and cash equivalents and restricted cash as of March 31, 2013 and December 31, 2012 are held in two Canadian chartered banks and are as follows (in thousands):
|
|
|
March 31,
2013
|
|
December 31,
2012
|
|
|
Cash equivalents
|
|
$
|
10,993
|
|
$
|
18,403
|
|
|
Restricted cash
|
|
376
|
|
374
|
|
|
|
|
$
|
11,369
|
|
$
|
18,777
|
|
Management has determined that other receivables are collectible and has not recorded a provision against these amounts.
The Company continues to have ongoing license and collaboration agreements with three partners. As per the term of these agreements there were no revenues or expenses with these partners for the period ended March 31, 2013 and 2012.
F-30
Table of Contents
14. SUBSEQUENT EVENTS
For its financial statements as of March 31, 2013 and for the three-months then ended, the Company evaluated subsequent events through May 10, 2013, the date on which those financial statements were originally available to be issued.
On May 8, 2013, the Company’s Board of Directors approved and the Company entered into an arrangement agreement with MethylGene. Subject to the terms and conditions of the arrangement agreement, the shareholders of MethylGene will receive one share of the Company’s common stock in exchange for every 50 common shares of MethylGene, which will have the effect of a 1 for 50 reverse split of the common shares pursuant to a court-approved plan of arrangement under Section 192 of the Canada Business Corporations Act. Such transaction is referred to herein as the “Arrangement”. In addition, all outstanding options and warrants to purchase common shares of MethylGene will become exercisable on a 50-for-1 basis for shares of our common stock, and a proportionate adjustment will be made to the exercise price or conversion price, as applicable. Upon completion of the Arrangement, MethylGene will become the Company’s wholly-owned subsidiary. The shares of the Company’s common stock to be issued at the closing of the Arrangement are being issued in reliance upon the exemption from registration under Section 3(A)(10) of the Securities Act of 1933, as amended.
The Arrangement is subject to court and shareholders’ approval and is expected to close on or around June 28, 2013.
F-31
Table of Contents
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 hereunto duly authorized.
|
|
MIRATI THERAPEUTICS, INC.
|
|
|
|
|
|
Date: May 10, 2013
|
By
|
/s/ Charles M. Baum M.D., Ph.D.
|
|
|
|
Name:
|
Charles M. Baum M.D., Ph.D
|
|
|
|
Title:
|
President and Chief Executive Officer
|
Table of Contents
EXHIBIT INDEX
|
Exhibit
|
|
Description
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation.
|
|
3.2
|
|
Bylaws.
|
|
4.1#
|
|
Form of Common Stock Certificate.
|
|
10.1
|
|
Form of Securities Purchase Agreement relating to the 2011 private placement.
|
|
10.2
|
|
Form of Securities Purchase Agreement relating to the 2012 private placement.
|
|
10.3
|
|
Form of Warrant Certificate issued in connection with the 2011 private placement.
|
|
10.4
|
|
Form of Warrant Certificate issued in connection with the 2012 private placement.
|
|
10.5*
|
|
Amended and Restated Incentive Stock Option Plan.
|
|
10.6*
|
|
Form of 2013 Equity Incentive Plan and Form of Stock Option Grant Notice and Form of Stock Option Agreement thereunder.
|
|
10. 7*
|
|
Form of 2013 Employee Stock Purchase Plan.
|
|
10.8†
|
|
Research Collaboration and License Agreement, dated March 25 2008, by and between MethylGene Inc. and Otsuka Pharmaceutical Co., Ltd.
|
|
10.9
|
|
Letter Agreement, dated August 8, 2009, by Otsuka Pharmaceutical Co., Ltd., relating to Research Collaboration and License Agreement dated March 25, 2008.
|
|
10.10†
|
|
Letter Agreement, dated April 14, 2010, by and between MethylGene Inc. and Otsuka Pharmaceutical Co., Ltd., relating to Research Collaboration and License Agreement dated March 25, 2008.
|
|
10.11†
|
|
First Amendment to Research Collaboration and License Agreement, dated March 25, 2010, by and between MethylGene Inc. and Otsuka Pharmaceutical Co., Ltd.
|
|
10.12†
|
|
Collaboration and License Agreement, dated October 16, 2003, by and between MethylGene Inc. and Taiho Pharmaceutical Co. Ltd.
|
|
10.13†
|
|
Amendment Number One to Collaboration and License Agreement, dated January 25, 2005, by and between MethylGene Inc. and Taiho Pharmaceutical Co., Ltd.
|
|
10.14†
|
|
Letter Agreement, dated January 25, 2005, by and between MethylGene Inc. and Taiho Pharmaceutical Co., Ltd., relating to Collaboration and License Agreement dated October 16, 2003.
|
|
10.15†
|
|
Collaboration Agreement, dated February 7, 2005, by and between MethylGene Inc. and EnVivo Pharmaceuticals, Inc.
|
|
10.16†
|
|
Back-Out, Amendment and Release Agreement, dated January 31, 2008, by and between MethylGene Inc. and EnVivo Pharmaceuticals, Inc.
|
|
10.17*
|
|
Senior Executive Employment Agreement, dated September 24, 2012, by and among MethylGene Inc. and Dr. Charles M. Baum.
|
|
10.18*
|
|
Senior Executive Employment Agreement, dated September 13, 2010, by and among MethylGene Inc. and Mr. Charles Grubsztajn.
|
|
10.19*
|
|
Employment Agreement, dated August 18, 2011, by and between MethylGene Inc. and Klaus Kepper.
|
|
10.20*
|
|
Employment Agreement, dated February 15, 2013, by and between MethylGene Inc. and Mark J. Gergen.
|
Table of Contents
|
Exhibit
|
|
Description
|
|
10.21*
|
|
Employment Agreement, dated January 4, 2012, by and between MethylGene Inc. and Dr. Rachel W. Humphrey.
|
|
10.22*
|
|
Employment Agreement, dated January 1, 1999, by and between MethylGene Inc. and Jeffrey Besterman.
|
|
10.23*
|
|
Letter Agreement, dated December 18, 2008, by and between MethylGene Inc. and Jeffrey Besterman.
|
|
10.24*
|
|
Termination Agreement and Release, dated September 21, 2012, by and between MethylGene Inc. and Charles Grubsztajn.
|
|
10.25
|
|
Agreement of Lease, dated February 2, 2012, by and between MethylGene Inc. and GE Q-Tech Real Estate Holdings Inc.
|
|
10.26
|
|
Amendment #1, dated June 18, 2012, by and between MethylGene Inc. and GE Q-Tech Real Estate Holdings Inc., relating to Agreement of Lease, dated February 2, 2012.
|
|
10.27
|
|
Office Agreement, dated November 20, 2012, by and between Registrant and Regus Management Group, LLC.
|
|
10.28
|
|
Addendum to Service Agreement, dated January 4, 2013, by and between MethylGene Inc. and HQ Global Workplaces.
|
|
10.29#
|
|
Arrangement Agreement, dated May 8, 2013, by and between MethylGene Inc. and and the Registrant.
|
|
21.1
|
|
Subsidiaries of the Registrant.
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
†
Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been submitted separately with the U.S. Securities and Exchange Commission.
*
Indicates management contract or compensatory plan.
#
To be filed by amendment.
Exhibit 10.1
FORM OF SECURITIES PURCHASE AGREEMENT
TO: METHYLGENE INC. (the “Corporation”)
The undersigned (the “
Purchaser
”) hereby subscribes for and agrees to purchase (i) the number of units of the Corporation (the “
Units
”) set forth on the following page at a price of C$0.1243 per Unit (the “
Subscription Price
”); and (ii) C$[ ] principal amount (the “
Debenture Subscription Price
”) of unsecured convertible debentures issued by the Corporation (the “
Debenture
”), convertible into Units at a conversion price equal to the Subscription Price. The Purchaser agrees to be bound by the terms and conditions set forth in the attached “Terms and Conditions of Subscription for Debentures, Common Shares and Warrants of MethylGene Inc.”. The Purchaser further agrees, without limitation, that the Corporation may rely upon its representations, warranties and covenants contained in this document. Each Unit purchased will consist of one (1) common share in the capital of the Corporation (a “
Common Share
”) and thirty one-hundredths (0.30) of a common share purchase warrant (each whole common share purchase warrant, a “
Warrant
”). Each whole Warrant shall be exercisable for a period of five (5) years following the Closing Date (as defined herein) and entitle the holder thereof to acquire one (1) Common Share (a “
Warrant Share
”) at a price of C$0.1492. The certificates representing the Debentures, Common Shares and Warrants will be registered and delivered as indicated on the following page.
[
Signature page follows
]
|
Beneficial Purchaser Information:
|
|
Number of Units:
|
|
|
|
|
|
Name of Purchaser (please print)
|
|
|
|
|
|
Aggregate Subscription Price for the Units: C$
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
Authorized Signature
|
|
Deliver the Debentures, Common Shares and
Warrants as set forth below:
|
|
|
|
|
|
|
|
|
|
|
Official Capacity of Title (please print)
|
|
|
|
|
|
Name
|
|
|
|
|
|
Please print name of individual whose signature
|
|
|
|
appears above if different than the name of the purchaser printed above.)
|
|
Account Reference, if applicable
|
|
|
|
|
|
|
|
Contact Name
|
|
Purchaser’s Address
|
|
|
|
|
|
|
|
Registration Instructions:
|
|
|
|
|
|
Telephone Number
|
|
Name:
|
|
|
|
|
|
Present Ownership of Securities:
|
|
|
|
List number and type(s) of securities held
|
|
Account reference, if applicable
|
|
|
|
|
|
|
|
|
|
|
|
Address
|
|
|
ACCEPTANCE:
The Corporation hereby accepts the above subscription and agrees to be bound by the terms and conditions set forth in the attached “Terms and Conditions of Subscription for Debentures, Common Shares and Warrants of MethylGene Inc.” and in this Agreement. The Corporation further agrees, without limitation, that the Purchaser may rely upon its representations, warranties and covenants contained in this document.
, 2011
METHYLGENE INC.
THE “TERMS AND CONDITIONS OF SUBSCRIPTION FOR DEBENTURES, COMMON SHARES AND WARRANTS OF METHYLGENE INC.” AND SCHEDULES THERETO ARE INCORPORATED IN THIS SECURITIES PURCHASE AGREEMENT AND FORM INTEGRAL PARTS HEREOF.
[
Signature page to SECURITIES PURCHASE AGREEMENT
]
TERMS AND CONDITIONS OF SUBSCRIPTION
FOR DEBENTURES, COMMON SHARES AND WARRANTS OF METHYLGENE INC.
ARTICLE 1
DEFINITIONS
Certain terms and abbreviations used in this Agreement shall have the meaning given below:
“
Affiliate
” shall have the meaning to such term in NI 45-106. With respect to the Purchaser, any
investment fund or managed account that is managed on a discretionary basis by the same investment
manager as the Purchaser will be deemed to be an Affiliate of the Purchaser.
“
Aggregate Subscription Price
” means, as to the Purchaser, the aggregate amount to be paid for Units purchased hereunder as specified on the face page of this Agreement in immediately available funds.
“
Agreement
” means, collectively, the Securities Purchase Agreement attached hereto, the “Terms and Conditions of Subscription for Debentures, Common Shares and Warrants of MethylGene Inc.” and the “Schedules” hereto.
“
Business Day
” means any day (other than a Saturday, Sunday, statutory or civic holiday) on which banks are open during normal business hours in Montreal, Canada.
“
C$
” refers to the dollar currency of Canada. “
Closing
”
means the closing of the sale of the Units. “
Closing Date
”
means the date at which the Closing occurs.
“
Common Share Equivalents
” means any securities of the Corporation which would entitle the holder thereof to acquire at any time Common Shares, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Shares.
“
Co-Lead Investors
” means Baker Brothers Life Sciences, L.P. and Tavistock Life Sciences.
“
Corporation Counsel
” means Davies Ward Phillips & Vineberg LLP.
“
Debentures
” means, collectively, the unsecured convertible debentures, in the form of the Debenture certificate contained in Schedule B attached hereto delivered to the Co-Lead Investors on the date hereof.
“
Debenture Shares
” means the Common Shares issuable upon the conversion of the Debentures.
“
Financial
Statements
” means the audited financial statements of MethylGene Inc. (now
9222-9129 Québec Inc.), the accompanying notes and the auditors’ report thereon for the year ended
December 31, 2009 and the unaudited financial statements of the Corporation and the accompanying notes for the nine-month period ended September 30, 2010, all as filed with the securities regulators in each of the provinces of Canada pursuant to the applicable Securities Laws.
“
Investors
” means investors purchasing Units under this Offering, including the Purchaser, and “Investor” means any one of them.
“
knowledge
” means the actual knowledge of the senior officers of the Corporation with respect to such matter so long as such individual can demonstrate that he has made due inquiry in the circumstances regarding the relevant matter or, if any such individual cannot so demonstrate, the actual and constructive knowledge such individual would have had after making due inquiry regarding the relevant matter.
“
Liens
” means a lien, charge, security interest, encumbrance, right of first refusal or pre-emptive
right.
“
NI 45-106
” means, collectively, National Instrument 45-106 —
Prospectus and Registration
Exemptions
and
Regulation 45-106 respecting Prospectus and Registration Exemptions
(Québec).
“
Offering
” means the offering and sale by the Corporation of approximately C$34.5 million of
Units.
“
Permanent Information Record
” means information concerning the Corporation contained in (i) the Financial Statements; (ii) the management proxy circular dated April 14, 2010, distributed in connection with the annual and special meeting of shareholders of MethylGene Inc. (now 9222-9129 Québec Inc.) held on May 14, 2010, (iii) the annual information form of MethylGene Inc. (now 9222-9129 Québec Inc.) dated March 31, 2010 for the year ended December 31, 2009, (iv) management’s discussion and analysis of the financial condition and results of operations for the financial year ended December 31, 2009 compared to the year ended December 31, 2008 and the quarter ended September 30, 2010 with the quarter ended September 30, 2009, all as filed with the securities regulators in each of the provinces of Canada pursuant to the applicable Securities Laws. Any documents of the type referred to in this paragraph or any material change report (excluding confidential material change reports) or any amendments or restatements thereto filed by the Corporation on SEDAR after the date of this Agreement and prior to the Closing Date, shall be deemed to be included in the definition of “Permanent Information Record” for the purposes of this Agreement.
“
Permitted Liens
” means (i) Liens for taxes not yet due or payable or that are being contested in good faith by appropriate Proceedings for which adequate reserves are maintained by the Corporation, (ii) Liens in favour of vendors, carriers, warehousemen, repairmen, mechanics, workers, materialmen, construction or other Liens arising by operation of law or in the ordinary course of business in respect of obligations that are not yet due or that are being contested in good faith by appropriate Proceedings, for which adequate reserves are maintained by the Corporation, (iii) easements, servitudes, reservations, rights of way, restrictions, covenants, conditions and other similar encumbrances whether of record or apparent on the premises, including road, highway, pipeline, railroad and utility easements and servitudes, and municipal, zoning and building by-laws which do not, individually or in the aggregate, materially interfere with the use, occupancy or operation of the leased real property of the Corporation as currently used, occupied and operated or as intended to be used, occupied and operated; (iv) statutory Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, employment insurance and other social security legislation that are not material; and (v) the Liens listed on Schedule 1.
“
Person
” means any individual (whether acting as an executor, trustee administrator, legal representative or otherwise), corporation, firm, partnership, sole proprietorship, syndicate, joint venture, trustee, trust, unincorporated organization or association, and pronouns have a similar extended meaning.
“
Phase 2a Trial
” means a clinical trial that is intended to meet the requirements of 21 CFR 312.21(b).
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“
Private Placement
” means any offering of securities by the Corporation that benefits from a prospectus exemption under NI 45-106.
“
Proceeding
” means an action, course of action, demand, claim, charge, prosecution, complaint, suit, inquiry, notice of violation, litigation, assessment, reassessment, grievance, arbitration, hearing, investigation or proceeding, whether civil, criminal or administrative, at law or in equity, commenced or threatened.
“
Public Offering
” means any offering of securities by the Corporation that does not benefit from a prospectus exemption under NI 45-106.
“
SEC
” means the United States Securities and Exchange Commission.
“
Securities
” means, collectively, the Debentures, the Common Shares, the Warrants and the Warrant Shares.
“
Securities Laws
” means, as applicable, the securities laws, regulations, rules, rulings and orders in each of the provinces of Canada, in the United States and in each of the member states of the United States, the applicable policy statements issued by the securities regulators in each of the provinces of Canada and in the United States.
“
SEDAR
” means the System for Electronic Document Analysis and Retrieval (www.sedar.com) administered for the Canadian Securities Administrators.
“
Shareholder Approval
” means such approval as will be required by law and by the applicable rules and regulations of the TSX (or any successor entity) from the shareholders of the Corporation with respect to the transactions contemplated by the Transaction Documents.
“
Subscription Price
” means C$0.1243 per Unit.
“
Subsidiary
” means any direct and indirect domestic subsidiaries of the Corporation as of the date hereof.
“
Transaction Documents
” means this Agreement, the certificate representing the Debentures and the certificate representing the Warrants.
“
TSX
” means the Toronto Stock Exchange.
“
U.S. Person
” shall have the meaning assigned to such term by Rule 902 of Regulation S promulgated under the U.S. Securities Act, which definition shall include, but not be limited to, an individual resident in the United States and an estate or trust of which any executor or administrator or trustee, respectively, is a U.S. person, and any partnership or company organized or incorporated under the laws of the United States.
“
U.S. Securities Act
” means the United States Securities Act of 1933, as amended.
“
United States
” means the United States of America, its territories and possessions, any State of the United States and the District of Columbia.
“
Units
” shall have the meaning ascribed to such term on the face page of this Agreement.
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“
Warrants
” means, collectively, the Common Shares purchase warrants, in the form of the Warrant certificate contained in Schedule A attached hereto delivered to the Purchasers at the Closing.
“
Warrant Shares
” means the Common Shares issuable upon the exercise of the Warrants.
ARTICLE 2
PURCHASE AND SALE
2.1
Closing.
On the date hereof, upon the terms and subject to the conditions set forth herein, concurrent with the execution and delivery of this Agreement by the parties hereto, the Corporation agrees to sell, and the Purchaser agrees to purchase, a Debenture in the principal amount of C$[ ]. On the Closing Date, upon the terms and subject to the conditions set forth herein, the Corporation agrees to sell, and the Purchaser agrees to purchase, the number of Units set forth on the face page of this Agreement. On the date hereof, the Purchaser shall deliver to the Corporation via wire transfer or a certified cheque in immediately available funds equal to the Debenture Subscription Price and the Corporation shall deliver to the Purchaser a Debenture in the principal amount of C$[ ]. The Purchaser shall deliver to the Corporation via wire transfer or a certified cheque in immediately available funds equal to their Aggregate Subscription Price and the Corporation shall deliver to the Purchaser its respective Common Shares and Warrants as determined pursuant to Section 2.3(a) and the other items set forth in Section 2.3 issuable at the Closing. The Purchaser understands that pursuant to the Offering, the Corporation intends to offer up to 277,494,756 Units to eligible investors.
2.2
Closing Date.
The Closing Date shall be on or about April 1, 2011 or such other earlier date as the Corporation and the Investors shall mutually determine and shall, in no event, be later than May 15, 2011, and all events required to occur on the Closing Date shall occur, subject to satisfaction of the conditions set forth in Sections 2.3 or 2.4, at the offices of Corporation Counsel in Montreal, Canada.
2.3
Deliveries.
(a) On the date hereof, the Corporation shall deliver or cause to be delivered to the Purchaser the following:
(i) this Agreement duly executed by the Corporation; and
(ii) a Debenture, in the form of Schedule B attached hereto, registered in the name of the Purchaser in the principal amount of C$[ ].
(b) On the date hereof, the Purchaser shall deliver or cause to be delivered to the Corporation the following:
(i) this Agreement duly executed by the Purchaser; and
(ii) the Debenture Subscription Price by wire transfer or certified cheque to the account as specified in writing by the Corporation.
(c) On the Closing Date, the Corporation shall deliver or cause to be delivered to the Purchaser the following:
(i) the number of Common Shares registered in the name of the Purchaser, that is equal to the number of Units set forth on the face page of this Agreement;
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(ii) a Warrant certificate, in the form of Schedule A attached hereto, registered in the name of the Purchaser to purchase up to a number of Common Shares equal to 30% of the number of Common Shares being purchased by the Purchaser pursuant to Section 2.3(a)(i), with an exercise price equal to C$0.1492 exercisable for a period of 5 years following the Closing Date, subject to the adjustments described in the Warrants;
(iii) written evidence that holders of more than 50% of the Common Shares currently outstanding are familiar with the terms of the Offering and are in favour of it;
(iv) a certificate addressed to the Investors, dated as of the Closing Date, signed by the President and Chief Executive Officer or by the Chief Financial Officer of the Corporation certifying on behalf of the Corporation that the representations and warranties of the Corporation contained herein are true and correct and all the terms and conditions relating to the Corporation contained herein and required to be performed and complied with by the Corporation by or at the time of Closing have been performed and complied with by the Corporation;
(v) a certificate dated as of the Closing Date, signed by appropriate officers of the Corporation, addressed to the Investors and the Investors’ counsel, with respect to the articles and by-laws of the Corporation, all resolutions of the Corporation’s board of directors (the “
Board
”) relating to the Offering and the incumbency and specimen signatures of signing officers; and
(vi) an opinion dated as of the Closing Date, of Corporation Counsel addressed to the Investors substantially in the form attached as Schedule 2.3(a)(vi) hereto.
(d) On the Closing Date, the Purchaser shall deliver or cause to be delivered to the Corporation the following:
(i) the Purchaser’s Aggregate Subscription Price by wire transfer or certified cheque to the account as specified in writing by the Corporation.
2.4
Closing Conditions.
(a) The obligations of the Corporation hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the Closing Date (as if made on and as of the Closing Date) of the representations and warranties of the Purchaser contained herein;
(ii) all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the Closing Date shall have been performed;
(iii) the Corporation shall have received confirmation of any required approvals of the transactions contemplated hereby by all securities regulatory authorities having jurisdiction over such transactions;
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(iv) the Corporation shall have received written confirmation that holders of more than 50% of the Common Shares currently outstanding are familiar with the terms of the Offering and are in favour of it;
(v) the delivery by the Purchaser of the items set forth in Section 2.3(d) of this Agreement; and
(vi) the issue and sale of the Units shall be exempt from the prospectus and registration requirements provided for or obtained under the Securities Laws.
(b) The obligations of the Purchaser hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the Closing Date (as if made on and as of the Closing Date) of the representations and warranties of the Corporation contained herein;
(ii) all obligations, covenants and agreements of the Corporation required to be performed at or prior to the Closing Date shall have been performed;
(iii) the Corporation shall have received confirmation of any required approvals of the transactions contemplated hereby by all securities regulatory authorities having jurisdiction over such transactions;
(iv) the Corporation shall have received written confirmation that holders of more than 50% of the Common Shares currently outstanding are familiar with the terms of the Offering and are in favour of it;
(v) the delivery by the Corporation of the items set forth in Section 2.3(a) of this Agreement;
(vi) the issue and sale of the Units shall be exempt from the prospectus and registration requirements provided for or obtained under the Securities Laws; and
(vii) there shall have been no Material Adverse Effect (as defined herein) with respect to the Corporation since the date hereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1
Representations, Warranties and Covenants of the Corporation.
Except as set forth under the corresponding section of the disclosure schedules attached to this Agreement (the “
Disclosure Schedules
”) which Disclosure Schedules shall be deemed a part hereof, the Corporation hereby makes the representations, warranties and covenants set forth below to the Purchaser.
(a)
Subsidiaries.
The Corporation owns, directly or indirectly, no equity interest in any Subsidiary.
(b)
Organization and Qualification.
The Corporation has been duly amalgamated, and is a valid and subsisting corporation under the laws of Canada and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted
6
and to own or lease its properties and assets. The Corporation is a reporting issuer (or its equivalent) not in default of any material requirement of the Securities Act of each of the provinces of Canada, and the respective regulations thereunder.
The Corporation is not in violation or default of any of the provisions of its certificate of amalgamation, bylaws or other organizational or charter documents. The Corporation is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document; (ii) a material adverse effect on the results of operations, assets, business or financial condition of the Corporation; or (iii) a material adverse effect on the Corporation’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “
Material Adverse Effect
”) and to the Corporation’s knowledge no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(c)
Authorization; Enforcement.
The Corporation has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder, including to issue, sell and deliver the Debentures and the Units in accordance with this Agreement. The execution and delivery of each of the Transaction Documents by the Corporation and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Corporation and no further action is required by the Corporation in connection therewith other than in connection with the Required Approvals. Each Transaction Document has been (or upon delivery will have been) duly executed by the Corporation and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Corporation enforceable against the Corporation in accordance with its terms except: (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally; and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
(d)
No Conflicts.
The execution, delivery and performance of the Transaction Documents by the Corporation and the consummation by the Corporation of the other transactions contemplated thereby do not and will not: (i) conflict with or violate any provision of the articles of the Corporation, bylaws or other organizational or charter documents; or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Corporation, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Corporation debt or otherwise) or other understanding to which the Corporation is a party or by which any property or asset of the Corporation is bound or affected; or (iii) subject to the Required Approvals, conflict with or result in a violation of any applicable law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Corporation is subject, or by which any property or asset of the Corporation is bound or affected; except in the case of each of clauses (ii) and (iii), such as would not have a Material Adverse Effect.
7
(e)
Filings, Consents and Approvals.
The Corporation is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with any governmental authority or other Person in connection with the execution, delivery and performance by the Corporation of the Transaction Documents, other than: (i) the notice and application to the TSX for the issuance and sale of the Debentures, Common Shares and Warrants and the listing of the Common Shares and the Warrants Shares for trading thereon in the time and manner required thereby; (ii) Shareholder Approval, which will be satisfied by providing the TSX with written evidence that holders of more than 50% of the Common Shares are in favour of the Offering; and (iii) such securities filings as are required to be made under applicable Securities Laws (collectively, the “
Required Approvals
”).
(f)
Issuance of the Securities.
The Debentures, Common Shares and Warrants are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and non-assessable, free and clear of all Liens other than restrictions on transfer provided for in the Transaction Documents. The Warrant Shares and the Debenture Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and non-assessable, free and clear of all Liens. The Corporation has reserved from its duly authorized share capital up to 83,248,422 Common Shares for issuance of (i) the Warrant Shares on the date hereof, which will constitute, as of the Closing Date, a sufficient number of Common Shares to be issued upon exercise of all the Warrants sold to the Investors in the Offering; and (ii) the Debenture Shares on the date hereof, which constitute, as of the date hereof, a sufficient number of Common Shares to be issued upon conversion of the Debentures sold to the Co-Lead-Investors in the Offering.
The Common Shares and the Warrant Shares are and will be at the time of issue to the Purchaser, part of a class of shares of the Corporation that is presently, and will be at the time of issue to the Purchaser, listed and posted for trading on the TSX, and the Common Shares and the Warrant Shares issuable pursuant to this Agreement and/or upon the conversion of the Debentures and/or upon the exercise of the Warrants will, at the time of issue to the Purchaser, have been conditionally approved to be listed and posted for trading on the TSX. The Corporation will take or cause to be taken all steps necessary to comply with all of the requirements of the TSX in connection with the issuance to the Purchaser of the Common Shares, the Debentures, the Warrants and the Warrant Shares pursuant to this Agreement and to permit such Common Shares and Warrant Shares to be listed and posted for trading on the TSX.
(g)
Capitalization.
The capitalization of the Corporation is set forth on Schedule 3.1(g). No Person has any right of first refusal, pre-emptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as disclosed in the Disclosure Schedules and as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any Common Shares, or contracts, commitments,
understandings
or arrangements by which the Corporation is or may become bound to issue additional Common Shares or Common Share Equivalents. The issuance and sale of the Securities will not obligate the Corporation to issue Common Shares or other securities to any Person (other than the Investors) and will not result in a right of any holder of Corporation securities to adjust the exercise, conversion, exchange or reset price under such securities. All of the outstanding shares of the Corporation are validly issued, fully paid and non-assessable, have been issued in compliance with all Securities Laws, and none of such outstanding shares was issued in violation of any pre-emptive rights or similar rights to subscribe for or purchase securities. Except as otherwise provided in this Agreement, no
8
further approval or authorization of any shareholder, the Board or others is required for the issuance and sale of the Securities. There are no shareholders agreements, voting agreements or other similar agreements with respect to the Corporation’s capital stock to which the Corporation is a party or, to the knowledge of the Corporation, between or among any of the Corporation’s shareholders.
(h)
Permanent Information Record; Financial Statements.
The documents comprising the Permanent Information Record at their applicable dates of filing with the securities regulatory authorities pursuant to the applicable Securities Laws (i) complied in all material respects with the requirements of the Securities Laws; (ii) did not contain any misrepresentations; (iii) constituted full, true and plain disclosure of the material facts relating to the Corporation; and (iv) did not omit to state any material fact required to be
stated
therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made. The Financial Statements of the Corporation included in the Permanent Information Record complied in all material respects with applicable accounting requirements and the rules and regulations of Securities Laws with respect thereto as in effect at the time of filing. The Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles applied on a consistent basis during the periods involved (“
GAAP
”), except as may be otherwise specified in the Financial Statements or the notes thereto, and fairly present in all material respects the financial position of the Corporation as of and for the date thereof and the results of operations and cash flows for the period then ended.
(i)
Material Changes.
Since the date of the Financial Statements, except as specifically disclosed in the Permanent Information Record or the Financial Statements: (i) there has been no event, occurrence or development that has had a Material Adverse Effect; (ii) the Corporation has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Financial Statements pursuant to GAAP or required to be disclosed in filings made with the regulatory authorities; (iii) the Corporation has not altered its method of accounting; (iv) the Corporation has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its share capital; and (v) the Corporation has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Corporation stock option plans. The Corporation does not have pending before any regulatory authorities any request for confidential treatment of information.
(j)
Litigation.
There are no Proceedings pending or, to the knowledge of the Corporation, threatened against or affecting the Corporation, or any of its respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (collectively, an “
Action
”) which: (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities; or (ii) could, if there were an unfavourable decision, have a Material Adverse Effect. Except as set forth on Schedule 3.1(j),
neither
the Corporation, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under the Securities Laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Corporation, there is not pending or contemplated, any investigation by the regulatory authorities involving the Corporation or any current or former director or officer of the Corporation. The regulatory authorities have not issued any stop order or other order suspending the effectiveness of any documents filed by the Corporation under the Securities Laws and the rules and policies of the TSX.
9
(k)
Labour Relations.
No material labour dispute exists or, to the knowledge of the Corporation, is imminent with respect to any of the employees of the Corporation.
(l)
Compliance.
The Corporation: (i) is not in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Corporation), nor has the Corporation received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived); (ii) is not in violation of any order of any court, arbitrator or governmental body; and (iii) neither is nor has been in material violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, provincial, state and local laws applicable to its business.
(m)
Regulatory Permits.
The Corporation possesses all material certificates, authorizations and permits issued by the appropriate Canadian federal, provincial or local regulatory authorities necessary to conduct its business (the “
Material Permits
”), and the Corporation has not received any notice of Proceedings relating to the revocation or modification of any Material Permit.
(n)
Title to Assets.
The Corporation has good and marketable title to all real property owned by it that is material to the business of the Corporation and good and marketable title in all personal property owned by it that is material to the business of the Corporation, in each case free and clear of all Liens except for Permitted Liens. Any real property and facilities held under lease by the Corporation are held by it under valid, subsisting and enforceable leases of which the Corporation is in material compliance.
(o)
Patents and Trademarks.
The Corporation owns, or has sufficient legal rights to use, all patents, patent applications, trademarks, trade names, copyrights, trade secrets and other proprietary information necessary or material for use in connection with its business as presently conducted (collectively, “
Intellectual Property Rights
”). The Corporation has not received a written notice that any of the Intellectual Property Rights used by the Corporation violates or infringes upon the existing rights of any Person. To the knowledge of the Corporation, all such Intellectual Property Rights are enforceable and there is no existing infringement by the Corporation of any currently issued and enforceable patents, trademarks, trade names, copyrights or trade secrets of any other Person. To the Corporation’s knowledge, the Corporation has not violated or, by conducting its business as presently conducted or as presently proposed to be conducted, as indicated in the Permanent Information Record, would not violate, any currently issued and enforceable patents, trademarks, trade names, copyrights or trade secrets of any other Person. The Corporation is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Corporation or that would conflict with the Corporation’s business. Except as indicated in the Permanent Information Record, no claim by any third party contesting the validity, enforceability, use or ownership of any of the Corporation’s rights to the Intellectual Property Rights has been made, is currently outstanding or, to the knowledge of the Corporation, is threatened. The Corporation has taken all commercially reasonable actions to maintain and protect all of the Corporation’s Intellectual Property Rights. The Corporation does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to or outside the scope of their employment by the Corporation.
10
(p)
Environment.
The Corporation has not received notice that it is in default, in a material manner, under any applicable law requirements relating to the protection and preservation of the environment, occupational health and safety or the manufacture, processing, distribution, sale, use, treatments, storage, disposal, discharge, destruction, packaging, labelling, transport or handling of any pollutants, contaminants, chemicals, dangerous substances, or toxic or hazardous wastes, materials or substances (“
Environmental Laws
”). The Corporation has not received any notice that it is not in material compliance with any reporting and monitoring requirements under any Environmental Laws. The Corporation has not received any notice that it has not obtained all permits under Environmental Laws (the “
Environmental Permits
”) materially required for its operations and to own, use and operate its assets. The Corporation has not received any notice that any proceeding would be pending or threatened to revoke or limit any of the Environmental Permits.
(q)
Insurance.
The Corporation is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Corporation is engaged, including, but not limited to, directors and officers insurance coverage at least equal to C$5,000,000. To the best of the Corporation’s knowledge, the Corporation has complied with all material terms and conditions of such insurance contracts and policies, including premium payments, and all such policies are in full force and effect. The Corporation has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
(r)
Transactions With Affiliates and Employees.
Except as set forth in the Permanent Information Record, none of the officers or directors of the Corporation and, to the knowledge of the Corporation, none of the employees of the Corporation is presently a party to any transaction with the Corporation (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Corporation, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of C$50,000 other than: (i) for payment of salary, directors’ or consulting fees for services rendered; (ii) reimbursement for expenses incurred on behalf of the Corporation; and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Corporation.
(s)
Internal Accounting Controls.
The Corporation has established disclosure controls and procedures for the Corporation and designed such disclosure controls and procedures to ensure that material information relating to the Corporation is made known to the certifying officers by others within the Corporation. The Corporation’s certifying officers have evaluated the effectiveness of the Corporation’s controls and procedures as of December 31, 2009 (the “
Evaluation Date
”). Since the Evaluation Date, there have been no significant changes in the Corporation’s internal controls or, to the Corporation’s knowledge, in other factors that could significantly affect the Corporation’s internal controls.
(t)
Certain Fees.
Neither the Corporation nor any of its officers has retained any placement agent (the “
Intermediary
”), other than MTS Securities LLC, with respect to the transactions contemplated by this Agreement and the Corporation shall indemnify and hold harmless the Purchasers from any liability for any compensation to any Intermediary and the fees and expenses of defending against said liability or alleged liability.
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(u)
Private Placement.
Subject to the truth and accuracy of the Purchaser’s representations and warranties set forth in Section 3.2 at the time of the issuance, the issue by the Corporation of the Securities will be exempt from the registration and prospectus requirements under the Securities Laws. As at the Closing Date, the Common Shares and the Warrant Shares will not be subject to a restricted period or statutory hold period under the Securities Laws or to any resale restrictions under the policies of the TSX which extends beyond four (4) months and one (1) day after the Closing Date (except that such shares sold in the U.S. will be “restricted securities” as defined in Rule 144 under the U.S. Securities Act and, as a consequence, subject to certain restrictions on resale). Neither the Corporation nor any Person acting on its behalf: (i) has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D under the U.S. Securities Act) or any “direct selling efforts” (within the meaning of Regulation S under the U.S. Securities Act) in the United States, in connection with the offer or sale of the Securities; (ii) has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under any circumstances that would require registration of the Securities under the U.S. Securities Act; (iii) except for offers or sales made to Persons outside the United States in accordance with Regulation S under the U.S. Securities Act, has offered or sold the Securities to any Person other than Persons it reasonably believed to be “accredited investors”, as defined in Rule 501(a) under the U.S. Securities Act; or (iv) has issued any Common Shares or shares of any series of preferred stock or other securities or instruments convertible into, exchangeable for or otherwise entitling the holder thereof to acquire Common Shares which would be integrated with the sale of the Securities for purposes of the U.S. Securities Act. The offer and sale to the Investors of the Securities were not made through or as a result of, and the offering of the Securities is not being accompanied by, any advertisement in printed media or printed public media of general and regular paid circulation, radio or television or telecommunications, including electronic display or any other form of general solicitation or advertisement in connection with the offer, sale or purchase of the Securities.
(v)
U.S. Investment Company Act.
The Corporation is not and, after receipt of the proceeds from the sale of the Securities and application of such proceeds as provided herein, will not be, required to register as an “investment company” under the U.S. Investment Company Act of 1940, as amended.
(w)
Foreign Issuer
. The Corporation is a “foreign issuer” and reasonably believes that there is no “substantial U.S. market interest” (as such terms are defined in Regulation S under the U.S. Securities Act) with respect to the Common Shares.
(x)
Listing and Maintenance Requirements.
The Corporation’s Common Shares are listed on the TSX and the Corporation has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the listing of the Common Shares nor has the Corporation received any notification that any Person is contemplating terminating such listing. The Corporation has not, in the 12 months preceding the date hereof, received notice from the TSX to the effect that the Corporation is not in compliance with the listing or maintenance requirements of the TSX. The Corporation is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.
(y)
Takeover Protections
. The Corporation has not entered into a shareholders rights plan agreement or put in place a shareholders rights plan.
(z)
Indebtedness.
The Permanent Information Record sets forth as of the dates thereof all outstanding secured and unsecured Indebtedness of the Corporation, or for which the
12
Corporation has commitments. For the purposes of this Agreement, “
Indebtedness
” shall mean: (a) any liabilities for borrowed money or amounts owed in excess of C$50,000 (other than trade accounts payable and accrued expenses incurred in the ordinary course of business); (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Corporation’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of C$50,000 due under leases required to be capitalized in accordance with GAAP. The Corporation is not in default with respect to any Indebtedness.
(aa)
Tax Status.
With such exceptions as are not material to the Corporation, or except as may otherwise be set forth or contemplated in the Permanent Information Record: (a) the Corporation has duly and on a timely basis filed all tax returns required to be filed by it, has paid all taxes due and payable by it and has paid all assessments and reassessments and all other taxes, governmental charges, penalties, interest and other fines due and payable by it and which are claimed by any governmental authority to be due or owing and adequate provision has been made for taxes payable for any completed fiscal period for which tax returns are not yet required to be filed; (b) all filed tax returns are complete and accurate in all material respects; (c) there are no agreements, waivers or other arrangements providing for an extension of time with respect to the filing of any tax return or payment of any tax, governmental charge or deficiency by the Corporation; (d) there are no actions, suits, proceedings, investigations or claims threatened or pending against the Corporation in respect of taxes, governmental charges or assessments; and (e) there are no matters under discussion with any governmental authority relating to taxes, governmental charges or assessments asserted by any such authority.
(bb)
No Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently existing, or reasonably anticipated by the Corporation to arise, between the accountants and lawyers formerly or presently employed by the Corporation and the Corporation is current with respect to any fees owed to its accountants and lawyers.
(cc)
PFIC.
If the Corporation is a passive foreign investment company during any year in which a Purchaser who is a U.S. person, as defined in the U.S. Internal Revenue Code, holds Common Shares, at such Purchaser’s request, the Corporation will provide the Purchaser with the information needed to report income and gain pursuant to a qualifying electing fund election.
(dd)
Representations and Warranties.
The Corporation acknowledges and agrees that the Purchaser has made no representations and warranties with respect to the Offering, the Debentures and the Units other than as specifically set forth in this Agreement.
3.2
Representations, Warranties and Covenants of the Purchaser.
The Purchaser hereby represents, warrants and covenants to the Corporation and acknowledges that the Corporation is relying thereon that:
(a)
It has been independently advised as to restrictions with respect to trading in the Securities imposed by applicable securities legislation in the jurisdiction in which it resides and any applicable restricted period imposed in respect of the Securities by such securities legislation, and it is aware of the risks and other characteristics of the Securities and of the fact that it may not be able to resell such securities except in accordance with applicable securities legislation and regulatory policy and compliance with the other requirements of applicable law.
13
(b)
It has not received nor has it requested, nor does it have any need to receive, any prospectus or offering memorandum which has been prepared for delivery to, and review by, prospective purchasers in order to assist them in making an investment decision in respect of the Debentures and the Units.
(c)
Except as set forth herein (including the Disclosure Schedules), it has relied solely upon the Permanent Information Record and not upon any verbal or written representation as to fact or otherwise made by or on behalf of the Corporation or any other Person.
(d)
It is resident in the jurisdiction set out on the face on the cover page hereof and such address was not created and is not being used for the sole purpose of acquiring the Debentures and the Units, and it is not purchasing with a view to the resale or distribution of all or any of the Securities in violation of any applicable Securities Laws.
(e)
The Purchaser is purchasing the Securities as principal or is deemed to be purchasing as principal under NI 45-106 and is an “accredited investor” as that term is defined in NI 45-106 for the reason that one (1) of the categories set forth in Schedule 3.2(e) attached hereto correctly and in all respects describes the Purchaser, and the Purchaser has so indicated by checking the box opposite such category on Schedule 3.2(e), and any such Purchaser, by signing this Agreement, is certifying that the statements made by checking the appropriate accredited investor category in Schedule 3.2(e) are true and that it was not created or is not used solely to purchase or hold securities as an accredited investor as described in paragraph (m) of the definition of “accredited investor”.
(f)
If the Purchaser is a U.S. Person or is present in the United States either at the time an offer of the Securities is made to it or when it gives the buy order for the Securities by executing and delivering this Agreement to the Corporation:
(i) it is an “accredited investor” (as defined in Rule 501(a) under the U.S. Securities Act) and as indicated in Schedule 3.2(f);
(ii) is acquiring the Securities for its own account and for investment purposes and not with a view to any resale or other disposition in violation of U.S. securities laws;
(iii) it consents to the Corporation’s stop transfer order, either on the Corporation’s own books or with a transfer agent or registrar, to implement the restrictions on transfer set forth and described herein;
(iv) it has no present contract, undertaking, arrangement or agreement to sell, transfer or grant any participation to any other Person with respect to the Securities;
(v) it has received copies of all the information it has requested from the Corporation that it considers necessary or appropriate for deciding whether to purchase the Securities or to verify the information contained in the Permanent Information Record without causing the Corporation unreasonable effort or expense to deliver such information and has been afforded the opportunity to ask such questions as it deemed necessary of, and to receive answers from, representatives of the Corporation concerning the terms and conditions of the Offering or the Securities;
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(vi) understands and acknowledges that at the Closing Date, the Corporation will deliver certificates representing the Securities to it registered in its name and that such certificates evidencing the Common Shares, any Warrant Shares and any Debenture Shares and all certificates issued in exchange therefor or in substitution thereof, shall bear the following legend, until such time as no longer required under the U.S. Securities Act or applicable state securities laws: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR UNDER ANY U.S. STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF METHYLGENE INC. (THE “CORPORATION”) THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING THE SALE OF SUCH SECURITIES ONLY, WHETHER DIRECTLY OR INDIRECTLY: (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT; OR (C) PURSUANT TO (I) RULE 144 UNDER THE U.S. SECURITIES ACT, IF AVAILABLE OR (II) ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, PROVIDED THAT A LEGAL OPINION SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED, AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR SECURITIES LAWS OF ANY APPLICABLE JURISDICTION. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE “GOOD DELIVERY”, MAY BE OBTAINED FROM COMPUTERSHARE INVESTOR SERVICES INC. UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE CORPORATION AND COMPUTERSHARE INVESTOR SERVICES INC, TO THE EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT;
and until such time as the same is no longer required under applicable requirements of the U.S. Securities Act or applicable state securities laws, certificates representing the Debentures and the Warrants and all certificates issued in exchange therefor or in substitution thereof, shall bear the following legend: THIS DEBENTURE/WARRANT AND THE SECURITIES DELIVERABLE UPON CONVERSION/EXERCISE THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS DEBENTURE/WARRANT MAY NOT BE CONVERTED/EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS THIS DEBENTURE/WARRANT AND THE SECURITIES DELIVERABLE UPON CONVERSION/EXERCISE THEREOF HAVE BEEN
15
REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. THIS DEBENTURE/WARRANT MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, OR (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT;
provided that, if the Securities are being sold under paragraph 3.2(f)(viii)(b) below, and provided that the Corporation is a “foreign issuer” within the meaning of Regulation S under the U.S. Securities Act at the time of sale, the applicable legend may be removed by providing a declaration to Computershare Investor Services Inc., as registrar and transfer agent or warrant agent, in such form as Computershare Investor Services Inc. or the Corporation may from time to time prescribe; provided further, that if any Common Shares, Warrant Shares or Debenture Shares are being sold under paragraph 3.2(f)(viii)(c)(i) below, the applicable legend may be removed by delivery to Computershare Investor Services Inc. of an opinion of counsel, of recognized standing reasonably satisfactory to the Corporation, to the effect that, or such certification or other evidence as the Corporation and Computershare Investor Services Inc. may reasonably require to determine that, such legend is no longer required under applicable requirements of the U.S. Securities Act or state securities laws;
(vii)
it understands and acknowledges that the Securities have not been and will not be registered under the U.S. Securities Act, or the securities laws of any state in the United States, based on an exemption from such registration and that the Corporation’s reliance upon such exemption is predicated in part upon its representations contained herein. It further understands and acknowledges that the Securities may not be resold unless subsequently registered under the U.S. Securities Act or an exemption from such registration is available, that: (a) the Corporation is under no obligation to register any Shares under the U.S. Securities Act; and (b) has no present intention of filing a registration statement under the U.S. Securities Act in respect of the Shares;
(viii)
it understands that the Securities are “restricted securities” as defined in Rule 144 under the U.S. Securities Act and it will, in the absence of an effective registration statement covering the sale of the Securities, only dispose of any Securities: (a) to the Corporation; (b) outside the United States in accordance with Rule 904 of Regulation S under the U.S. Securities Act; or (c) in the case of the Common Shares, Warrant Shares or Debenture Shares, pursuant to (i) the exemption from registration provided by Rule 144 under the U.S. Securities Act, if available, or (ii) another available exemption from the registration requirements of the U.S. Securities Act, subject to such procedures, including provision of a legal opinion of seller’s counsel, as either the seller of the Securities or the Corporation deems necessary to document compliance with the U.S. Securities Act, and in each case in accordance with any applicable state securities laws in the United States or securities laws of any other applicable jurisdiction;
16
(ix) it acknowledges that it has not purchased the Debentures and the Units as a result of any general solicitation or general advertising within the meaning of Regulation D under the U.S. Securities Act, including any advertisement, article, notice, or other communication published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees were invited by general solicitation or general advertising; and
(x) it understands that the Corporation will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements in determining its eligibility to purchase the Securities, and it agrees that, if any of the acknowledgements, representations and agreements made by it, or deemed to have been made by it by its purchase of the Securities, is no longer accurate, it shall promptly notify the Corporation.
(g)
If the Purchaser is not making the representations and warranties in subsection (f), the Purchaser (i) is not a U.S. Person and is not acquiring the Securities for the account or benefit of a U.S. Person and (ii) the offer to it of the Securities was not made in the United States and it was outside the United States when it executed and delivered this Agreement to the Corporation.
(h)
If not an individual, the Purchaser has been duly incorporated or created, as the case may be, and is valid and subsisting under the laws of its jurisdiction of incorporation or creation and has good and sufficient power, authority and right to enter into and deliver this Agreement and to perform its obligations hereunder.
(i)
This Agreement has been duly and validly authorized, executed and delivered by and constitutes a legal, valid, binding and enforceable obligation of the Purchaser, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally or by general principles of equity, the Purchaser has the legal capacity and competence to enter into and be bound by this Agreement and, if the Purchaser is not an individual, all necessary approvals of its directors, shareholders or otherwise have been given and obtained.
(j)
It understands that the sale and delivery of the Debentures and the Units is conditional upon such offering and sale being exempt from the requirements as to the filing of a prospectus or a registration statement and as to the delivery of an offering memorandum or upon the issuance of such orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus or delivering an offering memorandum.
(k)
If required by applicable securities legislation, regulations, rules, policies or orders or by any securities commission, stock exchange or other regulatory authority, the Purchaser will execute, deliver, file and otherwise use commercially reasonable efforts to assist the Corporation in filing, such reports, undertakings and other documents with respect to the Offering as may be required.
(l)
The Purchaser is capable of assessing the proposed investment as a result of the Purchaser’s financial experience or as a result of advice received from a registered person other than the Corporation or any affiliates thereof.
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(m)
The Purchaser acknowledges that its subscription hereunder is part of the Offering and that the Corporation proposes to enter into securities purchase agreements with certain other Investors and expects to complete the sale of Units to them.
(n)
This subscription by the Purchaser is subject to the acceptance of the Corporation and is effective only upon such acceptance.
(o)
The Purchaser has been advised to consult its legal advisors in connection with applicable statutory hold periods and resale restrictions and it (or such others on behalf of whom it is contracting hereunder) is solely responsible (and the Corporation is not in any way responsible) for compliance with applicable hold periods or resale restrictions.
(p)
The Purchaser’s ability to transfer the Securities is limited by, among other things, applicable Securities Laws and by the provisions of the certificates representing the Debentures and the Warrants.
(q)
The certificates representing the Debentures, Common Shares, Warrants and, if issued prior to that date which is four (4) months and one (1) day following the Closing Date, the Warrant Shares will bear, as of the Closing Date, legends as required by and in accordance with
Regulation 45-102 respecting Resale of Securities
(Québec) and the rules of the TSX.
(r)
The funds which will be advanced by the Purchaser to the Corporation or its agent hereunder will not represent proceeds of crime for the purposes of the Proceeds of Crime (Money Laundering) Act (Canada) (the “
PCMLA
”) and the Purchaser acknowledges that the Corporation may in the future be required by law to disclose the Purchaser’s name and other information relating to this Agreement and the Purchaser’s subscription hereunder, on a confidential basis, pursuant to the PCMLA. To the best of its knowledge: (a) none of the subscription funds to be provided by the Purchaser: (i) have been or will be derived from or related to any activity that is deemed criminal under the law of Canada, the United States, or any other jurisdiction; or (ii) are being tendered on behalf of a Person who has not been identified to the Purchaser; and (b) it shall promptly notify the Corporation if the Purchaser discovers that any of such representations ceases to be true, and to provide the Corporation with appropriate information in connection therewith.
(s)
The Purchaser acknowledges that this Agreement requires the Purchaser to provide certain personal information to the Corporation. Such information is being collected by the Corporation for the purposes of completing the Offering, which includes, without limitation, determining the Purchaser’s eligibility to purchase the Debentures and the Units under applicable Securities Laws, preparing and registering certificates representing the Securities to be issued to the Purchaser and completing filings required by any stock exchange or securities regulatory authority. The Purchaser’s personal information may be disclosed by the Corporation to: (i) stock exchanges or securities regulatory authorities; (ii) the Corporation’s registrar and transfer agent; and (iii) any of the other parties involved in the Offering, including legal counsel and may be included in record books in connection with the Offering. By executing this Agreement, the Purchaser is deemed to be consenting to the foregoing collection, use and disclosure of the Purchaser’s personal information. The Purchaser also consents to the filing of copies or originals of any documents as may be required to be filed with any stock exchange or securities regulatory authority in connection with the transactions contemplated hereby.
(t)
For Purchasers of Securities in Ontario, the Purchaser (i) has been notified by the Corporation (A) that the Corporation is required to provide information (“
Personal
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Information
”) pertaining to the Purchaser required to be disclosed in Schedule 1 of Form 45-106F1 under NI 45-106 (including its name, address, telephone number and the number and value of Purchased Shares purchased), which Form 45-106F1 is required to be filed by the Corporation under NI 45-106, (B) that the Personal Information will be delivered to the Ontario Securities Commission (the “
OSC
”) in accordance with NI 45-106, (C) that such Personal Information is being collected indirectly by the OSC under the authority granted to it pursuant to Securities Laws in Ontario, (D) that such Personal Information is being collected for the purposes of the administration and enforcement of Securities Laws in Ontario, and (E) that the public official in Ontario who can answer questions about the OSC’s indirect collection of the Personal Information is the Administrative Support Clerk at the OSC, Suite 1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8, Telephone: (416) 593-3684, and (ii) has authorized the indirect collection of the Personal Information by the OSC. Further, by purchasing the Securities, the Purchaser acknowledges that its name and other specified information, including the number of the Securities it has purchased, may be disclosed to other Canadian securities regulatory authorities and may become available to the public in accordance with the requirements of applicable laws. The Purchaser consents to the disclosure of that information.
(u)
It is aware of the characteristics of the Debentures and the Units, of the speculative nature of this subscription and of the fact that the Securities may not be resold or otherwise disposed of except in accordance with the provisions of the applicable securities legislation.
(v)
It is familiar with the aims and objectives of the Corporation and has been informed of the nature of the Corporation’s activities.
(w)
The Purchaser acknowledges and agrees that the Corporation has made no representations or warranties with respect to the Offering and the Debentures and the Units other than as specifically set forth in this Agreement.
ARTICLE 4
OTHER AGREEMENTS OF THE PARTIES
4.1
Pre-Emptive Right
. In the event that the Corporation proposes to issue any class or series of the equity securities of the Corporation, any voting securities of the Corporation, or any securities convertible or exchangeable into, or entitling purchase of, any of the foregoing (the “
Covered Securities
” and, as such securities may be offered and/or issued from time to time by the Corporation, collectively “
Offered Securities
”), the Corporation shall provide written notice (a “
Pre-emption Notice
”) to Investors having purchased at least C$3,000,000 worth of Units pursuant to the Offering (the “
Pre-emptive Right Investors
”) specifying the terms and conditions of the proposed issue (the “
Covered Offering
”), including the amount of money to be raised, the type of security to be issued, the price per security to be issued and the target completion date. In that event, each Pre-emptive Right Investor shall then have the right, by written notice to the Corporation (the “
Notice of Exercise of Pre- emptive Rights
”) within four (4) Business Days from the date of receipt of the Pre-emption Notice, in the case of a Covered Offering that is a Private Placement, or within two (2) Business Days from the date of the receipt of the Pre-emption Notice in the case of a Covered Offering that is a Public Offering, to subscribe, upon the terms and conditions set forth in the Pre-emption Notice, for up to the number of Offered Securities which is equal to the number of the Offered Securities offered in the Covered Offering in proportion to the aggregate holding of Covered Securities by the Pre-emptive Right Investor in relation to the total number of Covered Securities issued and outstanding immediately prior to the issuance of Offered Securities (the “
Pre-emptive Rights
”) for a period until the earlier of: (i) the date that is 24 months following the Closing Date in the event that the Corporation reports initial topline results for the
19
second to report VVC Phase 2a Trial for MGCD290 on or before the date that is 21 months following the Closing Date; (ii) the date that is three (3) months following the date that the Corporation reports initial topline results from the second to report Phase 2a Trial for MGCD290 in the event that the Corporation reports initial topline results for the second to report Phase 2a Trial for MGCD290 after the date that is 21 months following the Closing Date; or (iii) the date that is 48 months following the Closing Date. The Pre-emptive Rights shall not apply to issuances of Offered Securities pursuant to (i) the Corporation’s stock option plan; (ii) collaboration agreements entered into by the Corporation; (iii) Public Offerings at a price per security at least 100% greater than the Subscription Price; or (iv) the exercise of the Warrants. A Pre-emptive Right Investor shall not be permitted to exercise its Pre-emptive Rights if such exercise would result in such Pre-emptive Right Investor beneficially holding, as defined in section 1.8 of
Regulation 62-104 respecting Take-Over Bids and Issuer Bids
(Québec), an aggregate number of Common Shares representing more than 19.9% of the issued and outstanding Common Shares immediately after giving effect to such exercise.
4.2
Additional Rights.
The Co-Lead Investors shall have a right, but not the obligation, to acquire any Offered Securities that are subject to the Pre-emptive Rights but which are not otherwise purchased by the other Pre-emptive Right Investors (the “
Additional Rights
”). Each of the Co-Lead Investors may exercise its Additional Rights by stating in its Notice of Exercise of Pre-emptive Rights (i) that it shall acquire up to its pro rata share of the Offered Securities which are not otherwise purchased by the other Pre-emptive Right Investors; and (ii) the exact number of Offered Securities to be acquired. Should the Notice of Exercise of Pre-emptive Rights of any Co-Lead Investor not include the information specified in the preceding sentence, any such Co-Lead Investor shall be deemed to waive its Additional Rights. In the event that one of the Co-Lead Investors does not exercise its Additional Rights, the Co- Lead Investor which has exercised its Additional Rights shall have the right, but not the obligation, to acquire the remaining Offered Securities that are subject to the Pre-emptive Rights but that are not otherwise purchased by the other Pre-emptive Right Investors. A Co-Lead Investor shall not be permitted to exercise its Additional Rights if such exercise would result in such Co-Lead Investor beneficially holding, as defined in section 1.8 of
Regulation 62-104 respecting Take-Over Bids and Issuer Bids
(Québec), an aggregate number of Common Shares representing more than 19.9% of the issued and outstanding Common Shares immediately after giving effect to such exercise.
4.3
Rights to Appoint an Observer or a Director.
Each of the Co-Lead Investors shall, for a period of two (2) years following the Closing Date, have the right, but not the obligation to appoint one (1) observer to the Board who shall each have the right to receive notice of and attend the meetings of the Board, and shall each have the right to address the Board at any of its meetings, but who shall not have any right to vote thereat. In addition to appointing an observer, each of the Co-Lead Investors shall, for that same period of two (2) years following the Closing Date, have the right, but not the obligation, to nominate one (1) person to the Board; provided, however that if a Co-Lead Investor’s nominated Board member is not independent from the Co-Lead Investor in question, such Co-Lead Investor’s right to appoint one (1) observer to the Board shall terminate upon the appointment of such nominee to the Board. In the event that a Co-Lead Investors’ nominated Board member resigns his/her Board seat, the right of that Co-Lead Investor to appoint or nominate, as the case may be, an observer or a director to the Board shall continue for the remainder of the two (2) year period following the Closing Date.
4.4
Securities Laws Disclosure; Publicity.
The Corporation shall, within 10 days following the Closing Date, issue a Material Change Report disclosing the material terms of the transactions contemplated hereby. Neither the Corporation nor the Purchaser shall issue any such press release or otherwise make any such public statement in respect of this Offering without prior consultation of the Co- Lead Investors, in the case of the Corporation and the Investors and without the prior consent of the Corporation, in the case of the Purchaser, regarding such public statement or communication, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other
20
party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Corporation shall not publicly disclose the name of the Purchaser without the prior consent of the Purchaser, except: (i) for any public statement or communication incorporating by reference or otherwise the information contained in the Material Change Report described in this Section 4.4; (ii) as required by the U.S. Securities Act; and (iii) to the extent such disclosure is required by Securities Law or the rules and policies of the TSX or otherwise as described in Sections 3.2(r), 3.2(s) and 3.2(t) above, in which case the Corporation shall provide the Purchaser with prior notice of such disclosure permitted under sub- clause (ii) or (iii) to the extent that such prior notice is permitted by law.
4.5
Use of Proceeds.
The Corporation shall use the net proceeds from the sale of the Securities hereunder for the purposes of working capital, research, product development and general corporate purposes as set forth in Schedule 4.5 hereto.
4.6
Survival of Representations and Warranties.
The representations and warranties of the parties contained herein shall survive the date hereof for a period of twelve months from the date hereof except that (i) in the event of fraud, they shall survive indefinitely and (ii) the representations and warranties set forth in Section 3.1(aa) will survive the date hereof for a period of six (6) years from the date hereof and shall in no way be affected by any investigation made by one of the parties.
4.7
Indemnification of Purchaser.
Subject to the provisions of this Section 4.7, the Corporation will indemnify and hold the Purchaser, its Affiliates and their respective directors, officers, shareholders, partners, employees and agents (each, a “
Purchaser Party
”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to: (a) any breach of any of the representations, warranties, covenants or agreements made by the Corporation in the Transaction Documents; or (b) any action instituted against a Purchaser Party by any shareholder of the Corporation who is not an Affiliate of the Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of the Purchaser’s representation, warranties or covenants under the Transaction Documents or any conduct by the Purchaser which constitutes fraud, gross negligence or wilful misconduct). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Corporation in writing, and the Corporation shall have the right to assume the defence thereof with counsel of its own choosing. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defence thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that: (i) the employment thereof has been specifically authorized by the Corporation in writing; (ii) the Corporation has failed after a reasonable period of time to assume such defence and to employ counsel; or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Corporation and the position of such Purchaser Party. The Corporation will not be liable to any Purchaser Party under this Agreement: (i) for any settlement by a Purchaser Party effected without the Corporation’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent that a court of competent jurisdiction in a final judgment from which no appeal can be made shall determine that such Purchaser Party breached, defaulted under or failed to comply with any material representation, warranty, term, condition or covenant of this Agreement.
4.8
Indemnification of Corporation.
Subject to the provisions of this Section 4.8, the Purchaser will indemnify and hold the Corporation, its Affiliates and their respective directors, officers, shareholders, partners, employees and agents (each, a “
Corporation Party
”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of
21
investigation that any such Corporation Party may suffer or incur as a result of or relating to any breach of any of the representations, warranties, covenants or agreements made by the Purchaser in this Agreement or in the other Transaction Documents (unless such action is based upon a breach of the Corporation’s representation, warranties or covenants under the Transaction Documents or any conduct by the Corporation which constitutes fraud, gross negligence or wilful misconduct). If any action shall be brought against any Corporation Party in respect of which indemnity may be sought pursuant to this Agreement, such Corporation Party shall promptly notify the Purchaser in writing, and the Purchaser shall have the right to assume the defence thereof with counsel of its own choosing. Any Corporation Party shall have the right to employ separate counsel in any such action and participate in the defence thereof, but the fees and expenses of such counsel shall be at the expense of such Corporation Party except to the extent that: (i) the employment thereof has been specifically authorized by the Purchaser in writing; (ii) the Purchaser has failed after a reasonable period of time to assume such defence and to employ counsel; or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Purchaser and the position of such Corporation Party. The Purchaser will not be liable to any Corporation Party under this Agreement: (i) for any settlement by a Corporation Party effected without the Purchaser’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent that a court of competent jurisdiction in a final judgment from which no appeal can be made shall determine that such Corporation Party breached, defaulted under or failed to comply with any material representation, warranty, term, condition or covenant of this Agreement.
4.9
Acknowledgment Regarding Purchaser’s Purchase of Securities.
The Corporation acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby. The Corporation further acknowledges that no Investor is acting as a financial advisor or fiduciary of the Corporation (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Investor or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Investors’ purchase of the Securities. The Corporation further represents to the Purchaser that the Corporation’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Corporation and its representatives.
ARTICLE 5
MISCELLANEOUS
5.1
Fees and Expenses.
The Corporation has agreed to reimburse each of the Co-Lead Investors up to C$50,000 concurrent with the Closing upon presentation of detailed invoices in respect of legal and other costs incurred by the Co-Lead Investors in respect of the Offering. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Corporation shall pay all expenses and transfer agent fees and other taxes and duties levied in connection with the delivery of any Securities.
5.2
Entire Agreement.
The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.3
Notices.
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of:
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(a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 4:30 p.m. (Montreal time) on a Business Day; (b) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Business Day or later than 4:30 p.m. (Montreal time) on any Business Day; (c) the second Business Day following the date of mailing, if sent by a recognized overnight courier service; or (d) upon actual receipt by the party to whom such notice is required to be given. Notwithstanding anything herein to the contrary, in the event notice is sent by facsimile transmission, the sending party shall also send such notification by e-mail if the receiving party has included an e-mail address below or on their respective signature page. The address for such notices and communications shall be as follows:
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If to Corporation, to:
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MethylGene Inc.
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7210 Frederick-Banting
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Suite 100
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Montreal, Québec
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H4S 2A1 Canada
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Attention: Mr. Charles Grubsztajn
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President and Chief Executive Officer
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Facsimile: (514) 337-4994
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E-mail address: grubsztajnc@methylgene.com
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and a copy (which shall not constitute notice) to:
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Attention: Mr. Klaus Kepper
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Vice President, Finance and Chief Financial Officer
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Facsimile: (514) 337-4994
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E-mail address: kepperk@methylgene.com
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With a copy (which shall
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not constitute notice) to:
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Davies Ward Phillips & Vineberg LLP
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1501 McGill College Avenue
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Suite 2600
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Montreal, Québec
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H3A 3N9 Canada
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Attention: Olivier Désilets
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Facsimile: (514) 841-6499
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E-mail address: odesilets@dwpv.com
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If to a Purchaser:
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To the address set forth under such Purchaser’s name on the face page hereof;
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or such other address as may be designated in writing hereafter, in the same manner, by such Person.
5.4
Amendments; Waivers.
No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Corporation and each Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this
23
Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.
5.5
Headings.
The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
5.6
Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The parties may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party, except that each party shall be entitled to assign this Agreement without having to obtain the other party’s consent to a transferee who is acquiring all or substantially all the assets of such party and provided that the Corporation may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser prior to the Closing.
5.7
No Third-Party Beneficiaries.
This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.7.
5.8
Governing Law.
All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the laws of the Province of Québec, without regard to the principles of conflicts of law thereof.
5.9
Execution.
This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.
5.10
Severability.
If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.
5.11
Replacement of Securities.
If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Corporation shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Corporation of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities.
5.12
Remedies
. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Corporation will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may
24
not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defence that a remedy at law would be adequate.
5.13
Independent Nature of Purchasers’ Obligations and Rights.
The obligations of each Purchaser under any Transaction Document are joint between such Purchasers and not solidary (being the equivalent, in the Province of Québec, to obligations that are several and not joint in jurisdictions other than Québec) with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents.
5.14
Construction.
The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.
5.15
Language.
The parties hereby request that this Agreement and any related documents be drafted only in the English language.
Les parties requièrent par les présentes que la présente convention ainsi que tous les documents y afférents soient rédigés en langue anglaise seulement.
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SCHEDULE A
Common Shares Purchase Warrants
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE AUGUST [2], 2011.
THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. THIS WARRANT MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, OR (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT.
WARRANT CERTIFICATE Warrants to
Purchase Common Shares of
METHYLGENE INC.
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WARRANT
CERTIFICATE NO. 2011-[ ]
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[ ] WARRANTS entitling the holder to acquire, subject to adjustment, one common share for each whole Warrant represented hereby.
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This certifies that, for value received, [ ] (the “
Holder
”) has acquired and is the registered holder of [ ] warrants (the “
Warrants
”) of MethylGene Inc. (the “
Corporation
”), giving the Holder the right to purchase, upon and subject to the terms and conditions hereinafter referred to, [ ] common shares of the Corporation (the “
Common Shares
”) at a price equal to
$0.1492 per share (the “
Exercise Price Per Warrant
”) on or before 5:00 P.M. (Eastern time) on
April
[1]
, 2016 (the “
Exercise Period
”).
1. The aforesaid right to purchase Common Shares may only be exercised by the Holder within the time required hereinbefore set out, in whole or in part, by (a) surrendering to the Corporation at the address for notice to the Corporation set out in Section 11, or at any other address which from time to time is the principal place of business of the Corporation, the Warrant Certificate, (b) duly completing in the manner indicated and executing the exercise notice in substantially the form attached hereto (the “
Exercise Notice
”), and (c) paying the
appropriate purchase price in Canadian dollars for the Common Shares subscribed for together with requisite share transfer tax, if any, either by certified cheque or bank draft payable at par to the order of the Corporation. Upon compliance by the Holder with the exercise procedures in respect of a Warrant Certificate set forth above in items (a), (b) and (c) (the “
Exercise Date
”), the number of Common Shares subscribed for shall be deemed to have been issued and the person to whom such Common Shares are to be issued shall be deemed to have become the holder of record of such Common Shares on the Exercise Date. Within five days of the Exercise Date, the Corporation shall direct Computershare Investor Services Inc. (or any substitute transfer agent)) to deliver, or shall itself deliver, to the Holder a share certificate for the appropriate number of Common Shares to which the Holder is entitled.
Notwithstanding anything contained herein to the contrary, the Holder may, in its sole discretion, exercise the Warrants in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Corporation upon such exercise in payment of the aggregate Exercise Price Per Warrant (and in exchange for the surrender of the right to receive upon such exercise the Common Shares in excess of the “Net Number” of Common Shares, as described below), elect instead to receive upon such exercise the “Net Number” of Common Shares determined according to the following formula:
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Net Number =
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(A x B) - (A x C)
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B
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For purposes of the foregoing formula:
A= the total number of Common Shares with respect to which this Warrant Certificate is then being exercised.
B= the arithmetic average of the closing price of the Common Shares on the TSX during the five trading days immediately preceding the date of the Exercise Notice.
C= the Exercise Price then in effect for the applicable Common Shares at the time of such exercise.
If the Holder of this Warrant Certificate subscribes for a lesser number of Common Shares than the number of Common Shares referred to in this Warrant Certificate, the said Holder will be entitled to receive a further Warrant Certificate in respect of Common Shares referred to in this Warrant Certificate not subscribed for.
To the extent these Warrants have not previously been exercised as to all of the Common Shares subject hereto, and if the arithmetic average of the closing price of the Common Shares on the TSX during the five trading days immediately preceding the last day of the Exercise Period is greater than the Exercise Price Per Warrant, these Warrants shall be deemed automatically exercised pursuant to this Section 1 (even if not surrendered) immediately prior the expiry of the Exercise Period. To the extent these Warrants or any portion thereof are deemed automatically exercised pursuant to this paragraph, the Corporation agrees to promptly notify the
2
Holder of the number of Common Shares, if any, that the Holder is to receive by reason of such automatic exercise.
[INSERT BLOCKER RIDER, IF APPLICABLE]
2. Any certificate representing the Holder’s Common Shares issued upon the exercise of these Warrants prior to August
[2]
2011 will bear the following legend(s):
“UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE AUGUST
[2]
, 2011.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR UNDER ANY U.S. STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF METHYLGENE INC. (THE “CORPORATION”) THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING THE SALE OF SUCH SECURITIES ONLY, WHETHER DIRECTLY OR INDIRECTLY: (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT; OR (C) PURSUANT TO (I) RULE 144 UNDER THE U.S. SECURITIES ACT, IF AVAILABLE OR (II) ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, PROVIDED THAT A LEGAL OPINION SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR SECURITIES LAW OF ANY APPLICABLE JURISDICTION. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE “GOOD DELIVERY”, MAY BE OBTAINED FROM COMPUTERSHARE INVESTOR SERVICES INC. UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE CORPORATION AND COMPUTERSHARE INVESTOR SERVICES INC, TO THE EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT.”
3. The holding of a Warrant does not constitute the Holder a shareholder of the Corporation, nor entitle the holder to any right or interest in respect thereof except as expressly provided in this Warrant Certificate.
4. The Holder of this Warrant Certificate upon surrender hereof to the Corporation at its principal place of business, may exchange this Warrant Certificate for other Warrant
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Certificates entitling the bearer to purchase in the aggregate the same number of Common Shares referred to in this Warrant Certificate.
5. The Holder hereof, by acceptance of this Warrant Certificate, agrees that this Warrant Certificate and all rights hereunder are not transferable or assignable, in whole or in part, except: (a) to the Corporation, or (b) outside the United States in accordance with rule 904 of Regulation S under the U.S. Securities Act and in compliance with applicable local laws and regulations. The Warrants evidenced by this Warrant Certificate may only be transferred on the register to be kept at the address for notice to the Corporation set out in Section 11, or at any other address which from time to time is the principal place of business of the Corporation, by delivery of a duly executed notice transfer form in the form attached hereto as Exhibit A by the Holder or its attorney to be appointed by an instrument in writing in form and execution satisfactory to the Corporation in compliance with such reasonable requirements as the Corporation may prescribe.
6. Subject in all cases to the TSX’s approval, the number of Common Shares to which the Holder is entitled upon exercise of the Warrants and the Exercise Price Per Warrant shall be subject to adjustment from time to time as follows:
(a) if and whenever at any time from the date hereof and prior to the expiry of the Exercise Period, the Corporation shall:
(i)
subdivide its outstanding Common Shares into a greater number of shares;
(ii)
consolidate its outstanding Common Shares into a smaller number of shares; or
(iii)
fix a record date for the issuance of Common Shares or securities convertible into Common Shares by way of stock dividend or other distribution;
the number of Common Shares to which the Holder is entitled upon exercise of the Warrants shall be adjusted, at no cost to the Holder, immediately after such record date or the effective date of such subdivision, consolidation, stock dividend or other distribution by multiplying the number of Common Shares theretofore obtainable on the exercise thereof by the fraction of which:
(A)
the numerator shall be the total number of Common Shares outstanding, including the Common Shares issuable from convertible securities that are distributed, immediately after such date, and
(B)
the denominator shall be the total number of Common Shares outstanding immediately prior to such date,
and the Exercise Price Per Warrant shall be proportionately adjusted such that the aggregate Exercise Price Per Warrant of this Warrant Certificate shall remain unchanged and
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such adjustments shall be made successively whenever any event referred to in this Subsection shall occur (and all adjustments in this Subsection are cumulative). Any such issuance of Common Shares by way of stock dividend shall be deemed to have been made on the record date for such stock dividend;
(b) if and whenever at any time from the date hereof and ending at the expiry of the Exercise Period, the Corporation shall fix a record date for the issue of rights, options or warrants to all or substantially all of the holders of Common Shares entitling the holders thereof, within a period expiring not more than 45 days after the record date for such issue, to subscribe for or purchase Common Shares (or securities convertible into or exchangeable for Common Shares) at a price per share (or having a conversion or exchange price per share) less than 95% of the Current Market Price (as defined below) on such record date, then the Exercise Price Per Warrant will be adjusted immediately after such record date so that it will equal the rate determined by multiplying the Exercise Price Per Warrant in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date plus the number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of additional Common Shares so offered for subscription or purchase (or the aggregate conversion or exchange price of the convertible or exchangeable securities so offered) by such Current Market Price, and of which the denominator shall be the total number of Common Shares outstanding on such record date plus the total number of additional Common Shares so offered for subscription or purchase (or into or for which the convertible or exchangeable securities so offered are convertible or exchangeable). Any Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation. Such adjustment will be made successively whenever such a record date is fixed, provided that if two or more such record dates or record dates referred to in this paragraph are fixed within a period of 25 trading days, such adjustment will be made successively as if each of such record dates occurred on the earliest of such record dates. To the extent that any such rights, options or warrants are not exercised prior to the expiration thereof, the Exercise Price Per Warrant will then be readjusted to the Exercise Price Per Warrant which would then be in effect based upon the number of Common Shares (or securities convertible into or exchangeable for Common Shares) actually issued upon the exercise of such rights, options or warrants, as the case may be. For the purposes of this Subsection, “Current Market Price” shall mean the volume weighted average trading price of the Common Shares on the TSX (or such other exchange on which the Common Shares are traded) for the five trading days immediately preceding the relevant date;
(c) if and whenever at any time from the date hereof and prior to the expiry of the Exercise Period, the Corporation shall issue or distribute to the holders of all or substantially all of the outstanding Common Shares or set a record date for the issuance or distribution to such holders of any securities of the Corporation including rights, options or warrants to acquire Common Shares or securities convertible into or exchangeable for Common Shares or property or assets including evidences of indebtedness, the holder of any Warrant who thereafter shall exercise his right to subscribe for Common Shares hereunder shall be entitled to receive, at no cost to such holder, and shall accept for the same aggregate consideration, in addition to the Common Shares to which he was theretofore entitled upon such exercise, the kind and amount of shares or other securities or property which such holder would have been entitled to receive as a result of such issue or distribution as if, on the effective date thereof, he had been the registered
5
holder of the number of Common Shares to which he was theretofore entitled upon such exercise;
(d) if and whenever at any time from the date hereof and ending on the expiry of the Exercise Period, there is (i) any reclassification of or amendment to the outstanding Common Shares, any change of the Common Shares into other shares or any other reorganization of the Corporation (other than as described above); (ii) any consolidation, amalgamation, arrangement, merger or other form of business combination of the Corporation with or into any other corporation resulting in any reclassification of the outstanding Common Shares, any change of the Common Shares into other shares or any other reorganization of the Corporation; or (iii) any sale, lease, exchange or transfer of the undertaking or assets of the Corporation as an entirety or substantially as an entirety to another corporation or entity, then, in each such event, each holder of any Warrant which is thereafter exercised will be entitled to receive, and shall accept, in lieu of the number of Common Shares to which such holder was theretofore entitled upon such exercise, the kind and number or amount of shares or other securities or property which such holder would have been entitled to receive as a result of such event if, on the effective date thereof, such holder had been the registered holder of the number of Common Shares to which such holder was theretofore entitled upon such exercise;
(e) appropriate adjustments shall be made as a result of any such subdivision, consolidation, issue or distribution to the rights and interests of the Holder thereafter so that the provisions of this Article shall thereafter apply correspondingly to any shares, other securities or other property thereafter deliverable upon the exercise of any Warrant and any such adjustments shall be made by and set forth in an agreement supplemental hereto approved by the directors and shall for all purposes be conclusively deemed to be an appropriate adjustment;
(f) in any case in which this Section shall require that an adjustment shall become effective immediately after a record date for an event referred to herein, the Corporation may defer, until the occurrence of such event, issuing to the holder of any Warrant exercising his subscription rights after such record date the additional Common Shares or other securities or property issuable upon such exercise by reason of the adjustment required by such event; provided, however, that the Corporation shall deliver to such holder an appropriate instrument evidencing such holder’s right to receive such additional Common Shares, other securities or property, as the case may be, upon the occurrence of the event requiring such adjustment and the right to receive any distributions made on such additional Common Shares, other securities or property, as the case may be, declared in favour of holders of record of Common Shares, other securities or property, as the case may be, on and after the date of exercise or such later date as such holder would but for the provisions of this Subsection, have become the holder of record of such additional Common Shares, other securities or property, as the case may be, pursuant to the due exercise of the Warrants held by such holder;
(g) all shares of any class or other securities or property which the Holder is at the time in question entitled to receive on the full exercise of his Warrant, whether or not as a result of adjustments made pursuant to this Section shall, for the purposes of the interpretation of this Agreement, be deemed to be Common Shares which the Holder is entitled to subscribe for pursuant to the exercise of such Warrant;
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(h) the adjustments provided for in this Section 6 are cumulative and shall, in the case of adjustments to the Exercise Price Per Warrant, be computed to the nearest one-tenth of one cent and shall be made successively whenever an event referred to therein shall occur, subject to the following: (i) no adjustments in the Exercise Price Per Warrant shall be required unless such adjustment would result in a change of at least 1% in the then prevailing Exercise Price Per Warrant and no adjustment shall be made in the number of Common Shares purchasable upon exercise of Warrants unless it would result in a change of at least one one-hundredth of a share; provided, however, that any adjustments which by reason of this Section 6 are not required to be made shall be carried forward and taken into account in any subsequent adjustment; and (ii) if a dispute shall at any time arise with respect to adjustments provided for in this Section 6, such dispute shall be conclusively determined by the Corporation’s auditors, or if they are unable or unwilling to act, by such other firm of independent chartered or public accountants as may be selected by action by the board of directors of the Corporation, and any such determination shall be binding upon the Corporation, the Holder and shareholders of the Corporation. In the event that any such determination is made, the Corporation shall deliver a certificate to the Holder signed by such auditors or accountants describing such determination.
7. The Corporation hereby represents and warrants that it is authorized to create and issue the Warrants and covenants and agrees that it will cause the Common Shares from time to time subscribed for and purchased in the manner provided in this Warrant Certificate and the certificate or certificates representing such Common Shares to be issued and that, at all times prior to the expiry of the Exercise Period, there will remain unissued a sufficient number of Common Shares to satisfy the right of purchase provided for in this Warrant Certificate. All Common Shares which are issued upon the exercise of the right of purchase provided in this Warrant Certificate, upon payment therefor of the amount at which such Common Shares may be purchased pursuant to the provisions of this Warrant Certificate, shall be and be deemed to be fully paid and non-assessable shares and free from all taxes, liens and charges with respect to the issue thereof. The Corporation hereby represents and warrants that this Warrant Certificate is a valid and enforceable obligation of the Corporation, enforceable in accordance with the provisions of this Warrant Certificate.
8. Forthwith following the issuance of this Warrant Certificate, the Corporation will apply for the listing of the Common Shares issuable pursuant to this Warrant Certificate on each securities exchange on which the Common Shares are then listed.
9. The Corporation will not be obligated to issue any fraction of a share on the exercise of Warrants. If the Holder would, on the exercise of Warrants, otherwise have acquired a total number of shares that includes a fraction of a share, the Corporation will pay to the Holder, by cheque, in lieu of and in satisfaction for any right to such fractional share, an amount equal to the equivalent fraction of the market value of such share on the business day immediately preceding the date of such payment.
10. Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of this Warrant Certificate and, if requested by the Corporation, upon delivery of a bond of indemnity satisfactory to the Corporation (or, in the case of mutilation, upon surrender of this Warrant Certificate), the Corporation will issue to the Holder a replacement certificate (containing the same terms and conditions as this Warrant Certificate).
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11. All notices or other communications to be given under this Warrant Certificate shall be delivered by hand or by telecopier and, if delivered by hand, shall be deemed to have been given on the delivery date and, if sent by telecopier, on the date of transmission if sent before 5:00 p.m. on a business day or, if such day is not a business day, on the first business day following the date of transmission.
Notices to the Corporation shall be addressed to:
7210 Frederick-Banting
Suite 100
Montreal, Québec H4S 2A1
Canada
Attention: Chief Financial Officer
Facsimile: (514) 337-0550
Notices to the Holder shall be addressed to the address of the Holder set out in the register kept at the address for notice to the Corporation set out in this Section 11, or at any other address which from time to time is the principal place of business of the Corporation.
The Corporation and the Holder may change its address for service by notice in writing to the other of them specifying its new address for service under this Warrant Certificate.
12. Time will be of the essence hereof.
13. All monies quoted in this Warrant Certificate shall be stated and paid in lawful money of Canada unless otherwise stated.
14. This Warrant Certificate shall be construed in accordance with the laws of the Province of Québec and the federal laws of Canada applicable therein.
15. The parties hereto acknowledge and confirm that they have requested that this Warrant Certificate as well as all notices and other documents contemplated hereby be drawn up in the English language.
Les parties aux présentes reconnaissent et confirment qu’elles ont exigé que la présente convention ainsi que tous les avis et documents qui s’y rattachent soient rédigés en langue anglaise.
THIS WARRANT AND THE SECURITIES DELIVERABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”). OTHER THAN AN ORIGINAL U.S. PURCHASER, THIS WARRANT MAY NOT BE EXERCISED BY ANY U.S. PERSON, BY ANY PERSON IN THE UNITED STATES OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON OR A PERSON IN THE UNITED STATES. AS USED HEREIN, THE TERMS “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANINGS ASCRIBED TO THEM IN REGULATION S UNDER THE U.S. SECURITIES ACT AND “ORIGINAL U.S. PURCHASER” MEANS THE ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(A) OF REGULATION D UNDER THE U.S. SECURITIES ACT WHO FIRST PURCHASED THIS WARRANT.
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IN WITNESS WHEREOF
the Corporation has caused this Warrant Certificate to be signed by its duly authorized officer as of the day of April, 2011.
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METHYLGENE INC.
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Name:
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Title:
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EXHIBIT “A”
TRANSFER FORM
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
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(full name of Transferee)
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(full address of Transferee)
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Warrants of MethylGene Inc. registered in the name of the undersigned on the records of MethylGene Inc. represented by the Warrant Certificate attached
and irrevocably appoints the attorney of the undersigned to transfer the said securities on the books or register with full power of substitution.
DATED the day of , .
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(Signature of Registered Warrantholder)
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Instructions:
1.
The signature of the Warrantholder must be the signature of the person appearing on the face of this Warrant Certificate.
2.
If the Transfer Form is signed by a trustee, executor, administrator, curator, guardian, attorney, officer of a corporation or any person acting in a judiciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Agent and the Corporation.
EXHIBIT “B”
NOTICE OF EXERCISE OF WARRANT FORM
(To be executed only upon exercise of Warrants)
Capitalized terms referred to but not defined herein have such meanings herein as are given thereto in the accompanying Warrant Certificate.
The undersigned registered owner of the accompanying Warrant Certificate hereby elects to exercise of the Warrants represented thereby on and subject to the terms and conditions incorporated by reference in the accompanying Warrant Certificate
The undersigned hereby certifies that the undersigned is either (i) the Original U.S. Purchaser or (ii) not a U.S. Person or a person in the United States, and is not acquiring any of the Shares issuable upon the exercise of the Warrants for the account or benefit of a U.S. Person or a person in the United States, and none of the persons listed below is a U.S. Person or a person in the United States, unless such person is the Original U.S. Purchaser. In addition to this exercise form, an Original U.S. Purchaser must also provide an executed letter, substantially in the form attached as Exhibit “C” to the Warrant. For purposes hereof “United States” and “U.S. Person” shall have the meanings given to such terms in Regulation S under United States Securities Act of 1933, as amended (the “U.S. Securities Act”), and “Original U.S. Purchaser” means the accredited investor within the meaning of Rule 501(a) of Regulation D under the U.S. Securities Act who first purchased the Warrants.
The Holder intends that payment of the Exercise Price shall be made as (check one):
o
a “Cash Exercise”; or
o
a “Cashless Exercise”.
In the event that the Holder has elected a Cash Exercise, the Holder shall pay to
the Corporation the aggregate purchase price of $
in connection with such
exercise, the whole in accordance with the terms of the Warrant Certificate.
The undersigned hereby directs that the Common Shares acquired by it as a result of such exercise be registered as follows:
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Dated:
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(Signature of Registered Owner)
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Address
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3
EXHIBIT “C”
Form of Letter to be Delivered by
Original U.S. Purchaser
upon Exercise of Warrants
MethylGene Inc.
7220 Frederick-Banting Street
Suite 200
St-Laurent, QC H4S 2A1
Canada
- and to -
Computershare Investor Services Inc.
1500 University Street
Suite 700
Montréal, QC H3A 3S8
Canada
Dear Sirs:
I am/We are delivering this letter in connection with the purchase of common shares (the “Shares”) of MethylGene Inc. (the “Corporation”), a corporation existing under the laws of Canada, upon the exercise of warrants of the Corporation (“Warrants”), dated as of April
[1]
, 2011.
We hereby confirm that:
(a)
I am/we are an “accredited investor” within the meaning of Rule 501 (a) of Regulation D under the United States Securities Act of 1933 (the “U.S. Securities Act”);
(b)
I am/we are purchasing the Shares for my/our own account;
(c)
I/we have such knowledge and experience in financial and business matters that I/we am/are capable of evaluating the merits and risks of purchasing the Shares;
(d)
I/we am/are not acquiring the Shares with a view to distribution thereof or with any present intention of offering or selling any of the Shares, except (A) to the Corporation, (B) outside the United States in accordance with Rule 904 under the U.S. Securities Act or (C) (1) or (2) in accordance with (A) Rule 144 under the U.S. Securities Act, if applicable, or (B) another
4
available exemption from registration under the U.S. Securities Act and in each instance compliance with applicable state securities laws;
(e)
I/we acknowledge that I/we have had access to such financial and other information as I/we deem necessary in connection with my/our decision to purchase the Shares; and
(f)
I/we acknowledge that I/we are not purchasing the Shares as a result of any general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio, television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising.
I/We understand that the Shares are being offered in a transaction not involving any public offering within the United States within the meaning of the U.S. Securities Act and that the Shares have not been and will not be registered under the U.S. Securities Act. I/We further understand that any Shares acquired by me/us will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of paragraph (d) above.
I/We acknowledge that you will rely upon my/our confirmations, acknowledgments and agreements set forth herein, and I/we agree to notify you promptly in writing if any of my/our representations or warranties herein ceases to be accurate or complete.
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(Name of Purchaser)
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By:
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Name:
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Title:
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Address:
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5
SCHEDULEB
Unsecured Convertible Debentures
UNLESS PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE JULY 25, 2011
THIS DEBENTURE AND THE SECURITIES DELIVERABLE UPON CONVERSION THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS DEBENTURE MAY NOT BE CONVERTED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS THIS DEBENTURE AND THE SECURITIES DELIVERABLE UPON CONVERSION THEREOF HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. THIS DEBENTURE MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE BORROWER, OR (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT.
Debenture No.
·
MethylGene Inc. (amalgamated under the laws of Canada)
UNSECURED CONVERTIBLE DEBENTURE
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CDN $382,599
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March [24], 2011
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MethylGene Inc. (the “
Borrower
”) for value received, hereby acknowledges itself indebted to and unconditionally promises to pay to or to the order of
[Investor I / Investor II]
(“
·
” and, together with any assignee of
·
in accordance with the terms hereof, and their respective successors and assigns, the “
Holder
”) on demand on the earlier of the Maturity Date (as hereinafter defined) and such earlier date as all, but not less than all, of the Principal Amount (as hereinafter defined) hereof may otherwise become due in accordance with the provisions of this Debenture, the aggregate principal sum of THREE HUNDRED EIGHTY-TWO THOUSAND FIVE HUNDRED NINETY NINE DOLLARS ($382,599) (the “
Principal Amount
”) and interest accrued thereon in accordance with Section 1.1 hereof advanced to the Borrower by the Holder in accordance with the terms hereof, in lawful money of Canada, on presentation and surrender of this Debenture to the Borrower at its registered office.
Unless otherwise indicated, capitalized terms used in this Debenture shall have the respective meanings attributed thereto in
Schedule A
.
ARTICLE 1
PAYMENTS
1.1.
Interest
Interest shall be payable by the Borrower to the Holder in respect of the outstanding Principal Amount at an annual rate of 3% per annum (calculated on a 360 day basis) compounded monthly and payable on the last Business Day of each calendar month until the Maturity Date. For the purposes of the
Interest Act
(Canada) and disclosure thereunder, whenever any interest or any fee to be paid hereunder or in connection herewith is to be calculated on the basis of a 360-day year, the yearly rate of interest to which the rate used in such calculation is equivalent is the rate so used multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by 360.
1.2.
Mandatory Repayment of Principal Amount
Unless payment or conversion is otherwise required or made earlier in accordance with the terms and conditions of this Debenture, on the Maturity Date the full Principal Amount of this Debenture together with interest accrued and unpaid thereon shall be due and payable in a single instalment.
1.3.
Optional Prepayment
The Borrower may only prepay the Principal Amount of this Debenture and pay the interest accrued thereon with the prior written consent of the Holder.
1.4.
Payments Generally
Unless otherwise specifically permitted in this Debenture, all payments made pursuant to this Debenture (in respect of principal or otherwise) shall be made by the Borrower to the Holder by way of certified cheque, bank draft or wire transfer by or on behalf of the Borrower to the account specified therefor by the Holder no later than 5:00 p.m. (Montreal time) on the due date therefor. Any payments received after such time shall be considered, for all purposes, as having been made on the next following Business Day unless the Holder otherwise agrees in writing.
1.5.
Payments - No Deduction
All payments made in respect of this Debenture (including in respect of principal or otherwise) shall be made in full without set-off or counterclaim, and free of and without deduction or withholding for any present or future Taxes, except as required by Applicable Law.
1.6.
Extension of Maturity Date
At its sole discretion, the Holder shall be entitled to extend the Maturity Date, in 30- day increments, to a date that is up to six (6) months from May 23, 2011, upon five (5) days prior written notice to the Borrower. In the event that the Holder extends the Maturity Date in accordance with the terms of this Section 1.6, the Maturity Date shall be changed to such later date.
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1.7.
Taxes
All payments hereunder, whether on account of principal, interest (including amounts deemed to be interest under Applicable Law) or otherwise, shall be made free and clear of and without deduction or withholding for any and all Taxes (excluding any Taxes imposed on or measured by reference to the net income or net profits of the Holder, capital taxes or franchise taxes) (such taxes, other than such excluded taxes, being “
Indemnifiable Taxes
”) unless required by Applicable Law. If any such deduction or withholding of Indemnifiable Taxes is required by such Applicable Law, the payment shall be increased as may be necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to any additional amounts paid under this Section 1.7), the Holder shall receive an amount equal to the amount it would have received if no such deduction or withholding had been made. Borrower shall furnish to the Holder the original or a certified copy of a receipt, if available, or other reasonably acceptable document to the Holder evidencing payment of Indemnifiable Taxes made by it within 30 days after the date of any payment of such Indemnifiable Taxes.
ARTICLE 2
CONVERSION OF DEBENTURE
2.1.
Optional Conversion Right
At any time when this Debenture is not fully repaid or otherwise automatically converted upon the completion of the Financing Transaction pursuant to Section 2.2 hereof, upon the terms and subject to the conditions of this Article, the Holder shall have the right (the “
Conversion Right
”), at its option, to convert all, or any portion, of the Principal Amount (but not the accrued interest thereon) into Units at a price per security equal to the Subscription Price. Any interest accrued on the Principal Amount shall be payable in cash by the Borrower to the Holder on the Date of Conversion.
2.2.
Automatic Conversion
The outstanding Principal Amount of this Debenture (but not the accrued interest thereon) shall, immediately prior to, and on the date of closing of the Financing Transaction (the “
Financing Transaction Completion Date
”) be automatically converted into Units at a conversion price equal to the Subscription Price. Any interest accrued on the Principal Amount shall be payable in cash by the Borrower to the Holder on the Date of Conversion.
2.3.
Manner of Exercise of Conversion Right and Option
The following rules apply with respect to the conversion of any amount payable in accordance with this Debenture:
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2.3.1
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to exercise the Conversion Right, the Holder shall surrender this Debenture at the office of the Borrower in the City of Montreal together with written notice (which shall be irrevocable) in a form satisfactory to the Borrower, acting reasonably, duly executed by the Holder, stating that the Holder elects to convert the Principal Amount (but no accrued interest);
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2.3.2
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upon automatic conversion pursuant to Section 2.2, the Holder shall surrender this Debenture at the office of the Borrower in the City of Montreal;
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2.3.3
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in the case of an exercise of the Conversion Right, the surrender of this Debenture accompanied by the written notice referred to in Subsection 2.3.1 or, in the case of the automatic conversion pursuant to Section 2.2 hereof, the surrender of this Debenture on the Financing Transaction Completion Date, shall be deemed to constitute a contract between the Holder and the Borrower whereby: (i) the Holder subscribes for the number of Units which the Holder shall be entitled to receive on such conversion and the Borrower shall issue such Units to the Holder as fully paid and non-assessable securities in the capital of the Borrower; (ii) the Holder will, at the Borrower’s request in writing and at the cost and expense of the Borrower, release the Borrower from all liability to pay the Principal Amount of this Debenture and any accrued interest, if any; and (iii) the Borrower agrees that the surrender of this Debenture for conversion or the automatic conversion pursuant to Section 2.2 hereof constitutes full payment of the subscription price for the Units;
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2.3.4
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this Debenture will be deemed to be surrendered for conversion on the date (the “
Date of Conversion
”) on which it is so surrendered in accordance with the provisions of this Article 2 or upon automatic conversion pursuant to Section 2.2 hereof and, in the event that this Debenture is surrendered by mail or other means of delivery, on the date on which it is received by the Borrower during regular business hours;
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2.3.5
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the Holder will be entitled to be entered in the books of the Borrower as at the applicable Date of Conversion as the holder of the number of Units into which this Debenture has been converted in accordance with the provisions of this Article and, as soon as practicable thereafter, the Borrower will deliver to the Holder certificates representing Common Shares and Warrants for such Units entered; and
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2.3.6
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with effect as of and from the Date of Conversion, the Borrower will cancel this Debenture and, upon automatic conversion pursuant to Section 2.2 hereof and notwithstanding Subsection 2.3.2 hereof, the Holder agrees that its rights under this Debenture shall be automatically extinguished and that the interest thereon will cease accruing from the Date of Conversion.
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2.4.
No Requirement to Issue Fractional Securities
The Borrower is not required to issue fractional Units upon the conversion of this Debenture. If any fractional interest in a security of the Borrower would, but for the provisions of this Section 2.4, be deliverable upon the conversion of any Principal Amount of this Debenture, the number of Units to which the Holder is entitled upon conversion will be rounded down to the next whole number.
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2.5.
Borrower to Reserve Securities
The Borrower covenants with the Holder that it will at all times reserve and keep available out of its authorized securities, solely for the purpose of issue upon conversion of this Debenture, such number of Units as will then be issuable upon the conversion of the Principal Amount outstanding under this Debenture. The Borrower covenants with the Holder that all Units which will be so issuable, will, on surrender and conversion of this Debenture in accordance with the terms hereof, be duly and validly issued as fully paid and non-assessable securities in the capital of the Borrower.
2.6.
Adjustment Provisions
If, at any time prior to the date on which this Debenture is repaid in full or converted in accordance with the terms hereof, the Borrower:
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2.6.1
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undertakes any reclassification or other change in its share capital or in case of the consolidation, merger, reorganization or amalgamation of the Borrower with or into any other company or entity which results in any reclassification of the shares of the Borrower, or in case of any transfer of the undertaking or assets of the Borrower as an entirety or substantially as an entirety to another person or entity in which the shareholders of the Borrower are entitled to receive shares, other securities or property;
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2.6.2
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subdivides any of its shares into a greater number of shares;
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2.6.3
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consolidates any of its shares into a lesser number of shares; or
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2.6.4
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issue shares or convertible securities or property to holders of shares by way of a distribution on the shares payable in such shares or convertible securities;
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(each, a “
Reorganization
”)
the Holder shall, after the effective date of such Reorganization and upon the conversion of this Debenture, be entitled to receive, and shall accept in lieu of the number of Units to which the Holder was theretofore entitled upon such exercise, the kind and amount of shares and other securities or property which the Holder would have been entitled to receive as a result of such Reorganization if, on the effective date thereof, the Holder had been the registered holder of the number of Units to which the Holder was theretofore entitled upon such conversion. If necessary, appropriate adjustments shall be made in the application of the provisions set forth in this Section 2.6 with respect to the rights and interests thereafter of the Holder to the end that the provisions set forth in this section shall thereafter correspondingly be made applicable as nearly as may be reasonable in relation to any shares or other securities or property thereafter deliverable upon the conversion of this Debenture.
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2.7.
Legends
Any certificate representing the Common Shares and Warrants comprising the Units issued pursuant to this Article 2 shall bear the legends set forth in, and shall be subject to the restrictions on transfer and exercise set forth in, the Securities Purchase Agreement.
ARTICLE 3
SECURITY
3.1.
Security
This Debenture is the Borrower’s general unsecured senior obligations and ranks
pari passu
with the Borrower’s existing and future senior unsecured indebtedness, and ranks senior to all the Borrower’s subordinated indebtedness. This Debenture is effectively subordinated to all the Borrower’s secured indebtedness, if any, to the extent of the value of the assets securing such indebtedness. For so long as the Borrower has any Obligations outstanding, Borrower shall not incur any indebtedness that ranks senior to, or
pari passu
with this Debenture.
ARTICLE 4
DEFAULT
4.1.
Events of Default
The occurrence of any of the following events shall constitute an “
Event of Default
”:
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4.1.1
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if the Borrower defaults in payment of any interest due or any other amount due hereunder and, after notice in writing has been given by the Holder to the Borrower as hereinafter provided for, specifying such default and requiring the Borrower to put an end to the same, the Borrower shall fail to cure such default within a period of five (5) Business Days, unless the Holder shall have agreed to a longer period, and in such event, within the period agreed to by the Holder;
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4.1.2
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if an order shall be made or an effective resolution is passed for the winding-up, liquidation of either one of the Borrower or in the event of any liquidation of either one of the Borrower by operation of law; or
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4.1.3
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if the Borrower shall neglect to observe or perform any Obligation or other obligation, covenant or condition contained in this Debenture to be observed or performed by it and, after notice in writing has been given by the Holder to the Borrower as hereinafter provided for, specifying such default and requiring the Borrower to put an end to the same, the Borrower shall fail to cure such default within a period of five (5) Business Days, unless the Holder shall have agreed to a longer period, and in such event, within the period agreed to by the Holder.
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4.2.
Acceleration on Default
In the case of any Event of Default, the Principal Amount of and interest on the Debenture then outstanding shall forthwith become immediately due and payable to the Holder, and the
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Borrower shall forthwith pay to the Holder the Principal Amount of and any and all accrued and unpaid interest on the Debenture from the date of the said Event of Default until payment is received by the Holder. Such payment when made shall be deemed to have been made in discharge of the Borrower’s obligations hereunder.
4.3.
Notice of Events of Default
The Borrower shall promptly notify the Holder of an Event of Default or any event which, with notice or lapse of time or both, would constitute an Event of Default hereunder.
Where notice of the occurrence of an Event of Default has been given and the Event of Default is thereafter cured, notice in writing that the Event of Default is no longer continuing shall be given by the Borrower to the Holder within a reasonable time, but not exceeding ten (10) days, after the Borrower becomes aware that the Event of Default has been cured.
ARTICLE 5
GENERAL
5.1.
Replacement of Debenture
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5.1.1
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In case this Debenture shall become mutilated or be lost, destroyed or stolen, the Borrower shall issue, and thereupon deliver, a new Debenture of like tenor as the one mutilated, lost, destroyed or stolen in exchange for and upon surrender and cancellation of such mutilated Debenture or in lieu of and in substitution for such lost, destroyed or stolen Debenture, and the new Debenture shall be entitled to the benefit hereof and rank equally in accordance with its terms with all other Debentures.
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5.1.2
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The applicant for the issue of a new Debenture pursuant to this section shall bear the cost of the issue thereof and in case of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to the Borrower a certificate of one of its officers attesting of the ownership and of the loss, destruction or theft of the Debenture so lost, destroyed or stolen and such applicant shall pay the reasonable charges of the Borrower in connection therewith.
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5.2.
Schedules, etc.
The following schedule is attached to, and forms part of, this Debenture:
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Schedule A
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Definitions.
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5.3.
Amendment and Waiver
No amendment or waiver of any provision of this Debenture or consent to any departure by the Borrower from any provision thereof is effective unless it is in writing and signed by the Holder. Such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given.
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5.4.
Invalidity, etc.
Each of the provisions contained in this Debenture is distinct and severable and a declaration of invalidity, illegality or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof.
5.5.
Governing Law
This Debenture shall be governed by and construed in accordance with the laws of the Province of Québec and the federal laws of Canada applicable therein.
5.6.
Actions on Days Other Than Business Days
Except as otherwise specifically provided herein, where any payment is required to be made or any other action is required to be taken on a particular day and such day is not a Business Day and, as a result, such payment cannot be made or action cannot be taken on such day, then this Debenture shall be deemed to provide that such payment shall be made or such action shall be taken on the first Business Day after such day.
5.7.
Reliance and Non-Merger
All covenants, agreements, representations and warranties of the Borrower made herein or in any other Transaction Document to which such Person is a party or in any certificate or other document signed by any of their respective directors or officers and delivered by or on behalf of the Borrower pursuant hereto or thereto are material, shall be deemed to have been relied upon by the Holder notwithstanding any investigation heretofore or hereafter made by the Holder or counsel to or any employee or other representative of any of the Holder and shall survive the execution and delivery of this Debenture and the other Transaction Documents until the Borrower shall have satisfied and performed all of their obligations under the Transaction Documents.
5.8.
Notices
Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by facsimile or other means of electronic communication or by hand-delivery as hereinafter provided. Any such notice, if sent by facsimile or other means of electronic communication, shall be deemed to have been received on the day of sending, or if delivered by hand shall be deemed to have been received at the time it is delivered to the applicable address noted below. This section shall also govern notice of change of address. Notices and other communications shall be addressed as follows:
if to the Borrower, at:
7210 Frederick-Banting, Suite 100
Montreal, Québec H4S 2A1
Telecopier:
(514) 337-4994
Attention:
Vice President, Finance and Chief Financial Officer
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with a copy (but which shall not constitute notice) to:
Davies Ward Phillips & Vineberg LLP
1501 McGill College Avenue, 26
th
Floor
Montreal, Québec H3A 3N9
Telecopier:
(514) 841-6499
Attention:
Olivier Désilets
if to
·
, at:
·
Telecopier:
·
Attention:
·
with a copy (but which shall not constitute notice) to:
·
or, for each party, to any other address or any other telecopier number which may be designated by such party in a written notice transmitted to the other parties.
5.9.
Entire Agreement
This Debenture, together with the Securities Purchase Agreement, constitutes the entire agreement between the parties pertaining to the subject matter described therein. There are no warranties, conditions, or representations (including any that may be implied by statute) and there are no agreements in connection with such subject matter except as specifically set forth or referred to in this Debenture or in the Securities Purchase Agreement.
5.10.
Assignment
5.10.1
This Debenture shall enure to the benefit of the Holder and be binding upon the Holder and the Borrower, in each case together with their respective successors and any permitted assignees of some or all of the parties’ rights or obligations under this Debenture.
5.10.2
The Borrower shall not assign all or any part of their obligations under this Debenture without the prior written consent of the Holder.
5.11.
Currency
Except as otherwise specifically stated, all amounts referred to in this Debenture are stated and are to be paid in lawful money of Canada.
9
5.12.
Counterparts
This Debenture may be signed in counterpart and by facsimile, all counterparts together constituting the whole of this Debenture.
[The signature page follows immediately]
10
IN WITNESS WHEREOF
the parties have executed this Debenture this 24
th
day of
March, 2011.
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METHYLGENE INC.
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By:
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By:
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Name:
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Name:
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Title:
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Title:
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11
SCHEDULE A
Definitions
For the purposes of this Debenture:
“
Applicable Law
” means, in respect of any Person, property, transaction, event or course of conduct, all applicable laws, statutes, rules, by-laws and regulations, regulatory policies and all applicable official directives, orders, judgments and decrees of Governmental Authorities;
“
Borrower
” has the meaning attributed thereto in the first paragraph of this Debenture;
“
Business Day
” means any day other than a Saturday or Sunday on which Canadian chartered banks are open for business in Montreal, Québec;
“
Common Shares
” has the meaning attributed thereto in the Securities Purchase Agreement; “
Conversion Right
” has the meaning attributed thereto in Section 2.1;
“
Date of Conversion
” has the meaning attributed thereto in Subsection 2.3.4;
“
Debenture
” means this unsecured convertible debenture and all schedules attached hereto, as same may be amended, restated or replaced from time to time; the expressions “
hereof
”, “
herein
”, “
hereto
”, “
hereunder
”, “
hereby
” and similar expressions refer to this Debenture as a whole and not to any particular article, section, schedule, or other portion hereof;
“
Event of Default
” has the meaning attributed thereto in Section 4.1;
“
Financing Transaction
” means, in the aggregate, the financing transactions contemplated by the terms of the Securities Purchase Agreement;
“
Financing Transaction Completion Date
” has the meaning attributed thereto in Section 2.2;
“
Governmental Authority
” means any government, parliament, legislature, or any regulatory
authority, agency, commission or board of any government, parliament or legislature, or any court or
(without limitation to the foregoing) any other law, regulation or rule-making entity (including, without limitation, any stock exchange, securities regulatory authority, central bank, fiscal or monetary authority or authority regulating banks), having jurisdiction in the relevant circumstances;
“
Holder
” has the meaning attributed thereto in the first paragraph of this Debenture; “
Indemnifiable Taxes
” has the meaning attributed thereto in Section 1.7;
“
Maturity Date
” means May 23, 2011, or such earlier date as the Principal Amount of this Debenture and any accrued but unpaid interest thereon may become due hereunder, or such later date in accordance with Section 1.6 hereof;
12
“
Obligations
” means all indebtedness, liabilities and other obligations of the Borrower to the Holder hereunder, in each case, whether actual or contingent, direct or indirect, matured or not, now existing or hereafter arising;
“
Principal Amount
” has the meaning attributed to such term in the first paragraph of this Debenture, as decreased pursuant to the terms and conditions of this Debenture;
“
Person
” has the meaning attributed thereto in the Securities Purchase Agreement;
“
Reorganization
” has the meaning attributed thereto in Section 2.6;
“
Securities Purchase Agreement
” means the Securities Purchase Agreement dated the date hereof between the Borrower, on the one hand, and the Holder, on the other hand, including the “Terms and Conditions of Subscription for Common Shares and Warrants of MethylGene Inc.” and schedules thereto, which are incorporated therein;
“
Subscription Price
” has the meaning ascribed thereto in the Securities Purchase Agreement;
“
Taxes
” includes any taxes, duties, assessments, imposts and levies imposed by any Governmental
Authority and includes all
interest
, penalties, fines, additions to tax or other additional amounts
imposed by any Governmental Authority including those levied on, or measured by, or referred to as, income, gross receipts, profits, capital, transfer, land transfer, sales, goods and services, harmonized sales, use, value-added, excise, withholding, business, property, occupancy, employer health, payroll, employment, health, social services, education and social security taxes, all surtaxes, all customs duties and import and export taxes, countervail and anti-dumping and all employment insurance, health insurance and Canada, Québec and other government pension plan and other employer plan premiums, contributions or withholdings;
“
Transaction Documents
” means the Securities Purchase Agreement and the Warrants;
“
Units
” has the meaning attributed thereto in the Securities Purchase Agreement; and
“
Warrants
” has the meaning attributed thereto in the Securities Purchase Agreement.
13
SCHEDULE 1
Permitted Liens
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Registration
number
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Registration Date
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Nature
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Expiration Date
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Amount
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Parties
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Description of Property (Summary)
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Comments
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1.
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06-0248983-0009
May 5, 2006
November 4, 2011
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Rights of ownership of the lessor
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Lessor:
Citicorp Vendor Finance Ltd.; Citicorp Finance Vendeur Ltée
Lessee:
MethylGene Inc.
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1-COPIER PANASONIC WORKIO DP6030 1-MODULE DE FINITION 2 CASES WITH ALL ATTACHMENTS, ACCESSORIES AND PROCEEDS THEREOF INCLUDING INSURANCE PROCEEDS AND INDEMNITIES.
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Deed under private writing dated May 4, 2006.
Lease term is 66 months. The quarterly lease payment is $1,676.09 plus applicable taxes
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2.
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10-0047659-0003
January 28, 2010
January 26, 2014
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Rights resulting from a lease and assignment of rights
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Lessor:
Panasonic Document Systems Direct
Lessee:
MethylGene Inc.
Assignee:
De Lage Landen Financial Services Canada Inc.
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Copier - Digital Copieur - Numerique ALL GOODS SUPPLIED BY THE SECURED PARTY TO THE DEBTOR, TOGETHER WITH ALL ATTACHMENTS, ACCESSORIES, ACCESSIONS, REPLACEMENTS, SUBSTITUTIONS, ADDITIONS AND IMPROVEMENTS TO THE FOREGOING. PROCEEDS: GOODS, CHATTEL PAPER, SECURITIES, ACCOUNTS, INVENTORY, DOCUMENTS OF TITLE, INSTRUMENTS, MONEY, CROPS, LICENCES AND INTANGIBLES.
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Deed under private writing dated January 26, 2010.
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3.
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10-0320513-0001
May 19, 2010
May 19, 2020
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Conventional hypothec without delivery
$215,000
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Creditor:
GE Q-Tech Real Estate Holdings Inc.
Debtors:
7503547 Canada Inc.
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The universality of all of 7503547 Canada Inc.(the “Grantor”) Movable Property, present or future, corporeal or incorporeal, situated in, on about or near the Premises.
Definitions
“Movable Property” means all movable property, furniture, stock-in-trade, inventory, trade fixtures and equipment of whatsoever nature or kind, present or future, situated in, on, about or near the Premises, including, without limitation, sums of money, shares, bonds, other securities, works of art, books and records and all indemnities payable pursuant to and rights resulting from all contracts of insurance relating to the aforesaid property. “Premises” means those certain premises measuring approximately 9,302 square feet, located on the second floor of the building bearing the civic address: 7220 Frederick-Banting in the City of Saint-Laurent, in the Province of Quebec, the whole as more specifically described in the Lease.
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Deed under private writing dated May 19, 2010.
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Registration
number
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Registration Date
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Nature
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Expiration Date
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Amount
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Parties
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Description of Property (Summary)
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Comments
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4.
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10-0320513-0002
May 19, 2010
May 19, 2020
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Conventional hypothec without delivery
$215,000
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Creditor:
GE Q-Tech Real Estate Holdings Inc.
Debtors:
7503547 Canada Inc.
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The universality of all of 7503547 Canada Inc.(the “Grantor”) Movable Property, present or future, corporeal or incorporeal, situated in, on about or near the Premises.
Definitions
“Movable Property” means all movable property, furniture, stock-in-trade, inventory, trade fixtures and equipment of whatsoever nature or kind, present or future, situated in, on, about or near the Premises, including, without limitation, sums of money, shares, bonds, other securities, works of art, books and records and all indemnities payable pursuant to and rights resulting from all contracts of insurance relating to the aforesaid property, but excluding any rights in and to any intellectual property owned by or licensed to the Grantor or in which the Grantor has any rights, including, without limitation, patents, trade-marks, inventions, copyrights and rights under license agreements, distribution agreements and manufacturing agreements. “Premises” means those certain premises measuring approximately 9,900 square feet, located on the second floor of the building bearing the civic address: 7210 Frederick-Banting in the City of Saint-Laurent, in the Province of Quebec, the whole as more specifically described in the Lease.
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Deed under private writing dated May 19, 2010.
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2
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Registration
number
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Registration Date
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Nature
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Expiration Date
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Amount
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Parties
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Description of Property (Summary)
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Comments
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5.
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10-0320513-0003
May 19, 2010
May 19, 2020
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Conventional hypothec without delivery
$346,000
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Creditor:
GE Q-Tech Real Estate Holdings Inc.
Debtors:
7503547 Canada Inc.
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The universality of all of 7503547 Canada Inc.(the “Grantor”) Movable Property, present or future, corporeal or incorporeal, situated in, on about or near the Premises.
Definitions
“Movable Property” means all movable property, furniture, stock-in-trade, inventory, trade fixtures and equipment of whatsoever nature or kind, present or future, situated in, on, about or near the Premises, including, without limitation, sums of money, shares, bonds, other securities, works of art, books and records and all indemnities payable pursuant to and rights resulting from all contracts of insurance relating to the aforesaid property, but excluding any rights in and to any intellectual property owned by or licensed to the Grantor or in which the Grantor has any rights, including, without limitation, patents, trade-marks, inventions, copyrights and rights under license agreements, distribution agreements and manufacturing agreements. “Premises” means those certain premises measuring approximately 11,092 square feet, located on the first floor of the building bearing the civic address: 2525, Marie-Curie Street in the City of Saint-Laurent, in the Province of Quebec, the whole as more specifically described in the Lease.
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Deed under private writing dated May 19, 2010.
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3
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Registration
number
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Registration Date
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Nature
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Expiration Date
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Amount
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Parties
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Description of Property (Summary)
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Comments
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6.
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10-0328883-0001
May 25, 2010
May 19, 2010
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Conventional hypothec without delivery
$66,000
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Creditor:
The Toronto- Dominion Bank — 03611C
Debtor:
MethylGene Inc.
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$55,004.00 BANKERS ACCEPTANCES ISSUED BY THE TORONTO-DOMINION BANK All securities, which may or may not be listed above, lodged or delivered to the creditor in substitution therefore and/or as an additional security, which are and shall be held by the creditor as continuing collateral security, all securities which may be issued in case of a sale, repurchase, conversion, cancellation or any other transformation of the above-described assets; all securities which may be delivered to the Creditor from time to time; and the repurchase value or any other rights related to these assets. All fruits and revenues, present and future, emanating from the above charged property, negotiable instruments, bills, commercial paper, securities, monies, compensation for expropriation given or paid following a sale, repurchase, distribution or any other operation concerning any property hereby charged in favour of the creditor or which has been charged under any other deed.
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Deed under private writing dated May 19, 2010.
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4
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Registration
number
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Registration Date
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Nature
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Expiration Date
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Amount
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Parties
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Description of Property (Summary)
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Comments
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7.
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10-0328883-0002
May 25, 2010
May 19, 2010
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Conventional hypothec without delivery
$1,200,000
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Creditor:
The Toronto- Dominion Bank — 03611C
Debtor:
MethylGene Inc.
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$1,000,070.00 BANKERS ACCEPTANCES ISSUED BY THE TORONTO-DOMINION BANK All securities, which may or may not be listed above, lodged or delivered to the creditor in substitution therefore and/or as an additional security, which are and shall be held by the creditor as continuing collateral security, all securities which may be issued in case of a sale, repurchase, conversion, cancellation or any other transformation of the above-described assets; all securities which may be delivered to the Creditor from time to time; and the repurchase value or any other rights related to these assets. All fruits and revenues, present and future, emanating from the above charged property, negotiable instruments, bills, commercial paper, securities, monies, compensation for expropriation given or paid following a sale, repurchase, distribution or any other operation concerning any property hereby charged in favour of the creditor or which has been charged under any other deed.
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Deed under private writing dated May 19, 2010.
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5
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Registration
number
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Registration Date
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Nature
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Expiration Date
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Amount
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Parties
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Description of Property (Summary)
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Comments
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8.
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10-0328883-0003
May 25, 2010
May 19, 2010
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Conventional hypothec without delivery
$415,200
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Creditor:
The Toronto- Dominion Bank — 03611C
Debtor:
MethylGene Inc.
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$346,025.00 BANKERS ACCEPTANCES ISSUED BY THE TORONTO-DOMINION BANK All securities, which may or may not be listed above, lodged or delivered to the creditor in substitution therefore and/or as an additional security, which are and shall be held by the creditor as continuing collateral security, all securities which may be issued in case of a sale, repurchase, conversion, cancellation or any other transformation of the above-described assets; all securities which may be delivered to the Creditor from time to time; and the repurchase value or any other rights related to these assets. All fruits and revenues, present and future, emanating from the above charged property, negotiable instruments, bills, commercial paper, securities, monies, compensation for expropriation given or paid following a sale, repurchase, distribution or any other operation concerning any property hereby charged in favour of the creditor or which has been charged under any other deed.
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Deed under private writing dated May 19, 2010.
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6
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Registration
number
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Registration Date
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Nature
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Expiration Date
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Amount
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Parties
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Description of Property (Summary)
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Comments
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9.
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10-0328883-0004
May 25, 2010
May 19, 2010
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Conventional hypothec without delivery
$240,000.00
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Creditor:
The Toronto- Dominion Bank — 03611C
Debtor:
MethylGene Inc.
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$200,014.00 BANKERS ACCEPTANCES ISSUED BY THE TORONTO-DOMINION BANK All securities, which may or may not be listed above, lodged or delivered to the creditor in substitution therefore and/or as an additional security, which are and shall be held by the creditor as continuing collateral security, all securities which may be issued in case of a sale, repurchase, conversion, cancellation or any other transformation of the above-described assets; all securities which may be delivered to the Creditor from time to time; and the repurchase value or any other rights related to these assets. All fruits and revenues, present and future, emanating from the above charged property, negotiable instruments, bills, commercial paper, securities, monies, compensation for expropriation given or paid following a sale, repurchase, distribution or any other operation concerning any property hereby charged in favour of the creditor or which has been charged under any other deed.
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Deed under private writing dated May 19, 2010.
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7
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Registration
number
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Registration Date
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Nature
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Expiration Date
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Amount
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Parties
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Description of Property (Summary)
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Comments
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10.
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10-0328883-0005
May 25, 2010
May 19, 2010
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Conventional
hypothec without delivery
$60,750.00
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Creditor:
The Toronto-Dominion Bank —03611C
Debtor:
MethylGene Inc.
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$50,629.00 BANKERS ACCEPTANCES ISSUED BY THE TORONTO-DOMINION BANK All securities, which may or may not be listed above, lodged or delivered to the creditor in substitution therefore and/or as an additional security, which are and shall be held by the creditor as continuing collateral security, all securities which may be issued in case of a sale, repurchase, conversion, cancellation or any other transformation of the above-described assets; all securities which may be delivered to the Creditor from time to time; and the repurchase value or any other rights related to these assets. All fruits and revenues, present and future, emanating from the above charged property, negotiable instruments, bills, commercial paper, securities, monies, compensation for expropriation given or paid following a sale, repurchase, distribution or any other operation concerning any property hereby charged in favour of the creditor or which has been charged under any other deed.
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Deed under private writing dated May 19, 2010.
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8
SCHEDULE 2.3(c)(vi)
Corporation Counsel Opinion
See attached.
SCHEDULE 3.1(g)
Capitalization of the Corporation
Issued and outstanding Common Shares: 40,418,580
Authorized stock options: 4,072,175
Issued stock options: 1,545,976
SCHEDULE 3.1(j)
Litigation
Certain directors and officers of the Corporation have been imposed fees for late filings of insider reports.
SCHEDULE 3.2(e)
ACCREDITED INVESTOR
The Purchaser, and (if applicable) each beneficial purchaser on whose behalf it is contracting under this Securities Purchase Agreement, is an “accredited investor”, as such term is defined in National Instrument 45-106 –
Prospectus and Registration Exemptions
, for the reason that it is (
please check the applicable category
):
o
(a)
a Canadian financial institution, or an authorized foreign bank named in Schedule III of the
Bank Act
(Canada);
o
(b)
the Business Development Bank of Canada incorporated under the
Business Development Bank of Canada Act
(Canada);
o
(c)
a subsidiary of any person referred to in paragraph (a) or (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary;
o
(d)
a person registered under the securities legislation of a jurisdiction of Canada, as an advisor or dealer, other than a person registered solely as a limited market dealer under one or both of the
Securities Act
(Ontario) or the
Securities Act
(Newfoundland and Labrador);
o
(e)
an individual registered or formerly registered under the securities legislation of a jurisdiction of Canada, as a representative of a person referred to in paragraph (d);
o
(f)
the government of Canada or a jurisdiction of Canada, or any Crown corporation, agency or wholly-owned entity of the government of Canada or a jurisdiction of Canada;
o
(g)
a municipality, public board or commission in Canada and a metropolitan community, school board, the Comité de gestion de la taxe scolaire de l’île de Montréal or an intermunicipal management board in Québec;
o
(h)
any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government;
o
(i)
a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a pension commission or similar regulatory authority of a jurisdiction of Canada;
o
(j)
an individual who, either alone or with a spouse, beneficially owns, directly or indirectly, financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds C$1,000,000;
o
(k)
an individual whose net income before taxes exceeded C$200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded C$300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year;
o
(l)
an individual who, either alone or with a spouse, has net assets of at least C$5,000,000;
o
(m)
a person, other than an individual or investment fund, that has net assets of at least C$5,000,000 as shown on its most recently prepared financial statements;
o
(n)
an investment fund that distributes or has distributed its securities only to:
(i) a person that is or was an accredited investor at the time of the distribution;
(ii) a person that acquires or acquired the securities as principal, with an acquisition cost to the person of not less than C$150,000 paid in cash at the time of the trade, or where such person holds securities of the investment fund with an acquisition cost or net asset value of not less than C$150,000 as at the date of a subsequent trade in further securities of the same class or series; or
(iii) a person described in paragraph (i) or (ii) who is a security holder of an investment fund and acquires or acquired the following securities of an investment fund, if the trades are permitted by the plan of the investment fund: (A) securities of the investment fund if dividends or distributions out of earnings, surplus, capital or other sources payable in respect of the investment fund’s securities are applied to the purchase of the security that is of the same class or series as the securities to which the dividends or distributions out of earnings, surplus, capital or other sources are attributable; or (B) securities of the investment fund if the security holder makes optional cash payments to purchase the security of the investment fund that is of the same class or series of securities described in (A) that trade on a marketplace and the aggregate number of securities issued under the optimal cash payment did not exceed, in any financial year of the investment fund during which the trade takes place, 2% of the issued and outstanding securities of the class to which the plan relates as at the beginning of the financial year;
o
(o)
an investment fund that distributes or has distributed securities under a prospectus in a jurisdiction of Canada for which the regulator or, in Québec, the securities regulatory authority, has issued a receipt;
o
(p)
a trust company or trust corporation registered or authorized to carry on business under the
Trust and Loan Companies Act
(Canada) or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed account managed by the trust company or trust corporation, as the case may be;
o
(q)
a person acting on behalf of a fully managed account managed by that person, if that person (i) is registered or authorized to carry on business as an advisor or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction; and (ii) in Ontario, is purchasing a security that is not a security of an investment fund;
o
(r)
a registered charity under the
Income Tax Act
(Canada) that, in regard to the trade, has obtained advice from an eligibility advisor or an advisor registered under the securities legislation of the jurisdiction of the registered charity to give advice on the securities being traded;
o
(s)
an entity organized in a foreign jurisdiction that is analogous to any of the entities referred to in paragraphs (a) through (d) and paragraph (i) in form and function;
o
(t)
a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors;
o
(u)
an investment fund that is advised by a person registered as an advisor or a person that is exempt from registration as an advisor; or
2
o
(v)
a person that is recognized or designated by the securities regulatory authority or, except in Ontario and Québec, the regulator, as an accredited investor or, in Alberta or British Columbia, an exempt purchaser.
For the purposes hereof, all reference to “C$” in this
Schedule 3.2(e)
are to Canadian dollars unless otherwise specified and the following definitions are included for convenience:
“
financial assets
” means cash, securities or a contract of insurance, a deposit or an evidence of a deposit that is not a security for the purposes of securities legislation;
“
fully managed account
” means an account of a client for which a person makes the investment decisions if that person has full discretion to trade in securities for the account without requiring the client’s express consent to a transaction;
“
investment fund
” means a mutual fund or a non-redeemable investment fund, and, for greater certainty in British Columbia, includes an employee venture capital corporation that does not have a restricted constitution, and is registered under Part 2 of the
Employee Investment Act
(British Columbia), and whose business objective is making multiple investments and a venture capital corporation registered under Part 1 of the
Small Business Venture Capital Act
(British Columbia), whose business objective is making multiple investments;
“
person
” includes (a) an individual; (b) a corporation; (c) a partnership, trust, fund and an association, syndicate, organization or other organized group of persons, whether incorporated or not; and (d) an individual or other person in that person’s capacity as trustee, executor, administrator or personal or other legal representative; and
“
related liabilities
” means: (a) liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets; or (b) liabilities that are secured by financial assets.
3
SCHEDULE 3.2(f)
U.S. ACCREDITED INVESTOR
(PLEASE CHECK THE APPLICABLE CATEGORY)
“Accredited Investor” means any entity that comes within any of the following categories at the time of the sale of the Securities to such person or entity:
o
Any
bank
as defined in section 3(a)(2) of the U.S. Securities Act, or any
savings and loan association
or other institution as defined in section 3(a)(5)(A) of the U.S. Securities Act whether acting in its individual or fiduciary capacity;
o
any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934;
o
Any
insurance
company as defined in section 2(a)(13) of the U.S. Securities Act;
o
Any
investment company
registered under the Investment Company Act of 1940 or any
business development company
as defined in section 2(a)(48) of that Act;
o
Any
Small Business Investment
Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958;
o
Any
plan
established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees if such plan has total assets in excess of U.S.$5,000,000;
o
Any
employee benefit plan
within the meaning of title I of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a
plan fiduciary,
as defined in section 3(21) of such Act, which is either a bank, savings and loan association, insurance company or registered investment advisor, or if the employee benefit plan has total assets in excess of U.S.$5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
o
Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
o
Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of U.S.$5,000,000;
o
Any trust, with total assets in excess of U.S.$5,000,000 not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii);
o
Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds U.S.$ 1,000,000, excluding the value of the primary residence of such natural person, calculated by subtracting from the estimated fair market value of the property the amount of debt secured by the property, up to the estimated fair market value of the property;
o
Any natural person who had individual income in excess of U.S.$ 200,000 in each of the two most recent years or joint income with that person’s spouse in excess of U.S.$ 300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
o
Any director, executive officer, or general partner of the issuer of the securities being sold, or any director, executive officer, or general partner of a general partner of that issuer; or
o
Any entity in which all of the equity owners are accredited investors. (If this box is checked, each equity owner of the Purchaser may be required to complete and execute a separate Securities Purchase Agreement.
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SCHEDULE 4.5
Use of Proceeds
Conduct both acute and chronic VVC Phase 2a Trial for MGCD290 and phase 2a trial for 265 programs; and general corporate purposes.
Exhibit 10.2
FORM OF SECURITIES PURCHASE AGREEMENT
TO: METHYLGENE INC. (the “Corporation”)
The undersigned (the “
Purchaser
”) hereby subscribes for and agrees to purchase the number of units of the Corporation (the “
Units
”) set forth on the following page at a price of C$0.145 per Unit (the “
Subscription Price
”). The Purchaser agrees to be bound by the terms and conditions set forth in the attached “Terms and Conditions of Subscription for Common Shares and Warrants of MethylGene Inc.” The Purchaser further agrees, without limitation, that the Corporation may rely upon its representations, warranties and covenants contained in this document. Each Unit purchased will consist of one (1) common share in the capital of the Corporation (a “
Common Share
”) and thirty one-hundredths (0.30) of a common share purchase warrant (each whole common share purchase warrant, a “
Warrant
”). Each whole Warrant shall be exercisable for a period of five (5) years following the Closing Date (as defined herein) and entitle the holder thereof to acquire one (1) Common Share (a “
Warrant Share
”) at a price of C$0.174. The certificates representing the Common Shares and Warrants will be registered and delivered as indicated on the following page.
[
Signature page follows
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Beneficial Purchaser Information:
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Number of Units:
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Name of Purchaser (please print)
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Aggregate Subscription Price: C$
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Deliver the Common Shares and Warrants as set forth below:
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By:
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Authorized Signature
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Name
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Official Capacity of Title (please print)
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Account Reference, if applicable
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Please print name of individual whose signature appears
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above if different than the name of the purchaser printed above.)
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Contact Name
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Purchaser’s Address
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Telephone Number
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Purchaser’s Telephone Number
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Present Ownership of Securities:
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List number and type(s) of securities held
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Purchaser’s Fax Number:
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Registration Instructions:
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Name:
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ACCEPTANCE:
The Corporation hereby accepts the above subscription and agrees to be bound by the terms and conditions set forth in the attached “Terms and Conditions of Subscription for Common Shares and Warrants of MethylGene Inc.” and in this Agreement. The Corporation further agrees, without limitation, that the Purchaser may rely upon its representations, warranties and covenants contained in this document.
, 2012
METHYLGENE INC.
THE “TERMS AND CONDITIONS OF SUBSCRIPTION FOR COMMON SHARES AND WARRANTS OF METHYLGENE INC.” AND SCHEDULES THERETO ARE INCORPORATED IN THIS SECURITIES PURCHASE AGREEMENT AND FORM INTEGRAL PARTS HEREOF.
[
Signature page to SECURITIES PURCHASE AGREEMENT
]
TERMS AND CONDITIONS OF SUBSCRIPTION
FOR COMMON SHARES AND WARRANTS OF METHYLGENE INC.
ARTICLE 1
DEFINITIONS
Certain terms and abbreviations used in this Agreement shall have the meaning given below: “
2011
Agreements
” means the securities purchase agreements entered into by the Corporation and certain investors effective as of March 24, 2011.
“
2011 Offering
” means the offering by the Corporation of units pursuant to the 2011 Agreements.
“
2011 Pre-Emptive Rights
” means the pre-emptive rights set forth in Section 4.1 of the 2011 Agreements.
“
2011 Pre-Emptive Right Investors
” means each investor of the Corporation that was entitled to the 2011 Pre-Emptive Rights and did not become an 2012 Pre-Emptive Rights Investor.
“
2012 Pre-Emptive Rights Investors
” has the meaning ascribed thereto in Section 4.1 of thisAgreement;
“
Affiliate
” shall have the meaning to such term in NI 45-106. With respect to the Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as the Purchaser will be deemed to be an Affiliate of the Purchaser.
“
Aggregate Subscription Price
” means, as to the Purchaser, the aggregate amount to be paid for Units purchased hereunder as specified on the signature page of this Agreement in immediately available funds.
“
Agreement
” means, collectively, the Securities Purchase Agreement attached hereto, the “Terms and Conditions of Subscription for Common Shares and Warrants of MethylGene Inc.” and the “Schedules” hereto.
“
Business Day
” means any day (other than a Saturday, Sunday, statutory or civic holiday) on which banks are open during normal business hours in Montreal, Canada.
“
C$
” refers to the dollar currency of Canada. “
Closing
”
means the closing of the sale of the Units. “
Closing Date
”
means the date at which the Closing occurs.
“
Common Share Equivalents
” means any securities of the Corporation which would entitle the holder thereof to acquire at any time Common Shares, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Shares.
“
Co-Lead Investors
” means Tavistock Life Sciences and Baker Brothers Life Sciences, L.P.
“
Corporation Counsel
” means Davies Ward Phillips & Vineberg LLP.
“
Financial Statements
” means the audited financial statements of the Corporation, the accompanying notes and the auditors’ report thereon for the year ended December 31, 2011 and the unaudited financial statements of the Corporation and the accompanying notes for the six-month period ended June 30, 2012, all as filed with the securities regulators in each of the provinces of Canada pursuant to the applicable Securities Laws, and also includes any financial statements filed by the Corporation on SEDAR after the date of this Agreement and prior to the Closing Date.
“
Intermediaries
” means, collectively, Jefferies and MTS.
“
Lead Investor
” means Tavistock Life Sciences.
“
Investors
” means investors purchasing Units under this Offering, including the Purchaser, and “Investor” means any one of them.
“
Jefferies
” means Jefferies & Company, Inc.
“
knowledge
” means the actual knowledge of the senior officers of the Corporation with respect to such matter so long as such individual can demonstrate that he has made due inquiry in the circumstances regarding the relevant matter or, if any such individual cannot so demonstrate, the actual and constructive knowledge such individual would have had after making due inquiry regarding the relevant matter.
“
Liens
” means a lien, charge, security interest, encumbrance, right of first refusal or pre-emptive
right.
“
Material Adverse Effect
” means (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document; (ii) a material adverse effect on the results of operations, assets, business or financial condition of the Corporation; or (iii) a material adverse effect on the Corporation’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document, in each case, other than any effect, either alone or in combination with any other effect, directly or indirectly, arising out of, relating to, affecting or attributable to (and none of the following shall be taken into account in determining whether there has been or will be, a Material Adverse Effect):
(a) the Canadian or global economy, political conditions or securities markets in general;
(b) the biopharmaceutical industry in general;
(c) a change in the market trading price of the Common Shares, either:
(i)
related to this Agreement or the announcement thereof or the pendency of the transactions contemplated hereby (including any shareholder litigation); or
(ii)
related to such a change in the market trading price primarily resulting from a change, effect, event or occurrence excluded from this definition of Material Adverse Effect referred to in clause (a), (b) or (d); or
(d)
generally applicable change in applicable Laws (other than orders, judgments or decrees against the Corporation or any of its subsidiaries) or in IFRS,
2
provided, however, that the effect referred to in clause (a), (b) or (d) above does not primarily relate only to (or have the effect of primarily relating only to) the Corporation or materially adversely affect disproportionately the Corporation compared to other companies operating in biopharmaceutical industry.
“
MTS
” means MTS Securities, LLC.
“
NI 45-106
” means, collectively, National Instrument 45-106 —
Prospectus and Registration Exemptions
and
Regulation 45-106 respecting Prospectus and Registration Exemptions
(Québec).
“
Offering
” means the offering and sale by the Corporation of approximately C$26.1 million of Units at a price per Unit of C$0.145.
“
Permanent Information Record
” means information concerning the Corporation contained in (i) the Financial Statements; (ii) the management proxy circular dated May 11, 2012, distributed in connection with the annual meeting of shareholders of the Corporation held on June 27, 2012; (iii) the annual information form of the Corporation dated March 30, 2012 for the year ended December 31, 2011; (iv) management’s discussion and analysis of the financial condition and results of operations for the financial year ended December 31, 2011 compared to the year ended December 31, 2010 and the quarter ended June 30, 2012 with the quarter ended June 30, 2011; (v) the 2011 annual report of the Corporation filed on SEDAR on June 1, 2012, all as filed with the securities regulators in each of the provinces of Canada pursuant to the applicable Securities Laws. Any documents of the type referred to in this paragraph, or any material change report (excluding confidential material change reports) or any amendments or restatements thereto filed by the Corporation on SEDAR after the date of this Agreement and prior to the Closing Date, shall be deemed to be included in the definition of “Permanent Information Record” for the purposes of this Agreement.
“
Permitted Exchange
” means the New York Stock Exchange, NYSE Arca, NYSE MKT LLC or the NASDAQ Stock Market.
“
Permitted Liens
” means (i) Liens for taxes not yet due or payable or that are being contested in good faith by appropriate Proceedings for which adequate reserves are maintained by the Corporation; (ii) Liens in favour of vendors, carriers, warehousemen, repairmen, mechanics, workers, materialmen, construction or other Liens arising by operation of law or in the ordinary course of business in respect of obligations that are not yet due or that are being contested in good faith by appropriate Proceedings, for which adequate reserves are maintained by the Corporation; (iii) easements, servitudes, reservations, rights of way, restrictions, covenants, conditions and other similar encumbrances whether of record or apparent on the premises, including road, highway, pipeline, railroad and utility easements and servitudes, and municipal, zoning and building by-laws which do not, individually or in the aggregate, materially interfere with the use, occupancy or operation of the leased real property of the Corporation as currently used, occupied and operated or as intended to be used, occupied and operated; (iv) statutory Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, employment insurance and other social security legislation that are not material; and (v) the Liens listed on Schedule 1.
“
Person
” means any individual (whether acting as an executor, trustee administrator, legal representative or otherwise), corporation, firm, partnership, sole proprietorship, syndicate, joint venture, trustee, trust, unincorporated organization or association, and pronouns have a similar extended meaning.
“
Private Placement
” means any offering of securities by the Corporation that benefits from a prospectus exemption under NI 45-106.
3
“
Proceeding
” means an action, course of action, demand, claim, charge, prosecution, complaint, suit, inquiry, notice of violation, litigation, assessment, reassessment, grievance, arbitration, hearing, investigation or proceeding, whether civil, criminal or administrative, at law or in equity, commenced or threatened.
“
Public Offering
” means any offering of securities by the Corporation that does not benefit from a prospectus exemption under NI 45-106.
“
Securities
” means, collectively, the Common Shares, the Warrants and the Warrant Shares.
“
Securities Laws
” means, as applicable, the securities laws, regulations, rules, rulings and orders
in each of the provinces of Canada, in the United States and in each state of the United States, and the
applicable policy statements issued by the securities regulators in each of the provinces of Canada and in the United States, together with all applicable stock exchange rules.
“
SEDAR
” means the System for Electronic Document Analysis and Retrieval (www.sedar.com) administered for the Canadian Securities Administrators.
“
Shareholder Approval
” means such approval as will be required by law and by the applicable rules and regulations of the TSX (or any successor entity) from the shareholders of the Corporation with respect to the transactions contemplated by the Transaction Documents.
“
Subscription Price
” means C$0.145 per Unit.
“
Subsidiary
” means any direct and indirect domestic subsidiaries of the Corporation as of the date hereof.
“
Transaction Documents
” means this Agreement and the certificates representing the Warrants. “
TSX
” means the Toronto Stock Exchange.
“
U.S. Person
” shall have the meaning assigned to such term by Rule 902 of Regulation S promulgated under the U.S. Securities Act, which definition shall include, but not be limited to, an individual resident in the United States and an estate or trust of which any executor or administrator or trustee, respectively, is a U.S. person, and any partnership or company organized or incorporated under the laws of the United States.
“
U.S. Securities Act
” means the United States Securities Act of 1933, as amended.
“
United States
” means the United States of America, its territories and possessions, any State of the United States and the District of Columbia.
“
Units
” shall have the meaning ascribed to such term on the signature page of this Agreement. “
Warrants
” means, collectively, the Common Share purchase warrants, substantially in the form of the draft Warrant certificate contained in Schedule A attached hereto, delivered to the Investors at the Closing.
“
Warrant Shares
” means the Common Shares issuable or issued upon the exercise of the Warrants.
4
ARTICLE 2
PURCHASE AND SALE
2.1
Closing.
On the Closing Date, upon the terms and subject to the conditions set forth herein, concurrent with the execution and delivery of this Agreement by the parties hereto, the Corporation agrees to sell, and the Purchaser agrees to purchase, the number of Units set forth on the signature page of this Agreement. The Purchaser shall deliver to the Corporation via wire transfer or a certified cheque in immediately available funds equal to their Aggregate Subscription Price and the Corporation shall deliver to the Purchaser its respective Common Shares and Warrants as determined pursuant to Section 2.3(a) and the other items set forth in Section 2.3 issuable at the Closing. The Purchaser understands that pursuant to the Offering, the Corporation intends to offer up to 179,690,970 Units to eligible investors.
2.2
Closing Date.
The Closing Date shall be on or about November 19, 2012 and shall in no event be later than December 31, 2012 or such later date as may be agreed to by the Corporation and the Lead Investor and all events required to occur on the Closing Date shall occur, subject to satisfaction of the conditions set forth in Sections 2.3 or 2.4, at the offices of Corporation Counsel in Montreal, Canada.
2.3
Deliveries.
(a) On the Closing Date, the Corporation shall deliver or cause to be delivered to the Purchaser the following:
(i) the number of Common Shares registered in the name of the Purchaser, that is equal to the number of Units set forth on the signature page of this Agreement;
(ii) a Warrant certificate, substantially in the form of Schedule A attached hereto, registered in the name of the Purchaser to purchase up to a number of Common Shares equal to 30% of the number of Common Shares being purchased by the Purchaser pursuant to Section 2.3(a)(i), with an exercise price equal to C$0.174 exercisable for a period of 5 years following the Closing Date, subject to the adjustments described in the Warrants;
(iii) evidence that the Shareholder Approval has been obtained;
(iv) a certificate addressed to the Investors, dated as of the Closing Date, signed by the President and Chief Executive Officer or by the Chief Financial Officer of the Corporation certifying on behalf of the Corporation that the representations and warranties of the Corporation contained herein are true and correct and all the terms and conditions relating to the Corporation contained herein and required to be performed and complied with by the Corporation by or at the time of Closing have been performed and complied with by the Corporation;
(v) a certificate dated as of the Closing Date, signed by appropriate officers of the Corporation, addressed to the Investors and the Investors’ counsel, with respect to the articles and by-laws of the Corporation, all resolutions of the Corporation’s board of directors (the “
Board
”) relating to the Offering, the resolution of the holders of the Common Shares and the incumbency and specimen signatures of signing officers of the Corporation; and
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(vi) an opinion dated as of the Closing Date, of Corporation Counsel addressed to the Investors substantially in the form attached as Schedule 2.3(a)(v)(x) hereto and a “no registration” opinion of the U.S. counsel to the Corporation, substantially in the form attached as Schedule 2.3(a)(v)(y). Such opinions shall state that the Intermediaries shall be entitled to rely thereon as if they had been addressed and delivered to them.
(b) On the Closing Date, the Purchaser shall deliver or cause to be delivered to the Corporation the Aggregate Subscription Price by wire transfer or certified cheque to the account as specified in writing by the Corporation.
2.4
Closing Conditions.
(a) The obligations of the Corporation hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects (or, if qualified by materiality, in all respects) when made and on the Closing Date (as if made on and as of the Closing Date) of the representations and warranties of the Purchaser contained herein;
(ii) all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the Closing Date shall have been performed;
(iii) the Corporation shall have received confirmation of any required approvals of the transactions contemplated hereby by all securities regulatory authorities having jurisdiction over such transactions;
(iv) the Shareholder Approval shall have been obtained;
(v) the delivery by the Purchaser of the items set forth in Section 2.3(b) of this Agreement;
(vi) the issue and sale of the Units shall be exempt from the prospectus and registration requirements, and upon exercise of the Warrants the Warrant Shares will be exempt from such requirements, provided for or obtained under the Securities Laws; and
(vii)
the receipt from each Intermediary of a certificate, substantially in the form attached as Schedule 2.4(a)(vii) hereto, relating to its conduct of the offering in the United States (the “
Intermediary Certificates
”).
(b) The obligations of the Purchaser hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects (or, if qualified by materiality, in all respects) on the Closing Date (as if made on and as of the Closing Date) of the representations and warranties of the Corporation contained herein;
(ii) all obligations, covenants and agreements of the Corporation required to be performed at or prior to the Closing Date shall have been performed;
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(iii) the Corporation shall have received confirmation of any required approvals of the transactions contemplated hereby by all securities regulatory authorities having jurisdiction over such transactions;
(iv) the Shareholder Approval shall have been obtained;
(v) the delivery by the Corporation of the items set forth in Section 2.3(a) of this Agreement;
(vi) the issue and sale of the Units shall be exempt from the prospectus and registration requirements provided for or obtained under the Securities Laws; and
(vii) there shall have been no Material Adverse Effect (as defined herein) with respect to the Corporation since the date hereof.
2.5
Sales of Units in Canada.
Each Investor resident in Canada and the Corporation acknowledge that any sales of Units in Canada under the Offering will be conducted by the Corporation and will not involve the Intermediaries, all in compliance with applicable Securities Laws.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1
Representations, Warranties and Covenants of the Corporation.
Except as set forth under the corresponding section of the disclosure schedules attached to this Agreement (the “
Disclosure Schedules
”) which Disclosure Schedules shall be deemed a part hereof, the Corporation hereby makes the representations, warranties and covenants set forth below to the Purchaser.
(a)
Subsidiaries.
Except as disclosed in Schedule 3.1(a), the Corporation owns, directly or indirectly, no equity interest in any Subsidiary.
(b)
Organization and Qualification.
The Corporation has been duly amalgamated, and is a valid and subsisting corporation under the laws of Canada and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted and to own or lease its properties and assets. The Corporation is a reporting issuer (or its equivalent) not in default of any material requirement of the Securities Act of each of the provinces of Canada, and the respective regulations thereunder.
The Corporation is not in violation or default of any of the provisions of its certificate of amalgamation, bylaws or other organizational or charter documents. The Corporation is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in a Material Adverse Effect and to the Corporation’s knowledge no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(c)
Authorization; Enforcement.
The Corporation has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder, including to issue, sell and deliver the Securities in accordance with the Transaction Documents. The execution
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and delivery of each of the Transaction Documents by the Corporation and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Corporation and no further action is required by the Corporation in connection therewith other than in connection with the Required Approvals. Each Transaction Document has been (or upon delivery will have been) duly executed by the Corporation and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Corporation enforceable against the Corporation in accordance with its terms except: (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally; and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
(d)
No Conflicts.
The execution, delivery and performance of the Transaction Documents by the Corporation and the consummation by the Corporation of the other transactions contemplated thereby do not and will not: (i) conflict with or violate any provision of the articles of the Corporation, bylaws or other organizational or charter documents; or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Corporation, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Corporation debt or otherwise) or other understanding to which the Corporation is a party or by which any property or asset of the Corporation is bound or affected; or (iii) subject to the Required Approvals, conflict with or result in a violation of any applicable law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Corporation is subject, or by which any property or asset of the Corporation is bound or affected; except in the case of each of clauses (ii) and (iii), such as would not have a Material Adverse Effect.
(e)
Filings, Consents and Approvals.
The Corporation is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with any governmental authority or other Person in connection with the execution, delivery and performance by the Corporation of the Transaction Documents, other than: (i) the notice and application to the TSX for the issuance and sale of the Common Shares and Warrants and the listing of the Common Shares and the Warrant Shares for trading thereon in the time and manner required thereby; (ii) Shareholder Approval, which will be satisfied by providing the TSX with either written evidence that holders of more than 50% of the Common Shares are in favour of the Offering or with written evidence of the approval of a majority of holders of Common Shares that are present and voting (in person or by proxy) at a duly called meeting of such holders (in either case excluding the insiders of the Corporation participating in the transactions contemplated by this Agreement not being eligible to vote their securities in respect of such approval); and (iii) such securities filings as are required to be made under applicable Securities Laws (collectively, the “
Required Approvals
”).
(f)
Issuance of the Securities.
The Common Shares and Warrants are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and non-assessable, free and clear of all Liens other than restrictions on transfer provided for in the Transaction Documents. The Warrant Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and non-assessable, free and clear of all Liens. The Corporation has reserved from its duly authorized share capital up to 53,907,291 Common Shares for issuance of the Warrant Shares on the date hereof, which will constitute, as of the Closing Date, a sufficient
8
number of Common Shares to be issued upon exercise of all the Warrants sold to the Investors in the Offering.
The Common Shares and Warrant Shares are and will be at the time of issue to the Purchaser, part of a class of shares of the Corporation that is presently, and will be at the time of issue to the Purchaser, listed and posted for trading on the TSX, and the Common Shares and the Warrant Shares issuable pursuant to this Agreement and/or upon the exercise of the Warrants will, at the time of issue to the Purchaser, have been conditionally approved to be listed and posted for trading on the TSX. The Corporation will take or cause to be taken all steps necessary to comply with all of the requirements of the TSX in connection with the issuance to the Purchaser of the Common Shares, Warrants and Warrant Shares pursuant to this Agreement and to permit such Common Shares and Warrant Shares to be listed and posted for trading on the TSX.
(g)
Capitalization.
The capitalization of the Corporation is set forth on Schedule 3.1(g). Except as disclosed in the Schedule 3.1(g), no Person has any right of first refusal, pre- emptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as disclosed in Schedule 3.1(g) or as contemplated by this Agreement there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any Common Shares, or contracts, commitments, understandings or arrangements by which the Corporation is or may become bound to issue additional Common Shares or Common Share Equivalents. Except as disclosed in the Schedule 3.1(g), the issuance and sale of the Securities will not obligate the Corporation to issue Common Shares or other securities to any Person (other than the Investors) and will not result in a right of any holder of Corporation securities to adjust the exercise, conversion, exchange or reset price under such securities. All of the outstanding shares of the Corporation are validly issued, fully paid and non-assessable, have been issued in compliance with all Securities Laws, and none of such outstanding shares was issued in violation of any pre-emptive rights or similar rights to subscribe for or purchase securities. Except as otherwise provided in this Agreement, no further approval or authorization of any shareholder, the Board or others is required for the issuance and sale of the Securities. There are no shareholders agreements, voting agreements or other similar agreements with respect to the Corporation’s capital stock to which the Corporation is a party or, to the knowledge of the Corporation, between or among any of the Corporation’s shareholders.
(h)
Permanent Information Record; Financial Statements.
The documents comprising the Permanent Information Record at their applicable dates of filing with the securities regulatory authorities pursuant to the applicable Securities Laws (i) complied in all material respects with the requirements of the Securities Laws; (ii) did not contain any misrepresentations; (iii) constituted full, true and plain disclosure of the material facts relating to the Corporation; and (iv) did not omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made. The Financial Statements of the Corporation included in the Permanent Information Record complied in all material respects with applicable accounting requirements and the rules and regulations of Securities Laws with respect thereto as in effect at the time of filing. The Financial Statements have been prepared in accordance with International Financial Reporting Standards applied on a consistent basis during the periods involved (“
IFRS
”), except as may be otherwise specified in the Financial Statements or the notes thereto, and fairly present in all material respects the financial position of the Corporation as of and for the date thereof and the results of operations and cash flows for the period then ended. The accountants who reported
9
on and audited the Financial Statements, are independent with respect to the Corporation within the meaning of the Canadian Institute of Chartered Accountants Handbook. The Corporation has filed all documents required to be filed by it under Securities Laws.
(i)
Material Changes.
Since the date of the Financial Statements, except as specifically disclosed in the Permanent Information Record or the Financial Statements as filed on SEDAR as at the date hereof: (i) there has been no event, occurrence or development that has had a Material Adverse Effect; (ii) the Corporation has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Financial Statements pursuant to IFRS or required to be disclosed in filings made with the regulatory authorities; (iii) the Corporation has not altered its method of accounting; (iv) the Corporation has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its share capital; and (v) the Corporation has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Corporation stock option plans. The Corporation does not have pending before any regulatory authorities any request for confidential treatment of information.
(j)
Litigation.
There are no Proceedings pending or, to the knowledge of the Corporation, threatened against or affecting the Corporation, or any of its respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (collectively, an “
Action
”) which: (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities; or (ii) could, if there were an unfavourable decision, have a Material Adverse Effect. Except as set forth on Schedule 3.1(j), neither the Corporation, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under the Securities Laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Corporation, there is not pending or contemplated, any investigation by the regulatory authorities involving the Corporation or any current or former director or officer of the Corporation. The regulatory authorities have not issued any stop order or other order suspending the effectiveness of any documents filed by the Corporation under the Securities Laws and the rules and policies of the TSX.
(k)
Labour Relations.
No material labour dispute exists or, to the knowledge of the Corporation, is imminent with respect to any of the employees of the Corporation.
(l)
Compliance.
The Corporation: (i) is not in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Corporation), nor has the Corporation received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived); (ii) is not in violation of any order of any court, arbitrator or governmental body; and (iii) neither is nor has been in material violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, provincial, state and local laws applicable to its business.
(m)
Regulatory Permits.
The Corporation possesses all material certificates, authorizations and permits issued by the appropriate Canadian federal, provincial or local regulatory authorities necessary to conduct its business (the “
Material Permits
”), and the
10
Corporation has not received any notice of Proceedings relating to the revocation or modification of any Material Permit.
(n)
Title to Assets.
The Corporation has good and marketable title to all real property owned by it that is material to the business of the Corporation and good and marketable title in all personal property owned by it that is material to the business of the Corporation, in each case free and clear of all Liens except for Permitted Liens. Any real property and facilities held under lease by the Corporation are held by it under valid, subsisting and enforceable leases of which the Corporation is in material compliance.
(o)
Patents and Trademarks.
The Corporation owns, or has sufficient legal rights to use, all patents, patent applications, trademarks, trade names, copyrights, trade secrets and other proprietary information necessary or material for use in connection with its business as presently conducted (collectively, “
Intellectual Property Rights
”). The Corporation has not received a written notice that any of the Intellectual Property Rights used by the Corporation violates or infringes upon the existing rights of any Person. To the knowledge of the Corporation, all such Intellectual Property Rights are enforceable and there is no existing infringement by the Corporation of any currently issued and enforceable patents, trademarks, trade names, copyrights or trade secrets of any other Person. To the Corporation’s knowledge, the Corporation has not violated or, by conducting its business as presently conducted or as presently proposed to be conducted, as indicated in the Permanent Information Record, would not violate, any currently issued and enforceable patents, trademarks, trade names, copyrights or trade secrets of any other Person. The Corporation is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Corporation or that would conflict with the Corporation’s business. Except as indicated in the Permanent Information Record, no claim by any third party contesting the validity, enforceability, use or ownership of any of the Corporation’s rights to the Intellectual Property Rights has been made, is currently outstanding or, to the knowledge of the Corporation, is threatened. The Corporation has taken all commercially reasonable actions to maintain and protect all of the Corporation’s Intellectual Property Rights. The Corporation does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to or outside the scope of their employment by the Corporation. Since April, 2011 no material event has occurred during filing, prosecution, or post allowance maintenance, or during any other proceeding relating to, the Corporation’s patents or patent applications that would make invalid or unenforceable, or negate the coverage or ownership of such patents and patent applications of the Corporation or its subsidiaries.
(p)
Clinical Trials and Conduct of Business.
The Corporation and its subsidiaries have operated and are currently in material compliance with all applicable rules, regulations and policies of the Therapeutic Products Directorate of the Department of Health and Welfare Canada (the “
TPD
”), the United States Food and Drug Adminstration (the “
FDA
”), the European Medicines Evaluation Administration (the “
EMEA
”) or any other governmental authority having jurisdiction over it and its activities. The research, pre-clinical and clinical validation studies and other studies and tests conducted by or on behalf of or sponsored by the Coporation or its subsidiaries or in which the Corporation or its subsidiaries or their products or product candidates have participated were and, if still pending, are being conducted in all material respects in accordance with good clinical practice and medical standard-of-care procedures including in accordance with the protocols submitted to the FDA, TPD, EMEA, European Commission’ s Enterprise Directorate General or any other Governmental Authority
11
exercising comparable authority and the Corporation does not have Knowledge of any other trials, studies or tests, the results of which reasonably call into question the results of such studies and tests. The Corporation has not received any notices or other correspondence from such regulatory authorities or any other governmental authority or any other person requiring the termination, suspension or material modification of any such research, pre-clinical and clinical validation studies or other studies and tests. All such submissions and any new drug application submission were in material compliance with applicable laws when submitted, do not omit any material information, and no material deficiencies have been asserted by the FDA with respect to any such submissions, except any deficiencies which could not, individually or in the aggregate, have a Material Adverse Effect.
(q)
Environment.
The Corporation has not received notice that it is in default, in a material manner, under any applicable law requirements relating to the protection and preservation of the environment, occupational health and safety or the manufacture, processing, distribution, sale, use, treatments, storage, disposal, discharge, destruction, packaging, labelling, transport or handling of any pollutants, contaminants, chemicals, dangerous substances, or toxic or hazardous wastes, materials or substances (“
Environmental Laws
”). The Corporation has not received any notice that it is not in material compliance with any reporting and monitoring requirements under any Environmental Laws. The Corporation has not received any notice that it has not obtained all permits under Environmental Laws (the “
Environmental Permits
”) materially required for its operations and to own, use and operate its assets. The Corporation has not received any notice that any proceeding would be pending or threatened to revoke or limit any of the Environmental Permits.
(r)
Insurance.
The Corporation is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Corporation is engaged, including, but not limited to, directors and officers insurance coverage at least equal to C$5,000,000. To the best of the Corporation’s knowledge, the Corporation has complied with all material terms and conditions of such insurance contracts and policies, including premium payments, and all such policies are in full force and effect. The Corporation has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
(s)
Transactions With Affiliates and Employees.
Except as set forth in the Permanent Information Record, none of the officers or directors of the Corporation and, to the knowledge of the Corporation, none of the employees of the Corporation is presently a party to any transaction with the Corporation (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Corporation, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of C$50,000 other than: (i) for payment of salary, directors’ or consulting fees for services rendered; (ii) reimbursement for expenses incurred on behalf of the Corporation; and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Corporation.
(t)
Internal Accounting Controls.
The Corporation has established disclosure controls and procedures for the Corporation and designed such disclosure controls and procedures to ensure that material information relating to the Corporation is made known to the
12
certifying officers by others within the Corporation. The Corporation’s certifying officers have evaluated the effectiveness of the Corporation’s controls and procedures as of December 31, 2011 (the “
Evaluation Date
”). Since the Evaluation Date, there have been no significant changes in the Corporation’s internal controls or, to the Corporation’s knowledge, in other factors that could significantly affect the Corporation’s internal controls.
(u)
Certain Fees.
Neither the Corporation nor any of its officers has retained any placement agent, other than the Intermediaries, with respect to the transactions contemplated by this Agreement and the Corporation shall indemnify and hold harmless the Investors from any liability for any compensation to any placement agent and the fees and expenses of defending against said liability or alleged liability.
(v)
Private Placement.
Subject to the truth and accuracy of the Purchaser’s representations and warranties set forth in Section (hh) and the truth and accuracy of all such representations and warranties made by the other purchasers under the Offering both on the date hereof and on the Closing Date, and subject to the truth and accuracy of the representations and warranties set forth in the Intermediary Certificates, the offer and sale by the Corporation of the Securities to the Purchaser will be exempt from the registration and prospectus requirements under the Securities Laws. As at the Closing Date, the Common Shares and the Warrant Shares will not be subject to a restricted period or statutory hold period under the Securities Laws or to any resale restrictions under the policies of the TSX which extends beyond four (4) months and one (1) day after the Closing Date (except that such securities sold in the United States will be “restricted securities” as defined in Rule 144 under the U.S. Securities Act (and Warrant Shares issued to investors outside the United States may be restricted securities, as defined in Rule 144) and, as a consequence, subject to certain restrictions on resale). Neither the Corporation nor any Person acting on its behalf: (i) has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D under the U.S. Securities Act) or any “direct selling efforts” (within the meaning of Regulation S under the U.S. Securities Act) in the United States, in connection with the offer or sale of the Securities; (ii) has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under any circumstances that would require registration of the Securities under the U.S. Securities Act; (iii) except for offers or sales made to non-U.S. Persons outside the United States in accordance with Regulation S under the U.S. Securities Act, has offered or sold the Units to any Person other than Persons it reasonably believed to be “accredited investors”, as defined in Rule 501(a) under the U.S. Securities Act; or (iv) has issued any Common Shares or shares of any series of preferred stock or other securities or instruments convertible into, exchangeable for or otherwise entitling the holder thereof to acquire Common Shares which would be integrated with the sale of the Units for purposes of the U.S. Securities Act. The offer and sale to the Investors of the Units were not made through or as a result of, and the offering of the Units is not being accompanied by, any advertisement in printed media or printed public media of general and regular paid circulation, radio or television or telecommunications, including electronic display or any other form of general solicitation or advertisement in connection with the offer, sale or purchase of the Units.
(w)
U.S. Investment Company Act.
The Corporation is not and, after receipt of the net proceeds from the sale of the Units and application of such proceeds as provided herein, will not be, required to register as an “investment company” under the U.S. Investment Company Act of 1940, as amended.
(x)
Foreign Issuer.
The Corporation is a “foreign issuer” and reasonably believes that there is no “substantial U.S. market interest” (as such terms are defined in Regulation S under
13
the U.S. Securities Act) with respect to the Common Shares; provided however, that the Corporation expects that it will not be a foreign issuer as of June 28, 2013, which would result in additional restrictions on the ability of the Purchasers to resell their Common Shares or Warrant Shares.
(y)
Listing and Maintenance Requirements.
The Common Shares are listed on the TSX and the Corporation has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the listing of the Common Shares nor has the Corporation received any notification that any Person is contemplating terminating such listing. The Corporation has not, in the 12 months preceding the date hereof, received notice from the TSX to the effect that the Corporation is not in compliance with the listing or maintenance requirements of the TSX. The Corporation is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.
(z)
Takeover Protections.
The Corporation has not entered into a shareholders rights plan agreement or put in place a shareholders rights plan.
(aa)
Indebtedness.
The Permanent Information Record sets forth as of the dates thereof all outstanding secured and unsecured Indebtedness of the Corporation, or for which the Corporation has commitments. For the purposes of this Agreement, “
Indebtedness
” shall mean: (a) any liabilities for borrowed money or amounts owed in excess of C$50,000 (other than trade accounts payable and accrued expenses incurred in the ordinary course of business); (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Corporation’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of C$50,000 due under leases required to be capitalized in accordance with IFRS. The Corporation is not in default with respect to any Indebtedness.
(bb)
Tax Status.
With such exceptions as are not material to the Corporation, or except as may otherwise be set forth or contemplated in the Permanent Information Record: (a) the Corporation has duly and on a timely basis filed all tax returns required to be filed by it, has paid all taxes due and payable by it and has paid all assessments and reassessments and all other taxes, governmental charges, penalties, interest and other fines due and payable by it and which are claimed by any governmental authority to be due or owing and adequate provision has been made for taxes payable for any completed fiscal period for which tax returns are not yet required to be filed; (b) all filed tax returns are complete and accurate in all material respects; (c) there are no agreements, waivers or other arrangements providing for an extension of time with respect to the filing of any tax return or payment of any tax, governmental charge or deficiency by the Corporation; (d) there are no actions, suits, proceedings, investigations or claims threatened or pending against the Corporation in respect of taxes, governmental charges or assessments; and (e) there are no matters under discussion with any governmental authority relating to taxes, governmental charges or assessments asserted by any such authority.
(cc)
No Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently existing, or reasonably anticipated by the Corporation to arise, between the accountants and lawyers formerly or presently employed by the Corporation and the Corporation is current with respect to any fees owed to its accountants and lawyers.
14
(dd)
PFIC.
If the Corporation is a passive foreign investment company during any year in which a Purchaser who is a U.S. person, as defined in the U.S. Internal Revenue Code, holds Common Shares, at such Purchaser’s request, the Corporation will provide the Purchaser with the information needed to report income and gain pursuant to a qualifying electing fund election.
(ee)
Representations and Warranties.
The Corporation acknowledges and agrees that the Purchaser has made no representations and warranties with respect to the Offering and the Units other than as specifically set forth in this Agreement.
(ff)
Shareholder Approval Covenant.
The Corporation shall use commercially reasonable efforts to obtain Shareholder Approval by obtaining written approvals from the requisite holders of Common Shares as soon as practicable, failing which the Corporation shall prepare and mail an information circular and hold a meeting of holders of Common Shares to vote on the proposed Offering by no later than December 21, 2012 or such later date as may be mutually agreed upon by the Corporation and the Lead Investor.
(gg)
Regulatory Approvals Covenant.
The Corporation will use reasonable commercial efforts to obtain the approval of the TSX by the Closing Date relating to the listing of the Common Shares and Warrant Shares issued hereunder, and any other regulatory approvals required to effect the completion of the Offering.
(hh)
Material Adverse Effect Covenant.
The Corporation shall promptly notify the Purchaser of any event, change, occurrence, condition or development which, individually or in the aggregate, has had or would be reasonably be likely to have a Material Adverse Effect.
(ii)
Representations and Warranties Covenant.
The Corporation will use commercially reasonable efforts not to undertake any action that could reasonably result in any material representation and warranty being made untrue up until the Closing Date.
3.2
Representations, Warranties and Covenants of the Purchaser.
The Purchaser hereby represents, warrants and covenants to the Corporation and acknowledges that the Corporation is relying thereon that:
(a)
It has been independently advised as to the applicable restricted period imposed in respect of the Common Shares, the Warrants and the Warrant Shares by applicable securities legislation in the jurisdiction in which it resides, and it is aware of the risks and other characteristics of the Common Shares, Warrants and Warrant Shares and of the fact that it may not be able to resell such securities except in accordance with applicable securities legislation and regulatory policy and compliance with the other requirements of applicable law.
(b)
It has not received nor has it requested, nor does it have any need to receive, any prospectus or offering memorandum which has been prepared for delivery to, and review by, prospective purchasers in order to assist them in making an investment decision in respect of the Units.
(c)
Except as set forth herein (including the Disclosure Schedules), it has relied solely upon the Permanent Information Record and not upon any verbal or written representation as to fact or otherwise made by or on behalf of the Corporation or any other Person in making its decision to invest in the Units.
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(d)
It is resident in the jurisdiction set out on the signature on the cover page hereof and such address was not created and is not being used for the sole purpose of acquiring the Units, and it is not purchasing with a view to the resale or distribution of all or any of the Common Shares, Warrants or Warrant Shares in violation of any applicable Securities Laws.
(e)
The Purchaser is purchasing the Securities as principal or is deemed to be purchasing as principal under NI 45-106 and is an “accredited investor” as that term is defined in NI 45-106 for the reason that one (1) of the categories set forth in Schedule (hh)(e) attached hereto correctly and in all respects describes the Purchaser, and the Purchaser has so indicated by checking the box opposite such category on Schedule (hh)(e), and any such Purchaser, by signing this Agreement, is certifying that the statements made by checking the appropriate accredited investor category in Schedule (hh)(e) are true and that it was not created or is not used solely to purchase or hold securities as an accredited investor as described in paragraph (m) of the definition of “accredited investor”.
(f)
If the Purchaser is a U.S. Person or is present in the United States either at the time an offer of the
Units
is made to it or when it gives the buy order for the Units by executing and delivering this Agreement to the Corporation:
(i)
it is an “accredited investor” (as defined in Rule 501(a) under theU.S. Securities Act) and as indicated in Schedule (hh)(f);
(ii)
is acquiring the Securities for its own account and for investment purposes and not with a view to any resale or other disposition in violation of U.S. securities laws;
provided, however
, that by making the representations herein, the Purchaser does not agree to hold any of the Securities for any minimum or other specific terms and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an available exemption under the U.S. Securities Act;
(iii)
it consents to the Corporation’s stop transfer order, either on the Corporation’s own books or with a transfer agent or registrar, to implement the restrictions on transfer set forth and described herein;
(iv)
it has no present contract, undertaking, arrangement or agreement to sell, transfer or grant any participation to any other Person with respect to the Securities;
(v)
it has received copies of all the information it has requested from the Corporation that it considers necessary or appropriate for deciding whether to purchase the Units or to verify the information contained in the Permanent Information Record without causing the Corporation unreasonable effort or expense to deliver such information and has been afforded the opportunity to ask such questions as it deemed necessary of, and to receive answers from, representatives of the Corporation concerning the terms and conditions of the Offering and/or the Securities;
(vi)
understands and acknowledges that at the Closing Date, the Corporation will deliver certificates representing the Common Shares and the Warrants to it registered in its name and that such certificates evidencing the Common Shares and any Warrant Shares and all certificates issued in exchange therefor or in
16
substitution thereof, shall bear the following legend, until such time as no longer required under the U.S. Securities Act: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR UNDER ANY U.S. STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF METHYLGENE INC. (THE “CORPORATION”) THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING THE SALE OF SUCH SECURITIES ONLY, WHETHER DIRECTLY OR INDIRECTLY: (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT; OR (C) PURSUANT TO (I) RULE 144 UNDER THE U.S. SECURITIES ACT, IF AVAILABLE OR (II) ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, PROVIDED THAT A LEGAL OPINION SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED, AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR SECURITIES LAWS OF ANY APPLICABLE JURISDICTION. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA,
provided that, (A) if the Common Shares and Warrant Shares are being sold under paragraph 3.2(f)(viii)(b) below, except pursuant to Rule 903(b)(3) of Regulation S under the U.S. Securities Act, and, with respect to any Warrant Shares, provided that either (i) the Corporation was a “foreign issuer”, within the meaning of Regulation S under the U.S. Securities Act, at the time the Warrant Shares were issued to the undersigned or (ii) the sale of such Warrant Shares occurs at least 12 months after the Warrant Shares were issued (but only if issued for cash, and not if issued upon a cashless or “net” exercise), the legend may be removed by providing a declaration to Computershare Investor Services Inc., as registrar and transfer agent or warrant agent, in such form as Computershare Investor Services Inc. or the Corporation may from time to time prescribe; and, if requested by the Corporation or Computershare Investor Services Inc., an opinion of counsel, of recognized standing reasonably satisfactory to the Corporation, to the effect that such legend is no longer required under applicable requirements of the U.S. Securities Act or state securities laws; and provided further, that (B) if any Common Shares or Warrant Shares are being sold under paragraph 3.2(f)(viii)(c)(i), below, the applicable legend may be removed by delivery to Computershare Investor Services Inc. of an opinion of counsel, of recognized standing reasonably satisfactory to the Corporation, to the effect that, or such certification or other evidence as the Corporation and Computershare Investor Services Inc. may reasonably require to determine that, such legend is no longer required under applicable requirements of the U.S. Securities Act or state securities laws;
(vii)
it understands and acknowledges that the Securities have not been and will not be registered under the U.S. Securities Act, or the securities laws of any state in the United States, based on an exemption from such registration and that the Corporation’s reliance upon such exemption is predicated in part upon its
17
representations contained herein. It further understands and acknowledges that the Securities may not be sold or otherwise transferred unless subsequently registered under the U.S. Securities Act or an exemption from such registration is available, that: (a) the Corporation is under no obligation to register any Securities under the U.S. Securities Act; and (b) has no present intention of filing a registration statement under the U.S. Securities Act in respect of the Securities;
(viii)
it understands that the Securities will be “restricted securities” as defined in Rule 144 under the U.S. Securities Act and it will, in the absence of an effective registration statement covering the sale of the Securities, only, sell or otherwise transfer any Securities: (a) to the Corporation; (b) outside the United States in accordance with Regulation S under the U.S. Securities Act; (c) in the case of the Common Shares or Warrant Shares, pursuant to (i) the exemption from registration provided by Rule 144 under the U.S. Securities Act, if available, or (ii) another available exemption from the registration requirements of the U.S. Securities Act, subject to such procedures, including provision of a legal opinion of seller’s counsel, as either the seller of the Common Shares or the Warrant Shares or the Corporation deems necessary to document compliance with the U.S. Securities Act, or (d) in the case of the Warrants, to an “accredited investor” (as defined in Rule 501(a) under the U.S. Securities Act) pursuant to an available exemption from the registration requirements of the U.S. Securities Act, subject to such procedures, including provision of a legal opinion of seller’s counsel, as either the seller of the Warrants or the Corporation reasonably deems necessary to document compliance with the U.S. Securities Act, and in each case in accordance with any applicable state securities laws in the United States or securities laws of any other applicable jurisdiction;
(ix)
it acknowledges that it has not purchased the Units as a result of any general solicitation or general advertising within the meaning of Regulation D under the U.S. Securities Act, including any advertisement, article, notice, or other communication published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees were invited by general solicitation or general advertising; and
(x)
it understands that the Corporation will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements in determining its eligibility to purchase the Units, and it agrees that, if any of the acknowledgements, representations and agreements made by it, or deemed to have been made by it by its purchase of the Units, is no longer accurate, it shall promptly notify the Corporation.
(g)
If the Purchaser is not making the representations and warranties in subsection (f), the Purchaser (i) is not a U.S. Person and is not acquiring the Units for the account or benefit of a U.S. Person and (ii) the offer to it of the Units was not made in the United States and it was outside the United States when it executed and delivered this Agreement to the Corporation.
(h)
If the Purchaser is not making the representations and warranties in subsection (f), the Purchaser acknowledges and agrees that (i) the Warrants may be sold or otherwise transferred only pursuant to the provisions of subsection (f)(viii)(a), (b) or (d) and (ii) if at the time a Warrant is exercised by the Purchaser the Corporation is not a “foreign issuer” within the meaning of Regulation S under the U.S. Securities Act: (A) the Warrant Shares issued upon
18
exercise of such Warrant will be “restricted securities,” as defined in Rule 144 under the U.S. Securities Act, and may be sold or otherwise transferred only pursuant to the provisions of subsection (f)(viii); (B) until such time as no longer required under the U.S. Securities Act, certificates evidencing such Warrant Shares will bear the legend set forth in subsection (f)(vi) and the following legend: “HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE U.S. SECURITIES ACT”; and (C) the Purchaser will not engage in any hedging transactions with regard to such Warrant Shares unless in compliance with the U.S. Securities Act.
(i)
If not an individual, the Purchaser has been duly incorporated or created, as the case may be, and is valid and subsisting under the laws of its jurisdiction of incorporation or creation and has good and sufficient power, authority and right to enter into and deliver this Agreement and to perform its obligations hereunder.
(j)
This Agreement has been duly and validly authorized, executed and delivered by and constitutes a legal, valid, binding and enforceable obligation of the Purchaser, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally or by general principles of equity, the Purchaser has the legal capacity and competence to enter into and be bound by this Agreement and, if the Purchaser is not an individual, all necessary approvals of its directors, shareholders or otherwise have been given and obtained.
(k)
It understands that the sale and delivery of the Units is conditional upon such offering and sale being exempt from the requirements as to the filing of a prospectus or a registration statement and as to the delivery of an offering memorandum or upon the issuance of such orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus or delivering an offering memorandum.
(l)
If required by applicable securities legislation, regulations, rules, policies or orders or by any securities commission, stock exchange or other regulatory authority, the Purchaser will execute, deliver, file and otherwise use commercially reasonable efforts to assist the Corporation in filing, such reports, undertakings and other documents with respect to the Offering as may be required.
(m)
The Purchaser is capable of assessing the proposed investment as a result of the Purchaser’s financial experience.
(n)
The Purchaser acknowledges that its subscription hereunder constitutes part of the sale of Units under the Offering and that the Corporation proposes to enter into securities purchase agreements in the same form as this Agreement with certain other Investors and expects the Offering to be thereby completed by such sales.
(o)
This subscription by the Purchaser is subject to the acceptance of the Corporation and is effective only upon such acceptance.
(p)
The Purchaser has been advised to consult its legal advisors in connection with applicable statutory hold periods and resale restrictions and it (or such others on behalf of whom it is contracting hereunder) is solely responsible (and the Corporation is not in any way responsible) for compliance with applicable hold periods or resale restrictions.
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(q)
The Purchaser’s ability to transfer the Common Shares, Warrants and Warrant Shares is limited by, among other things, applicable Securities Laws and by the provisions of the certificates representing the Warrants.
(r)
The certificates representing the Common Shares, Warrants and, if issued prior to that date which is four (4) months and one (1) day following the Closing Date, the Warrant Shares will bear, as of the Closing Date, legends as required by and in accordance with
Regulation 45-102 respecting Resale of Securities
(Québec) and the rules of the TSX.
(s)
Certificates representing the Warrants and all certificates issued in exchange therefor or in substitution thereof, shall bear the following legend:
THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. THIS WARRANT MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS OR (C) TO AN “ACCREDITED INVESTOR” (AS DEFINED IN RULE 501(a) UNDER THE U.S. SECURITIES ACT) IN A TRANSACTION THAT IS EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT.
(t)
The funds which will be advanced by the Purchaser to the Corporation or its agent hereunder will not represent proceeds of crime for the purposes of the
Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada)
(the “
PCMLA
”) and the Purchaser acknowledges that the Corporation may in the future be required by law to disclose the Purchaser’s name and other information relating to this Agreement and the Purchaser’s subscription hereunder, on a confidential basis, pursuant to the PCMLA. To the best of its knowledge: (a) none of the subscription funds to be provided by the Purchaser: (i) have been or will be derived from or related to any activity that is deemed criminal under the law of Canada, the United States, or any other jurisdiction; or (ii) are being tendered on behalf of a Person who has not been identified to the Purchaser; and (b) it shall promptly notify the Corporation if the Purchaser discovers that any of such representations ceases to be true, and to provide the Corporation with appropriate information in connection therewith.
(u)
The Purchaser acknowledges that this Agreement requires the Purchaser to provide certain personal information to the Corporation. Such information is being collected by the Corporation for the purposes of completing the Offering, which includes, without limitation, determining the Purchaser’s eligibility to purchase the Units under applicable Securities Laws, preparing and registering certificates representing the Common Shares, the Warrants and the Warrant Shares to be issued to the Purchaser and completing filings required by any stock
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exchange or securities regulatory authority. The Purchaser’s personal information may be disclosed by the Corporation to: (i) stock exchanges or securities regulatory authorities; (ii) the Corporation’s registrar and transfer agent; and (iii) any of the other parties involved in the Offering, including legal counsel and may be included in record books prepared in connection with the Offering. By executing this Agreement, the Purchaser is deemed to be consenting to the foregoing collection, use and disclosure of the Purchaser’s personal information. The Purchaser also consents to the filing of copies or originals of any documents as may be required to be filed with any stock exchange or securities regulatory authority in connection with the transactions contemplated hereby.
(v)
For Purchasers of Securities in Ontario, the Purchaser (i) has been notified by the Corporation (A) that the Corporation is required to provide information (“
Personal Information
”) pertaining to the Purchaser required to be disclosed in Schedule 1 of Form 45- 106F1 under NI 45-106 (including its name, address, telephone number and the number and value of Common Shares purchased), which Form 45-106F1 is required to be filed by the Corporation under NI 45-106, (B) that the Personal Information will be delivered to the Ontario Securities Commission (the “
OSC
”) in accordance with NI 45-106, (C) that such Personal Information is being collected indirectly by the OSC under the authority granted to it pursuant to Securities Laws in Ontario, (D) that such Personal Information is being collected for the purposes of the administration and enforcement of Securities Laws in Ontario, and (E) that the public official in Ontario who can answer questions about the OSC’s indirect collection of the Personal Information is the Administrative Support Clerk at the OSC, Suite 1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8, Telephone: (416) 593-3684, and (ii) has authorized the indirect collection of the Personal Information by the OSC. Further, by purchasing the Securities, the Purchaser acknowledges that its name and other specified information, including the number of the Securities it has purchased, may be disclosed to other Canadian securities regulatory authorities and may become available to the public in accordance with the requirements of applicable laws. The Purchaser consents to the disclosure of that information.
(w)
It is aware of the characteristics of the Units, of the speculative nature of this subscription and of the fact that the Common Shares, Warrants and Warrant Shares may not be resold or otherwise disposed of except in accordance with the provisions of the applicable securities legislation.
(x)
It is familiar with the aims and objectives of the Corporation and has been informed of the nature of the Corporation’s activities.
(y)
The Purchaser acknowledges and agrees that the Corporation has made no representations or warranties with respect to the Offering and the Units other than as specifically set forth in this Agreement.
(z)
The Purchaser confirms and agrees that: (i) it is making its investment decision based on its own independent evaluation of the Corporation, including the representations and warranties being made by the Corporation in this Agreement; and (ii) it has not relied on the advice of, or any representations by, any of the Intermediaries or any Affiliate thereof in making such decision. The Purchaser acknowledges that the Intermediaries have not made any representations or warranties with respect to the Corporation or the transactions contemplated hereby, and the Purchaser will not rely on any statements made by any Intermediary, orally or in writing, to the contrary. The Purchaser acknowledges that none of the Intermediaries or any of their respective representatives has any responsibility with respect to the completeness or
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accuracy of any information or materials furnished to the Purchaser in connection with the Offering. The Purchaser further acknowledges that the Intermediaries are not responsible for the ultimate success of its investment in the Corporation.
ARTICLE 4
OTHER AGREEMENTS OF THE PARTIES
4.1
Pre-Emptive Right.
In the event that the Corporation proposes to issue any class or series of the equity securities of the Corporation, any voting securities of the Corporation, or any securities convertible or exchangeable into, or entitling purchase of, any of the foregoing (the “
Covered Securities
” and, as such securities may be offered and/or issued from time to time by the Corporation, collectively “
Offered Securities
”), the Corporation shall provide written notice (a “
Pre-Emption Notice
”) to each Investor that has, together with its Affiliates, purchased at least $4,000,000 of the Units sold under the Offering (each a “
2012 Pre-Emptive Rights Investor
”), specifying the terms and conditions of the proposed issue (the “
Covered Offering
”), including the amount of money to be raised, the type of security to be issued, the price per security to be issued and the target completion date. In that event, each 2012 Pre-Emptive Right Investor shall then have the right, by written notice to the Corporation (the “
Notice of Exercise of Pre-Emptive Rights
”) within four (4) Business Days from the date of receipt of the Pre-Emption Notice, in the case of a Covered Offering that is a Private Placement, or within two (2) Business Days from the date of the receipt of the Pre-Emption Notice in the case of a Covered Offering that is a Public Offering, to subscribe, upon the terms and conditions set forth in the Pre-Emption Notice, for up to the number of Offered Securities which is equal to the number of the Offered Securities offered in the Covered Offering in proportion to the aggregate holding of Covered Securities by the 2012 Pre- Emptive Right Investor in relation to the total number of Covered Securities issued and outstanding immediately prior to the issuance of Offered Securities (the “
Pre-Emptive Rights
”) for a period until [ ], 2016. The Pre-Emptive Rights shall not apply to issuances of Offered Securities pursuant to (i) the Corporation’s stock option plan; (ii) collaboration agreements entered into by the Corporation; (iii) a Public Offering at a price per security at least 100% greater than the Subscription Price, in connection with which the securities being sold are listed on a Permitted Exchange, for total proceeds of at least C$50,000,000 and conducted by a recognized, full service investment banking firm; or (iv) the exercise of the Warrants.
4.2
Pre-Emptive Right Replacement.
The Corporation and each 2012 Pre-Emptive Rights Investor that was previously entitled 2011 Pre-Emptive Rights under the 2011 Agreements (each a “
Upgraded Pre-Emptive Rights Investor
”) agree that the Pre-Emptive Rights shall replace and supersede the 2011 Pre-Emptive Rights for each Upgraded Pre-Emptive Rights Investor. For greater certainty any Covered Securities owned by an Upgraded Pre-Emptive Right Investor, including any Covered Securities acquired after the date hereof and the securities purchased under the 2011
Agreements, if still held by such Upgraded Pre-Emptive Right Investor, will form part of such Upgraded Pre-Emptive Right Investor’s Covered Securities for the purposes of calculating the number of Offered Securities such Upgraded Pre-Emptive Right Investor may purchase pursuant to its Pre-Emptive Rights hereunder.
4.3
Additional Rights.
The Co-Lead Investors shall also have a right (the “
Additional Rights
”), but not the obligation, to acquire any Offered Securities that are subject to the Pre-Emptive Rights or the 2011 Pre-Emptive Rights but which are not otherwise purchased by a 2012 Pre-Emptive Right Investor or any 2011 Pre-Emptive Rights Investor, respectively. Each of the Co-Lead Investors may exercise its Additional Rights by stating in its Notice of Exercise of Pre-Emptive Rights (i) that it shall acquire up to its pro rata share of the Offered Securities which are not otherwise purchased by the other 2012 Pre-Emptive Right Investors and the 2011 Pre-Emptive Right Investors; and (ii) the exact number of Offered Securities to be acquired. Should the Notice of Exercise of Pre-Emptive Rights of any
22
Co-Lead Investor not include the information specified in the preceding sentence, any such Co-Lead Investor shall be deemed to waive its Additional Rights. In the event that one of the Co-Lead Investors does not exercise its Additional Rights, the Co-Lead Investor which has exercised its Additional Rights shall have the right, but not the obligation, to acquire the remaining Offered Securities that are subject to the Pre-Emptive Rights and 2011 Pre-Emptive Rights but that are not otherwise purchased by the other 2012 Pre-Emptive Right Investors and the 2011 Pre-Emptive Right Investors, respectively. The Corporation and each Co-Lead Investor agree that the Additional Rights in this section 4.3 shall replace and supersede the rights set forth in section 4.2 of the 2011 Agreements to which the Co-Lead Investors and Corporation are party.
4.4
Rights to Appoint an Observer and a Director.
Each of the Co-Lead Investors shall, until such time as such Co-Lead Investor beneficially owns less than 10% of the issued and outstanding Common Shares, calculated on a partially diluted basis (i.e., assuming only the exercise of any convertible securities or rights to acquire Common Shares of the Co-Lead Investor), have the right, but not the obligation to appoint one (1) observer to the Board, whether or not the Co-Lead Investor’s observer nominee is independent of the Co-Lead Investor, and each observer shall have the right to receive notice of and attend the meetings of the Board, and shall each have the right to address the Board at any of its meetings, but who shall not have any right to vote thereat. In addition to appointing an observer, each of the Co-Lead Investors shall, until such time as such Co-Lead Investor beneficially owns less than 10% of the issued and outstanding Common Shares, calculated on a partially diluted basis (i.e., assuming only the exercise of any convertible securities or rights to acquire Common Shares of the Co- Lead Investor), have the right, but not the obligation, to nominate one (1) person to the Board whether or not the Co-Lead Investor’s Board nominee is independent of the Co-Lead Investor. The Corporation shall include each Co-Lead Investor’s director nominee in its proposed slate of directors at each annual or special (if applicable) meeting and shall recommend that shareholders vote in favour of such nominee. In the event that a Co-Lead Investors’ nominated Board member resigns his/her Board seat or is removed or otherwise fails to become or ceases to be a director for any reason, the vacancy will be filled by the election or appointment of another director nominated by the Co-Lead Investor as soon as possible and the right of that Co-Lead Investor to appoint or nominate, as the case may be, an observer or a director to the Board shall continue until the such time as such Co-Lead Investor beneficially owns less than 10% of the issued and outstanding Common Shares, calculated on a partially diluted basis (i.e., assuming only the exercise of any convertible securities or rights to acquire Common Shares of the Co-Lead Investor). Furthermore, the Co-Lead Investors and the Corporation hereby agree that section 4.3 of the 2011 Agreements to which each of the Co-Lead Investors is a party is superseded and replaced by this section 4.4.
4.5
Securities Laws Disclosure; Publicity.
The Corporation shall, within 10 days following the Closing Date, issue a Material Change Report disclosing the material terms of the transactions contemplated hereby. Neither the Corporation nor the Purchaser shall issue any such press release or otherwise make any such public statement in respect of this Offering without prior consultation of the Lead Investor, in the case of the Corporation and the Investors, and without the prior consent of the Corporation, in the case of the Purchaser, regarding such public statement or communication, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Corporation shall not publicly disclose the name of the Purchaser without the prior consent of the Purchaser, except: (i) for any public statement or communication incorporating by reference or otherwise the information contained in the Material Change Report described in this Section 4.5; (ii) as required by the U.S. Securities Act; and (iii) to the extent such disclosure is required by Securities Law or the rules and policies of the TSX or otherwise as described in Sections 3.2(t), 3.2(u) and 3.2(v) above, in which case the Corporation shall provide the Purchaser with prior notice of such disclosure permitted under sub- clause (ii) or (iii) to the extent that such prior notice is permitted by law.
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4.6
Use of Proceeds.
The Corporation shall use the net proceeds from the sale of the Securities hereunder for the purposes of working capital, research, product development and general corporate purposes as set forth in Schedule 4.6 hereto.
4.7
Survival of Representations and Warranties.
The representations and warranties of the parties contained herein shall survive the date hereof for a period of twelve months from the date hereof except that (i) in the event of fraud, they shall survive indefinitely and (ii) the representations and warranties set forth in Section 3.1(bb) will survive the date hereof for a period of six (6) years from the date hereof and shall in no way be affected by any investigation made by one of the parties.
4.8
Indemnification of Purchaser.
Subject to the provisions of this Section 4.8, the Corporation will indemnify and hold the Purchaser, its Affiliates and their respective directors, officers, shareholders, partners, employees and agents (if applicable) (each, a “
Purchaser Party
”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to: (a) any breach of any of the representations, warranties, covenants or agreements made by the Corporation in the Transaction Documents; or (b) any action instituted against a Purchaser Party by any shareholder of the Corporation who is not an Affiliate of the Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of the Purchaser’s representation, warranties or covenants under the Transaction Documents or any conduct by the Purchaser Party which constitutes fraud, gross negligence or wilful misconduct). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Corporation in writing, and the Corporation shall have the right to assume the defence thereof with counsel of its own choosing. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defence thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that: (i) the employment thereof has been specifically authorized by the Corporation in writing; (ii) the Corporation has failed after a reasonable period of time to assume such defence and to employ counsel; or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Corporation and the position of such Purchaser Party. The Corporation will not be liable to any Purchaser Party under this Agreement: (i) for any settlement by a Purchaser Party effected without the Corporation’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent that a court of competent jurisdiction in a final judgment from which no appeal can be made shall determine that such Purchaser Party breached, defaulted under or failed to comply with any material representation, warranty, term, condition or covenant of this Agreement.
4.9
Indemnification of Corporation.
Subject to the provisions of this Section 4.9, the Purchaser will indemnify and hold the Corporation, its Affiliates and their respective directors, officers, shareholders, partners, employees and agents (each, a “
Corporation Party
”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Corporation Party may suffer or incur as a result of or relating to any breach of any of the representations, warranties, covenants or agreements made by the Purchaser in this Agreement or in the other Transaction Documents (unless such action is based upon a breach of the Corporation’s representation, warranties or covenants under the Transaction Documents or any conduct by the Corporation Party which constitutes fraud, gross negligence or wilful misconduct). If any action shall be brought against any Corporation Party in respect of which indemnity may be sought pursuant to this Agreement, such Corporation Party shall promptly notify the Purchaser in writing, and the Purchaser shall have the right to assume the defence thereof with counsel of its own choosing. Any Corporation Party shall have the right to employ separate counsel in any such action and participate in the defence thereof,
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but the fees and expenses of such counsel shall be at the expense of such Corporation Party except to the extent that: (i) the employment thereof has been specifically authorized by the Purchaser in writing; (ii) the Purchaser has failed after a reasonable period of time to assume such defence and to employ counsel; or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Purchaser and the position of such Corporation Party. The Purchaser will not be liable to any Corporation Party under this Agreement: (i) for any settlement by a Corporation Party effected without the Purchaser’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent that a court of competent jurisdiction in a final judgment from which no appeal can be made shall determine that such Corporation Party breached, defaulted under or failed to comply with any material representation, warranty, term, condition or covenant of this Agreement.
4.10
Acknowledgment Regarding Purchaser’s Purchase of Securities.
The Corporation acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby. The Corporation further acknowledges that no Investor is acting as a financial advisor or fiduciary of the Corporation (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Investor or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Investors’ purchase of the Securities. The Corporation further represents to the Purchaser that the Corporation’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Corporation and its representatives.
4.11
Indemnity of the Intermediaries.
Each party hereto agrees for the express benefit of each of the Intermediaries, their respective Affiliates and their respective representatives that:
(a)
None of the Intermediaries or any of their respective Affiliates or representatives have any duties or obligations to any party to this Agreement other than those specifically set forth herein, in the engagement letter, dated as of October 15, 2012 (as amended through the date hereof), between the Corporation and Jefferies (the “
Engagement Letter
”) or in the co-placement agent engagement letter dated as of October 16, 2012 (as amended through the date hereof), between the Corporation and MTS (the “
Co-Placement Letter
” and, together with the Engagement Letter, the “
Engagement Letters
”), for (x) any action taken, suffered or omitted by any of them in good faith and reasonably believed to be authorized or within the discretion or rights or powers conferred upon it by this Agreement or any Transaction Document or (y) anything which any of them may do or refrain from doing in connection with this Agreement or any Transaction Document, except for such party’s own willful misconduct or bad faith.
(b)
Each of the Intermediaries and any of their respective Affiliates or representatives shall be entitled to (1) rely on, and shall be protected in acting upon, any certificate, instrument, opinion, notice, letter or any other document or security delivered to any of them by or on behalf of the Corporation and (2) be indemnified by the Corporation for acting as Intermediaries hereunder pursuant to the indemnification provisions set forth in the Engagement Letters, which hereby are incorporated by reference herein.
ARTICLE 5
MISCELLANEOUS
5.1
Fees and Expenses.
The Corporation has agreed to reimburse the Lead Investor up to C$50,000 concurrent with the Closing upon presentation of detailed invoices in respect of legal and other
25
costs incurred by the Lead Investor in respect of the Offering. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Corporation shall pay all expenses and transfer agent fees and other taxes and duties levied in connection with the delivery of any Securities.
5.2
Entire Agreement.
The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.3
Notices.
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 4:30 p.m. (Montreal time) on a Business Day; (b) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Business Day or later than 4:30 p.m. (Montreal time) on any Business Day; (c) the second Business Day following the date of mailing, if sent by a recognized overnight courier service; or (d) upon actual receipt by the party to whom such notice is required to be given. Notwithstanding anything herein to the contrary, in the event notice is sent by facsimile transmission, the sending party shall also send a copy of such notification by e-mail if the receiving party has included an e-mail address below or on their respective signature page. The address for such notices and communications shall be as follows:
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If to the Corporation, to:
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MethylGene Inc.
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7210 Frederick-Banting
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Suite 100
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Montreal, Québec
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H4S 2A1 Canada
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Attention: Mr. Klaus Kepper
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Vice President, Finance and Chief Financial Officer
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Facsimile: (514) 337-4994
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E-mail address: kepperk@methylgene.com
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With a copy (which shall
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not constitute notice) to:
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Davies Ward Phillips & Vineberg LLP
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1501 McGill College Avenue
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Suite 2600
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Montreal, Québec
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H3A 3N9 Canada
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Attention: Olivier Désilets
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Facsimile: (514) 841-6499
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E-mail address: odesilets@dwpv.com
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If to a Purchaser:
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To the address set forth under such Purchaser’s name on the signature page hereof,
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or such other address as may be designated in writing hereafter, in the same manner, by such Person.
5.4
Amendments; Waivers.
No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Corporation and the Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.
5.5
Headings.
The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
5.6
Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The parties may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party, except that each party shall be entitled to assign this Agreement without having to obtain the other party’s consent to a transferee who is acquiring all or substantially all the assets of such party and provided that the Corporation may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser prior to the Closing.
5.7
No Third-Party Beneficiaries.
This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.8, except that the Intermediaries may rely on the representations, warranties and covenants contained in Article 3 hereof, and except that Sections 2.3(a)(vi), 2.5, 3.2(z) and 4.11 herein shall inure to the benefit of the Intermediaries, which shall be third party beneficiaries with respect thereto.
5.8
Governing Law.
All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the laws of the Province of Québec, without regard to the principles of conflicts of law thereof.
5.9
Execution.
This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.
5.10
Severability.
If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.
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5.11
Replacement of Securities.
If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Corporation shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Corporation of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities.
5.12
Remedies.
In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Corporation will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defence that a remedy at law would be adequate.
5.13
Independent Nature of Purchasers’ Obligations and Rights.
The obligations of each Purchaser under any Transaction Document are joint between such Purchasers and not solidary (being the equivalent, in the Province of Québec, to obligations that are several and not joint in jurisdictions other than Québec) with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents.
5.14
Time of Essence.
Time is of the essence in this Agreement.
5.15
Construction.
The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto or thereto, as the case may be.
5.16
Language.
The parties hereby request that this Agreement and any related documents be drafted only in the English language.
Les parties requièrent par les présentes que la présente convention ainsi que tous les documents y afférents soient rédigés en langue anglaise seulement.
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Schedule A Form
ofWarrant
(attached)
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [ ], 2013.
THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. THIS WARRANT MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS OR (C) TO AN “ACCREDITED INVESTOR” (AS DEFINED IN RULE 501(a) UNDER THE U.S. SECURITIES ACT) IN A TRANSACTION THAT IS EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT.
WARRANT CERTIFICATE Warrants to
Purchase Common Shares of
METHYLGENE INC.
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WARRANT
CERTIFICATE NO. 2012-[ ]
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[
]
WARRANTS entitling the holder to acquire, subject to adjustment, one common share for each whole Warrant represented hereby.
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This certifies that, for value received, [ ] (the “
Holder
”) has acquired and is the registered holder of [ ] warrants (the “
Warrants
”) of MethylGene Inc. (the “
Corporation
”), giving the Holder the right to purchase, upon and subject to the terms and conditions hereinafter referred to, [ ] common shares of the Corporation (the “
Common Shares
”) at a price equal to $0.174 per share (the “
Exercise Price Per Warrant
”) on or before 5:00 P.M. (Eastern time) on [ ] (the “
Exercise Period
”).
1.
The aforesaid right to purchase Common Shares may only be exercised by the Holder within the time required hereinbefore set out, in whole or in part, by (a) surrendering to the Corporation at the address for notice to the Corporation set out in Section 11, or at any other
address which from time to time is the principal place of business of the Corporation, the Warrant Certificate, (b) duly completing in the manner indicated and executing the exercise notice in substantially the form attached hereto (the “
Exercise Notice
”), and (c) paying the appropriate purchase price in Canadian dollars for the Common Shares subscribed for together with requisite share transfer tax, if any, either by certified cheque or bank draft payable at par to the order of the Corporation. Upon compliance by the Holder with the exercise procedures in respect of a Warrant Certificate set forth above in items (a), (b) and (c) (the “
Exercise Date
”), the number of Common Shares subscribed for shall be deemed to have been issued and the person to whom such Common Shares are to be issued shall be deemed to have become the holder of record of such Common Shares on the Exercise Date. Within five days of the Exercise Date, the Corporation shall direct Computershare Investor Services Inc. (or any substitute transfer agent) to deliver, or shall itself deliver, to the Holder a share certificate for the appropriate number of Common Shares to which the Holder is entitled.
Notwithstanding anything contained herein to the contrary, the Holder may, in its sole discretion, exercise the Warrants in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Corporation upon such exercise in payment of the aggregate Exercise Price Per Warrant (and in exchange for the surrender of the right to receive upon such exercise the Common Shares in excess of the “Net Number” of Common Shares, as described below), elect instead to receive upon such exercise the “Net Number” of Common Shares determined according to the following formula:
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Net Number =
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(A x B) - (A x C)
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B
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For purposes of the foregoing formula:
A= the total number of Common Shares with respect to which this Warrant Certificate is then being exercised.
B= the volume-weighted average of the closing price of the Common Shares on the TSX during the five trading days immediately preceding the date of the Exercise Notice.
C= the Exercise Price then in effect for the applicable Common Shares at the time of such exercise.
If the Holder of this Warrant Certificate subscribes for a lesser number of Common Shares than the number of Common Shares referred to in this Warrant Certificate, the said Holder will be entitled to receive a further Warrant Certificate in respect of Common Shares referred to in this Warrant Certificate not subscribed for.
To the extent these Warrants have not previously been exercised as to all of the Common Shares subject hereto, and if the volume-weighted average of the closing price of the Common Shares on the TSX during the five trading days immediately preceding the last day of the Exercise Period is greater than the Exercise Price Per Warrant, these Warrants shall be deemed automatically exercised pursuant to this Section 1 (even if not surrendered) immediately
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prior the expiry of the Exercise Period. To the extent these Warrants or any portion thereof are deemed automatically exercised pursuant to this paragraph, the Corporation agrees to promptly notify the Holder of the number of Common Shares, if any, that the Holder is to receive by reason of such automatic exercise.
[INSERT BLOCKER RIDER, IF APPLICABLE]
2.
(a) Any certificate representing the Holder’s Common Shares issued upon the exercise of these Warrants prior to [ ], 2013 will bear the following legend:
“UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [ ], 2013.”
(b) Any certificate representing Common Shares issued to an Original U.S. Purchaser (as defined in Exhibit “B” hereto) or any other Holder in the United States, or, if the Corporation is not a “foreign issuer” within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended, (the “
U.S. Securities Act
”), at the time these Warrants are exercised, any certificate representing Common Shares issued to any other Holder, will bear the following additional legend:
“THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR UNDER ANY U.S. STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF METHYLGENE INC. (THE “CORPORATION”) THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING THE SALE OF SUCH SECURITIES ONLY, WHETHER DIRECTLY OR INDIRECTLY: (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT; OR (C) PURSUANT TO (I) RULE 144 UNDER THE U.S. SECURITIES ACT, IF AVAILABLE OR (II) ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, PROVIDED THAT A LEGAL OPINION SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR SECURITIES LAW OF ANY APPLICABLE JURISDICTION. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.”
(c) If at the time these Warrants are exercised the Corporation is not a “foreign issuer”, within the meaning of Regulation S under the U.S. Securities Act, any certificate representing the Common Shares issued upon exercise of these Warrants, other than Common Shares issued to an Original U.S. Purchaser or another Holder in the United States, will bear the following additional legend:
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“HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE U.S. SECURITIES ACT.”
3.
The holding of a Warrant does not constitute the Holder a shareholder of the Corporation, nor entitle the holder to any right or interest in respect thereof except as expressly provided in this Warrant Certificate.
4.
The Holder of this Warrant Certificate upon surrender hereof to the Corporation at its principal place of business, may exchange this Warrant Certificate for other Warrant Certificates entitling the bearer to purchase in the aggregate the same number of Common Shares referred to in this Warrant Certificate.
5.
The Holder hereof, by acceptance of this Warrant Certificate, agrees that this Warrant Certificate and all rights hereunder are not transferable or assignable, in whole or in part, except: (a) to the Corporation, (b) outside the United States in accordance with Regulation S under the U.S. Securities Act and in compliance with applicable local laws and regulations, or (c) to an “accredited investor” (as defined in Rule 501(a) under the U.S. Securities Act) pursuant to an available exemption from registration under the U.S. Securities Act, subject to such procedures, including provision of a legal opinion of seller’s counsel, as either the Holder or the Corporation reasonably deems necessary to document compliance with the U.S. Securities Act. The Warrants evidenced by this Warrant Certificate may only be transferred on the register to be kept at the address for notice to the Corporation set out in Section 11, or at any other address which from time to time is the principal place of business of the Corporation, by delivery of a duly executed notice transfer form in the form attached hereto as Exhibit A by the Holder or its attorney to be appointed by an instrument in writing in form and execution satisfactory to the Corporation in compliance with such reasonable requirements as the Corporation may prescribe.
6.
Subject in all cases to the TSX’s approval, the number of Common Shares to which the Holder is entitled upon exercise of the Warrants and the Exercise Price Per Warrant shall be subject to adjustment from time to time as follows:
(a) if and whenever at any time from the date hereof and prior to the expiry of the Exercise Period, the Corporation shall:
(i)
subdivide its outstanding Common Shares into a greater number of shares;
(ii)
consolidate its outstanding Common Shares into a smaller number of shares; or
(iii)
fix a record date for the issuance of Common Shares or securities convertible into Common Shares by way of stock dividend or other distribution;
the number of Common Shares to which the Holder is entitled upon exercise of the Warrants shall be adjusted, at no cost to the Holder, immediately after such record date or the effective date of such subdivision, consolidation, stock dividend or other distribution by
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multiplying the number of Common Shares theretofore obtainable on the exercise thereof by the fraction of which:
(A)
the numerator shall be the total number of Common Shares outstanding, including the Common Shares issuable from convertible securities that are distributed, immediately after such date, and
(B)
the denominator shall be the total number of Common Shares outstanding immediately prior to such date,
and the Exercise Price Per Warrant shall be proportionately adjusted such that the aggregate Exercise Price Per Warrant of this Warrant Certificate shall remain unchanged and such adjustments shall be made successively whenever any event referred to in this Subsection shall occur (and all adjustments in this Subsection are cumulative). Any such issuance of Common Shares by way of stock dividend shall be deemed to have been made on the record date for such stock dividend;
(b) if and whenever at any time from the date hereof and ending at the expiry of the Exercise Period, the Corporation shall fix a record date for the issue of rights, options or warrants to all or substantially all of the holders of Common Shares entitling the holders thereof, within a period expiring not more than 45 days after the record date for such issue, to subscribe for or purchase Common Shares (or securities convertible into or exchangeable for Common Shares) at a price per share (or having a conversion or exchange price per share) less than 95% of the Current Market Price (as defined below) on such record date, then the Exercise Price Per Warrant will be adjusted immediately after such record date so that it will equal the rate determined by multiplying the Exercise Price Per Warrant in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date plus the number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of additional Common Shares so offered for subscription or purchase (or the aggregate conversion or exchange price of the convertible or exchangeable securities so offered) by such Current Market Price, and of which the denominator shall be the total number of Common Shares outstanding on such record date plus the total number of additional Common Shares so offered for subscription or purchase (or into or for which the convertible or exchangeable securities so offered are convertible or exchangeable). Any Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation. Such adjustment will be made successively whenever such a record date is fixed, provided that if two or more such record dates or record dates referred to in this paragraph are fixed within a period of 25 trading days, such adjustment will be made successively as if each of such record dates occurred on the earliest of such record dates. To the extent that any such rights, options or warrants are not exercised prior to the expiration thereof, the Exercise Price Per Warrant will then be readjusted to the Exercise Price Per Warrant which would then be in effect based upon the number of Common Shares (or securities convertible into or exchangeable for Common Shares) actually issued upon the exercise of such rights, options or warrants, as the case may be. For the purposes of this Subsection, “Current Market Price” shall mean the volume weighted average trading price of the
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Common Shares on the TSX (or such other exchange on which the Common Shares are traded) for the five trading days immediately preceding the relevant date;
(c) if and whenever at any time from the date hereof and prior to the expiry of the Exercise Period, the Corporation shall issue or distribute to the holders of all or substantially all of the outstanding Common Shares or set a record date for the issuance or distribution to such holders of any securities of the Corporation including rights, options or warrants to acquire Common Shares or securities convertible into or exchangeable for Common Shares or property or assets including evidences of indebtedness, the holder of any Warrant who thereafter shall exercise his right to subscribe for Common Shares hereunder shall be entitled to receive, at no cost to such holder, and shall accept for the same aggregate consideration, in addition to the Common Shares to which he was theretofore entitled upon such exercise, the kind and amount of shares or other securities or property which such holder would have been entitled to receive as a result of such issue or distribution as if, on the effective date thereof, he had been the registered holder of the number of Common Shares to which he was theretofore entitled upon such exercise;
(d) if and whenever at any time from the date hereof and ending on the expiry of the Exercise Period, there is (i) any reclassification of or amendment to the outstanding Common Shares, any change of the Common Shares into other shares or any other reorganization of the Corporation (other than as described above); (ii) any consolidation, amalgamation, arrangement, merger or other form of business combination of the Corporation with or into any other corporation resulting in any reclassification of the outstanding Common Shares, any change of the Common Shares into other shares or any other reorganization of the Corporation; or (iii) any sale, lease, exchange or transfer of the undertaking or assets of the Corporation as an entirety or substantially as an entirety to another corporation or entity, then, in each such event, each holder of any Warrant which is thereafter exercised will be entitled to receive, and shall accept, in lieu of the number of Common Shares to which such holder was theretofore entitled upon such exercise, the kind and number or amount of shares or other securities or property which such holder would have been entitled to receive as a result of such event if, on the effective date thereof, such holder had been the registered holder of the number of Common Shares to which such holder was theretofore entitled upon such exercise;
(e)
if and whenever at any time after the date hereof and prior to the Expiry Time, the Corporation takes any action affecting its Common Shares to which the foregoing provisions of this Section, in the opinion of the board of directors of the Corporation, acting reasonably and in good faith, are not strictly applicable, or if strictly applicable would not fairly adjust the rights of the Holder against dilution in accordance with the intent and purposes thereof, or would otherwise materially affect the rights of the Holder hereunder, then the Corporation shall execute and deliver to the Holder an amendment hereto providing for an adjustment in the application of such provisions so as to adjust such rights as aforesaid in such a manner as the board of directors of the Corporation may determine to be equitable in the circumstances, acting reasonably and in good faith;
(f) appropriate adjustments shall be made as a result of any such subdivision, consolidation, issue or distribution to the rights and interests of the Holder thereafter so that the provisions of this Article shall thereafter apply correspondingly to any shares, other securities or
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other property thereafter deliverable upon the exercise of any Warrant and any such adjustments shall be made by and set forth in an agreement supplemental hereto approved by the directors and shall for all purposes be conclusively deemed to be an appropriate adjustment;
(g) in any case in which this Section shall require that an adjustment shall become effective immediately after a record date for an event referred to herein, the Corporation may defer, until the occurrence of such event, issuing to the holder of any Warrant exercising his subscription rights after such record date the additional Common Shares or other securities or property issuable upon such exercise by reason of the adjustment required by such event; provided, however, that the Corporation shall deliver to such holder an appropriate instrument evidencing such holder’s right to receive such additional Common Shares, other securities or property, as the case may be, upon the occurrence of the event requiring such adjustment and the right to receive any distributions made on such additional Common Shares, other securities or property, as the case may be, declared in favour of holders of record of Common Shares, other securities or property, as the case may be, on and after the date of exercise or such later date as such holder would but for the provisions of this Subsection, have become the holder of record of such additional Common Shares, other securities or property, as the case may be, pursuant to the due exercise of the Warrants held by such holder;
(h)
at least ten (10) business days prior to the effective date or record date, as the case may be, of any event which requires or might require adjustment in any of the subscription rights pursuant to this Warrant Certificate, including the Exercise Price Per Warrant and the number of Common Shares which are purchasable upon the exercise thereof, or such longer period of notice as the Corporation shall be required to provide holders of Common Shares in respect of any such event, the Corporation shall notify the holder of this Warrant of the particulars of such event and, if determinable, the required adjustment and the computation of such adjustment. In case any adjustment for which such notice has been given is not then determinable, the Corporation shall promptly after such adjustment is determinable notify the holder of the Warrant of the adjustment and the computation of such adjustment;
(i) all shares of any class or other securities or property which the Holder is at the time in question entitled to receive on the full exercise of his Warrant, whether or not as a result of adjustments made pursuant to this Section shall, for the purposes of the interpretation of this Agreement, be deemed to be Common Shares which the Holder is entitled to subscribe for pursuant to the exercise of such Warrant;
(j) the adjustments provided for in this Section 6 are cumulative and shall, in the case of adjustments to the Exercise Price Per Warrant, be computed to the nearest one-tenth of one cent and shall be made successively whenever an event referred to therein shall occur, subject to the following: (i) no adjustments in the Exercise Price Per Warrant shall be required unless such adjustment would result in a change of at least 1% in the then prevailing Exercise Price Per Warrant and no adjustment shall be made in the number of Common Shares purchasable upon exercise of Warrants unless it would result in a change of at least one one-hundredth of a share; provided, however, that any adjustments which by reason of this Section 6 are not required to be made shall be carried forward and taken into account in any subsequent adjustment; and (ii) if a dispute shall at any time arise with respect to adjustments provided for in this Section 6, such dispute shall be conclusively determined by the Corporation’s
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auditors, or if they are unable or unwilling to act, by such other firm of independent chartered or public accountants as may be selected by action by the board of directors of the Corporation, and any such determination shall be binding upon the Corporation, the Holder and shareholders of the Corporation. In the event that any such determination is made, the Corporation shall deliver a certificate to the Holder signed by such auditors or accountants describing such determination.
7.
The Corporation hereby represents and warrants that it is authorized to create and issue the Warrants and covenants and agrees that it will cause the Common Shares from time to time subscribed for and purchased in the manner provided in this Warrant Certificate and the certificate or certificates representing such Common Shares to be issued and that, at all times prior to the expiry of the Exercise Period, there will remain unissued a sufficient number of Common Shares to satisfy the right of purchase provided for in this Warrant Certificate. All Common Shares which are issued upon the exercise of the right of purchase provided in this Warrant Certificate, upon payment therefor of the amount at which such Common Shares may be purchased pursuant to the provisions of this Warrant Certificate, shall be and be deemed to be fully paid and non-assessable shares and free from all taxes, liens, charges and encumbrances with respect to the issue thereof. The Corporation hereby represents and warrants that this Warrant Certificate is a valid and enforceable obligation of the Corporation, enforceable in accordance with the provisions of this Warrant Certificate.
8.
Forthwith following the issuance of this Warrant Certificate, the Corporation will apply for the listing of the Common Shares issuable pursuant to this Warrant Certificate on each securities exchange on which the Common Shares are then listed.
9.
The Corporation will not be obligated to issue any fraction of a share on the exercise of Warrants. If the Holder would, on the exercise of Warrants, otherwise have acquired a total number of shares that includes a fraction of a share, the Corporation will pay to the Holder, by cheque, in lieu of and in satisfaction for any right to such fractional share, an amount equal to the equivalent fraction of the market value of such share on the business day immediately preceding the date of such payment.
10.
Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of this Warrant Certificate and, if requested by the Corporation, upon delivery of a bond of indemnity satisfactory to the Corporation (or, in the case of mutilation, upon surrender of this Warrant Certificate), the Corporation will issue to the Holder a replacement certificate (containing the same terms and conditions as this Warrant Certificate).
11.
All notices or other communications to be given under this Warrant Certificate shall be delivered by hand or by telecopier and, if delivered by hand, shall be deemed to have been given on the delivery date and, if sent by telecopier, on the date of transmission if sent before 5:00 p.m. on a business day or, if such day is not a business day, on the first business day following the date of transmission.
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Notices to the Corporation shall be addressed to:
7150 Frederick-Banting
Suite 200
Montreal, Québec H4S 2A1
Canada
Attention: Chief Financial Officer
Facsimile: (514) 337-0550
Notices to the Holder shall be addressed to the address of the Holder set out in the register kept at the address for notice to the Corporation set out in this Section 11, or at any other address which from time to time is the principal place of business of the Corporation.
The Corporation and the Holder may change its address for service by notice in writing to the other of them specifying its new address for service under this Warrant Certificate.
12.
Time will be of the essence hereof.
13.
All monies quoted in this Warrant Certificate shall be stated and paid in lawful money of Canada unless otherwise stated.
14.
This Warrant Certificate shall be construed in accordance with the laws of the Province of Québec and the federal laws of Canada applicable therein.
15.
The parties hereto acknowledge and confirm that they have requested that this Warrant Certificate as well as all notices and other documents contemplated hereby be drawn up in the English language.
Les parties aux présentes reconnaissent et confirment qu’elles ont exigé que la présente convention ainsi que tous les avis et documents qui s’y rattachent soient rédigés en langue anglaise.
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IN WITNESS WHEREOF
the Corporation has caused this Warrant Certificate to be signed by its duly authorized officer as of the day of [ ].
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METHYLGENE INC.
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Name:
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Title:
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EXHIBIT “A”
TRANSFER FORM
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
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(full name of Transferee)
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(full address of Transferee)
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Warrants of MethylGene Inc. registered in the name of the undersigned on the records of MethylGene Inc. represented by the Warrant Certificate attached
and irrevocably appoints the attorney of the
undersigned to transfer the said securities on the books or register with full power of substitution.
DATED the day of , .
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(Signature of Registered Warrantholder)
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Instructions:
1.
The signature of the Warrantholder must be the signature of the person appearing on the face of this Warrant Certificate.
2.
If the Transfer Form is signed by a trustee, executor, administrator, curator, guardian, attorney, officer of a corporation or any person acting in a judiciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Agent and the Corporation.
EXHIBIT “B”
NOTICE OF EXERCISE OF WARRANT FORM
(To be executed only upon exercise of Warrants)
Capitalized terms referred to but not defined herein have such meanings herein as are given thereto in the accompanying Warrant Certificate.
The undersigned registered owner of the accompanying Warrant Certificate hereby elects to exercise of the Warrants represented thereby on and subject to the terms and conditions incorporated by reference in the accompanying Warrant Certificate
The undersigned hereby certifies that the undersigned is either (i) the Original U.S. Purchaser, (ii) an accredited investor (as defined in Rule 501(a) under the U.S. Securities Act) (an “Accredited Investor”) or (iii) not a U.S. Person or a person in the United States, and is not acquiring any of the Shares issuable upon the exercise of the Warrants for the account or benefit of a U.S. Person or a person in the United States, and none of the persons listed below is a U.S. Person or a person in the United States, unless such person is the Original U.S. Purchaser or an Accredited Investor. In addition to this exercise form, but only to the extent required under the U.S. Securities Act, a Holder described in (i) or (ii) above must also provide an executed letter, substantially in the form attached as Exhibit “C” to the Warrant. For purposes hereof “United States” and “U.S. Person” shall have the meanings given to such terms in Regulation S under United States Securities Act of 1933, as amended (the “U.S. Securities Act”), and “Original U.S. Purchaser” means the accredited investor within the meaning of Rule 501(a) of Regulation D under the U.S. Securities Act who first purchased the Warrants.
If the undersigned is not an Original U.S. Purchaser or an Accredited Investor and on the date these Warrants are exercised by the undersigned the Corporation is not a “foreign issuer”, within the meaning of Regulation S under the U.S. Securities Act, the undersigned acknowledges and agrees: (i) that the Common Shares issued upon exercise of these Warrants will be “restricted securities” as defined in Rule 144 under the U.S. Securities Act (“Rule 144”) and may be sold or otherwise transferred only (A) to the Corporation, (B) outside the United States in accordance with Regulation S under the U.S. Securities Act, or (C) in accordance with (1) Rule 144, if available, or (2) another available exemption from the registration requirements of the U.S. Securities Act; (ii) that such Common Shares will be in the form of definitive physical certificates and, to the extent required under the U.S. Securities Act, will bear the legends set forth in sections 2(b) and 2(c) of the Warrant Certificate; and (iii) that the undersigned will not engage in any hedging transactions with regard to such Common Shares unless in compliance with the U.S. Securities Act.
The Holder intends that payment of the Exercise Price shall be made as (check
one):
o
a “Cash Exercise”; or
o
a “Cashless Exercise”.
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In the event that the Holder has elected a Cash Exercise, the Holder shall pay to
the Corporation the aggregate purchase price of $
in connection with such
exercise, the whole in accordance with the terms of the Warrant Certificate.
The undersigned hereby directs that the Common Shares acquired by it as a result of such exercise be registered as follows:
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Dated:
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(Signature of Registered Owner)
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Address
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EXHIBIT “C”
Form of Letter to be Delivered by
Original U.S. Purchaser
upon Exercise of Warrants
MethylGene Inc.
7150 Frederick-Banting Street
Suite 200
St-Laurent, QC H4S 2A1
Canada
- and to -
Computershare Investor Services Inc.
1500 University Street
Suite 700
Montréal, QC H3A 3S8
Canada
Dear Sirs:
I am/We are delivering this letter in connection with the purchase of common shares (the “Shares”) of MethylGene Inc. (the “Corporation”), a corporation existing under the laws of Canada, upon the exercise of warrants of the Corporation (“Warrants”), dated as of [ ].
We hereby confirm that:
(a)
I am/we are an “accredited investor” within the meaning of Rule 501 (a) of Regulation D under the United States Securities Act of 1933 (the “U.S. Securities Act”);
(b)
I am/we are purchasing the Shares for my/our own account;
(c)
I/we have such knowledge and experience in financial and business matters that I/we am/are capable of evaluating the merits and risks of purchasing the Shares;
(d)
I/we am/are not acquiring the Shares with a view to distribution thereof or with any present intention of offering or selling any of the Shares, except (A) to the Corporation, (B) outside the United States in accordance with Regulation S under the U.S. Securities Act or (C) in accordance with (1) Rule 144 under the U.S. Securities Act, if applicable, or (2) another
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available exemption from registration under the U.S. Securities Act and in each instance compliance with applicable state securities laws;
(e)
I/we acknowledge that I/we have had access to such financial and other information as I/we deem necessary in connection with my/our decision to purchase the Shares; and
(f)
I/we acknowledge that I/we are not purchasing the Shares as a result of any general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio, television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising.
I/We understand that the Shares are being offered in a transaction not involving any public offering within the United States within the meaning of the U.S. Securities Act and that the Shares have not been and may not be registered under the U.S. Securities Act. I/We further understand that any Shares acquired by me/us will be in the form of definitive physical certificates and that such certificates will bear the legend set forth in Section 2(b) of the Warrant Certificate.
I/We acknowledge that you will rely upon my/our confirmations, acknowledgments and agreements set forth herein, and I/we agree to notify you promptly in writing if any of my/our representations or warranties herein ceases to be accurate or complete.
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(Name of Purchaser)
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By:
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Name:
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Title:
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Address:
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5
SCHEDULE 1
Permitted Liens
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Registration
number
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Registration
Date
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Expiration
Date
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Nature
Amount
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Parties
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Description of Property (Summary)
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Comments
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1.
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10-0047659-
0003
January 28,
2010
January 26,
2014
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Rights
resulting
from a lease
and
assignment
of rights
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Lessor: Panasonic
Document Systems Direct
Lessee: MethylGene Inc.
Assignee: De Lage Landen Financial Services Canada Inc.
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Copier - Digital Copieur - Numerique ALL GOODS SUPPLIED BY THE SECURED PARTY TO THE DEBTOR, TOGETHER WITH ALL ATTACHMENTS, ACCESSORIES, ACCESSIONS, REPLACEMENTS, SUBSTITUTIONS, ADDITIONS AND IMPROVEMENTS TO THE FOREGOING. PROCEEDS: GOODS, CHATTEL PAPER, SECURITIES, ACCOUNTS, INVENTORY, DOCUMENTS OF TITLE, INSTRUMENTS, MONEY, CROPS, LICENCES AND INTANGIBLES.
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Deed under private writing dated January 26, 2010.
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2.
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11-0809212-
0001
October 20,
2011
August 11,
2021
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Conventional
hypothec
without
delivery
$66,000
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Creditor:
The Toronto- Dominion Bank
Debtor: Methylgene Inc.
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($27,533.00) BANKERS ACCEPTANCE ISSUED BY THE TORONTO-DOMINION BANK ($27,507.00) BANKERS ACCEPTANCE ISSUED BY THE TORONTO-DOMINION BANK All securities, which may or may not be listed above, lodged or delivered to the creditor in substitution therefore and/or as an additional security, which are and shall be held by the creditor as continuing collateral security, all securities which may be issued in case of a sale, repurchase, conversion, cancellation or any other transformation of the above- described assets; all securities which may be delivered to the Creditor from time to time; and the repurchase value or any other rights related to these assets. All fruits and revenues, present and future, emanating from the above charged property, negotiable instruments, bills, commercial paper, securities, monies, compensation for expropriation given or paid following a sale, repurchase, distribution or any other operation concerning any property hereby charged in favour of the creditor or which has been charged under any other deed.
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Deed under private writing dated August 11, 2011.
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3.
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12-0239219-
0013
April 3, 2012
April 1, 2016
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Rights
resulting
from a lease
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Lessor:
Xerox Canada
Ltd.
Lessee:
Methylgene Inc.
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EQUIPMENT, OTHER ALL PRESENT AND FUTURE OFFICE EQUIPMENT AND SOFTWARE SUPPLIED OR FINANCED FROM TIME TO TIME BY THE SECURED PARTY (WHETHER BY LEASE, CONDITIONAL SALE OR OTHERWISE), WHETHER OR NOT
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Deed under private writing (undated)
This is a global registration pursuant to Article 2961.1 of the Civil Code of Quebec.
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Registration
number
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Registration
Date
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Expiration
Date
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Nature
Amount
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Parties
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Description of Property (Summary)
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Comments
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MANUFACTURED BY THE SECURED PARTY OR ANY AFFILIATE THEREOF.
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Assignment of rights 12-
0563650-0001 dated July
13, 2012.
Assignor: Xerox Canada Ltd.
Assignee: BNP Paribas (Canada)
Assignment of rights 12-
0821835-0001 dated October 5, 2012.
Assignor: Xerox Canada Ltd.
Assignee: BNP Paribas (Canada)
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4.
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12-0248027-
0015
April 4, 2012
April 3, 2016
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Rights resulting
from a lease
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Lessor:
Xerox Canada
Ltd.
Lessee:
Methylgene Inc.
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EQUIPMENT, OTHER ALL PRESENT AND FUTURE OFFICE EQUIPMENT AND SOFTWARE SUPPLIED OR FINANCED FROM TIME TO TIME BY THE SECURED PARTY (WHETHER BY LEASE, CONDITIONAL SALE OR OTHERWISE), WHETHER OR NOT MANUFACTURED BY THE SECURED PARTY OR ANY AFFILIATE THEREOF.
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Deed under private writing (undated)
This is a global registration pursuant to Article 2961.1 of the Civil Code of Quebec.
Assignment of rights 12-
0563650-0001 dated July
13, 2012.
Assignor: Xerox Canada Ltd.
Assignee: BNP Paribas (Canada)
Assignment of rights 12-
0821835-0001 dated October 5, 2012.
Assignor: Xerox Canada Ltd.
Assignee: BNP Paribas (Canada)
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5.
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12-0321991-
0001
April 30, 2012
December 21,
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Conventional hypothec with delivery
$720,000
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Creditor:
The Toronto- Dominion Bank
Debtor: Methylgene Inc.
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Any and all of the present and after acquired movable property, including without limitation, securities, security entitlements, financial assets, bonds, obligations, rights, participations, titles of claims, instruments, accounts, money, commercial paper, intangibles, mutual fund units, and any
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Deed under private writing dated December 21, 2011.
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2
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Registration
number
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Registration
Date
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Expiration
Date
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Nature
Amount
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Parties
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Description of Property (Summary)
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Comments
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2021
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renewals, reinvestments, replacements, substitutions, accretions, additions and proceeds thereto and thereof, held from time to time in the following account(s): TYPE OF ACCOUNT: INVESTOR DELIVERY SYSTEM NUMBER: 0003538665 HELD AT: THE TORONTO DOMINION BANK All securities which may be issued in case of a sale, repurchase, conversion, cancellation or any other transformation of the above- described assets; all securities which may be delivered to the Creditor from time to time; and the repurchase value or any other rights related to these assets. All fruits and revenues, present and future, emanating from the above charged property, negotiable instruments, bills, commercial paper, securities, monies, compensation for expropriation given or paid following a sale, repurchase, distribution or any other operation concerning any property herby charged in favour of the creditor or which has been charged under any other deed.
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3
SCHEDULE 2.3(a)(vi)(x)
Corporation Counsel Opinion
(attached)
SCHEDULE 2.3(a)(vi)(y)
U.S.
Opinion
(attached)
2
SCHEDULE 2.4(a)(vii)
INTERMEDIARY’S CERTIFICATE
To: Davies Ward Philips & Vineberg, LLP
In connection with acting as co-placement agent for the private placement in the United States of Units of MethylGene Inc. (the “Corporation”) pursuant to identical securities purchase agreements (the “Securities Purchase Agreements”), dated November 9, 2012, between the Corporation and each purchaser of Units (each a “Purchaser” and collectively, the “Purchasers”), the undersigned does hereby certify as follows:
(i)
no form of “general solicitation or general advertising” (as those terms are used in Regulation D under the U.S. Securities Act), was used by Jefferies & Company, Inc. (“Jefferies”) in connection with the offering of the Units; and
(ii)
Jefferies did not make any offer or sale of Units outside the United States (within the meaning of Rule 901 of Regulations S under the U.S. Securities Act), and Jefferies did not engage in any “directed selling efforts” (within the meaning of Regulation S under the U.S. Securities Act) in the United States in connection with the offering of Units outside of the United States.
Terms used in this certificate have the meanings given to them in the Securities Purchase Agreements, unless otherwise defined herein.
The undersigned acknowledge that this certificate is to be relied upon by you for purposes of the opinion letter to be delivered by you today to Purchasers of Units in the United States.
Dated this day of , 2012.
Jefferies & Company, Inc.
3
INTERMEDIARY’S CERTIFICATE
To: Davies Ward Philips & Vineberg, LLP
In connection with acting as co-placement agent for the private placement in the United States of Units of MethylGene Inc. (the “Corporation”) pursuant to identical securities purchase agreements (the “Securities Purchase Agreements”), dated November 9, 2012, between the Corporation and each purchaser of Units (each a “Purchaser” and collectively, the “Purchasers”), the undersigned does hereby certify as follows:
(iii)
no form of “general solicitation or general advertising” (as those terms are used in Regulation D under the U.S. Securities Act), was used by MTS Securities, LLC (“MTS”) in connection with the offering of the Units; and
(iv)
MTS did not make any offer or sale of Units outside the United States (within the meaning of Rule 901 of Regulations S under the U.S. Securities Act), and MTS did not engage in any “directed selling efforts” (within the meaning of Regulation S under the U.S. Securities Act) in the United States in connection with the offering of Units outside of the United States.
Terms used in this certificate have the meanings given to them in the Securities Purchase Agreements, unless otherwise defined herein.
The undersigned acknowledge that this certificate is to be relied upon by you for purposes of the opinion letter to be delivered by you today to Purchasers of Units in the United States.
Dated this day of , 2012.
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MTS Securities, LLC
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By:
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Name:
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Title:
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4
SCHEDULE 3.l(a)
Corporation Subsidiaries
The Corporation owns 1,000 shares of common stock ofMethy!Gene US Inc.
SCHEDULE 3.1(g)
Capitalization of the Corporation
Shares 318,195,986
Warrants 82,765,719
Authorized options 35,000,000
Issued options 21,200,207
Reference is made to the “Pre-Emptive Rights” and “Additional Rights” under the 2011 Agreements.
2
SCHEDULE 3.l(j)
Litigation
Certain directors and officers of the Corporation have been imposed fees for late filings of insider reports.
SCHEDULE 3.2(e)
ACCREDITED INVESTOR
The Purchaser, and (if applicable) each beneficial purchaser on whose behalf it is contracting under thisSecurities Purchase Agreement, is an “accredited investor”, as such term is defined in National Instrument 45-106 —
Prospectus and Registration Exemptions
, for the reason that it is (
please check the applicable category
):
o
(a)
a Canadian financial institution, or an authorized foreign bank named in Schedule III of the
Bank Act
(Canada);
o
(b)
the Business Development Bank of Canada incorporated under the
Business Development
Bank of Canada Act
(Canada);
o
(c)
a subsidiary of any person referred to in paragraph (a) or (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary;
o
(d)
a person registered under the securities legislation of a jurisdiction of Canada, as an advisor or dealer, other than a person registered solely as a limited market dealer under one or both of the
Securities Act
(Ontario) or the
Securities Act
(Newfoundland and Labrador);
o
(e)
an individual registered or formerly registered under the securities legislation of a jurisdiction of Canada, as a representative of a person referred to in paragraph (d);
o
(f)
the government of Canada or a jurisdiction of Canada, or any Crown corporation, agency or wholly-owned entity of the government of Canada or a jurisdiction of Canada;
o
(g)
a municipality, public board or commission in Canada and a metropolitan community, school board, the Comité de gestion de la taxe scolaire de l’île de Montréal or an intermunicipal management board in Québec;
o
(h)
any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government;
o
(i)
a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a pension commission or similar regulatory authority of a jurisdiction of Canada;
o
(j)
an individual who, either alone or with a spouse, beneficially owns, directly or indirectly, financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds C$1,000,000;
o
(k)
an individual whose net income before taxes exceeded C$200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded C$300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year;
o
(l)
an individual who, either alone or with a spouse, has net assets of at least C$5,000,000;
o
(m)
a person, other than an individual or investment fund, that has net assets of at least C$5,000,000 as shown on its most recently prepared financial statements;
o
(n)
an investment fund that distributes or has distributed its securities only to:
(i) a person that is or was an accredited investor at the time of the distribution;
(ii) a person that acquires or acquired the securities as principal, with an acquisition cost to the person of not less than C$150,000 paid in cash at the time of the trade, or where such person holds securities of the investment fund with an acquisition cost or net asset value of not less than C$150,000 as at the date of a subsequent trade in further securities of the same class or series; or
(iii) a person described in paragraph (i) or (ii) who is a security holder of an investment fund and acquires or acquired the following securities of an investment fund, if the trades are permitted by the plan of the investment fund: (A) securities of the investment fund if dividends or distributions out of earnings, surplus, capital or other sources payable in respect of the investment fund’s securities are applied to the purchase of the security that is of the same class or series as the securities to which the dividends or distributions out of earnings, surplus, capital or other sources are attributable; or (B) securities of the investment fund if the security holder makes optional cash payments to purchase the security of the investment fund that is of the same class or series of securities described in (A) that trade on a marketplace and the aggregate number of securities issued under the optimal cash payment did not exceed, in any financial year of the investment fund during which the trade takes place, 2% of the issued and outstanding securities of the class to which the plan relates as at the beginning of the financial year;
o
(o)
an investment fund that distributes or has distributed securities under a prospectus in a jurisdiction of Canada for which the regulator or, in Québec, the securities regulatory authority, has issued a receipt;
o
(p)
a trust company or trust corporation registered or authorized to carry on business under the
Trust and Loan Companies Act
(Canada) or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed account managed by the trust company or trust corporation, as the case may be;
o
(q)
a person acting on behalf of a fully managed account managed by that person, if that person (i) is registered or authorized to carry on business as an advisor or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction; and (ii) in Ontario, is purchasing a security that is not a security of an investment fund;
o
(r)
a registered charity under the
Income Tax Act
(Canada) that, in regard to the trade, has obtained advice from an eligibility advisor or an advisor registered under the securities legislation of the jurisdiction of the registered charity to give advice on the securities being traded;
o
(s)
an entity organized in a foreign jurisdiction that is analogous to any of the entities referred to in paragraphs (a) through (d) and paragraph (i) in form and function;
o
(t)
a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors;
o
(u)
an investment fund that is advised by a person registered as an advisor or a person that is exempt from registration as an advisor; or
2
o
(v)
a person that is recognized or designated by the securities regulatory authority or, except in Ontario and Québec, the regulator, as an accredited investor or, in Alberta or British Columbia, an exempt purchaser.
For the purposes hereof, all reference to “C$” in this
Schedule 3.2(e)
are to Canadian dollars unless otherwise specified and the following definitions are included for convenience:
“
financial assets
” means cash, securities or a contract of insurance, a deposit or an evidence of a deposit that is not a security for the purposes of securities legislation;
“
fully managed account
” means an account of a client for which a person makes the investment decisions if that person has full discretion to trade in securities for the account without requiring the client’s express consent to a transaction;
“
investment fund
” means a mutual fund or a non-redeemable investment fund, and, for greater certainty in British Columbia, includes an employee venture capital corporation that does not have a restricted constitution, and is registered under Part 2 of the
Employee Investment Act
(British Columbia), and whose business objective is making multiple investments and a venture capital corporation registered under Part 1 of the
Small Business Venture Capital Act
(British Columbia), whose business objective is making multiple investments;
“
person
” includes (a) an individual; (b) a corporation; (c) a partnership, trust, fund and an association, syndicate, organization or other organized group of persons, whether incorporated or not; and (d) an individual or other person in that person’s capacity as trustee, executor, administrator or personal or other legal representative; and
“
related liabilities
” means: (a) liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets; or (b) liabilities that are secured by financial assets.
3
SCHEDULE 3.2(f)
U.S. ACCREDITED INVESTOR
(PLEASE CHECK THE APPLICABLE CATEGORY)
“Accredited Investor” means any entity that comes within any of the following categories at the time of the sale of the Common Shares to such person or entity:
o
Any
bank
as defined in section 3(a)(2) of the U.S. Securities Act, or any
savings and loan association
or other institution as defined in section 3(a)(5)(A) of the U.S. Securities Act whether acting in its individual or fiduciary capacity;
o
any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934;
o
Any
insurance
company as defined in section 2(a)(13) of the U.S. Securities Act;
o
Any
investment company
registered under the Investment Company Act of 1940 or any
business development company
as defined in section 2(a)(48) of that Act;
o
Any
Small Business Investment
Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958;
o
Any
plan
established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees if such plan has total assets in excess of U.S.$5,000,000;
o
Any
employee benefit plan
within the meaning of title I of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a
plan fiduciary,
as defined in section 3(21) of such Act, which is either a bank, savings and loan association, insurance company or registered investment advisor, or if the employee benefit plan has total assets in excess of U.S.$5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
o
Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
o
Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of U.S.$5,000,000;
o
Any trust, with total assets in excess of U.S.$5,000,000 not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii);
o
Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds U.S.$1,000,000. “Net worth” for these purposes means the excess of total assets at fair market value (excluding the value of the primary residence of such natural person) over total liabilities (excluding any indebtedness secured by such person’s primary residence up to the estimated fair market value of the property; provided, however, that if the amount of such indebtedness outstanding at the time of the sale of the securities exceeds the
amount of indebtedness outstanding 60 days before such time, other than as a result of the acquisition of the residence, the amount of such excess must be deducted from the person’s net worth);
o
Any natural person who had individual income in excess of U.S.$200,000 in each of the two most recent years or joint income with that person’s spouse in excess of U.S.$300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
o
Any director, executive officer, or general partner of the issuer of the securities being sold, or any director, executive officer, or general partner of a general partner of that issuer; or
o
Any entity in which all of the equity owners are accredited investors. (If this box is checked, each equity owner of the Purchaser may be required to complete and execute a separate Securities Purchase Agreement.)
2
SCHEDULE 4.6
Use of Proceeds
Conduct preclinical and clinical trials for MGCD 265. and MGCD 290; and general corporate purposes.
Exhibit 10.6
MIRATI THERAPEUTICS, INC.
2013 EQUITY INCENTIVE PLAN
ADOPTED BY THE BOARD OF DIRECTORS: May 8, 2013
APPROVED BY THE STOCKHOLDERS: , 2013
REGISTRATION DATE/EFFECTIVE DATE: , 2013
1.
GENERAL.
(a)
Successor to and Continuation of Prior Plan.
The Plan is intended as the successor to and continuation of the MethylGene Inc. Amended and Restated Stock Option Plan, as amended June 27, 2012 (the “
Prior Plan
”). From and after 12:01 a.m. Pacific time on the Effective Date, no additional stock awards will be granted under the Prior Plan. All Awards granted on or after 12:01 a.m. Pacific Time on the Effective Date will be granted under this Plan. All stock awards granted under the Prior Plan will remain subject to the terms of the Prior Plan.
(i)
Any shares that would otherwise remain available for future grants under the Prior Plan as of 12:01 a.m. Pacific Time on the Effective Date (the “
Prior Plan’s Available Reserve
”) will cease to be available under the Prior Plan at such time. Instead, that number of shares of Common Stock equal to the Prior Plan’s Available Reserve will be added to the Share Reserve (as further described in Section 3(a) below) and will be immediately available for grants and issuance pursuant to Stock Awards hereunder, up to the maximum number set forth in Section 3(a) below.
(ii)
In addition, from and after 12:01 a.m. Pacific time on the Effective Date, any shares subject, at such time, to outstanding stock awards granted under the Prior Plan that (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company; or (iii) are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award (such shares the “
Returning Shares
”) will immediately be added to the Share Reserve (as further described in Section 3(a) below) as and when such shares become Returning Shares, up to the maximum number set forth in Section 3(a) below.
(b)
Eligible Award Recipients.
Employees, Directors and Consultants are eligible to receive Awards.
(c)
Available Awards.
This Plan provides for the grant of the following Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Appreciation Rights (iv) Restricted Stock Awards, (v) Restricted Stock Unit Awards, (vi) Performance Stock Awards, (vii) Performance Cash Awards, and (viii) Other Stock Awards.
(d)
Purpose.
This Plan, through the granting of Awards, is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate, and provide
1
a means by which the eligible recipients may benefit from increases in value of the Common Stock.
2.
ADMINISTRATION.
(a)
Administration by Board.
The Board will administer the Plan. The Board may delegate administration of the Plan to a Committee or Committees, as provided in Section 2(c).
(b)
Powers of Board.
The Board will have the power, subject to, and within the limitations of, the express provisions of the Plan, including but not limited to Section 2(b)(xii):
(i)
To determine: (A) who will be granted Awards; (B) when and how each Award will be granted; (C) what type of Award will be granted; (D) the provisions of each Award (which need not be identical), including when a person will be permitted to exercise or otherwise receive cash or Common Stock under the Award; (E) the number of shares of Common Stock subject to, or the cash value of, an Award; and (F) the Fair Market Value applicable to a Stock Award.
(ii)
To construe and interpret the Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for administration of the Plan and Awards. The Board, in the exercise of these powers, may correct any defect, omission or inconsistency in the Plan or in any Award Agreement or in the written terms of a Performance Cash Award, in a manner and to the extent it will deem necessary or expedient to make the Plan or Award fully effective.
(iii)
To settle all controversies regarding the Plan and Awards granted under it.
(iv)
To accelerate, in whole or in part, the time at which an Award may be exercised or vest (or the time at which cash or shares of Common Stock may be issued in settlement thereof).
(v)
To
suspend or terminate the Plan at any time. Except as otherwise provided in the Plan or an Award Agreement, suspension or termination of the Plan will not materially impair a Participant’s rights under the Participant’s then-outstanding Award without such Participant’s written consent except as provided in subsection (viii) below.
(vi)
To amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, by adopting amendments relating to Incentive Stock Options and certain nonqualified deferred compensation under Section 409A of the Code and/or bringing the Plan or Awards granted under the Plan into compliance with the requirements for Incentive Stock Options or ensuring that they are exempt from or compliant with the requirements for nonqualified deferred compensation under Section 409A of the Code, subject to the limitations, if any, of applicable law. If required by applicable law or listing requirements, and except as provided in Section 9(a) relating to Capitalization Adjustments, the Company will seek stockholder approval of any amendment of the Plan that (A) materially increases the number of shares of Common Stock available for issuance under the Plan, (B) materially expands the class of individuals eligible to receive Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan, (D) materially reduces the price at which shares of
2
Common Stock may be issued or purchased under the Plan, (E) materially extends the term of the Plan, or (F) materially expands the types of Awards available for issuance under the Plan. Except as otherwise provided in the Plan or an Award Agreement, no amendment of the Plan will materially impair a Participant’s rights under an outstanding Award without the Participant’s written consent.
(vii)
To
submit any amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of (A) Section 162(m) of the Code regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to Covered Employees, (B) Section 422 of the Code regarding “incentive stock options” or (C) Rule 16b-3.
(viii)
To approve forms of Award Agreements for use under the Plan and to amend the terms of any one or more Awards, including, but not limited to, amendments to provide terms more favorable to the Participant than previously provided in the Award Agreement, subject to any specified limits in the Plan that are not subject to Board discretion;
provided however,
that a Participant’s rights under any Award will not be impaired by any such amendment unless (A) the Company requests the consent of the affected Participant, and (B) such Participant consents in writing. Notwithstanding the foregoing, (1) a Participant’s rights will not be deemed to have been impaired by any such amendment if the Board, in its sole discretion, determines that the amendment, taken as a whole, does not materially impair the Participant’s rights, and (2) subject to the limitations of applicable law, if any, the Board may amend the terms of any one or more Awards without the affected Participant’s consent (A) to maintain the qualified status of the Award as an Incentive Stock Option under Section 422 of the Code; (B) to change the terms of an Incentive Stock Option, if such change results in impairment of the Award solely because it impairs the qualified status of the Award as an Incentive Stock Option under Section 422 of the Code; (C) to clarify the manner of exemption from, or to bring the Award into compliance with, Section 409A of the Code; or (D) to comply with other applicable laws or listing requirements.
(ix)
Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan or Awards.
(x)
To adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees, Directors or Consultants who are foreign nationals or employed outside the United States (provided that Board approval will not be necessary for immaterial modifications to the Plan or any Award Agreement that are required for compliance with the laws of the relevant foreign jurisdiction).
(xi)
To effect, with the consent of any adversely affected Participant, (A) the reduction of the exercise, purchase or strike price of any outstanding Stock Award; (B) the cancellation of any outstanding Stock Award and the grant in substitution therefor of a new (1) Option or SAR, (2) Restricted Stock Award, (3) Restricted Stock Unit Award, (4) Other Stock Award, (5) cash award and/or (6) award of other valuable consideration determined by the Board, in its sole discretion, with any such substituted award (x) covering the same or a different number of shares of Common Stock as the cancelled Stock Award and (y) granted under the Plan
3
or another equity or compensatory plan of the Company; or (C) any other action that is treated as a repricing under generally accepted accounting principles.
(xii)
Notwithstanding any contrary provision in this Plan, for so long as the Company remains listed on the TSX, no amendment of the Board may: (i) increase the maximum number of shares of Common Stock issuable pursuant to the Plan; (ii) change the minimum exercise or strike price of each Option or SAR (as determined in accordance with Section 5(b) hereof); (iii) reduce the exercise or strike price of each Option granted to Insiders; (iv) extend the term of an option granted to Insiders; (v) amend the amending provision of the Plan; (vi) make any change to the Participants that would have the potential for broadening or increasing Insider participation in the Plan; or (vii) increase any limit on the total number of shares of Common Stock that may be acquired by Insiders of the Company and acquired by Insiders within a one-year period.
(c)
Delegation to Committee.
(i)
General.
The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is delegated to a Committee, the Committee will have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board will thereafter be to the Committee or subcommittee, as applicable). Any delegation of administrative powers will be reflected in resolutions, not inconsistent with the provisions of the Plan, adopted from time to time by the Board or Committee (as applicable). The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.
(ii)
Section 162(m) and Rule 16b-3 Compliance.
The Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3.
(d)
Delegation to an Officer.
The Board may delegate to one (1) or more Officers the authority to do one or both of the following (i) designate Employees who are not Officers to be recipients of Options and SARs (and, to the extent permitted by applicable law, other Stock Awards) and, to the extent permitted by applicable law, the terms of such Awards, and (ii) determine the number of shares of Common Stock to be subject to such Stock Awards granted to such Employees;
provided, however
, that the Board resolutions regarding such delegation will specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself or herself. Any such Stock Awards will be granted on the form of Stock Award Agreement most recently approved for use by the Committee or the Board, unless otherwise provided in the resolutions approving the delegation authority. The Board may not delegate authority to an Officer who is acting solely in the capacity of an Officer (and not also as a Director) to determine the Fair Market Value pursuant to Section 13(y)(iii) below.
4
(e)
Effect of Board’s Decision.
All determinations, interpretations and constructions made by the Board in good faith will not be subject to review by any person and will be final, binding and conclusive on all persons.
3.
SHARES SUBJECT TO THE PLAN.
(a)
Share Reserve.
Subject to Section 9(a) relating to Capitalization Adjustments, and the following sentence regarding the annual increase, the aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards will not exceed 1,097,444 shares (the “
Share Reserve
”), which number is the sum of (i) 400,000 shares,
plus
(ii) the number of shares subject to the Prior Plan’s Available Reserve,
plus
(iii) the number of shares that are Returning Shares, as such shares become available from time to time. For clarity, the Share Reserve in this Section 3(a) is a limitation on the number of shares of Common Stock that may be issued pursuant to the Plan. Accordingly, this Section 3(a) does not limit the granting of Stock Awards except as provided in Section 7(a). Shares may be issued in connection with a merger or acquisition as permitted by NASDAQ Listing Rule 5635(c) or, if applicable, NYSE Listed Company Manual Section 303A.08, AMEX Company Guide Section 711 or other applicable rule, and such issuance will not reduce the number of shares available for issuance under the Plan.
(b)
Reversion of Shares to the Share Reserve.
If a Stock Award or any portion thereof (i) expires or otherwise terminates without all of the shares covered by such Stock Award having been issued or (ii) is settled in cash (
i.e.
, the Participant receives cash rather than stock), such expiration, termination or settlement will not reduce (or otherwise offset) the number of shares of Common Stock that may be available for issuance under the Plan. If any shares of Common Stock issued pursuant to a Stock Award are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares that are forfeited or repurchased will revert to and again become available for issuance under the Plan. Any shares reacquired by the Company in satisfaction of tax withholding obligations on a Stock Award or as consideration for the exercise or purchase price of a Stock Award will again become available for issuance under the Plan.
(c)
Incentive Stock Option Limit.
Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options will be 4,000,000 shares of Common Stock.
(d)
Section 162(m) Limitations
. Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, at such time as the Company may be subject to the applicable provisions of Section 162(m) of the Code, the following limitations shall apply.
(i)
A maximum of 500,000 shares of Common Stock subject to Options, SARs and Other Stock Awards whose value is determined by reference to an increase over an exercise or strike price of at least one hundred percent (100%) of the Fair Market Value on the date the Stock Award is granted may be granted to any one Participant during any one calendar year. Notwithstanding the foregoing, if any additional Options, SARs or Other Stock Awards whose value is determined by reference to an increase over an exercise or strike price of at least
5
one hundred percent (100%) of the Fair Market Value on the date the Stock Award are granted to any Participant during any calendar year, compensation attributable to the exercise of such additional Stock Awards will not satisfy the requirements to be considered “qualified performance-based compensation” under Section 162(m) of the Code unless such additional Stock Award is approved by the Company’s stockholders.
(ii)
A maximum of 500,000 shares of Common Stock subject to Performance Stock Awards may be granted to any one Participant during any one calendar year (whether the grant, vesting or exercise is contingent upon the attainment during the Performance Period of the Performance Goals).
(iii)
A maximum of $1,000,000 may be granted as a Performance Cash Award to any one Participant during any one calendar year.
(e)
Source of Shares.
The stock issuable under the Plan will be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company on the open market or otherwise.
4.
ELIGIBILITY.
(a)
Eligibility for Specific Stock Awards
. Incentive Stock Options may be granted only to employees of the Company or a “parent corporation” or “subsidiary corporation” thereof (as such terms are defined in Sections 424(e) and 424(f) of the Code). Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants;
provided, however
, that Stock Awards may not be granted to Employees, Directors and Consultants who are providing Continuous Service only to any “parent” of the Company, as such term is defined in Rule 405 of the Securities Act, unless (i) the stock underlying such Stock Awards is treated as “service recipient stock” under Section 409A of the Code (for example, because the Stock Awards are granted pursuant to a corporate transaction such as a spin off transaction), (ii) the Company, in consultation with its legal counsel, has determined that such Stock Awards are otherwise exempt from Section 409A of the Code, or (iii) the Company, in consultation with its legal counsel, has determined that such Stock Awards comply with the distribution requirements of Section 409A of the Code.
(b)
Insider Limit.
for so long as the Company remains listed on the TSX: (i) the aggregate number of shares of Common Stock reserved for issuance at any time to Insiders of the Company under the Plan and any other stock compensation arrangement of the Company, if any, is limited to 10% of the total of the issued and outstanding shares of Common Stock of the Company; and (ii) the aggregate number of shares of Common Stock issued to Insiders of the Company under the Plan and any other share compensation arrangement of the Company, if any, within any one-year period, is limited to 10% of the total of the issued and outstanding shares of Common Stock of the Company.
(c)
Ten Percent Stockholders.
A Ten Percent Stockholder will not be granted an Incentive Stock Option unless the exercise price of such Option is at least 110% of the Fair Market Value on the date of grant and the Option is not exercisable after the expiration of five years from the date of grant.
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5.
PROVISIONS RELATING TO OPTIONS AND STOCK APPRECIATION RIGHTS.
Each Option or SAR will be in such form and will contain such terms and conditions as the Board deems appropriate. All Options will be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. If an Option is not specifically designated as an Incentive Stock Option, or if an Option is designated as an Incentive Stock Option but some portion or all of the Option fails to qualify as an Incentive Stock Option under the applicable rules, then the Option (or portion thereof) will be a Nonstatutory Stock Option. The provisions of separate Options or SARs need not be identical;
provided, however
, that each Award Agreement will conform to (through incorporation of provisions hereof by reference in the applicable Award Agreement or otherwise) the substance of each of the following provisions:
(a)
Term.
Subject to the provisions of Section 4(c) regarding Ten Percent Stockholders, no Option or SAR will be exercisable after the expiration of ten years from the date of its grant or such shorter period specified in the Award Agreement.
(b)
Exercise Price.
Subject to the provisions of Section 4(c) regarding Ten Percent Stockholders, the exercise or strike price of each Option or SAR will be not less than 100% of the Fair Market Value of the Common Stock subject to the Option or SAR on the date the Award is granted. Notwithstanding the foregoing, an Option or SAR may be granted with an exercise or strike price lower than 100% of the Fair Market Value of the Common Stock subject to the Award if such Award is granted pursuant to an assumption of or substitution for another option or stock appreciation right pursuant to a Corporate Transaction and in a manner consistent with the provisions of Section 409A and, if applicable, Section 424(a) of the Code. Each SAR will be denominated in shares of Common Stock equivalents.
(c)
Purchase Price for Options.
The purchase price of Common Stock acquired pursuant to the exercise of an Option may be paid, to the extent permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below. The Board will have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to use a particular method of payment. The permitted methods of payment are as follows:
(i)
by cash, check, bank draft or money order payable to the Company;
(ii)
pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the stock subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds;
(iii)
by delivery to the Company (either by actual delivery or attestation) of shares of Common Stock;
(iv)
if an Option is a Nonstatutory Stock Option, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Common Stock
7
issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price;
provided, however
, that the Company will accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued. Shares of Common Stock will no longer be subject to an Option and will not be exercisable thereafter to the extent that (A) shares issuable upon exercise are used to pay the exercise price pursuant to the “net exercise,” (B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations; or
(v)
in any other form of legal consideration that may be acceptable to the Board, permissible under applicable law, the rules of any applicable stock exchange and specified in the applicable Award Agreement.
(d)
Exercise and Payment of a SAR.
To exercise any outstanding SAR, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such SAR. The appreciation distribution payable on the exercise of a SAR will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the SAR) of a number of shares of Common Stock equal to the number of Common Stock equivalents in which the Participant is vested under such SAR, and with respect to which the Participant is exercising the SAR on such date, over (B) the aggregate strike price of the number of Common Stock equivalents with respect to which the Participant is exercising the SAR on such date. The appreciation distribution may be paid in Common Stock, in cash, in any combination of the two or in any other form of consideration, as determined by the Board and contained in the Award Agreement evidencing such SAR.
(e)
Transferability of Options and SARs.
The Board may, in its sole discretion, impose such limitations on the transferability of Options and SARs as the Board will determine. In the absence of such a determination by the Board to the contrary, the following restrictions on the transferability of Options and SARs will apply:
(i)
Restrictions on Transfer.
An Option or SAR will not be transferable except by will or by the laws of descent and distribution (or pursuant to subsections (ii) and (iii) below), and will be exercisable during the lifetime of the Participant only by the Participant. The Board may permit transfer of the Option or SAR in a manner that is not prohibited by applicable tax and securities laws. Except as explicitly provided herein, neither an Option nor a SAR may be transferred for consideration.
(ii)
Domestic Relations Orders.
Subject to the approval of the Board or a duly authorized Officer, an Option or SAR may be transferred pursuant to the terms of a domestic relations order, official marital settlement agreement or other divorce or separation instrument as permitted by Treasury Regulations Section 1.421-1(b)(2). If an Option is an Incentive Stock Option, such Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.
(iii)
Beneficiary Designation.
Subject to the approval of the Board or a duly authorized Officer, a Participant may, by delivering written notice to the Company, in a form
8
approved by the Company (or the designated broker), designate a third party who, on the death of the Participant, will thereafter be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation, upon the death of the Participant, the executor or administrator of the Participant’s estate will be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. However, the Company may prohibit designation of a beneficiary at any time, including due to any conclusion by the Company that such designation would be inconsistent with the provisions of applicable laws.
(f)
Vesting Generally.
The total number of shares of Common Stock subject to an Option or SAR may vest and become exercisable in periodic installments that may or may not be equal. The Option or SAR may be subject to such other terms and conditions on the time or times when it may or may not be exercised (which may be based on the satisfaction of Performance Goals or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options or SARs may vary. The provisions of this Section 5(f) are subject to any Option or SAR provisions governing the minimum number of shares of Common Stock as to which an Option or SAR may be exercised.
(g)
Termination of Continuous Service.
Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if a Participant’s Continuous Service terminates (other than for Cause and other than upon the Participant’s death or Disability), the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Award as of the date of termination of Continuous Service) within the period of time ending on the earlier of (i) the date three months following the termination of the Participant’s Continuous Service (or such longer or shorter period specified in the applicable Award Agreement), and (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR (as applicable) within the applicable time frame, the Option or SAR will terminate.
(h)
Extension of Termination Date.
If the exercise of an Option or SAR following the termination of the Participant’s Continuous Service (other than for Cause and other than upon the Participant’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option or SAR will terminate on the earlier of (i) the expiration of a total period of time (that need not be consecutive) equal to the applicable post termination exercise period after the termination of the Participant’s Continuous Service during which the exercise of the Option or SAR would not be in violation of such registration requirements, and (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement. In addition, unless otherwise provided in a Participant’s Award Agreement, if the sale of any Common Stock received on exercise of an Option or SAR following the termination of the Participant’s Continuous Service (other than for Cause) would violate the Company’s insider trading policy, then the Option or SAR will terminate on the earlier of (i) the expiration of a period of months (that need not be consecutive) equal to the applicable post-termination exercise period after the termination of the Participant’s Continuous Service during which the sale of the Common Stock received upon exercise of the Option or SAR would not be in violation of the Company’s insider
9
trading policy, or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement.
(i)
Disability of Participant.
Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if a Participant’s Continuous Service terminates as a result of the Participant’s Disability, the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Option or SAR as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the date 12 months following such termination of Continuous Service (or such longer or shorter period specified in the Award Agreement), and (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option or SAR (as applicable) will terminate.
(j)
Death of Participant.
Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if (i) a Participant’s Continuous Service terminates as a result of the Participant’s death, or (ii) the Participant dies within the period (if any) specified in the Award Agreement for exercisability after the termination of the Participant’s Continuous Service for a reason other than death, then the Option or SAR may be exercised (to the extent the Participant was entitled to exercise such Option or SAR as of the date of death) by the Participant’s estate, by a person who acquired the right to exercise the Option or SAR by bequest or inheritance or by a person designated to exercise the Option or SAR upon the Participant’s death, but only within the period ending on the earlier of (i) the date 18 months following the date of death (or such longer or shorter period specified in the Award Agreement), and (ii) the expiration of the term of such Option or SAR as set forth in the Award Agreement. If, after the Participant’s death, the Option or SAR is not exercised within the applicable time frame, the Option or SAR (as applicable) will terminate.
(k)
Termination for Cause.
Except as explicitly provided otherwise in a Participant’s Award Agreement or other individual written agreement between the Company or any Affiliate and the Participant, if a Participant’s Continuous Service is terminated for Cause, the Option or SAR will terminate immediately upon such Participant’s termination of Continuous Service, and the Participant will be prohibited from exercising his or her Option or SAR from and after the date of such termination of Continuous Service.
(l)
Non-Exempt Employees
. If an Option or SAR is granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, the Option or SAR will not be first exercisable for any shares of Common Stock until at least six (6) months following the date of grant of the Option or SAR (although the Award may vest prior to such date). Consistent with the provisions of the Worker Economic Opportunity Act, (i) if such non-exempt Employee dies or suffers a Disability, (ii) upon a Corporate Transaction in which such Option or SAR is not assumed, continued, or substituted, (iii) upon a Change in Control, or (iv) upon the Participant’s retirement (as such term may be defined in the Participant’s Award Agreement in another agreement between the Participant and the Company, or, if no such definition, in accordance with the Company’s then current employment policies and guidelines), the vested portion of any Options and SARs may be exercised earlier than six months following the date of grant. The foregoing provision is intended to operate so that any income derived by a
10
non-exempt employee in connection with the exercise or vesting of an Option or SAR will be exempt from his or her regular rate of pay. To the extent permitted and/or required for compliance with the Worker Economic Opportunity Act to ensure that any income derived by a non-exempt employee in connection with the exercise, vesting or issuance of any shares under any other Stock Award will be exempt from the employee’s regular rate of pay, the provisions of this Section 5(l) will apply to all Stock Awards and are hereby incorporated by reference into such Stock Award Agreements.
6.
PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS AND SARS.
(a)
Restricted Stock Awards.
Each Restricted Stock Award Agreement will be in such form and will contain such terms and conditions as the Board will deem appropriate. To the extent consistent with the Company’s bylaws, at the Board’s election, shares of Common Stock may be (x) held in book entry form subject to the Company’s instructions until any restrictions relating to the Restricted Stock Award lapse; or (y) evidenced by a certificate, which certificate will be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Award Agreements need not be identical. Each Restricted Stock Award Agreement will conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i)
Consideration.
A Restricted Stock Award may be awarded in consideration for (A) cash, check, bank draft or money order payable to the Company, (B) past services to the Company or an Affiliate, or (C) any other form of legal consideration (including future services) that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.
(ii)
Vesting.
Shares of Common Stock awarded under the Restricted Stock Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board.
(iii)
Termination of Participant’s Continuous Service.
If a Participant’s Continuous Service terminates, the Company may receive through a forfeiture condition or a repurchase right any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination of Continuous Service under the terms of the Restricted Stock Award Agreement.
(iv)
Transferability.
Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement will be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Award Agreement, as the Board will determine in its sole discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted Stock Award Agreement.
(v)
Dividends.
A Restricted Stock Award Agreement may provide that any dividends paid on Restricted Stock will be subject to the same vesting and forfeiture restrictions as apply to the shares subject to the Restricted Stock Award to which they relate.
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(b)
Restricted Stock Unit Awards.
Each Restricted Stock Unit Award Agreement will be in such form and will contain such terms and conditions as the Board will deem appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical. Each Restricted Stock Unit Award Agreement will conform to (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions:
(i)
Consideration.
At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each share of Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration that may be acceptable to the Board, in its sole discretion, and permissible under applicable law and the rules of any applicable stock exchange.
(ii)
Vesting.
At the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions on or conditions to the vesting of the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate.
(iii)
Payment
. A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Agreement.
(iv)
Additional Restrictions.
At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a time after the vesting of such Restricted Stock Unit Award.
(v)
Dividend Equivalents.
Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such dividend equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all of the same terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate.
(vi)
Termination of Participant’s Continuous Service.
Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement, such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participant’s termination of Continuous Service.
(c)
Performance Awards
.
(i)
Performance Stock Awards
. A Performance Stock Award is a Stock Award (covering a number of shares not in excess of that set forth in Section 3(d) above) that is
12
payable (including that may be granted, may vest or may be exercised) contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Stock Award may, but need not, require the Participant’s completion of a specified period of Continuous Service. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained will be conclusively determined by the Committee (or, if not required for compliance with Section 162(m) of the Code, the Board), in its sole discretion. In addition, to the extent permitted by applicable law and the applicable Award Agreement, the Board may determine that cash may be used in payment of Performance Stock Awards.
(ii)
Performance Cash Awards
. A Performance Cash Award is a cash award (for a dollar value not in excess of that set forth in Section 3(d) above) that is payable contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Cash Award may also require the completion of a specified period of Continuous Service. At the time of grant of a Performance Cash Award, the length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained will be conclusively determined by the Committee (or, if not required for compliance with Section 162(m) of the Code, the Board), in its sole discretion. The Board may specify the form of payment of Performance Cash Awards, which may be cash or other property, or may provide for a Participant to have the option for his or her Performance Cash Award, or such portion thereof as the Board may specify, to be paid in whole or in part in cash or other property.
(iii)
Board Discretion.
The Board retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of Performance Goals and to define the manner of calculating the Performance Criteria it selects to use for a Performance Period. Partial achievement of the specified criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the Stock Award Agreement or the written terms of a Performance Cash Award.
(iv)
Section 162(m) Compliance
. Unless otherwise permitted in compliance with the requirements of Section 162(m) of the Code with respect to an Award intended to qualify as “performance-based compensation” thereunder, the Committee will establish the Performance Goals applicable to, and the formula for calculating the amount payable under, the Award no later than the earlier of (a) the date 90 days after the commencement of the applicable Performance Period, and (b) the date on which 25% of the Performance Period has elapsed, and in any event at a time when the achievement of the applicable Performance Goals remains substantially uncertain. Prior to the payment of any compensation under an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the Committee will certify the extent to which any Performance Goals and any other material terms under such Award have been satisfied (other than in cases where such Performance Goals relate solely to the increase in the value of the Common Stock). Notwithstanding satisfaction of, or completion of any Performance Goals, the number of shares of Common Stock, Options, cash or other benefits granted, issued, retainable and/or vested under an Award on account of satisfaction of such Performance Goals may be reduced by the Committee on the basis of such further considerations as the Committee, in its sole discretion, will determine.
13
(d)
Other Stock Awards
. Other forms of Stock Awards valued in whole or in part by reference to, or otherwise based on, Common Stock, including the appreciation in value thereof (e.g., options or stock rights with an exercise price or strike price less than 100% of the Fair Market Value of the Common Stock at the time of grant) may be granted either alone or in addition to Stock Awards provided for under Section 5 and the preceding provisions of this Section 6. Subject to the provisions of the Plan, the Board will have sole and complete authority to determine the persons to whom and the time or times at which such Other Stock Awards will be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock Awards and all other terms and conditions of such Other Stock Awards.
7.
COVENANTS OF THE COMPANY.
(a)
Availability of Shares.
The Company will keep available at all times the number of shares of Common Stock reasonably required to satisfy then-outstanding Awards.
(b)
Securities Law Compliance.
The Company will seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards;
provided, however
, that this undertaking will not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts and at a reasonable cost, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company will be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. A Participant will not be eligible for the grant of an Award or the subsequent issuance of cash or Common Stock pursuant to the Award if such grant or issuance would be in violation of any applicable securities law.
(c)
No Obligation to Notify or Minimize Taxes.
The Company will have no duty or obligation to any Participant to advise such holder as to the time or manner of exercising such Stock Award. Furthermore, the Company will have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of an Award or a possible period in which the Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of an Award to the holder of such Award.
8.
MISCELLANEOUS.
(a)
Use of Proceeds from Sales of Common Stock.
Proceeds from the sale of shares of Common Stock pursuant to Awards will constitute general funds of the Company.
(b)
Corporate Action Constituting Grant of Awards.
Corporate action constituting a grant by the Company of an Award to any Participant will be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument, certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant. In the event that the corporate records (e.g., Board
14
consents, resolutions or minutes) documenting the corporate action constituting the grant contain terms (e.g., exercise price, vesting schedule or number of shares) that are inconsistent with those in the Award Agreement or related grant documents as a result of a clerical error in the papering of the Award Agreement or related grant documents, the corporate records will control and the Participant will have no legally binding right to the incorrect term in the Award Agreement or related grant documents.
(c)
Stockholder Rights.
No Participant will be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to an Award unless and until (i) such Participant has satisfied all requirements for exercise of, or the issuance of shares of Common Stock under, the Award pursuant to its terms, and (ii) the issuance of the Common Stock subject to such Award has been entered into the books and records of the Company.
(d)
No Employment or Other Service Rights.
Nothing in the Plan, any Award Agreement or any other instrument executed thereunder or in connection with any Award granted pursuant thereto will confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Award was granted or will affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate, or (iii) the service of a Director pursuant to the bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.
(e)
Change in Time Commitment.
In the event a Participant’s regular level of time commitment in the performance of his or her services for the Company and any Affiliates is reduced (for example, and without limitation, if the Participant is an Employee of the Company and the Employee has a change in status from a full-time Employee to a part-time Employee or takes an extended leave of absence) after the date of grant of any Award to the Participant, the Board has the right in its sole discretion to (x) make a corresponding reduction in the number of shares or cash amount subject to any portion of such Award that is scheduled to vest or become payable after the date of such change in time commitment, and (y) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced or extended.
(f)
Incentive Stock Option Limitations.
To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and any Affiliates) exceeds $100,000 (or such other limit established in the Code) or otherwise does not comply with the rules governing Incentive Stock Options, the Options or portions thereof that exceed such limit (according to the order in which they were granted) or otherwise do not comply with such rules will be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).
15
(g)
Investment Assurances.
The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Award, (i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that such Participant is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, will be inoperative if (A) the issuance of the shares upon the exercise or acquisition of Common Stock under the Award has been registered under a then currently effective registration statement under the Securities Act, or (B) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.
(h)
Withholding Obligations.
Unless prohibited by the terms of an Award Agreement, the Company may, in its sole discretion, satisfy any federal, state or local tax withholding obligation relating to an Award by any of the following means or by a combination of such means: (i) causing the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in connection with the Award;
provided, however,
that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (or such lesser amount as may be necessary to avoid classification of the Stock Award as a liability for financial accounting purposes); (iii) withholding cash from an Award settled in cash; (iv) withholding payment from any amounts otherwise payable to the Participant; or (v) by such other method as may be set forth in the Award Agreement.
(i)
Electronic Delivery
. Any reference herein to a “written” agreement or document will include any agreement or document delivered electronically, filed publicly at www.sec.gov (or any successor website thereto), and for so long as the Company remains a “reporting issuer” under Canadian Securities Laws at www.SEDAR.com, or posted on the Company’s intranet (or other shared electronic medium controlled by the Company to which the Participant has access).
(j)
Deferrals.
To the extent permitted by applicable law and the rules of any applicable stock exchange, the Board, in its sole discretion, may determine that the delivery of Common Stock or the payment of cash, upon the exercise, vesting or settlement of all or a portion of any Award may be deferred and may establish programs and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A of the Code. Consistent with Section 409A of the Code, the Board may provide for distributions while a Participant is still an employee or otherwise providing services to the Company. The Board is authorized to make deferrals of Awards and determine when, and in what annual percentages, Participants may receive payments, including lump sum payments,
16
following the Participant’s termination of Continuous Service, and implement such other terms and conditions consistent with the provisions of the Plan and in accordance with applicable law.
(k)
Compliance with Section 409A of the Code.
Unless otherwise expressly provided for in an Award Agreement, the Plan and Award Agreements will be interpreted to the greatest extent possible in a manner that makes the Plan and the Awards granted hereunder exempt from Section 409A of the Code, and, to the extent not so exempt, in compliance with Section 409A of the Code. If the Board determines that any Award granted hereunder is not exempt from and is therefore subject to Section 409A of the Code, the Award Agreement evidencing such Award will incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code, and to the extent an Award Agreement is silent on terms necessary for compliance, such terms are hereby incorporated by reference into the Award Agreement. Notwithstanding anything to the contrary in this Plan (and unless the Award Agreement specifically provides otherwise), if the shares of Common Stock are publicly traded, and if a Participant holding an Award that constitutes “deferred compensation” under Section 409A of the Code is a “specified employee” for purposes of Section 409A of the Code, no distribution or payment of any amount that is due because of a “separation from service” (as defined in Section 409A of the Code without regard to alternative definitions thereunder) will be issued or paid before the date that is six months following the date of such Participant’s “separation from service” (as defined in Section 409A of the Code without regard to alternative definitions thereunder) or, if earlier, the date of the Participant’s death, unless such distribution or payment can be made in a manner that complies with Section 409A of the Code, and any amounts so deferred will be paid in a lump sum on the day after such six month period elapses, with the balance paid thereafter on the original schedule.
(l)
Compliance with TSX and Canadian Securities Law requirements.
The Company’s obligation to issue Stock Awards or shares of Common Stock under the Plan is subject to all of the applicable laws, regulations or rules of any government agency or other competent authority in respect to the issuance or distribution of securities and to the rules of any stock exchange on which the Common Stock of the Company is listed, if applicable. For so long as the Company remains a “reporting issuer” under Canadian Securities Laws and listed on the TSX, this Plan shall remain subject to listing requirements and policies of the TSX, including but not limited to the TSX Company Manual, as well as applicable Canadian Securities Laws.
(m)
Clawback/Recovery
. All Awards granted under the Plan will be subject to recoupment in accordance with any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Board determines necessary or appropriate, including but not limited to a reacquisition right in respect of previously acquired shares of Common Stock or other cash or property upon the occurrence of an event constituting Cause. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with the Company.
17
9.
ADJUSTMENTS UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS.
(a)
Capitalization Adjustments
. In the event of a Capitalization Adjustment, the Board will appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum number of securities that may be issued pursuant to the exercise of Incentive Stock Options pursuant to Section 3(c), (iii) the class(es) and maximum number of securities that may be awarded to any person pursuant to Sections 3(d), and (iv) the class(es) and number of securities and price per share of stock subject to outstanding Stock Awards. The Board will make such adjustments, and its determination will be final, binding and conclusive.
(b)
Dissolution or Liquidation
. Except as otherwise provided in the Stock Award Agreement, in the event of a dissolution or liquidation of the Company, all outstanding Stock Awards (other than Stock Awards consisting of vested and outstanding shares of Common Stock not subject to a forfeiture condition or the Company’s right of repurchase) will terminate immediately prior to the completion of such dissolution or liquidation, and the shares of Common Stock subject to the Company’s repurchase rights or subject to a forfeiture condition may be repurchased or reacquired by the Company notwithstanding the fact that the holder of such Stock Award is providing Continuous Service;
provided, however
, that the Board may, in its sole discretion, cause some or all Stock Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.
(c)
Corporate Transaction.
The following provisions will apply to Stock Awards in the event of a Corporate Transaction unless otherwise provided in the instrument evidencing the Stock Award or any other written agreement between the Company or any Affiliate and the Participant or unless otherwise expressly provided by the Board at the time of grant of a Stock Award. In the event of a Corporate Transaction, then, notwithstanding any other provision of the Plan, the Board will take one or more of the following actions with respect to Stock Awards, contingent upon the closing or completion of the Corporate Transaction:
(i)
arrange for the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company) to assume or continue the Stock Award or to substitute a similar stock award for the Stock Award (including, but not limited to, an award to acquire the same consideration paid to the stockholders of the Company pursuant to the Corporate Transaction);
(ii)
arrange for the assignment of any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to the Stock Award to the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company);
(iii)
accelerate the vesting, in whole or in part, of the Stock Award (and, if applicable, the time at which the Stock Award may be exercised) to a date prior to the effective time of such Corporate Transaction as the Board determines (or, if the Board does not determine such a date, to the date that is five days prior to the effective date of the Corporate Transaction),
18
with such Stock Award terminating if not exercised (if applicable) at or prior to the effective time of the Corporate Transaction;
(iv)
arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by the Company with respect to the Stock Award;
(v)
cancel or arrange for the cancellation of the Stock Award, to the extent not vested or not exercised prior to the effective time of the Corporate Transaction, in exchange for such cash consideration, if any, as the Board, in its sole discretion, may consider appropriate; and
(vi)
make a payment, in such form as may be determined by the Board equal to the excess, if any, of (A) the value of the property the Participant would have received upon the exercise of the Stock Award immediately prior to the effective time of the Corporate Transaction, over (B) any exercise price payable by such holder in connection with such exercise.
The Board need not take the same action or actions with respect to all Stock Awards or portions thereof or with respect to all Participants. The Board may take different actions with respect to the vested and unvested portions of a Stock Award.
(d)
Change in Control.
A Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration will occur.
10.
PLAN TERM; EARLIER TERMINATION OR SUSPENSION OF THE PLAN.
The Board may suspend or terminate the Plan at any time. No Incentive Stock Options may be granted after the tenth anniversary of the earlier of (i) the date the Plan is adopted by the Board (the “
Adoption Date
”), or (ii) the date the Plan is approved by the stockholders of the Company. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
11.
EXISTENCE OF THE PLAN; TIMING OF FIRST GRANT OR EXERCISE.
The Plan will come into existence on the Adoption Date;
provided, however
, that no Award may be granted prior to the Effective Date. In addition, no Stock Award will be exercised (or, in the case of a Restricted Stock Award, Restricted Stock Unit Award, Performance Stock Award, or Other Stock Award, no Stock Award will be granted) and no Performance Cash Award will be settled unless and until the Plan has been approved by the stockholders of the Company, which approval will be within 12 months after the date the Plan is adopted by the Board.
12.
CHOICE OF LAW.
The law of the State of Delaware will govern all questions concerning the construction, validity and interpretation of this Plan, without regard to that state’s conflict of laws rules.
19
13.
DEFINITIONS.
As used in the Plan, the following definitions will apply to the capitalized terms indicated below:
(a)
“
Affiliate
” means, at the time of determination, any “parent” or “subsidiary” of the Company as such terms are defined in Rule 405 of the Securities Act. The Board will have the authority to determine the time or times at which “parent” or “subsidiary” status is determined within the foregoing definition.
(b)
“
Award
” means a Stock Award or a Performance Cash Award.
(c)
“
Award Agreement
” means a written agreement between the Company and a Participant evidencing the terms and conditions of an Award.
(d)
“
Board
” means the Board of Directors of the Company.
(e)
“
Canadian Securities Laws
” means
collectively, all securities laws of the provinces and territories of Canada and the respective rules and regulations under such laws together with applicable published policy statements, instruments, notices and blanket orders or rulings and all discretionary orders or rulings, if any, applicable to the Company.
(f)
“
Capital Stock
” means each and every class of common stock of the Company, regardless of the number of votes per share.
(g)
“
Capitalization Adjustment
” means any change that is made in, or other events that occur with respect to, the Common Stock subject to the Plan or subject to any Stock Award after the Adoption Date without the receipt of consideration by the Company through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, stock split, reverse stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or any similar equity restructuring transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto). Notwithstanding the foregoing, the conversion of any convertible securities of the Company will not be treated as a Capitalization Adjustment.
(h)
“
Cause
” will have the meaning ascribed to such term in any written agreement between the Participant and the Company defining such term and, in the absence of such agreement, such term means, with respect to a Participant, the occurrence of any of the following events: (i)
such Participant’s commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) such Participant’s attempted commission of, or participation (whether by affirmative act or omission) in, a fraud or act of dishonesty against the Company and/or its Affiliates; (iii) such Participant’s intentional, material violation of any contract or agreement between the Participant and the Company or of any statutory duty owed to the Company and/or its Affiliates and which has a material adverse effect on the Company and/or its Affiliates; (iv) such Participant’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) such Participant’s gross misconduct. The determination that a termination of the Participant’s Continuous Service is either for Cause or without Cause will be made by the Company, in its sole and exclusive judgment and discretion. Any determination by the Company that the Continuous Service of a
20
Participant was terminated with or without Cause for the purposes of outstanding Awards held by such Participant will have no effect upon any determination of the rights or obligations of the Company or such Participant for any other purpose.
(i)
“
Change in Control
” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i)
any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control will not be deemed to occur (A) on account of the acquisition of securities of the Company directly from the Company, (B) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person that acquires the Company’s securities in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities, (C) on account of the acquisition of securities of the Company by any individual who is, on the Effective Date, either an executive officer or a Director (either, an “
Registration Investor
”) and/or any entity in which an Registration Investor has a direct or indirect interest (whether in the form of voting rights or participation in profits or capital contributions) of more than 50% (collectively, the “
Registration Entities
” ) or on account of the Registration Entities continuing to hold shares that come to represent more than 50% of the combined voting power of the Company’s then outstanding securities as a result of the conversion of any class of the Company’s securities into another class of the Company’s securities having a different number of votes per share pursuant to the conversion provisions set forth in the Company’s Amended and Restated Certificate of Incorporation; or (D) solely because the level of Ownership held by any Exchange Act Person (the “
Subject Person
”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control will be deemed to occur;
(ii)
there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than 50% of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction;
provided, however
, that a merger, consolidation or similar transaction will not constitute a Change in Control under this prong of the definition if the outstanding voting securities representing more
21
than 50% of the combined voting power of the surviving Entity or its parent are owned by the Registration Entities;
(iii)
there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition;
provided, however
, that a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries will not constitute a Change in Control under this prong of the definition if the outstanding voting securities representing more than 50% of the combined voting power of the acquiring Entity or its parent are owned by the Registration Entities; or
(iv)
individuals who, on the date the Plan is adopted by the Board, are members of the Board (the “
Incumbent Board
”) cease for any reason to constitute at least a majority of the members of the Board;
provided, however
, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member will, for purposes of this Plan, be considered as a member of the Incumbent Board.
Notwithstanding the foregoing definition or any other provision of this Plan, the term Change in Control will not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company and the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant will supersede the foregoing definition with respect to Awards subject to such agreement;
provided, however
, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition will apply.
(j)
“
Code
” means the Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder.
(k)
“
Committee
” means a committee of one or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c).
(l)
“
Common Stock
” means, as of the Effective Date, the common stock of the Company, having 1 vote per share.
(m)
“
Company
” means Mirati Therapeutics, Inc., a Delaware corporation.
(n)
“
Consultant
”
means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such service, will not cause a Director to be considered a “Consultant” for purposes of the Plan.
22
Notwithstanding the foregoing, a person is treated as a Consultant under this Plan only if a Form S-8 Registration Statement under the Securities Act is available to register either the offer or the sale of the Company’s securities to such person.
(o)
“
Continuous Service
” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service with the Company or an Affiliate, will not terminate a Participant’s Continuous Service ;
provided, however
, that if the Entity for which a Participant is rendering services ceases to qualify as an Affiliate, as determined by the Board, in its sole discretion, such Participant’s Continuous Service will be considered to have terminated on the date such Entity ceases to qualify as an Affiliate. To the extent permitted by law, the Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service will be considered interrupted in the case of (i) any leave of absence approved by the Board or chief executive officer, including sick leave, military leave or any other personal leave, or (ii) transfers between the Company, an Affiliate, or their successors. Notwithstanding the foregoing, a leave of absence will be treated as Continuous Service for purposes of vesting in an Award only to such extent as may be provided in the Company’s leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required by law.
(p)
“
Corporate Transaction
” means the consummation, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i)
a sale or other disposition of all or substantially all, as determined by the Board, in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;
(ii)
a sale or other disposition of at least 90% of the outstanding securities of the Company;
(iii)
a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or
(iv)
a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.
(q)
“
Covered Employee
” will have the meaning provided in Section 162(m)(3) of the Code.
(r)
“
Director
” means a member of the Board.
(s)
“
Disability
” means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason of any medically determinable physical or
23
mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months, as provided in Sections 22(e)(3) and 409A(a)(2)(c)(i) of the Code, and will be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.
(t)
“
Effective Date
” means the date of effectiveness of the Company’s Registration Statement on Form 10.
(u)
“
Employee
”
means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, will not cause a Director to be considered an “Employee” for purposes of the Plan.
(v)
“
Entity
” means a corporation, partnership, limited liability company or other entity.
(w)
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(x)
“
Exchange Act Person
” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” will not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to a registered public offering of such securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company; or (v) any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date, is the Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities.
(y)
“
Fair Market Value
” means, as of any date, the value of the Common Stock determined as follows:
(i)
If the Common Stock is listed on any established stock exchange or traded on any established market, the Fair Market Value of a share of Common Stock will be, unless otherwise determined by the Board,
the closing sales price
for such stock as quoted on such exchange or market (or the exchange or market where the greatest volume of trading and value in the Common Stock occurs)
on the date of determination
, as reported in a source the Board deems reliable.
(ii)
Unless otherwise provided by the Board, if there is no closing sales price for the Common Stock on the date of determination, then the Fair Market Value will be the closing selling price on the last preceding date for which such quotation exists.
(iii)
In the absence of such markets for the Common Stock, the Fair Market Value will be determined by the Board in good faith and in a manner that complies with Sections 409A and 422 of the Code.
24
(z)
“
Incentive Stock Option
” means an option granted pursuant to Section 5 of the Plan that is intended to be, and qualifies as, an “incentive stock option” within the meaning of Section 422 of the Code.
(aa)
“
Insider
” has the same meaning ascribed thereto in the Toronto Stock Exchange Company Manual
.
(bb)
“
Non-Employee Director
” means a Director who either (i) is not a current employee or officer of the Company or an Affiliate, does not receive compensation, either directly or indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“
Regulation S-K
”)), does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.
(cc)
“
Nonstatutory Stock Option
” means any option granted pursuant to Section 5 of the Plan that does not qualify as an Incentive Stock Option.
(dd)
“
Officer
” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.
(ee)
“
Option
” means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares of Common Stock granted pursuant to the Plan.
(ff)
“
Option Agreement
” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement will be subject to the terms and conditions of the Plan.
(gg)
“
Optionholder
” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(hh)
“
Other Stock Award
”
means an award based in whole or in part by reference to the Common Stock which is granted pursuant to the terms and conditions of Section 6(d).
(ii)
“
Other Stock Award Agreement
”
means a written agreement between the Company and a holder of an Other Stock Award evidencing the terms and conditions of an Other Stock Award grant. Each Other Stock Award Agreement will be subject to the terms and conditions of the Plan.
(jj)
“
Outside Director
” means a Director who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or an “affiliated corporation,” and does not receive remuneration from the Company or an
25
“affiliated corporation,” either directly or indirectly, in any capacity other than as a Director, or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.
(kk)
“
Own,
” “
Owned,
” “
Owner,
” “
Ownership
” means a person or Entity will be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.
(ll)
“
Participant
” means a person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.
(mm)
“
Performance Cash Award
” means an award of cash granted pursuant to the terms and conditions of Section 6(c)(ii).
(nn)
“
Performance Criteria
”
means the one or more criteria that the Board will select for purposes of establishing the Performance Goals for a Performance Period. The Performance Criteria that will be used to establish such Performance Goals may be based on any one of, or combination of, the following as determined by the Board: (i) earnings (including earnings per share and net earnings); (ii) earnings before interest, taxes and depreciation; (iii) earnings before interest, taxes, depreciation and amortization; (iv) earnings before interest, taxes, depreciation, amortization and legal settlements; (v) earnings before interest, taxes, depreciation, amortization, legal settlements and other income (expense); (vi) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense) and stock-based compensation; (vii) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense), stock-based compensation and changes in deferred revenue; (viii) total stockholder return; (ix) return on equity or average stockholder’s equity; (x) return on assets, investment, or capital employed; (xi) stock price; (xii) margin (including gross margin); (xiii) income (before or after taxes); (xiv) operating income; (xv) operating income after taxes; (xvi) pre-tax profit; (xvii) operating cash flow; (xviii) sales or revenue targets; (xix) increases in revenue or product revenue; (xx) expenses and cost reduction goals; (xxi) improvement in or attainment of working capital levels; (xxii) economic value added (or an equivalent metric); (xxiii) market share; (xxiv) cash flow; (xxv) cash flow per share; (xxvi) share price performance; (xxvii) debt reduction; (xxviii) implementation or completion of projects or processes; (xxix) user satisfaction; (xxx) stockholders’ equity; (xxxi) capital expenditures; (xxxii) debt levels; (xxxiii) operating profit or net operating profit; (xxxiv) workforce diversity; (xxxv) growth of net income or operating income; (xxxvi) billings; (xxxvii) bookings; (xxxviii) the number of users, including but not limited to unique users; (xxxix) employee retention; (xxxx) and to the extent that an Award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by the Board.
(oo)
“
Performance Goals
”
means, for a Performance Period, the one or more goals established by the Board for the Performance Period based upon the Performance Criteria. Performance Goals may be based on a Company-wide basis, with respect to one or more business units, divisions, Affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless specified otherwise by the Board (i) in the Award Agreement at the
26
time the Award is granted or (ii) in such other document setting forth the Performance Goals at the time the Performance Goals are established, the Board will appropriately make adjustments in the method of calculating the attainment of Performance Goals for a Performance Period as follows: (1) to exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects; (3) to exclude the effects of changes to generally accepted accounting principles; (4) to exclude the effects of any statutory adjustments to corporate tax rates; (5) to exclude the effects of any “extraordinary items” as determined under generally accepted accounting principles; (6) to exclude the dilutive effects of acquisitions or joint ventures; (7) to assume that any business divested by the Company achieved performance objectives at targeted levels during the balance of a Performance Period following such divestiture; (8) to exclude the effect of any change in the outstanding shares of common stock of the Company by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends; (9) to exclude the effects of stock based compensation and the award of bonuses under the Company’s bonus plans; (10) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to expensed under generally accepted accounting principles; (11) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles and (12) to exclude the effect of any other unusual, non-recurring gain or loss or other extraordinary item. In addition, the Board retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of Performance Goals and to define the manner of calculating the Performance Criteria it selects to use for such Performance Period. Partial achievement of the specified criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the Stock Award Agreement or the written terms of a Performance Cash Award.
(pp)
“
Performance Period
”
means the period of time selected by the Board over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to and the payment of a Stock Award or a Performance Cash Award. Performance Periods may be of varying and overlapping duration, at the sole discretion of the Board.
(qq)
“
Performance Stock Award
” means a Stock Award granted under the terms and conditions of Section 6(c)(i).
(rr)
“
Plan
” means this Mirati Therapeutics,, Inc. 2013 Equity Incentive Plan.
(ss)
“
Restricted Stock Award
”
means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(a).
(tt)
“
Restricted Stock Award Agreement
”
means a written agreement between the Company and a holder of a Restricted Stock Award evidencing the terms and conditions of a Restricted Stock Award grant. Each Restricted Stock Award Agreement will be subject to the terms and conditions of the Plan.
(uu)
“
Restricted Stock Unit Award
”
means a right to receive shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(b).
27
(vv)
“
Restricted Stock Unit Award Agreement
”
means a written agreement between the Company and a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement will be subject to the terms and conditions of the Plan.
(ww)
“
Rule 16b-3
” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.
(xx)
“
Securities Act
” means the Securities Act of 1933, as amended.
(yy)
“
Stock Appreciation Right
”
or “
SAR
” means a right to receive the appreciation on Common Stock that is granted pursuant to the terms and conditions of Section 5.
(zz)
“
Stock Appreciation Right Agreement
”
means a written agreement between the Company and a holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement will be subject to the terms and conditions of the Plan.
(aaa)
“
Stock Award
”
means any right to receive Common Stock granted under the Plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Appreciation Right, a Performance Stock Award or any Other Stock Award.
(bbb)
“
Stock Award Agreement
”
means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement will be subject to the terms and conditions of the Plan.
(ccc)
“
Subsidiary
” means, with respect to the Company, (i) any corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation will have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership, limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than 50%.
(ddd)
“
Ten Percent Stockholder
” means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Affiliate.
(eee)
“TSX”
means the Toronto Stock Exchange.
28
MIRATI THERAPEUTICS, INC.
STOCK OPTION GRANT NOTICE
(2013 EQUITY INCENTIVE PLAN)
Mirati Therapeutics, Inc. (the “
Company
”), pursuant to its 2013 Equity Incentive Plan (the “
Plan
”), hereby grants to Optionholder an option to purchase the number of shares of the Company’s Common Stock set forth below (the “
Option
”). The Option is subject to all of the terms and conditions as set forth in this Stock Option Grant Notice, in the Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined herein but defined in the Plan or the Option Agreement will have the same definitions as in the Plan or the Option Agreement. If there is any conflict between the terms in this Stock Option Grant Notice and the Plan, the terms of the Plan will control.
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Optionholder:
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Date of Grant:
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Vesting Commencement Date:
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Number of Shares Subject to Option:
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Exercise Price (Per Share):
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Total Exercise Price:
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Expiration Date:
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Type of Grant:
o
Incentive Stock Option(1)
o
Nonstatutory Stock Option
Exercise Schedule
:
o
Same as Vesting Schedule
o
Early Exercise Permitted
Vesting Schedule
:
[
One-fourth (1/4
th
) of the shares vest one year after the Vesting Commencement Date; the balance of the shares vest in a series of thirty-six (36) successive equal monthly installments measured from the first anniversary of the Vesting Commencement Date, subject to Optionholder’s Continuous Service as of each such date.]
Payment:
By one or a combination of the following items (described in the Option Agreement):
x
By cash, check, bank draft or money order payable to the Company
o
Pursuant to a Regulation T Program if the shares are publicly traded
o
By delivery of already-owned shares if the shares are publicly traded
o
If and only to the extent this Option is a Nonstatutory Stock Option, and subject to the Company’s consent at the time of exercise, by a “net exercise” arrangement
(1) If this is an Incentive Stock Option, it (plus other outstanding Incentive Stock Options) cannot be first
exercisable
for more than $100,000 in value (measured by exercise price) in any calendar year. Any excess over $100,000 is a Nonstatutory Stock Option.
Additional Terms/Acknowledgements:
Optionholder acknowledges receipt of, and understands and agrees to, this Stock Option Grant Notice, the Option Agreement and the Plan. Optionholder acknowledges and agrees that this Stock Option Grant Notice and the Option Agreement may not be modified, amended or revised, except as provided in the Plan. Optionholder further acknowledges that as of the Date of Grant, this Stock Option Grant Notice, the Option Agreement, and the Plan set forth the entire understanding between Optionholder and the Company regarding this Option and supersede all prior oral and written agreements, promises and/or representations on that subject with the exception of (i) options previously granted and delivered to Optionholder, (ii) any compensation recovery policy that is adopted by the Company or is otherwise required by applicable law and (iii) any written employment or severance arrangement that would provide for vesting acceleration of this Option upon the terms and conditions set forth therein. By accepting this Option, Optionholder consents to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
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MIRATI THERAPEUTICS, INC.
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OPTIONHOLDER:
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By:
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Signature
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Signature
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Title:
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Date:
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Date:
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ATTACHMENTS
: Option Agreement, 2013 Equity Incentive Plan and Notice of Exercise
ATTACHMENT I
OPTION AGREEMENT
ATTACHMENT II
2013 EQUITY INCENTIVE PLAN
ATTACHMENT III
NOTICE OF EXERCISE
MIRATI THERAPEUTICS, INC.
2013 EQUITY INCENTIVE PLAN
OPTION AGREEMENT
(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)
Pursuant to your Stock Option Grant Notice (the “
Grant Notice
”) and this Option Agreement, Mirati Therapeutics, Inc. (the “
Company
”) has granted you an option (the “
Option
”) to purchase shares of the Company’s Common Stock under its 2013 Equity Incentive Plan (the “
Plan
”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. The Option is granted to you effective as of the date of grant set forth in the Grant Notice (the “
Date of Grant
”). If there is any conflict between the terms in this Option Agreement and the Plan, the terms of the Plan will control. Capitalized terms not explicitly defined in this Option Agreement or in the Grant Notice but defined in the Plan will have the same definitions as in the Plan.
The details of your Option, in addition to those set forth in the Grant Notice and the Plan, are as follows:
1.
VESTING.
Subject to the provisions contained herein, your Option will vest as provided in your Grant Notice. Vesting will cease upon the termination of your Continuous Service.
2.
NUMBER OF SHARES AND EXERCISE PRICE.
The number of shares of Common Stock subject to your Option and the exercise price per share in your Grant Notice will be adjusted for Capitalization Adjustments.
3.
EXERCISE RESTRICTION FOR NON-EXEMPT EMPLOYEES.
If you are an Employee eligible for overtime compensation under the Fair Labor Standards Act of 1938, as amended (that is, a “
Non-Exempt Employee
”), and except as otherwise provided in the Plan, you may not exercise your Option until you have completed at least six months of Continuous Service measured from the Date of Grant, even if you have already been an employee for more than six months. Consistent with the provisions of the Worker Economic Opportunity Act, you may exercise your Option as to any vested portion prior to such six month anniversary in the case of (i) your death or disability, (ii) a Corporate Transaction in which your Option is not assumed, continued or substituted, (iii) a Change in Control or (iv) your termination of Continuous Service on your “retirement” (as defined in the Company’s benefit plans).
4.
EXERCISE PRIOR TO VESTING (“EARLY EXERCISE”).
If permitted in your Grant Notice (
i.e.
, the “Exercise Schedule” indicates “Early Exercise Permitted”) and subject to the provisions of your Option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your Option, to exercise all or part of your Option, including the unvested portion of your Option;
provided, however,
that:
1
(a)
a partial exercise of your Option will be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock;
(b)
any shares of Common Stock so purchased from installments that have not vested as of the date of exercise will be subject to the purchase option in favor of the Company as described in the Company’s form of Early Exercise Stock Purchase Agreement;
(c)
you will enter into the Company’s form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and
(d)
if your Option is an Incentive Stock Option, then, to the extent that the aggregate Fair Market Value (determined at the Date of Grant) of the shares of Common Stock with respect to which your Option plus all other Incentive Stock Options you hold are exercisable for the first time by you during any calendar year (under all plans of the Company and its Affiliates) exceeds $100,000, your Option or any portions thereof and any other Incentive Stock Options held by you that exceed such limit (according to the order in which they were granted) will be treated as Nonstatutory Stock Options.
5.
METHOD OF PAYMENT.
You must pay the full amount of the exercise price for the shares you wish to exercise. You may pay the exercise price in cash or by check, bank draft or money order payable to the Company or in any other manner
permitted by your Grant Notice,
which may include one or more of the following:
(a)
Provided that at the time of exercise the Common Stock is publicly traded, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds. This manner of payment is also known as a “broker-assisted exercise”, “same day sale”, or “sell to cover”.
(b)
Provided that at the time of exercise the Common Stock is publicly traded, by delivery to the Company (either by actual delivery or attestation) of already-owned shares of Common Stock that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. “Delivery” for these purposes, in the sole discretion of the Company at the time you exercise your Option, will include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. You may not exercise your Option by delivery to the Company of Common Stock if doing so would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.
(c)
If this Option is a Nonstatutory Stock Option, subject to the consent of the Company at the time of exercise, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Common Stock issued upon exercise of your Option by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price. You must pay any remaining balance of the aggregate exercise price
2
not satisfied by the “net exercise” in cash or other permitted form of payment. Shares of Common Stock will no longer be outstanding under your Option and will not be exercisable thereafter if those shares (i) are used to pay the exercise price pursuant to the “net exercise,” (ii) are delivered to you as a result of such exercise, and (iii) are withheld to satisfy your tax withholding obligations.
6.
WHOLE SHARES.
You may exercise your Option only for whole shares of Common Stock.
7.
SECURITIES LAW COMPLIANCE.
In no event may you exercise your Option unless the shares of Common Stock issuable upon exercise are then registered under the Securities Act or, if not registered, the Company has determined that your exercise and the issuance of the shares would be exempt from the registration requirements of the Securities Act. The exercise of your Option also must comply with all other applicable laws and regulations governing your Option, and you may not exercise your Option if the Company determines that such exercise would not be in material compliance with such laws and regulations (including any restrictions on exercise required for compliance with Treasury Regulation Section 1.401(k)-1(d)(3), if applicable).
8.
TERM.
You may not exercise your Option before the Date of Grant or after the expiration of the Option’s term. The term of your Option expires, subject to the provisions of Section 5(h) of the Plan, upon the earliest of the following:
(a)
immediately upon the termination of your Continuous Service for Cause;
(b)
three months after the termination of your Continuous Service for any reason other than Cause, your Disability or your death (except as otherwise provided in Section 8(d) below);
provided, however,
that if during any part of such three month period your Option is not exercisable solely because of the condition set forth in the section above relating to “Securities Law Compliance,” your Option will not expire until the earlier of the Expiration Date or until it has been exercisable for an aggregate period of three months after the termination of your Continuous Service;
provided further,
if during any part of such three month period, the sale of any Common Stock received upon exercise of your Option would violate the Company’s insider trading policy, then your Option will not expire until the earlier of the Expiration Date or until it has been exercisable for an aggregate period of three months after the termination of your Continuous Service during which the sale of the Common Stock received upon exercise of your Option would not be in violation of the Company’s insider trading policy. Notwithstanding the foregoing, if (i) you are a Non-Exempt Employee, (ii) your Continuous Service terminates within six months after the Date of Grant, and (iii) you have vested in a portion of your Option at the time of your termination of Continuous Service, your Option will not expire until the earlier of (x) the later of (A) the date that is seven months after the Date of Grant, and (B) the date that is three months after the termination of your Continuous Service, and (y) the Expiration Date;
(c)
12 months after the termination of your Continuous Service due to your Disability (except as otherwise provided in Section 8(d)) below;
3
(d)
18 months after your death if you die either during your Continuous Service or within three months after your Continuous Service terminates for any reason other than Cause;
(e)
the Expiration Date indicated in your Grant Notice; or
(f)
the day before the 10th anniversary of the Date of Grant.
If your Option is an Incentive Stock Option, note that to obtain the federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the Date of Grant and ending on the day three months before the date of your Option’s exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your Option under certain circumstances for your benefit but cannot guarantee that your Option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your Option more than three months after the date your employment with the Company or an Affiliate terminates.
9.
EXERCISE.
(a)
You may exercise the vested portion of your Option (and the unvested portion of your Option if your Grant Notice so permits) during its term by (i) delivering a Notice of Exercise (in a form designated by the Company) or completing such other documents and/or procedures designated by the Company for exercise and (ii) paying the exercise price and any applicable withholding taxes to the Company’s Secretary, stock plan administrator, or such other person as the Company may designate, together with such additional documents as the Company may then require.
(b)
By exercising your Option you agree that, as a condition to any exercise of your Option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (i) the exercise of your Option, (ii) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (iii) the disposition of shares of Common Stock acquired upon such exercise.
(c)
If your Option is an Incentive Stock Option, by exercising your Option you agree that you will notify the Company in writing within 15 days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your Option that occurs within two years after the Date of Grant or within one year after such shares of Common Stock are transferred upon exercise of your Option.
10.
TRANSFERABILITY.
Except as otherwise provided in this Section 10, your Option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you.
(a)
Certain Trusts.
Upon receiving written permission from the Board or its duly authorized designee, you may transfer your Option to a trust if you are considered to be the
4
sole beneficial owner (determined under Section 671 of the Code and applicable state law) while the Option is held in the trust. You and the trustee must enter into transfer and other agreements required by the Company.
(b)
Domestic Relations Orders.
Upon receiving written permission from the Board or its duly authorized designee, and provided that you and the designated transferee enter into transfer and other agreements required by the Company, you may transfer your Option pursuant to the terms of a domestic relations order, official marital settlement agreement or other divorce or separation instrument as permitted by Treasury Regulation 1.421-1(b)(2) that contains the information required by the Company to effectuate the transfer. You are encouraged to discuss the proposed terms of any division of this Option with the Company prior to finalizing the domestic relations order or marital settlement agreement to help ensure the required information is contained within the domestic relations order or marital settlement agreement. If this Option is an Incentive Stock Option, this Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.
(c)
Beneficiary Designation.
Upon receiving written permission from the Board or its duly authorized designee, you may, by delivering written notice to the Company, in a form approved by the Company and any broker designated by the Company to handle option exercises, designate a third party who, on your death, will thereafter be entitled to exercise this Option and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation, your executor or administrator of your estate will be entitled to exercise this Option and receive, on behalf of your estate, the Common Stock or other consideration resulting from such exercise.
11.
OPTION NOT A SERVICE CONTRACT.
Your Option is not an employment or service contract, and nothing in your Option will be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your Option will obligate the Company or an Affiliate, their respective stockholders, boards of directors, officers or employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.
12.
WITHHOLDING OBLIGATIONS.
(a)
At the time you exercise your Option, in whole or in part, and at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a “same day sale” pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with the exercise of your Option.
(b)
If this Option is a Nonstatutory Stock Option, then upon your request and subject to approval by the Company, and compliance with any applicable legal conditions or restrictions, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your Option a number of whole shares of Common Stock
5
having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid classification of your Option as a liability for financial accounting purposes). If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your Option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your Option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your Option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.
(c)
You may not exercise your Option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your Option when desired even though your Option (or any portion thereof) is vested, and the Company will have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein, if applicable, unless such obligations are satisfied.
13.
TAX CONSEQUENCES
. You hereby agree that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes your tax liabilities. You will not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates related to tax liabilities arising from your Option or your other compensation. In particular, you acknowledge that this Option is exempt from Section 409A of the Code only if the exercise price per share specified in the Grant Notice is at least equal to the “fair market value” per share of the Common Stock on the Date of Grant and there is no other impermissible deferral of compensation associated with the Option.
14.
NOTICES.
Any notices provided for in your Option, the Grant Notice, this Option Agreement or the Plan will be given in writing (including electronically) and will be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan and this Option by electronic means or to request your consent to participate in the Plan by electronic means. By accepting this Option, you consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
15.
GOVERNING PLAN DOCUMENT.
Your Option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your Option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. If there is any conflict between the provisions of your Option and those of the Plan, the provisions of the Plan will control. In addition, your Option (and any compensation paid or shares issued under your Option) is subject to recoupment
6
in accordance with The Dodd—Frank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law.
16.
OTHER DOCUMENTS.
You hereby acknowledge receipt of and the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act, which includes the Plan prospectus. In addition, you acknowledge receipt of the Company’s policy permitting certain individuals to sell shares only during certain “window” periods and the Company’s insider trading policy, in effect from time to time.
17.
EFFECT ON OTHER EMPLOYEE BENEFIT PLANS.
The value of this Option will not be included as compensation, earnings, salaries, or other similar terms used when calculating your benefits under any employee benefit plan sponsored by the Company or any Affiliate, except as such plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify, or terminate any of the Company’s or any Affiliate’s employee benefit plans.
18.
VOTING RIGHTS.
You will not have voting or any other rights as a stockholder of the Company with respect to the shares to be issued pursuant to this Option until such shares are issued to you. Upon such issuance, you will obtain full voting and other rights as a stockholder of the Company. Nothing contained in this Option, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person.
19.
SEVERABILITY.
If all or any part of this Option Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Option Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Option Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
20.
MISCELLANEOUS
.
(a)
The rights and obligations of the Company under your Option will be transferable to any one or more persons or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by the Company’s successors and assigns.
(b)
You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Option.
(c)
You acknowledge and agree that you have reviewed your Option in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Option, and fully understand all provisions of your Option.
(d)
This Option Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
7
(e)
All obligations of the Company under the Plan and this Option Agreement will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
*
*
*
This Option Agreement will be deemed to be signed by you upon the signing by you of the Grant Notice to which it is attached.
8
Exhibit 10.8
***Text Omitted and Filed Separately
with the Securities and Exchange Commission.
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4)
and 240.24b-2.
EXECUTION COPY
RESEARCH COLLABORATION AND LICENSE AGREEMENT
BY AND BETWEEN
METHYLGENE INC.
AND
OTSUKA PHARMACEUTICAL CO., LTD.
DATED AS OF MARCH 25, 2008
TABLE OF CONTENTS
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Page
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ARTICLE I
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DEFINITIONS
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1
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1.1
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“Act”
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|
1
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|
1.2
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“Affiliate”
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1
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|
1.3
|
“Business Day”
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1
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1.4
|
“Calendar Quarter”
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2
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1.5
|
“Calendar Year”
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2
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1.6
|
“Change of Control”
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2
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1.7
|
“Collaboration Intellectual Property”
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2
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1.8
|
“Commercialization” or “Commercialize”
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2
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1.9
|
“Commercially Reasonable Efforts”
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2
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1.10
|
“Compound”
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3
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1.11
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“Control” or “Controlled”
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3
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1.12
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“Cover”, “Covering” or “Covered”
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3
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1.13
|
“CRO”
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3
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1.14
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“Development” or “Develop”
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3
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1.15
|
“EMEA”
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3
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1.16
|
“EU”
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4
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1.17
|
“FDA”
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4
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1.18
|
“Field”
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4
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1.19
|
“First Commercial Sale”
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4
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1.20
|
“Formulation Technology”
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4
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1.21
|
“FTE”
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4
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1.22
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“FTE Rate”
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4
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1.23
|
“Generic Competition”
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5
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1.24
|
“Generic Product”
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5
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1.25
|
“Governmental Authority”
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5
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1.26
|
“IND”
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5
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1.27
|
“Indication”
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5
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1.28
|
“Initiation”
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5
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1.29
|
“Japan GAAP”
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6
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1.30
|
“JRDC”
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6
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1.31
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“Know-How”
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6
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1.32
|
“Lab Quantity Samples”
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6
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1.33
|
“Law” or “Laws”
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6
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1.34
|
“Licensed Product”
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6
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1.35
|
“Losses”
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6
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1.36
|
“Major Countries”
|
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6
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1.37
|
“Manufacture” or “Manufacturing”
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6
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1.38
|
“MethylGene Background Intellectual Property”
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6
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1.39
|
“MethylGene Collaboration Intellectual Property”
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7
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1.40
|
“MethylGene Intellectual Property”
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7
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1.41
|
“MHLW”
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7
|
i
TABLE OF CONTENTS
(continued)
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Page
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1.42
|
“MTA”
|
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7
|
|
1.43
|
“NDA”
|
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7
|
|
1.44
|
“Net Sales”
|
|
7
|
|
1.45
|
“Other Ophthalmic Indication”
|
|
9
|
|
1.46
|
“Otsuka Background Intellectual Property”
|
|
9
|
|
1.47
|
“Otsuka Collaboration Intellectual Property”
|
|
9
|
|
1.48
|
“Otsuka Intellectual Property”
|
|
9
|
|
1.49
|
“Party”
|
|
10
|
|
1.50
|
“Patent Rights”
|
|
10
|
|
1.51
|
“Person”
|
|
10
|
|
1.52
|
“Phase I Clinical Trial”
|
|
10
|
|
1.53
|
“Phase I/IIa Clinical Trial”
|
|
10
|
|
1.54
|
“Phase II Clinical Trial”
|
|
10
|
|
1.55
|
“Phase IIa Clinical Trial”
|
|
10
|
|
1.56
|
“Program Compound”
|
|
10
|
|
1.57
|
“Regulatory Approval”
|
|
10
|
|
1.58
|
“Regulatory Authority”
|
|
10
|
|
1.59
|
“Research Plan”
|
|
10
|
|
1.60
|
“Research Program”
|
|
11
|
|
1.61
|
“Research Term”
|
|
11
|
|
1.62
|
“SAR Know-How”
|
|
11
|
|
1.63
|
“Selected Compound(s)”
|
|
11
|
|
1.64
|
“Senior Executive”
|
|
11
|
|
1.65
|
“Sublicensee”
|
|
11
|
|
1.66
|
“Sublicensee Income”
|
|
11
|
|
1.67
|
“Territory”
|
|
11
|
|
1.68
|
“Third Party”
|
|
11
|
|
1.69
|
“Valid Claim”
|
|
11
|
|
1.70
|
Additional Definitions
|
|
12
|
|
|
|
|
|
|
ARTICLE II
|
GRANTS OF RIGHTS
|
|
13
|
|
|
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2.1
|
MethylGene Grants of Rights
|
|
13
|
|
2.2
|
Otsuka Grant of Rights
|
|
14
|
|
2.3
|
Restriction on Use of MethylGene Intellectual Property
|
|
14
|
|
2.4
|
Right of First Refusal on Other Ophthalmic Indications
|
|
14
|
|
2.5
|
Rights Retained by the Parties
|
|
15
|
|
2.6
|
Exclusivity
|
|
16
|
|
|
|
|
|
|
ARTICLE III
|
RESEARCH PROGRAM AND DEVELOPMENT
|
|
16
|
|
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|
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3.1
|
General
|
|
16
|
|
3.2
|
Research Program
|
|
17
|
ii
TABLE OF CONTENTS
(continued)
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Page
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3.3
|
Joint Research and Development Committee
|
|
18
|
|
3.4
|
Exchange of Information During Research Term
|
|
19
|
|
3.5
|
Selected Compounds
|
|
20
|
|
3.6
|
Expansion of the Field
|
|
20
|
|
3.7
|
Post-Selection Activities
|
|
21
|
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|
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|
|
ARTICLE IV
|
COMMERCIALIZATION
|
|
21
|
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|
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|
|
4.1
|
General
|
|
21
|
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|
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|
|
|
ARTICLE V
|
DILIGENCE
|
|
21
|
|
|
|
|
|
|
5.1
|
Commercially Reasonable Efforts; Otsuka Diligence Obligations
|
|
21
|
|
5.2
|
MethylGene Diligence Obligations
|
|
23
|
|
|
|
|
|
|
ARTICLE VI
|
FINANCIAL PROVISIONS
|
|
23
|
|
|
|
|
|
|
6.1
|
Equity
|
|
23
|
|
6.2
|
Initial License Payments
|
|
24
|
|
6.3
|
Research Program
|
|
24
|
|
6.4
|
Event Milestone Payments
|
|
24
|
|
6.5
|
Sales Milestone Payments
|
|
26
|
|
6.6
|
Licensed Product Royalties
|
|
26
|
|
6.7
|
Sublicensee Income
|
|
29
|
|
6.8
|
Reports; Payments
|
|
29
|
|
6.9
|
Books and Records; Audit Rights
|
|
29
|
|
6.10
|
Taxes
|
|
30
|
|
6.11
|
United States Dollars
|
|
30
|
|
6.12
|
Payment Method and Currency Conversion
|
|
30
|
|
6.13
|
Late Payments
|
|
30
|
|
|
|
|
|
|
ARTICLE VII
|
INTELLECTUAL PROPERTY OWNERSHIP, PROTECTION AND RELATED MATTERS
|
|
30
|
|
|
|
|
|
|
7.1
|
Ownership of Inventions
|
|
30
|
|
7.2
|
Prosecution and Maintenance of Patent Rights
|
|
31
|
|
7.3
|
Third Party Infringement
|
|
34
|
|
7.4
|
Infringement Claims Against Otsuka or MethylGene
|
|
35
|
|
7.5
|
Patent Invalidity Claim
|
|
36
|
|
7.6
|
Patent Term Extensions
|
|
36
|
|
7.7
|
Patent Marking
|
|
36
|
|
7.8
|
Certification under Drug Price Competition and Patent Restoration Act
|
|
36
|
|
7.9
|
Exclusive License Registration
|
|
37
|
iii
TABLE OF CONTENTS
(continued)
|
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Page
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|
ARTICLE VIII
|
CONFIDENTIAL INFORMATION
|
|
37
|
|
|
|
|
|
|
8.1
|
Treatment of Confidential Information
|
|
37
|
|
8.2
|
Confidential Information
|
|
37
|
|
8.3
|
Publication Rights
|
|
38
|
|
|
|
|
|
|
ARTICLE IX
|
REPRESENTATIONS, WARRANTIES AND COVENANTS
|
|
39
|
|
|
|
|
|
|
9.1
|
MethylGene’s Representations, Warranties and Covenants
|
|
40
|
|
9.2
|
Otsuka’s Representations, Warranties and Covenants
|
|
40
|
|
9.3
|
No Warranty
|
|
41
|
|
|
|
|
|
|
ARTICLE X
|
INDEMNIFICATION
|
|
41
|
|
|
|
|
|
|
10.1
|
Indemnification in Favor of MethylGene
|
|
41
|
|
10.2
|
Indemnification in Favor of Otsuka
|
|
41
|
|
10.3
|
General Indemnification Procedures
|
|
42
|
|
10.4
|
Insurance
|
|
43
|
|
|
|
|
|
|
ARTICLE XI
|
TERM AND TERMINATION
|
|
44
|
|
|
|
|
|
|
11.1
|
Term
|
|
44
|
|
11.2
|
Termination for Cause
|
|
44
|
|
11.3
|
Termination for Failure to Select
|
|
44
|
|
11.4
|
Other Termination by Otsuka
|
|
45
|
|
11.5
|
Termination of Otsuka’s Rights in One or More Regions
|
|
45
|
|
11.6
|
Consequences of Certain Terminations
|
|
45
|
|
11.7
|
Effect of Termination and Expiration; Accrued Rights and Obligations
|
|
46
|
|
11.8
|
Survival
|
|
47
|
|
|
|
|
|
|
ARTICLE XII
|
DISPUTE RESOLUTION
|
|
47
|
|
|
|
|
|
|
12.1
|
Resolution of Disputes
|
|
47
|
|
12.2
|
Arbitration
|
|
47
|
|
|
|
|
|
|
ARTICLE XIII
|
MISCELLANEOUS
|
|
48
|
|
|
|
|
|
|
13.1
|
Governing Law
|
|
48
|
|
13.2
|
Waiver
|
|
48
|
|
13.3
|
Notices
|
|
49
|
|
13.4
|
Entire Agreement
|
|
50
|
|
13.5
|
Headings
|
|
50
|
|
13.6
|
Severability
|
|
50
|
|
13.7
|
Registration and Filing of the Agreement
|
|
51
|
|
13.8
|
Assignment
|
|
51
|
|
13.9
|
Counterparts
|
|
51
|
|
13.10
|
Force Majeure
|
|
51
|
iv
TABLE OF CONTENTS
(continued)
|
|
|
|
Page
|
|
|
|
|
|
|
13.11
|
Press Releases and Other Disclosures
|
|
51
|
|
13.12
|
Relationship of the Parties
|
|
52
|
|
13.13
|
Performance by Affiliates
|
|
52
|
|
13.14
|
No Consequential or Punitive Damages
|
|
52
|
|
13.15
|
Nonsolicitation
|
|
53
|
|
Schedule 1.38
|
MethylGene Background Patent Rights
|
|
Schedule 1.56
|
Program Compound
|
|
Schedule 3.2(b)
|
Research Plan
|
|
Schedule 7.2(e)(iii)
|
Prosecution Costs for National Phase filing for PCT/US2006/019364
|
|
Schedule 9.1(c)
|
Disclosure of Third Party Patents
|
v
RESEARCH COLLABORATION AND LICENSE AGREEMENT
THIS RESEARCH COLLABORATION AND LICENSE AGREEMENT
is entered into this 25th day of March, 2008 (the “
Effective Date
”), by and between MethylGene Inc., a corporation organized under the laws of Quebec, Canada, having a business address at 7220 Frederick Banting, Montreal, QC H4S 2A1 (“
MethylGene
”), and Otsuka Pharmaceutical Co., Ltd., a company organized under the laws of Japan, having a business address at 2-9 Kanda-Tsukasamachi, Chiyoda-ku Tokyo 101-8535, Japan, acting through its Ophthalmology and Dermatology Division (“
Otsuka
”).
WHEREAS, MethylGene has developed or obtained rights to MethylGene Intellectual Property (as hereinafter defined);
WHEREAS, MethylGene has developed certain Compounds (as hereinafter defined), and Otsuka wishes to fund a research program for the development of additional Compounds by MethylGene; and
WHEREAS, Otsuka desires to obtain a license under the MethylGene Intellectual Property to make and use certain Selected Compounds (as hereinafter defined), and to develop and commercialize Licensed Products (as hereinafter defined), under the terms and conditions set forth herein, and MethylGene desires to grant such a license.
NOW, THEREFORE, the Parties agree as follows:
ARTICLE I
DEFINITIONS
The following terms, whether used in the singular or plural, shall have the following meanings:
1.1
“
Act
”. Act means both the United States Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 301 et seq.), as amended from time to time, and the regulations promulgated under the foregoing.
1.2
“
Affiliate
”. Affiliate means any Person directly or indirectly controlled by, controlling or under common control with, a Party, but only for so long as such control shall continue. For purposes of this definition, “control” (including, with correlative meanings, “controlled by”, “controlling” and “under common control with”) means, with respect to a Person, possession, direct or indirect, of (a) the power to direct or cause direction of the management and policies of such Person (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), or (b) at least 50% of the voting securities (whether directly or pursuant to any option, warrant or other similar arrangement) or other comparable equity interests.
1.3
“
Business Day
”. Business Day means a day that is not a Saturday or Sunday, or any other day on which banking institutions in New York, Tokyo or Montreal are authorized by Law to remain closed or on which a Party’s principal place of business is closed in connection
with a holiday. For the avoidance of doubt, any “day” referenced in this Agreement that is not a “Business Day” is a calendar day.
1.4
“
Calendar Quarter
”. Calendar Quarter means each of the three-month periods ending on March 31, June 30, September 30 and December 31 of any year.
1.5
“
Calendar Year
”. Calendar Year means each period beginning on January 1 and ending on the following December 31 during the Term.
1.6
“
Change of Control
”. Change of Control means, with respect to a Party: (a) a sale, conveyance, or other disposition of all or substantially all of a Party’s assets, (b) any merger, consolidation or other business combination transaction of such Party with or into another Person, in which the holders of the shares of voting capital stock of such Party outstanding immediately prior to such transaction continue to hold (either by such shares remaining outstanding or by their being converted into shares of voting capital stock of the surviving entity) less than a majority of the total voting power represented by the shares of voting capital stock of such Party (or the surviving entity) outstanding immediately after such transaction, or (c) the direct or indirect acquisition (including by way of a tender or exchange offer) by any Person, or Persons acting as a group, excluding in either case any Person who was a shareholder of such Party as of the Effective Date, of beneficial ownership or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of capital stock of such Party;
provided
,
however
, that the acquisition of shares issued by such Party in an equity financing shall not be considered for purposes of determining whether there has been a Change of Control.
1.7
“
Collaboration Intellectual Property
”. Collaboration Intellectual Property means any Patent Rights or Know-How arising during the Term as a result of performing the Research Program under this Agreement, including, without limitation, all activities under this Agreement related to the discovery, research or Development of Program Compounds, Selected Compounds or Licensed Products, whether developed, conceived or created solely by or on behalf of a Party and/or its Affiliates or jointly by or on behalf of the Parties and/or their respective Affiliates, and whether or not required to be conducted hereunder.
1.8
“
Commercialization
” or “
Commercialize
”. Commercialization or Commercialize means activities directed to obtaining pricing and reimbursement approvals, marketing, promoting, distributing, importing or selling a product.
1.9
“
Commercially Reasonable Efforts
”. Commercially Reasonable Efforts means, with respect to a Program Compound, Selected Compound or Licensed Product, the carrying out of obligations under this Agreement with those efforts and resources that a similarly situated company within the pharmaceutical industry would reasonably use were it developing or commercializing its own pharmaceutical compounds or products that are of similar market and profit potential and of similar risk profile at a similar stage in their product life as the Program Compounds, Selected Compounds or Licensed Products, as applicable, taking into account anticipated product labeling, anticipated financial return, relevant medical and clinical considerations, anticipated regulatory environment and competitive market conditions, all as measured by the facts and circumstances at the time such efforts are due, but in no event less
2
than the type and scope of efforts that the applicable Party would devote to any of its other products of similar market and profit potential and similar risk profile at a similar stage of product life.
1.10
“
Compound
”. Compound means a molecule that is a small molecule that is a small molecule tyrosine kinase inhibitor
as its main mechanism of action
, and any (a) salts, hydrates, solvates, polymorphs, free base, isomers, prodrugs, metabolites and/or liposomal or other formulations thereof or (b) other compositions consisting of such molecule non-covalently bonded with other moieties, but excluding any derivative of such molecule in which the chemical structure of such molecule is altered.
1.11
“
Control
” or “
Controlled
”. Control or Controlled means, with respect to any intellectual property right or other intangible property or any tangible property, the possession (whether by ownership or license (other than pursuant to this Agreement)) by a Party of the legal authority or right to grant to the other Party access and/or a license or sublicense or other right as provided herein without violating the terms of any agreement with any Third Party.
1.12
“
Cover
”, “
Covering
” or “
Covered
”. Cover, Covering or Covered means, with respect to a product, technology, process or method that, in the absence of ownership of or a license granted under a Valid Claim, the manufacture, use, offer for sale, sale or importation of such product or the practice of such technology, process or method would infringe such Valid Claim (or, in the case of a Valid Claim that has not yet issued, would reasonably likely infringe such Valid Claim if it were to issue).
1.13
“
CRO
”. CRO means a Third Party vendor or service provider who is engaged to provide services on a fee-for-service basis on behalf of a Party pursuant to an agreement with such Party under which such vendor or service provider agrees to: (a) assign to the contracting Party ownership to at least those inventions resulting from the services to such Party and that would constitute Collaboration Intellectual Property; and (b) not to use or disclose (other than to such Party) such Collaboration Intellectual Property.
1.14
“
Development
” or “
Develop
”. Development or Develop means pre-clinical and clinical research and drug development activities, including, without limitation, toxicology and other pre-clinical development efforts, stability testing, process development, scale-up, formulation development, delivery system development, quality assurance and quality control development, statistical analysis, clinical pharmacology, clinical studies (including, without limitation, pre- and post-approval studies and investigator sponsored clinical studies), regulatory affairs, and all other activities relating to seeking, obtaining and/or maintaining any Regulatory Approvals and clinical study regulatory activities (excluding regulatory activities directed to obtaining pricing and reimbursement approvals). For purposes of clarity, “Development” and “Develop” excludes basic research, screening and discovery activities and synthesis activities (other than scale-up of Program Compounds and Selected Compounds), including, without limitation, molecular biology, biochemistry and pre-clinical pharmacology, directed to the identification of Compounds.
1.15
“
EMEA
”. EMEA means The European Medicines Agency or any successor agency or authority thereto.
3
1.16
“
EU
”. EU means the European Union, as it may be redefined from time to time.
1.17
“
FDA
”. FDA means the United States Food and Drug Administration and any successor agency or authority thereto.
1.18
“
Field
”. Field means the prevention, treatment, control, mitigation or palliation in humans of (a) diseases, disorders and other medical conditions caused by choroidal angiogenesis, including, without limitation, age-related macular degeneration, and (b) diabetic retinopathy and retinal edema; in each case using local delivery of the active pharmaceutical agents to the eye. For the avoidance of doubt, “local delivery” shall include, without limitation, topical, intravitreal, periorbital, intraocular and other local administration to the eye, the ocular and/or periocular tissues and spaces, including, without limitation, via delivery devices, but in any event, subject to Section 3.6, shall not include systemic delivery, including, without limitation, parenteral or sublingual delivery or delivery through a patch. The Field shall expressly exclude the prevention, treatment, control, mitigation or palliation of any Indications other than (a) and (b) above (e.g., treatment of cancer, including, without limitation, neoplasia and other pre-cancerous conditions and ocular cancer, is excluded).
1.19
“
First Commercial Sale
”. First Commercial Sale means, with respect to a Licensed Product in a country, the first sale to a Third Party by Otsuka, its Affiliate or its Sublicensee for which payment has been received for use or consumption of such Licensed Product in such country after receipt of the first Regulatory Approval for such Licensed Product in such country. For purposes of clarity, First Commercial Sale shall not include the sale of any Licensed Product for use in clinical trials, pre-clinical studies or other research or development purposes or for compassionate or similar use.
1.20
“
Formulation Technology
”. Formulation Technology means Patent Rights and Know-How related to: (a) the process of adding chemical additives to a Program Compound in order to provide such Program Compound with pharmaceutical properties (for example, stability, solubility, pH, etc.) acceptable for administration to the eye in humans; and (b) the composition of such chemical additives alone or when combined with a Program Compound.
1.21
“
FTE
”. FTE means a full-time equivalent person year (consisting of a total of […***…] hours per year) of scientific, technical, project management and/or managerial work. For the avoidance of doubt, an obligation to provide or dedicate FTE(s) under this Agreement does not require or imply any obligation to dedicate individual person(s) to matters set forth in this Agreement on a full-time basis;
provided
,
however
, that MethylGene uses Commercially Reasonable Efforts to (a) ensure that all such individuals have sufficient training, expertise and experience, and (b) promote reasonable continuity so as to avoid duplicative ramp-up time and other inefficiencies associated with personnel turnover and reassignment.
1.22
“
FTE Rate
”. FTE Rate means […***…] per FTE per twelve (12) month period, increased by a rate of […***…] percent […***…] per year, with the first such increase occurring […***…]. For
***Confidential Treatment Requested
4
clarity, the FTE Rate beginning in the […***…] month of the Term as adjusted pursuant to the foregoing would be […***…] per FTE per twelve (12) month period, and thereafter adjusted annually on the anniversary of the beginning of the […***…] month of the Term. The FTE Rate is inclusive of all direct and indirect costs of MethylGene, including, without limitation, overhead, consumables, salaries, benefits and the like.
1.23
“
Generic Competition
”. Generic Competition means, with respect to a Licensed Product in any country in the Territory in a given Calendar Quarter, if, during such Calendar Quarter, one or more Generic Products is or are commercially available in such country and such Generic Product(s) has or have a market share of […***…] of the aggregate market share of Licensed Products and Generic Products(based on data provided by IMS International, or if such data is not available, such other reliable data source as reasonably determined by Otsuka and agreed by MethylGene (such agreement not to be unreasonably withheld or delayed)) as measured by volume of unit sales.
1.24
“
Generic Product
”. Generic Product means, with respect to any Licensed Product, any pharmaceutical product sold by a Third Party, not authorized by Otsuka or its Affiliates or Sublicensees, which is “therapeutically equivalent” as evidenced by the FDA’s issuance of a therapeutic equivalence code of “A” with respect to such Licensed Product (as such term is used in the Approved Drug Products with Therapeutic Equivalence Evaluations published by the FDA Center for Drug Evaluation and Research or any successor publication), or by the similar finding or designation by the Regulatory Authority in the country in which the pharmaceutical product is being sold, and which contains a Selected Compound as its active pharmaceutical ingredient and is approved in reliance on the prior approval of a Licensed Product as determined by the applicable Regulatory Authority.
1.25
“
Governmental Authority
”. Governmental Authority means any United States federal, state or local or any foreign government, or political subdivision thereof, or any multinational organization or authority or any authority, agency or commission entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power, any court or tribunal (or any department, bureau or division thereof), or any governmental arbitrator or arbitral body.
1.26
“
IND
”. IND means an investigational new drug application filed with the FDA under 21 C.F.R. Part 312 with respect to a Licensed Product prior to beginning human clinical trials, or equivalent application filed with the Regulatory Authority of a country in the Territory other than the United States
1.27
“
Indication
”. Indication means a separate and distinct disease, disorder or medical condition.
1.28
“
Initiation
”. Initiation means, with respect to any clinical trial, the date on which the first volunteer or patient in such trial has received his or her initial dose of the Licensed Product.
***Confidential Treatment Requested
5
1.29
“
Japan GAAP
”. Japan GAAP means accounting principles generally accepted in Japan , as in effect from time to time.
1.30
“
JRDC
”. JRDC shall have the meaning set forth in Section 3.3.
1.31
“
Know-How
”. Know-How means proprietary or non-public information and materials, whether patentable or not, including, without limitation, (a) ideas, discoveries, inventions, improvements or trade secrets, (b) pharmaceutical, chemical and biological materials, products and compositions, (c) tests, assays, techniques, data, methods, procedures, formulas, and/or processes, (d) technical, medical, clinical, toxicological and other scientific data and other information relating to any of the foregoing, and (e) drawings, plans, designs, diagrams, sketches, specifications and/or other documents containing or relating to such information or materials.
1.32
“
Lab Quantity Samples
”. Lab Quantity Samples means samples of between […***…] and […***…] milligrams ([…***…] mg) of a Program Compound.
1.33
“
Law
” or “
Laws
”. Law or Laws means all laws, statutes, rules, regulations, orders, judgments and/or ordinances of any Governmental Authority.
1.34
“
Licensed Product
”. Licensed Product means any pharmaceutical preparation, in all dosage forms and formulations, containing a Selected Compound.
1.35
“
Losses
”. Losses means any and all (a) claims, losses, liabilities, damages, fines, royalties, governmental penalties or punitive damages, deficiencies, interest, awards, and judgments, (b) with respect to Third Parties, settlement amounts and all of the items referred to in clause (a), which include, Third Party special, indirect, incidental, and consequential damages (including, without limitation, lost profits) and Third Party punitive and multiple damages, and (c) in connection with all of the items referred to in clauses (a) and (b) above, any and all costs and expenses (including, without limitation, reasonable attorneys fees and all other expenses reasonably incurred in investigating, preparing or defending any litigation or proceeding, commenced or threatened).
1.36
“
Major Countries
”. Major Countries means, collectively, (a) the United States, Canada, Australia, France, Germany, Italy, Spain, the United Kingdom, Mexico, Brazil, Japan, China, Taiwan, India and Korea and (b) any other country the JRDC includes in the Patent Prosecution Plan. For the avoidance of doubt, with respect to the inclusion of any such other country as contemplated under the preceding subsection (b), Otsuka’s casting vote under Section 3.3(d) shall apply.
1.37
“
Manufacture
” or “
Manufacturing
”. Manufacture or Manufacturing means activities directed to producing, manufacturing, processing, filling, finishing, packaging, labeling, quality assurance testing and release, shipping and storage of a product.
1.38
“
MethylGene Background Intellectual Property
”. MethylGene Background Intellectual Property means any and all: (a) Know-How (i) that is necessary or useful for the research, Development, Manufacture or Commercialization of any Program Compound, and (ii)
***Confidential Treatment Requested
6
that MethylGene or any its Affiliates Controls as of the Effective Date, including, without limitation, such Know-How disclosed or provided by MethylGene to Otsuka prior to the Effective Date, including, without limitation, (A) the Program Compounds set forth on
Schedule 1.56
, (B) the Compounds set forth on
Schedule 1.38-1
(“
Research Compounds
”), and (C) such Know-How resulting from Otsuka’s evaluation of the materials provided by MethylGene to Otsuka prior to the Effective Date and assigned by Otsuka to MethylGene; and (b) Patent Rights that claim or disclose any of the Know-How described in the preceding subparagraph (a) (“
MethylGene Background Patent Rights
”) including, without limitation, such Patent Rights listed on
Schedule 1.38-2
.
1.39
“
MethylGene Collaboration Intellectual Property
”. MethylGene Collaboration Intellectual Property means all Collaboration Intellectual Property constituting (a) Patent Rights that disclose or claim a composition of matter comprising a Compound and/or a use of a Compound (“
MethylGene Collaboration Patent Rights
”), together with any Know-How disclosed or claimed therein, (b) SAR Know-How or (c) Know-How other than SAR Know-How that directly relates to a composition of matter comprising a Compound and/or a use of a Compound, and any Patent Rights that disclose or claim such Know-How. Notwithstanding the foregoing, MethylGene Collaboration Intellectual Property does not include any (i) Formulation Technology or (ii) Know-How that directly relates to the physicochemical property pharmacokinetics/pharmacodynamics relationship in ocular tissue that is, in the case of either (i) or (ii), developed, conceived or created by, or otherwise comes into the Control of, Otsuka and/or its Affiliates, either alone or together with a Third Party.
1.40
“
MethylGene Intellectual Property
”. MethylGene Intellectual Property means the MethylGene Background Intellectual Property and the MethylGene Collaboration Intellectual Property.
1.41
“
MHLW
”. MHLW means the Japanese Ministry of Health, Labour and Welfare and any successor agency or authority thereto.
1.42
“
MTA
”. MTA means that Materials Transfer Agreement between the Parties dated October 28, 2005.
1.43
“
NDA
”. NDA means a New Drug Application filed with the FDA pursuant to 21 U.S.C. § 355 with respect to a Licensed Product for authorization to market such product in the United States, or an equivalent application filed with the Regulatory Authority of a country in the Territory other than the United States for authorization to market a Licensed Product in such country.
1.44
“
Net Sales
”. Net Sales means the gross amounts billed or invoiced by Otsuka, its Affiliates or Sublicensees to non-Sublicensee Third Parties for Licensed Products in the Territory, less the following deductions taken reasonably in accordance with the customary practices of Otsuka, its Affiliates or Sublicensees, as applicable (provided that such practices are consistent with pharmaceutical industry standards):
(a)
actual bad debts written off as uncollectible by Otsuka, its Affiliates or Sublicensees;
(b)
trade, quantity and cash discounts actually paid or granted;
7
(c)
refunds, chargebacks, allowances and other adjustments actually paid or granted that effectively reduce the net selling price;
(d)
rebates, product returns, credits, allowances, reimbursements and other adjustments actually paid or granted to customers in the ordinary course of business, including, without limitation, adjustments granted on account of price adjustments, billing errors, rejected goods, damaged or defective goods, and recalls;
(e)
rebates actually paid or granted to any Governmental Authority (or branch thereof) or to any Third Party payor, administrator or contractee;
(f)
rebates, credits, chargeback and prime vendor rebates, fees, reimbursements or similar payments or credits actually paid or granted to wholesalers and other distributors, buying groups, health care insurance carriers, pharmacy benefit management companies, health maintenance organizations or other institutions or health care organizations, and price reductions/adjustments required by law, regulations or contract;
(g)
transportation, freight and postage charges applicable to delivery of Licensed Products to a non-Sublicensee Third Party and other charges, such as insurance, relating thereto, in each case to the extent not reimbursed to Otsuka by a non-Sublicensee Third Party; and
(h)
taxes (including, without limitation, excise taxes, sales taxes and VAT), tariffs, customs duties, excises or other governmental charges upon or measured by the production, sale, transportation, delivery, import, export or use of goods, in each case to the extent not reimbursed to Otsuka by a non-Sublicensee Third Party, and excluding income taxes, withholding taxes and similar taxes.
Net Sales shall be determined from books and records maintained in accordance with Japan GAAP, consistently applied throughout the organization and across all products of the entity whose sales of Licensed Product are giving rise to Net Sales.
If a Licensed Product is sold as part of a Combination Product (as defined below) in a country, the Net Sales of the Licensed Product, for the purposes of determining payments based on Net Sales, shall be determined by multiplying the Net Sales of the Combination Product in such country, during the applicable Net Sales reporting period, by the fraction, A/(A+B), where:
A is the average sale price of the Licensed Product by Otsuka, its Affiliates or Sublicensees when sold separately in finished form in such country and B is the average sale price by Otsuka, its Affiliates or Sublicensees of the other product(s) included in the Combination Product when sold separately in finished form in such country, in each case during the applicable Net Sales reporting period or, if sales of both the Licensed Product and the other product(s) did not occur in such period, then in the most recent Net Sales reporting period in which sales of both occurred.
8
In the event that such average sale price cannot be determined for both the Licensed Product and all other product(s) included in such Combination Product, Net Sales for the purposes of determining royalty payments shall be calculated by multiplying the Net Sales of the Combination Product by the fraction of C/C+D where C is the fair market value of the Licensed Product and D is the fair market value of all other product(s) included in the Combination Product. In such event, Otsuka shall in good faith propose to MethylGene an allocation of relative fair market value of the Licensed Product and all other product(s) included in the Combination Product, MethylGene shall in good faith consider such proposal, and the Parties shall seek to reach agreement on such allocation. If the Parties are unable to reach such agreement within sixty (60) days after Otsuka provides such proposal, the issue shall be referred for binding resolution to a mutually agreeable individual (not affiliated with either Party) with expertise in the marketing and sales of similar pharmaceutical products (including, without limitation, experience in pricing and reimbursement), such resolution to occur within thirty (30) days after such referral.
As used in this Agreement, the term “
Combination Product
” means any pharmaceutical product containing a Selected Compound and one or more other active pharmaceutical ingredients.
1.45
“
Other Ophthalmic Indication
”. Other Ophthalmic Indication means the prevention, treatment, control, mitigation or palliation in humans of an ophthalmic disease, disorder or other medical condition other than those diseases, disorders and other medical conditions included in the Field, but expressly excluding the prevention, treatment, control, mitigation or palliation of all cancer Indications (including, without limitation, ocular cancer Indications), in each case using local delivery (as defined under Section 1.18) of active pharmaceutical agents to the eye.
1.46
“
Otsuka Background Intellectual Property
”. Otsuka Background Intellectual Property means any and all: (a) Know-How (i) that is necessary or useful for the discovery, research, Development or Manufacture of any Program Compound, and (ii) that Otsuka or any of its Affiliates Controls as of the Effective Date; and (b) Patent Rights that claim or disclose any of the Know-How described in the preceding subparagraph (a).
1.47
“
Otsuka Collaboration Intellectual Property
”. Otsuka Collaboration Intellectual Property means all Collaboration Intellectual Property other than MethylGene Collaboration Intellectual Property. For the avoidance of doubt, Otsuka Collaboration Intellectual Property includes, without limitation, all Collaboration Intellectual Property that is (a) Formulation Technology or (b) Know-How that directly relates to the physicochemical property pharmacokinetics/pharmacodynamics relationship in ocular tissue that is, in the case of either (a) or (b), developed, conceived or created by, or otherwise comes into the Control of, Otsuka and/or its Affiliates, either alone or together with a Third Party.
1.48
“
Otsuka Intellectual Property
”. Otsuka Intellectual Property means the Otsuka Background Intellectual Property and the Otsuka Collaboration Intellectual Property.
1.49
“
Party
”. Party means either MethylGene or Otsuka; “Parties” means both MethylGene and Otsuka.
9
1.50
“
Patent Rights
”. Patent Rights means the rights and interest in and to all issued patents and pending patent applications in any country in the Territory, including, without limitation, all provisionals, divisionals, continuations, continuations-in-part, patents of addition, re-examinations, supplementary protection certificates, renewals, extensions, registrations or confirmation patents, restorations of patent terms, letters patent, and reissues thereof.
1.51
“
Person
”. Person means any natural person or any corporation, company, partnership, joint venture, firm, Governmental Authority or other entity, including, without limitation, a Party.
1.52
“
Phase I Clinical Trial
”. Phase I Clinical Trial means a human clinical trial in any country in the Territory that would satisfy the requirements of 21 C.F.R. § 312.21(a) (or its successor regulation) or the equivalent thereof in any jurisdiction outside the United States of America.
1.53
“
Phase I/IIa Clinical Trial
”. Phase I/IIa Clinical Trial means a single clinical study meeting the requirements of a Phase I Clinical Trial and a Phase IIa Clinical Trial.
1.54
“
Phase II Clinical Trial
”. Phase II Clinical Trial means a human clinical trial in any country in the Territory that would satisfy the requirements of 21 C.F.R. § 312.21(b) (or its successor regulation) or the equivalent thereof in any jurisdiction outside the United States of America.
1.55
“
Phase IIa Clinical Trial
”. Phase IIa Clinical Trial means a Phase II Clinical Trial conducted in patients with the primary endpoints of determining initial tolerance, safety and/or pharmacokinetic information in single dose, single ascending dose, multiple dose and/or multiple dose regimens.
1.56
“
Program Compound
”. Program Compound means a Compound either (a) set forth on
Schedule 1.56
, or (b) identified and synthesized by MethylGene and provided to Otsuka pursuant to Section 3.2(c).
1.57
“
Regulatory Approval
”. Regulatory Approval means the granting, whether through lapse of time or otherwise, by the FDA or by a comparable Regulatory Authority of approval to market a pharmaceutical product in a country in the Territory.
1.58
“
Regulatory Authority
”. Regulatory Authority means any Governmental Authority, including, without limitation, the FDA, EMEA or MHLW, with responsibility for granting licenses or approvals necessary for the marketing, manufacture and sale of pharmaceutical products in any country in the Territory.
1.59
“
Research Plan
”. Research Plan has the meaning set forth in Section 3.2(b).
1.60
“
Research Program
”. Research Program means the Parties’ collaboration on the identification, synthesis, characterization, screening and selection of Program Compounds with potential applicability in the Field, as detailed in the Research Plan.
10
1.61
“
Research Term
”. Research Term shall have the meaning set forth in Section 3.2(a).
1.62
“
SAR Know-How
”. SAR Know-How means all information, data and/or algorithms relating to the structural activity/toxicity relationship of a Research Compound or a Program Compound.
1.63
“
Selected Compound(s)
”. Selected Compound(s) means the Program Compound(s) selected by Otsuka pursuant to Section 3.5.
1.64
“
Senior Executive
”. Senior Executive means, with respect to MethylGene, the Chief Executive Officer of MethylGene, and with respect to Otsuka, the Director, Division of Dermatologicals & Ophthalmologicals of Otsuka. “
Senior Executives
” means both of the foregoing officers of MethylGene and Otsuka.
1.65
“
Sublicensee
”. Sublicensee means a Third Party which has been granted a sublicense under the rights granted to Otsuka pursuant to Section 2.1(b) of this Agreement.
1.66
“
Sublicensee Income
”. Sublicensee Income means amounts received by Otsuka and its Affiliates from Sublicensees directly or indirectly in respect of rights granted to such Sublicensees pursuant to Section 2.1(b) of this Agreement, whether paid in cash, debt securities or otherwise including, without limitation: upfront payments, licensing fees, milestone payments, license maintenance fees, minimum annual royalties, commercialization payments, technology access fees, technology transfer fees, reimbursement for past expenditures incurred prior to the grant of the sublicense (including, without limitation, costs and expenses of patent prosecution but excluding legal costs to consummate a sublicense transaction), profit sharing payments, co-promotion fees, equity investments as consideration or inducement to enter into a sublicense and like payments. Notwithstanding the foregoing, Sublicensee Income shall exclude royalties paid by such Sublicensee to Otsuka or its Affiliates with respect to Net Sales of Licensed Products.
1.67
“
Territory
”. Territory means all countries and territories of the world.
1.68
“
Third Party
”. Third Party means any Person other than MethylGene or Otsuka or any of their respective Affiliates.
1.69
“
Valid Claim
”. Valid Claim means any claim from (a) an issued and unexpired patent included within the MethylGene Background Patent Rights or the MethylGene Collaboration Patent Rights that has not been revoked or held unenforceable or invalid by a final decision of a court or other Governmental Authority of competent jurisdiction, or that has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise; or (b) a patent application included within the MethylGene Background Patent Rights or the MethylGene Collaboration Patent Rights;
provided
,
however
, that such a claim within a patent application has not been finally canceled, withdrawn, or abandoned or has been
11
pending for more than […***…] years from the date of its first examination in the applicable country in the Territory.
1.70
Additional Definitions
. Each of the following definitions is set forth in the section of this Agreement indicated below:
|
Definition:
|
|
Section:
|
|
Additional Countries
|
|
Section 7.2(b)
|
|
Additional MethylGene Collaboration Patent Rights
|
|
Section 7.2(b)
|
|
Agents
|
|
Section 8.1
|
|
Common Shares
|
|
Section 6.1(a)
|
|
Confidential Information
|
|
Section 8.2
|
|
Confidentiality Agreements
|
|
Section 8.2
|
|
Effective Date
|
|
preamble
|
|
Indemnified Party
|
|
Section 10.3(a)
|
|
Indemnifying Party
|
|
Section 10.3(a)
|
|
Infringement Claim
|
|
Section 7.3(b)
|
|
MethylGene Background Patent Rights
|
|
Section 1.38
|
|
MethylGene Collaboration Patent Rights
|
|
Section 1.39
|
|
MethylGene Parties
|
|
Section 10.1
|
|
Otsuka Parties
|
|
Section 10.2
|
|
Paragraph IV Claim
|
|
Section 7.8(a)
|
|
Patent Prosecution Budget
|
|
Section 7.2(b)
|
|
Patent Prosecution Plan
|
|
Section 7.2(b)
|
|
Primary Third Party Patent Licenses
|
|
Section 6.6(d)(iii)(A)
|
|
Provisional Closing Date
|
|
Section 6.1(b)
|
|
Public Offering
|
|
Section 6.1(a)
|
|
Quarterly Research Fee
|
|
Section 6.3
|
|
Rest of World
|
|
Section 5.1(b)
|
|
Research Compound
|
|
Section 1.38
|
|
Royalty Term
|
|
Section 6.6(c)
|
|
Secondary Third Party Patent Licenses
|
|
Section 6.6(d)(iii)(B)
|
|
Securities Act
|
|
Section 6.1(a)
|
|
Selection Period
|
|
Section 3.5
|
|
Target Region
|
|
Section 5.1(a)
|
|
Term
|
|
Section 11.1
|
|
Third Party Claims
|
|
Section 10.1
|
|
Unreasonable Delay
|
|
Section 5.1(a)
|
ARTICLE II
GRANTS OF RIGHTS
2.1
MethylGene Grants of Rights
.
(a)
License Grants
.
(i)
Research License
. Subject to Section 2.3, MethylGene hereby grants to Otsuka a co-exclusive (solely with respect to MethylGene), fully paid-up, royalty-free right and license, under the MethylGene Intellectual Property, to conduct Otsuka’s
***Confidential Treatment Requested
12
responsibilities under the Research Program in the Field in the Territory during the Selection Period.
(ii)
Development and Commercialization License
. MethylGene hereby grants to Otsuka an exclusive (even as to MethylGene), royalty-bearing right and license, under the MethylGene Intellectual Property, to (A) Develop Selected Compounds into Licensed Products intended for use in the Field in the Territory, and (B) make and have made, use, offer for sale, sell, have sold and import Selected Compounds and Licensed Products in the Field in the Territory.
(iii)
Grant of Certain Jointly Developed MethylGene Collaboration Intellectual Property for use Outside the Field
. MethylGene hereby grants to Otsuka a perpetual, irrevocable, non-exclusive, fully paid-up, royalty-free right and license to use, solely outside the Field, MethylGene Collaboration Intellectual Property that (A) is (1) Formulation Technology or (2) Know-How that directly relates to the physicochemical property pharmacokinetics/pharmacodynamics relationship in ocular tissue, and (B) is jointly developed, conceived or created by or on behalf of MethylGene and/or its Affiliates, on the one hand, and by or on behalf of Otsuka and/or its Affiliates, on the other hand.
(b)
Sublicenses
.
(i)
Otsuka shall have the right to grant sublicenses under the licenses to MethylGene Intellectual Property granted to Otsuka under Section 2.1(a)(i) (only with respect to CROs acting on behalf of Otsuka) and Section 2.1(a)(ii) to its Affiliates or to Third Parties without MethylGene’s prior written approval but with written notice to MethylGene. Any sublicense granted by Otsuka pursuant to this Section 2.1(b)(i) shall be granted pursuant to a written agreement that subjects the Sublicensee to all relevant restrictions, limitations and obligations in this Agreement, including, without limitation, Sections 2.3 and Section 2.6. Otsuka shall use Commercially Reasonable Efforts to monitor and enforce any such sublicense agreement with respect to such restrictions, limitations and obligations, and shall terminate such sublicense in the event the sublicensee fails to cure a material breach thereof. Otsuka shall remain primarily responsible for the compliance by each of its Sublicensees with, all relevant restrictions and limitations in this Agreement. Otsuka shall provide MethylGene with a copy of each sublicense agreement that Otsuka enters into within ten (10) Business Days following execution of such sublicense agreement.
(ii)
Otsuka shall have the right to grant sublicenses under the license to MethylGene Collaboration Intellectual Property granted to Otsuka under Section 2.1(a)(iii) to any of its Affiliates or to Third Parties without MethylGene’s prior written approval.
(c)
Non-Suit Covenant
. MethylGene hereby covenants that neither MethylGene nor any of its Affiliates or sublicensees will sue under or assert against Otsuka or its Affiliates or Sublicensees any Patent Right or Know-How that MethylGene comes to Control after the Effective Date for any activities by Otsuka, its Affiliates or Sublicensees undertaken in connection with the exercise of the licenses granted under Section 2.1(a)(i) or 2.1(a)(ii).
13
2.2
Otsuka Grant of Rights
.
(a)
License Grants
.
(i)
Research License
. Otsuka hereby grants to MethylGene a non-exclusive, fully paid-up, royalty-free right and license, under the Otsuka Intellectual Property, to conduct MethylGene’s responsibilities under the Research Program in the Field in the Territory during the Research Term.
(ii)
Grant Outside the Field
. Subject to Section 11.6(a)(iv), Otsuka hereby grants to MethylGene a perpetual, irrevocable non-exclusive, fully paid-up, royalty-free right and license to use Otsuka Collaboration Intellectual Property solely outside the Field;
provided that
such right and license shall expressly exclude any right to use Otsuka Collaboration Intellectual Property that is Formulation Technology.
(b)
Sublicenses
. MethylGene shall have the right to grant sublicenses under the licenses to Otsuka Collaboration Intellectual Property granted to MethylGene under Section 2.2(a)(ii) to any of its Affiliates or to Third Parties without Otsuka’s prior written approval.
(c)
Non-Suit Covenant
. Otsuka hereby covenants that neither Otsuka nor any of its Affiliates or sublicensees will sue under or assert against MethylGene or any of its Affiliates or sublicensees any Patent Right or Know-How that Otsuka comes to Control after the Effective Date for any activities by MethylGene, its Affiliates or sublicensees undertaken in connection with the exercise of the license granted under Section 2.2(a)(i).
2.3
Restriction on Use of MethylGene Intellectual Property
. Neither Otsuka nor any of its Affiliates or Sublicensees shall, alone or in collaboration with a non-Sublicensee Third Party, use MethylGene Intellectual Property to (a) engage in the synthesis and/or identification of compounds (other than scale-up of Program Compounds and Selected Compounds), or (b) research, develop, make, have made, use, offer for sale, sell, have sold or import one or more Compounds or products containing one or more Compounds in the Territory outside the Field, except as provided in Section 2.1(a)(iii) or Section 2.4.
2.4
Right of First Refusal on Other Ophthalmic Indications
.
(a)
In addition to the rights and licenses granted pursuant to Section 2.1, Otsuka shall have a limited right and license to conduct research activity during the Selection Period using Program Compounds, and, for a period of […***…], using Selected Compounds, to identify possible applications for such Program Compounds, or Selected Compounds, as applicable, in Other Ophthalmic Indications. Otsuka shall regularly (and at least prior to each meeting of the JRDC) submit reasonably detailed reports on such research to MethylGene through the JRDC, and shall disclose with such reports material information and data arising out of such research. MethylGene hereby grants to Otsuka a right of first refusal with respect to a worldwide, royalty-bearing license for the Development, Manufacture and Commercialization of Licensed Products for Other Ophthalmic Indications in the Territory (an “
OOI License
”).
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(b)
In the event that Otsuka desires to obtain an OOI License with respect to any Program Compound or Selected Compound, as applicable, Otsuka shall provide notice in writing to MethylGene of such desire together with a written offer for such OOI License. The Parties shall then negotiate in good faith for […***…] days a definitive agreement with respect to such OOI License. If the Parties do not execute a definitive agreement with respect to such OOI License within the […***…]day period described above or any extension thereof agreed upon by the Parties in writing, then MethylGene may offer to grant an OOI License with respect to such Program Compound or Selected Compound, as applicable, to any Third Party;
provided
,
however
, that MethylGene shall not offer such OOI License to any Third Party on terms or conditions that are more favorable to such Third Party than the terms and conditions last offered to Otsuka unless MethylGene first offers such more favorable terms and conditions to Otsuka as further contemplated below.
(c)
Subject to Section 2.4(b), in the event that MethylGene desires to grant an OOI License to Otsuka or to any Third Party, MethylGene shall first provide notice in writing to Otsuka of such desire together with a written offer for such OOI License. The Parties shall then negotiate in good faith for […***…] days a definitive agreement with respect to such OOI License. If the Parties do not execute a definitive agreement with respect to such OOI License within the […***…]-day period described above or any extension thereof agreed upon by the Parties in writing, then MethylGene may offer to grant an OOI License with respect to such Program Compound or Selected Compound, as applicable, to any Third Party;
provided
,
however
, that MethylGene shall not offer such OOI License to any Third Party on terms or conditions that are more favorable to such Third Party than the terms and conditions last offered to Otsuka unless MethylGene first offers such more favorable terms and conditions to Otsuka as contemplated in this Section 2.4(c).
(d)
Notwithstanding the foregoing, Otsuka’s right to request an OOI License under Section 2.4(b) and MethylGene’s obligation to offer Otsuka an OOI License under Section 2.4(c) shall terminate (i) with respect to Program Compounds, at the end of the six (6) month period (or longer than such period as mutually agreed to in writing by the Parties) following the Selection Period, and (ii) with respect to the Selected Compounds, at the end of the […***…] period (or longer than such period as mutually agreed to in writing by the Parties) following the […***…] period after the Selection Period. Further notwithstanding the foregoing, MethylGene’s obligation to […***…].
2.5
Rights Retained by the Parties
. Any rights of MethylGene or Otsuka, as the case may be, not expressly granted to the other Party under the provisions of this Agreement shall be retained by such Party. Without limiting the generality of the foregoing, no right or license is granted under the MethylGene Intellectual Property to any compound that is not a Program Compound or a Research Compound. In the event MethylGene or its Affiliates, pursuant to its retained rights, Develops, Manufactures or Commercializes any Selected Compounds outside the
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Field (directly or through sublicensees), MethylGene shall notify Otsuka thereof in writing, each Party shall thereafter promptly submit to the other Party, at no additional cost to such other Party, any preclinical and/or clinical data, related to safety of such Selected Compounds (as well as other post-clinical adverse event information) as may be necessary for such other Party to satisfy its safety reporting obligation to the Regulatory Authorities in the Territory.
2.6
Exclusivity
.
(a)
During the Term and, in the event this Agreement is terminated by MethylGene in accordance with Section 11.2, terminates in accordance with Section 11.3 or is terminated by Otsuka in accordance with Section 11.4 (unless such termination is made within thirty (30) days following Otsuka’s receipt of written notice of a Change of Control of MethylGene), for a […***…] year period immediately following the Term, neither Otsuka nor any of its Affiliates shall, alone or in collaboration with a Third Party, discover, research, Develop, Manufacture or Commercialize any Compound in the Field in the Territory (other than a Licensed Product pursuant to this Agreement during the Term), or grant a license to, or otherwise assist or authorize, any Third Party to discover, research, Develop, Manufacture or Commercialize any Compound in the Field in the Territory (other than a Licensed Product pursuant to this Agreement during the Term).
(b)
Subject to Section 11.5, during the Term and, in the event this Agreement is terminated by Otsuka in accordance with Section 11.2, for a […***…] year period immediately following the Term, neither MethylGene nor any of its Affiliates shall, alone or in collaboration with a Third Party, discover, research, Develop, Manufacture or Commercialize any Compound in the Field in the Territory, or grant a license to, or otherwise assist or authorize, any Third Party to discover, research, Develop, Manufacture or Commercialize any Compound in the Field in the Territory.
(c)
The restrictions set forth in this Section 2.6 shall not apply to the discovery, research, Development, Manufacture and/or Commercialization of a Compound in the Field in the Territory owned or controlled by an acquiror of MethylGene or Otsuka (or any affiliate of such acquiror that is not controlled by MethylGene or Otsuka), as the case may be;
provided that
, […***…].
ARTICLE III
RESEARCH PROGRAM AND DEVELOPMENT
3.1
General
. Each of MethylGene and Otsuka shall use Commercially Reasonable Efforts to perform the Research Program in accordance with the Research Plan. After the Research Term, Otsuka shall be solely responsible, at Otsuka’s sole discretion and expense, for the Development of Selected Compounds and Licensed Products in the Field.
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3.2
Research Program
.
(a)
Research Term
. The initial term of the Research Program shall commence on the Effective Date and continue for a period of eighteen (18) months. Otsuka shall have the right to extend such term for up to two (2) consecutive renewal periods of six (6) months each. Each renewal extension right may only be exercised upon written notice at least sixty (60) days prior to the end of the initial term or renewal term, as applicable. Thereafter, Otsuka may request additional six (6)-month - extensions on at least ninety (90) days written notice to MethylGene, and MethylGene may grant or refuse such extensions in its sole discretion. The initial term and subsequent extension terms are collectively referred to in this Agreement as the “
Research Term
.”
(b)
Research Plan
. Within […***…] days after the Effective Date, each of MethylGene and Otsuka shall prepare and submit to the JRDC a draft plan outlining such Party’s obligations under the Research Program. The Parties shall review and consider such draft plans through the JRDC, and within thirty (30) days following such preliminary submissions the Parties shall agree on an initial Research Plan (including, without limitation, an identification and synthesis plan) which shall be attached as
Schedule 3.2(b)
hereto. Thereafter, the Research Plan may be reviewed and amended by the JRDC in accordance with Section 3.3(c) and subject to Section 3.3(d).
(c)
MethylGene FTE Contributions
. During the Research Term, MethylGene shall provide […***…] FTEs to work on the Research Program, and Otsuka shall pay a Quarterly Research Fee for such FTEs as provided in Section 6.3. MethylGene shall be responsible for and shall provide sufficient resources to complete all aspects of the Research Plan assigned to MethylGene (using in-house technology available at MethylGene), including, without limitation, identifying, synthesizing and characterizing Compounds with the potential for clinical application in the Field, characterizing
tyrosine
kinase inhibitory activity, and providing to Otsuka purity analysis data. MethylGene shall have sole discretion in selecting Compounds synthesized by MethylGene in accordance with the Research Plan to provide to Otsuka for further screening;
provided that
: (i) MethylGene shall use Commercially Reasonable Efforts to identify, select and provide to Otsuka at least […***…] different Compounds (in addition to the Program Compounds set forth on
Schedule 1.56
and Research Compounds set forth on
Schedule 1.38-1
) that may have clinical application in the Field, as set forth in Section 5.2; and (ii) the JRDC shall be the primary vehicle for discussing the selection of Compounds synthesized by MethylGene. MethylGene shall require by written agreement that all personnel involved in the Research Program have entered into confidentiality and invention assignment agreements that are consistent with the provisions of this Agreement and shall be obligated to assign any rights they may have in any inventions resulting from such work to MethylGene.
(d)
Otsuka Contributions
. During the Research Term, Otsuka shall be responsible for and shall provide sufficient resources to complete all aspects of the Research Plan assigned to Otsuka, including, without limitation, the screening of Compounds and the conduct of efficacy and toxicology studies on Program Compounds identified by the JRDC and Otsuka for further study based on initial screening. In addition, pursuant to the rights granted under Section 2.1(a)(i), Otsuka may use Research Compounds for the sole purpose of developing SAR Know-How for MethylGene’s use in identifying and synthesizing Program Compounds. All
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research and Development work by Otsuka pursuant to the Research Program shall be at Otsuka’s sole expense. Otsuka shall require by written agreement that all personnel involved in the Research Program have entered into confidentiality and invention assignment agreements that are consistent with the provisions of this Agreement and shall be obligated to assign any rights they may have in any inventions resulting from such work to Otsuka. Otsuka shall use Commercially Reasonable Efforts to perform its obligations under the Research Plan and to ensure that all Otsuka personnel involved in the Research Program have sufficient training, expertise and experience.
3.3
Joint Research and Development Committee
. The Parties hereby establish a joint research and development committee (the “
JRDC
”) to facilitate performance of the Research Program and discussion regarding the Development of Selected Compounds and to coordinate patent prosecution strategy with respect to Collaboration Intellectual Property. During the Research Term, each of Otsuka and MethylGene shall attend each meeting of and otherwise participate in the JRDC; thereafter, MethylGene shall have the right, but not the obligation, to attend meetings of and otherwise participate in such committee;
provided
,
however
, that, for the avoidance of doubt, MethylGene is not entitled to vote with respect to matters decided at meetings after the Research Term that it does not attend (and that, except as otherwise expressly provided in this Agreement, such matters may be decided by a majority of the JRDC representatives attending such meeting).
(a)
Composition
. The JRDC shall be comprised of three (3) representatives of each Otsuka and MethylGene, respectively. Each Party may change its representatives to the JRDC from time to time in its sole discretion, effective upon notice to the other Party of such change. These representatives shall have appropriate technical credentials, experience and knowledge, and ongoing familiarity with the Research Program. Additional representatives or consultants may from time to time, by mutual consent of the Parties, be invited to attend JRDC meetings. In the event any matter regarding patents will be considered at a meeting of the JRDC, written notice describing the matter will be provided to each Party at least […***…] days in advance of such meeting, and each Party may, at its discretion, invite an additional representative or consultant of such Party with expertise in patent matters to attend such meeting. The JRDC shall be chaired by a representative of MethylGene and a representative of Otsuka on an alternating basis. (For the avoidance of doubt, the addition of any representative or consultant shall not otherwise alter the Parties’ respective voting right as set forth in Section 3.3(d)).
(b)
Meetings
. The JRDC shall meet in accordance with a schedule established by mutual written agreement of the Parties, but no less frequently than once every […***…] months during the Research Term, with such meetings to take place one time at the facilities of each of MethylGene and Otsuka respectively during any single twelve (12) month period, and at agreed upon neutral locations for the remaining meetings during such twelve (12) month period. Alternatively, the JRDC may meet by means of teleconference, videoconference or other similar communications equipment. Without limiting the foregoing, either Party may also request that the JRDC meet within […***…] Business Days following such request to discuss time-sensitive issues including, without limitation, […***…], provided that such meetings may be by means of teleconference, videoconference or other similar communications equipment. Each
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Party shall bear its own expenses related to the attendance of such meetings by its representatives. Minutes shall be taken by MethylGene and Otsuka in turn with respect to each such meeting. Such minutes shall be recorded in English and shall be approved and initialed by each Party within thirty (30) days following the applicable meeting.
(c)
Scope of Oversight
. The JRDC’s oversight responsibilities shall include the Research Program activities specified in the Research Plan, the technology transfer to be provided by MethylGene to Otsuka pursuant to Section 3.7(a), and formulation of a Patent Prosecution Plan and Patent Prosecution Budget in accordance with Section 7.2(a). Within such scope the JRDC shall: (i) confer regarding the status of the Research Program and review progress reports submitted by the Parties pursuant to Section 3.4; (ii) review and approve amendments to the Research Plan; (iii) review data and information provided by Otsuka through the JRDC relating to initial screening of Program Compounds; (iv) address such other matters relating to the activities of the Research Program as either Party may bring before the JRDC; (v) discuss the status of Development activities and the Development reports submitted by Otsuka in accordance with Section 3.7(b); (vi) discuss such other matters relating to the Development of Selected Compounds and Licensed Products in the Field as either Party may bring before the JRDC; (vii) address matters relating to licenses from Third Parties necessary to Develop, Manufacture or Commercialize a Licensed Product; (viii) address any other patent matters as specifically contemplated in this Agreement; and (ix) attempt to resolve any disputes within the JRDC on an informal basis. For the avoidance of doubt, although the JRDC may discuss matters relating to the Development of Selected Compounds and Licensed Products, the JRDC shall have no oversight, decision-making power or other control or authority over or relating to Development of Selected Compounds and Licensed Products shall be made exclusively by Otsuka in its sole discretion.
(d)
Decision-Making
. Each Party shall have collectively one (1) vote in all decisions of the JRDC and the Parties shall attempt to make decisions by consensus. If the JRDC cannot reach consensus on any matter within the scope of its oversight, then, except with respect to matters expressly subject to MethylGene’s discretion as provided elsewhere in this Agreement, Otsuka shall have the final decision making authority (not subject to dispute resolution procedures herein) with respect to such dispute;
provided that
Otsuka shall not exercise its final decision-making authority in any manner that (i) increases MethylGene’s costs or other resource commitments under the Research Plan or this Agreement, (ii) requires or permits Otsuka to enter into a license with a Third Party the result of which would be a reduction of royalties otherwise payable to MethylGene pursuant to this Agreement, (iii) modifies the synthesis plan contained in the Research Plan, (iv) imposes on MethylGene a decision regarding the selection of Compounds synthesized by MethylGene to be provided to Otsuka for further screening; or (v) modifies the terms of this Agreement. Disputes with respect to items (i) through (v) above shall be subject to resolution by the Senior Executives pursuant to Section 12.1,
provided that
(except with respect to (ii) above) neither Party has the final vote and further that the dispute shall not be otherwise subject to arbitration if the Senior Executives are unable to resolve such dispute. For the avoidance of doubt, any dispute with respect to (ii) is subject to dispute resolution, including arbitration, as set forth in Section 12.1.
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3.4
Exchange of Information During Research Term
. During the Research Term, each Party shall regularly (and at least prior to each meeting of the JRDC) submit reasonably detailed written updates of such Party’s activities under the Research Plan to the other Party through the JRDC. Such written updates shall be in English.
3.5
Selected Compounds
. During the Research Term, MethylGene shall use Commercially Reasonable Efforts to provide Otsuka with Lab Quantity Samples of at least […***…] different Program Compounds synthesized by MethylGene in accordance with the identification and synthesis plan set forth in the Research Plan. For the avoidance of doubt, such […***…] Program Compounds are in addition to and do not include the Program Compounds or Research Compounds provided by MethylGene to Otsuka prior to the Effective Date. At any time during the Research Term, Otsuka may request that MethylGene discontinue providing Lab Quality Samples of Program Compounds hereunder. In the event Otsuka desires samples of Program Compounds that require larger scale synthesis than the scale necessary to produce Lab Quantity Samples, Otsuka shall notify MethylGene and the JRDC in writing. The JRDC will determine, in consultation with MethylGene, whether such larger scale synthesis can be accomplished by MethylGene within the timeframe specified by Otsuka using the MethylGene FTEs allocated to the Research Program. If the JRDC determines that such larger scale synthesis cannot be accomplished by MethylGene using the MethylGene FTEs allocated to the Research Program, then Otsuka will be permitted to conduct such larger scale synthesis at Otsuka’s manufacturing facilities, and MethylGene will engage in a technology transfer to enable such larger scale synthesis in accordance with Section 3.7(a). Upon receipt of Lab Quantity Samples or larger samples produced through larger scale synthesis, Otsuka shall screen and evaluate such Program Compounds and determine in its sole discretion (after consultation with the JRDC) whether to pursue further Development, Manufacture and Commercialization of any Program Compounds. If Otsuka desires to further Develop, Manufacture and Commercialize a Program Compound, Otsuka shall promptly notify MethylGene in writing and such Program Compound shall be deemed a “
Selected Compound
.” Otsuka may designate such Selected Compounds at any time during the Research Term or during the […***…]-day period following expiration of the Research Term (the Research Term together with such […***…]-day period, the “
Selection Period
”). Otsuka shall have the right to select up to […***…] Selected Compounds for further Development, Manufacture and Commercialization in the Field. If, during the Selection Period, Otsuka determines that its Development strategy in the Field would be enhanced by expanding the number of Selected Compounds, then Otsuka may request by written notice to MethylGene permission to select up to […***…] additional Selected Compounds out of the Program Compounds, which request MethylGene may grant or deny in its sole discretion, after giving such request reasonable consideration. After the earlier of the date on which Otsuka has completed its selection of Selected Compounds or the expiration of the Selection Period, Otsuka shall return or destroy, at MethylGene’s direction, all samples of non-selected Program Compounds and all samples of Research Compounds. Thereafter, such non-selected Program Compounds shall cease to be Program Compounds, and all Research Compounds shall cease to be Research Compounds, and with respect to all such former Program Compounds and Research Compounds Otsuka shall have no further rights.
3.6
Expansion of the Field
. Upon at least […***…] days written notice to MethylGene prior to the expiration of the Research Term, Otsuka may request that the Field be expanded, on a Selected Compound by Selected Compound basis, to include oral administration,
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which request MethylGene may grant or deny in its sole discretion after considering such request.
3.7
Post-Selection Activities
.
(a)
Technology Transfer
. (i) During the Research Term, within […***…] days after Otsuka selects a Selected Compound, and within […***…] days after the earlier of the date on which Otsuka has completed its selection of all Selected Compounds or the expiration of the Selection Period; and (ii) otherwise at Otsuka’s request in the event the JRDC determines that Otsuka shall conduct larger scale synthesis of Program Compounds at Otsuka’s manufacturing facilities; MethylGene shall provide reasonable assistance to Otsuka, at […***…] cost to Otsuka, to effect the timely and orderly transfer to Otsuka of any Know-How then contained within MethylGene Intellectual Property necessary to permit Otsuka to Manufacture the Selected Compounds or Program Compounds, as applicable. The items to be included in such technology transfer shall be discussed and determined by the JRDC.
(b)
Development Reports
. Prior to each JRDC meeting during the Research Term and at least biannually during the period after the Research Term and before the First Commercial Sale of a Licensed Product in each of the United States, Japan, and the EU, Otsuka shall provide MethylGene and the JRDC with a reasonably detailed report describing (i) Otsuka’s proposed Development activities (including, without limitation, proposed submissions to Regulatory Authorities) and (ii) the results of prior Development activities with respect to all Selected Compounds and Licensed Products in the United States, Japan and the EU. MethylGene shall be permitted to comment on Otsuka’s planned Development activities and Otsuka shall reasonably consider such comments;
provided
,
however
, that Otsuka shall have sole discretion regarding Development activities relating to Selected Compounds and Licensed Products. All written materials provided to MethylGene pursuant to this Section 3.7(b) shall be in English.
ARTICLE IV
COMMERCIALIZATION
4.1
General
. From and after the Effective Date, Otsuka shall be, subject to the provisions of Article V and MethylGene’s performance of its obligations under this Agreement including, without limitation, its post-selection obligations under Section 3.7, solely responsible for the Commercialization of Licensed Products in the Field in the Territory, including, without limitation, all costs and expenses relating thereto.
ARTICLE V
DILIGENCE
5.1
Commercially Reasonable Efforts; Otsuka Diligence Obligations
.
(a)
During the Term, Otsuka shall use Commercially Reasonable Efforts to Develop, obtain Regulatory Approval for and Commercialize at least one (1) Licensed Product in each of the United States, Japan and the EU (each a “
Target Region
”). If, subject to Section 5.1(c), Otsuka fails to exercise Commercially Reasonable Efforts to Develop, obtain Regulatory Approval for and Commercialize a Licensed Product in a Target Region, then MethylGene shall
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have the right to terminate this Agreement pursuant to Section 11.2 with respect to all Selected Compounds and Licensed Products solely in such Target Region. Notwithstanding the foregoing, the cessation of efforts by Otsuka to Develop, obtain Regulatory Approval for and Commercialize at least one (1) Licensed Product in a Target Region for a period of longer than […***…] months because Otsuka has lost interest in or otherwise “shelved” all Licensed Products in such Target Region (an “
Unreasonable Delay
”) shall be deemed a failure to exercise Commercially Reasonable Efforts. For the avoidance of doubt, Unreasonable Delay shall not include any cessation of such efforts pending any of the following:
(i)
the determination or response from any Regulatory Authority with respect to the Licensed Product anywhere in the Territory;
(ii)
the disposition or settlement of any litigation, administrative action or other claim or proceeding with respect to the Licensed Product anywhere in the Territory; or
(iii)
the resolution of any Force Majeure event, including, without limitation, any Force Majeure Event concerning Otsuka’s current or prospective suppliers, manufactures or distributors.
(b)
MethylGene shall not have the right to terminate this Agreement in countries in the Territory outside the Target Regions (the “
Rest of World
”), unless and until MethylGene has terminated this Agreement pursuant to and in accordance with this Section 5.1 with respect to all of the Target Regions.
(c)
Notwithstanding the foregoing, MethylGene acknowledges and agrees that, to satisfy its obligations under this Section 5.1:
(i)
Otsuka need not Develop, obtain Regulatory Approval for and Commercialize the same Licensed Product (or the same Selected Compound), in each of the Target Regions;
(ii)
Otsuka need not Develop, obtain Regulatory Approval for and Commercialize a Licensed Product in each of the Target Regions concurrently and may proceed to address each Target Region serially in turn, in alternating fashion, concurrently or in any other manner as Otsuka may pursue in its sole discretion so long as it is using Commercially Reasonable Efforts to Develop, obtain Regulatory Approval for or Commercialize a Licensed Product in all of the Target Regions in which Otsuka has not then obtained marketing approval from the applicable Regulatory Authority for a Licensed Product; and
(iii)
with respect to the EU, Otsuka may pursue any methods consistent with Otsuka’s practices with respect to the Development, seeking Regulatory Approval for, and Commercializing similar products in the EU, or which otherwise constitute Commercially Reasonable Efforts with respect thereto in the EU, including, without limitation, pursuing such efforts in the EU on a centralized basis (e.g., through the EMEA) or by pursuing Regulatory Approval on a country-by-country basis (e.g., using the approvals obtained in one EU country as a basis of application for approval in other EU countries).
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5.2
MethylGene Diligence Obligations
. MethylGene shall use Commercially Reasonable Efforts to identify, select and provide to Otsuka at least […***…] different Compounds (in addition to the Program Compounds set forth on
Schedule 1.56
and Research Compounds set forth on
Schedule 1.38-1
) that may have clinical application in the Field in accordance with the Research Plan (or fewer than […***…] if Otsuka requests that MethylGene discontinue providing Compounds as provided in Section 3.5), as the same may be amended as provided in this Agreement, and to fulfill its obligations set forth in Section 3.2(c). If MethylGene fails to exercise such Commercially Reasonable Efforts then Otsuka shall have the right to terminate this Agreement pursuant to Section 11.2.
ARTICLE VI
FINANCIAL PROVISIONS
6.1
Equity
.
(a)
Upon the closing of (i) a firm commitment underwritten public offering (a “
Public Offering
”) by MethylGene of its common shares, without par value (“Common Shares”), pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “
Securities Act
”), or (ii) a private PIPE sale transaction of Common Shares providing contractual rights to the purchasers for the registration of such Common Shares under the Securities Act within
[…***…]
days following the closing thereof (a “PIPE Transaction”), MethylGene shall issue and sell to Otsuka, and Otsuka shall purchase from MethylGene, Common Shares for an aggregate purchase price of Three Million Dollars ($3,000,000) at a purchase price per share equal to either (x) the initial price per share to the public in such Public Offering or (y) the price per share paid by purchasers in such PIPE Transaction, as applicable. For purposes hereof, the term “Offering” shall mean either a Public Offering or a PIPE Transaction, as applicable. The foregoing sale and purchase of Common Shares is subject to the following additional conditions: (A) the aggregate gross proceeds to MethylGene in the Offering are at least Ten Million Dollars ($10,000,000) (excluding any purchase by Otsuka), (B) the Common Shares are listed on the New York Stock Exchange, a Nasdaq Stock Market or the American Stock Exchange in connection with the Offering, and (C) the Offering occurs within eighteen (18) months following the Effective Date.
(b)
If no such Offering occurs within eighteen (18) months following the Effective Date, then MethylGene shall issue and sell to Otsuka, and Otsuka shall purchase from MethylGene, on a date (the “
Provisional Closing Date
”) within
[…***…] days
days following the end of the eighteen (18) month period following the Effective Date, Common Shares listed on the Toronto Stock Exchange (the “TSX”) for an aggregate purchase price of One Million Five Hundred Thousand Dollars ($1,500,000) at a purchase price per share equal to one hundred twenty percent (120%) of the
[…***…]
trading price of the Common Shares on the TSX over the
[…***…]
trading day period ending on the trading day immediately preceding the Provisional Closing Date.
(c)
It is understood and agreed that only one issuance and sale of Common Shares shall be required pursuant to this Section 6.1 and that
MethylGene
shall bear its own costs associated with such documentation, issuance and sale.
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6.2
Initial License Payments
. Otsuka will make an initial non-refundable, non-creditable license payment to MethylGene of Two Million Dollars ($2,000,000) payable as follows: (a) One Million Dollars ($1,000,000) no later than ten (10) Business Days after the Effective Date; and (b) One Million Dollars ($1,000,000) on or before April 30, 2008.
6.3
Research Program
. On or before the tenth (10
th
) day after the close of each Calendar Quarter of the Research Term or portion thereof, as applicable, MethylGene shall provide to Otsuka an invoice for the Quarterly Research Fee for such Calendar Quarter, together with a written report (which report shall also serve as or may be part of the report to be provided to the JRDC in accordance with Section 3.4) summarizing MethylGene’s activities under the Research Program during the preceding Calendar Quarter, […***…] FTEs engaged and […***…] allocated to each major activity. Within ten (10) days of receiving such report, Otsuka shall pay MethylGene a Quarterly Research Fee for the applicable Calendar Quarter of the Research Term. As used in this Agreement, “
Quarterly Research Fee
” means the amount determined by multiplying the FTE Rate by the […***…] FTEs to be provided by MethylGene pursuant to Section 3.2(c) during the applicable Calendar Quarter or portion thereof of the Research Term.
6.4
Event Milestone Payments
. Otsuka shall make non-refundable, non-creditable payments to MethylGene as set forth below not later than fifteen (15) Business Days after the earliest date on which the corresponding milestone event set forth below is achieved by Otsuka, its Affiliate or Sublicensee with respect to each Selected Compound or Licensed Product, as applicable:
|
Milestone Event
|
|
Payment
|
|
[…***…]
|
|
[…***…]
|
|
[…***…][…***…][…***…][…***…][…***…]
|
|
[…***…][…***…][…***…][…***…][…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
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|
Milestone Event
|
|
Payment
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…][…***…][…***…][…***…][…***…]
|
|
[…***…][…***…][…***…][…***…][…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
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[…***…]
|
Notwithstanding the foregoing, no milestone set forth above shall be paid a second time, although a second Selected Compound has achieved such milestone, until […***…]. Similarly, no milestone set forth above shall be paid with respect to a third Selected Compound to achieve said milestone until […***…], and so on with respect to each additional Selected Compound such that milestones will be payable on each Selected Compound only after each previous Selected Compound to have achieved the same milestone has also achieved […***…].
6.5
Sales Milestone Payments
. In addition to all other amounts payable under this Agreement, Otsuka shall make non-refundable, non-creditable milestone payments to MethylGene upon the first achievement of each of the corresponding milestone events on a Selected Compound by Selected Compound basis by all Licensed Products containing the Selected Compound:
|
Milestone Event
|
|
Payment
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
|
[…***…]
|
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Each of the above milestone payments shall be due and payable by Otsuka simultaneously with the royalties for the Calendar Quarter immediately following the Calendar Quarter in which such milestone is achieved.
6.6
Licensed Product Royalties
.
(a)
Net Sales by Otsuka and Affiliates
. Otsuka shall pay to MethylGene royalties on Calendar Year Net Sales in the Territory as follows on a Licensed Product by Licensed Product basis:
|
Calendar Year Net Sales of the Licensed Product
by Otsuka, its Affiliates and Sublicensees
|
|
Royalty Rate
|
|
Less than or equal to […***…]
|
|
[…***…]
|
|
Greater than […***…] and less than or equal to […***…]
|
|
[…***…]
|
|
Greater than […***…] and less than or equal to […***…]
|
|
[…***…]
|
|
Greater than […***…]
|
|
[…***…]
|
Royalties under this Section 6.6(a) on Net Sales of a Licensed Product in the Territory in a Calendar Year shall be paid at the rate applicable to the portion of Net Sales within each of the Net Sales levels during such Calendar Year. For example, if, during a Calendar Year, worldwide Net Sales of a Licensed Product were equal to $[…***…], then the royalties payable by Otsuka would be calculated by adding (i) the royalties with respect to the first $[…***…] at the first-level percentage of […***…], and (ii) the royalties with respect to the next $50,000,000 at the second-level percentage of […***…], for a total royalty of […***…]. For purposes of this Section 6.6(a) all Licensed Products containing the same Selected Compound shall be deemed to be the same Licensed Product.
(b)
Net Sales by Sublicensees
. Notwithstanding the foregoing, if in any given Calendar Quarter the amount equal to […***…] of Otsuka’s royalty receipts from any Sublicensee is greater than the royalty amount otherwise payable on such Sublicensee’s Net Sales as calculated in accordance with Section 6.6(a) (after giving effect to any reductions in accordance with Section 6.6(d)), then, with respect to Net Sales of such Sublicensee, Otsuka shall pay to MethylGene an amount equal to […***…] of Otsuka’s royalty receipts from such Sublicensee in lieu of royalties otherwise payable on such Sublicensee’s Net Sales as calculated in accordance with Section 6.6(a). Notwithstanding the foregoing, Net Sales of Sublicensees shall be included in the total Net Sales of a Licensed Product for purposes of determining whether the sales milestones set forth in Section 6.5 have been achieved, and for purposes of determining royalty tiers under Section 6.6(a), regardless of whether Otsuka pays MethylGene […***…] of Otsuka’s royalty receipts from such Sublicensee or royalties calculated in accordance with Section 6.6(a).
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(c)
Royalty Term
. Otsuka’s royalty obligations to MethylGene under this Section 6.6 shall commence on a country-by-country and Licensed Product-by-Licensed Product basis on the Effective Date and shall expire on a country-by-country basis and Licensed Product-by-Licensed Product basis on the later of: (i) the expiration of the last Valid Claim Covering such Licensed Product in such country, or (ii) the […***…] anniversary of the date of the First Commercial Sale by Otsuka or any of its Affiliates or Sublicensees to a non-Sublicensee Third Party of such Licensed Product in such country (the “
Royalty Term
”).
(d)
Royalty Adjustments
.
(i)
Absence of Valid Claims
. During the Royalty Term, following the expiration in a particular country of the last to expire Valid Claim Covering a particular Licensed Product, or in countries where there is no Valid Claim Covering such Licensed Product, the royalties otherwise payable pursuant to Section 6.6(a) with respect to such Licensed Product in such country will be […***…] of the applicable royalty rate under Section 6.6(a) for the applicable portion of the Royalty Term.
(ii)
Royalty Adjustment for Generic Products
. If, for […***…] Calendar Quarters, there is Generic Competition in a particular country in which Otsuka, its Affiliate or Sublicensee is selling a Licensed Product, then for such country the royalties payable pursuant to Section 6.6(a) shall be reduced by […***…] for the remainder of the Royalty Term.
(iii)
Third Party Royalties
.
(A)
On a Licensed Product by Licensed Product and country by country basis, if (1) the JRDC, subject to Section 3.3(d), reasonably determines that, in order to practice the subject matter of […***…] or […***…] in the Field and avoid infringement of any […***…], it is necessary to obtain a license from a Third Party and to pay a royalty under such license (including, without limitation, in connection with settlement or avoidance of a patent infringement claim or dispute), or (2) Otsuka is subject to a final court or other binding order or ruling or a decision made or agreed to by MethylGene or pursuant to Article XII requiring the payment of a royalty to a Third Party patent holder in order to practice the subject matter of […***…]or[…***…] in the Field (“
Primary Third Party Patent Licenses
”), […***…] of any royalty paid under Primary Third Party Patent Licenses by […***…] shall be […***…] against […***…] hereunder;
provided
,
however
, in no event shall such credit cause the royalties paid to MethylGene for any particular Calendar Quarter to be reduced by more than […***…].
(B)
On a Licensed Product by Licensed Product and country by country basis, if (1) the JRDC, subject to Section 3.3(d), reasonably determines that, in order to […***…] a Licensed Product in the Field (but not in order to practice the subject matter of […***…] or[…***…]) and avoid infringement of any […***…], it is necessary to obtain a license from a Third Party and to pay a royalty under such license
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(including, without limitation, in connection with settlement or avoidance of a patent infringement claim or dispute), or (2) Otsuka is subject to a final court or other binding order or ruling or a decision made or agreed to by MethylGene or pursuant to Article XII requiring the payment of a royalty to a Third Party patent holder in order to […***…] a Licensed Product in the Field (but not in order to practice the subject matter of the […***…] or[…***…]) (“
Secondary Third Party Patent Licenses
”), […***…] of any royalty paid under Secondary Third Party Patent Licenses by […***…] shall be […***…] against […***…] hereunder;
provided
,
however
, in no event shall such credit cause the royalties paid to MethylGene for any particular Calendar Quarter to be reduced by more than (x) […***…] of Net Sales with respect to the first […***…] in Net Sales in a Calendar Year, or (y) […***…] of Net Sales with respect to Net Sales in excess of […***…] in a Calendar Year.
(iv)
Royalty Reduction for Patent Prosecution Costs
. […***…] of any costs paid by Otsuka in respect of the preparation, filing, prosecution or maintenance by MethylGene of MethylGene Collaboration Patent Rights filed in Additional Countries in accordance with Section 7.2(e) shall be […***…] creditable against royalties payable to MethylGene hereunder with respect to all Licensed Products Covered by such MethylGene Collaboration Patent Rights in such Additional Countries;
provided
,
however
, in no event shall such credit cause the royalties paid to MethylGene for any particular Calendar Quarter to be reduced by more than […***…].
(v)
Aggregate Royalty Reductions
. Notwithstanding anything to the contrary in this Section 6.6(d), in no event shall the royalties otherwise payable under Section 6.6(a) with respect to any given Net Sales of a Licensed Product in a country in the Territory be reduced, as a result of the royalty reduction provisions of Sections 6.6(d)(i), 6.6(d)(ii), 6.6(d)(iii)(A), 6.6(d)(iii)(B) and 6.6(d)(iv), to be less than […***…] of the royalties otherwise payable under Section 6.6(a).
6.7
Sublicensee Income
. In addition to the milestones and royalties set forth above, Otsuka shall pay MethylGene […***…] of all Sublicensee Income received by Otsuka and its Affiliates.
6.8
Reports; Payments
. Within sixty (60) days after the end of each Calendar Quarter during which there are Net Sales or Sublicensee Income giving rise to a payment obligation under Section 6.6 or Section 6.7, Otsuka shall submit to MethylGene a report identifying, for each Licensed Product on a country-by-country basis, (a) gross sales for such Licensed Product for each country for such Calendar Quarter, the deductions from gross sales used in calculating Net Sales and the resulting calculation of royalties (including offsets or reductions pursuant to Section 6.6(d)) payable to MethylGene; (b) any sales milestones payable to MethylGene pursuant to Section 6.5, and (c) any Sublicensee Income received by Otsuka during such quarter, together with a calculation of that portion payable to MethylGene. Concurrently with each such report, Otsuka shall pay to MethylGene all sales milestones, royalties and Sublicensee Income payable by it under Sections 6.5, 6.6 and 6.7. In the event that there are any royalty rate adjustments to be made pursuant to this Article VI (including, without
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limitation, any volume based royalty rate increases under Section 6.6(a) and any royalty rate reductions under Section 6.6(d)), that cannot be reflected in the report and payment to be submitted within sixty (60) days after the end of the Calendar Quarter in which the triggering event has occurred (as contemplated in the first sentence to this Section 6.8), such adjustments shall be implemented within sixty (60) days after the end of the Calendar Year following the Calendar Year in which the triggering event occurs.
6.9
Books and Records; Audit Rights
. Otsuka shall keep reasonably complete and accurate records of the underlying revenue and expense data relating to the calculations of Net Sales, Sublicensee Income and payments required by Sections 6.5, 6.6 and 6.7. MethylGene shall have the right, once annually at its own expense, to have an independent, certified public accounting firm, selected by MethylGene and reasonably acceptable to Otsuka, review any such records of Otsuka in the location(s) where such records are maintained by Otsuka upon reasonable notice (which shall be no less than fourteen (14) days prior notice) and during Otsuka’s regular business hours and under obligations of strict confidence, for the sole purpose of verifying the basis and accuracy of payments made under Sections 6.5, 6.6 and 6.7 within the three (3)-year period preceding the date of the request for review. The report of such accounting firm shall be limited to a certificate stating whether any report made or payment submitted by Otsuka during such period is accurate or inaccurate and the actual amounts of Net Sales and Sublicensee Income and royalties and other payments due for such period. Otsuka shall receive a copy of each such report concurrently with receipt by MethylGene. Should such inspection lead to the discovery of a discrepancy to MethylGene’s detriment, Otsuka shall pay within ten (10) Business Days after its receipt from the accounting firm of the certificate the amount of the discrepancy. […***…] shall pay the full cost of the review unless the underpayment is greater than […***…] of the amount due for any Calendar Year, in which case […***…] shall pay the reasonable cost charged by such accounting firm for such review.
6.10
Taxes
. MethylGene shall pay any and all taxes levied on account of payments it receives under this Agreement. If laws or regulations require that taxes be withheld, Otsuka will (a) deduct those taxes from the remittable payment, (b) timely pay the taxes to the proper taxing authority, and (c) send proof of payment to MethylGene within thirty (30) days after receipt by Otsuka of confirmation of payment from the relevant taxing authority. Otsuka will reasonably cooperate with MethylGene to obtain the benefit of any applicable tax law or treaty, including, without limitation, the pursuit of any refund or credit of such tax to MethylGene. Notwithstanding the foregoing, payments made pursuant to Section 6.2 and payments with respect to milestones (a) and (b) under Section 6.4, and only such payments, shall be grossed up as necessary so that the amounts received by MethylGene, after any required withholding taxes payable to applicable taxing authorities, are the amounts shown in such Sections and, accordingly, Otsuka’s obligation set forth in subclause (c) above shall not apply with respect to such payments.
6.11
United States Dollars
. All dollar ($) amounts specified in this Agreement are United States dollar amounts.
6.12
Payment Method and Currency Conversion
. All payments to be made by Otsuka to MethylGene shall be in immediately available funds via either a bank wire transfer, an ACH (automated clearing house) mechanism, or any other means of electronic funds transfer, at
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Otsuka’s election, to a bank account designated by MethylGene in writing from time to time. For the purposes of determining whether any sales milestone payment under Section 6.5 is payable or the amount of royalties due for the relevant Calendar Quarter under Section 6.6, the amount of Net Sales in any foreign currency shall be converted into United States dollars in a manner consistent with Otsuka’s normal practices used to prepare its audited financial reports;
provided that
such practices use a widely accepted source of published exchange rates.
6.13
Late Payments
. If a Party shall fail to make a timely payment of any amounts that are not subject to a good-faith dispute pursuant to the terms of this Agreement, interest shall accrue on the past due amount at the rate of
[…***…]
over the prime rate of interest reported in
The Wall Street Journal (U.S. East Coast Edition)
for the date such amount was due, computed for the actual number of days the payment was past due.
ARTICLE VII
INTELLECTUAL PROPERTY OWNERSHIP, PROTECTION
AND RELATED MATTERS
7.1
Ownership of Inventions
.
(a)
Background Intellectual Property
. MethylGene shall be the sole and exclusive owner of the MethylGene Background Intellectual Property. Otsuka shall be the sole and exclusive owner of the Otsuka Background Intellectual Property.
(b)
Collaboration Intellectual Property
.
(i)
MethylGene Collaboration Intellectual Property
. The Parties intend that MethylGene shall be the sole and exclusive owner of all MethylGene Collaboration Intellectual Property. To this end, Otsuka hereby assigns and agrees to assign or, if applicable, cause its Affiliates to assign to MethylGene, for no additional consideration, all of Otsuka’s and its Affiliates’ right, title and interest to any such MethylGene Collaboration Intellectual Property.
(ii)
Otsuka Collaboration Intellectual Property
. The Parties intend that Otsuka shall be the sole and exclusive owner of all Otsuka Collaboration Intellectual Property. To this end, MethylGene hereby assigns and agrees to assign or, if applicable, cause its Affiliates to assign to Otsuka, for no additional consideration, all of MethylGene’s and its Affiliates’ right, title and interest to such Otsuka Collaboration Intellectual Property.
(iii)
In furtherance of the foregoing, each of the Parties assigning rights pursuant to this Section 7.1(b) agrees to execute such documents and provide such other reasonable assistance as the non-assigning Party may reasonably request in order to document, record and perfect such assignment and the non-assigning Party’s rights and interests in the rights so assigned including, without limitation, executing, and causing their Affiliates and their respective employees and agents to execute, patent assignment documents in connection with the filing of any patent application within the MethylGene Collaboration Patent Rights or the Patent Rights contained in the Otsuka Collaboration Intellectual Property, as applicable.
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7.2
Prosecution and Maintenance of Patent Rights
.
(a)
Background Patent Rights
. MethylGene shall have the sole right, but not the obligation, to prepare, file, prosecute and maintain MethylGene Background Patent Rights;
provided
,
however
that MethylGene shall not, during the Term, abandon any MethylGene Background Patent Right that Covers a Program Compound, Selected Compound or Licensed Product. Otsuka or its Affiliate, as applicable, shall have the sole right, but not the obligation, to prepare, file, prosecute and maintain Patent Rights contained in the Otsuka Background Intellectual Property.
(b)
Patent Prosecution Plan and Budget
. The JRDC shall discuss and formulate a strategy for prosecution and maintenance of Patent Rights with respect to patentable inventions contained in Collaboration Intellectual Property, which, if prosecuted, would disclose or claim a composition of matter comprising a Compound and/or a use of a Compound in the Field and would, therefore, constitute MethylGene Collaboration Patent Rights (the “
Patent Prosecution Plan
”). The Patent Prosecution Plan shall include plans for the filing, prosecution and maintenance of MethylGene Collaboration Patent Rights in the Major Countries and in any countries other than the Major Countries as may be requested by Otsuka in writing (“
Additional Countries
”), together with a budget for such filing, prosecution and maintenance activities (the “
Patent Prosecution Budget
”). The Patent Prosecution Plan shall in no way limit MethylGene’s right to file patent applications with respect to inventions contained in Collaboration Intellectual Property that are not contemplated by the Patent Prosecution Plan, so long as such patent applications would, when filed, constitute MethylGene Collaboration Patent Rights (“
Additional MethylGene Collaboration Patent Rights
”);
provided
,
however
, that MethylGene makes reasonable and timely reports and disclosures to the JRDC, and otherwise coordinates with the JRDC, with respect to matters concerning the Additional MethylGene Collaboration Patent Rights that may affect or impact the preparation, prosecution, maintenance, defense or enforcement of Patent Rights covered by the Patent Prosecution Plan including, without limitation, issues with respect to claim priority and the management of foreign counterparts within a patent family. In no event shall Otsuka be responsible for costs associated with the filing, prosecution and maintenance of such Additional MethylGene Collaboration Patent Rights, notwithstanding anything in Section 7.2(e).
(c)
First Right to Prosecute
. MethylGene shall have the first right, but not the obligation, to prepare, file, prosecute and maintain MethylGene Collaboration Patent Rights in the Field in the Territory in accordance with the Patent Prosecution Plan, using counsel of MethylGene’s choice reasonably acceptable to Otsuka, including, without limitation, Keown and Zucchero, LLP. MethylGene promptly shall forward to Otsuka copies of any substantive correspondence and actions prepared for or received from the U.S. Patent and Trademark Office or any foreign patent office that may materially affect MethylGene Collaboration Patent Rights identified in the Patent Prosecution Plan. MethylGene shall provide Otsuka with a reasonable opportunity to comment on all draft filings for the prosecution and maintenance of such MethylGene Collaboration Patent Rights, including, without limitation, all associated prosecution, patent application filings, interference, opposition, re-examination, re-issue, revocation and invalidity proceedings, prior to and sufficiently in advance of their submission to the relevant patent authority. MethylGene shall in good faith consider all such comments by Otsuka. On the reasonable request of MethylGene, Otsuka shall cooperate, in all reasonable
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ways, in connection with the prosecution of all patent applications included within such MethylGene Collaboration Patent Rights. With respect to the preparation, filing, prosecution and maintenance of MethylGene Collaboration Patent Rights included in the Patent Prosecution Plan, MethylGene shall not incur costs in excess of the Patent Prosecution Budget without the prior approval of the JRDC or Otsuka, which approval shall not be unreasonably withheld or delayed.
(d)
Step-In Right
. Should MethylGene decide that it is no longer interested in maintaining or prosecuting a particular MethylGene Collaboration Patent Right identified in the Patent Prosecution Plan or elects not to file a particular MethylGene Collaboration Patent Right identified in the Patent Prosecution Plan, it shall promptly notify Otsuka of such decision. Such notification will be given as early as possible which in no event will be less than thirty (30) days prior to the date on which such patent application(s) would become abandoned. Thereafter, if such MethylGene Collaboration Patent Right Covers a Program Compound, Selected Compound or Licensed Product and/or its use in the Field, Otsuka may assume such prosecution and maintenance at its sole expense by written notice to MethylGene, in which event such MethylGene Collaboration Patent Right shall be promptly assigned by MethylGene to Otsuka and MethylGene shall execute such documents, and provide such assistance, in documenting such assignment in accordance with Section 7.1(b)(iii).
(e)
Prosecution Costs
. That portion of costs and expenses for the preparation, filing, prosecution and maintenance of MethylGene Collaboration Patent Rights or MethylGene Background Patent Rights for which Otsuka is responsible in accordance with (i), (ii) or (iii) below shall be payable by Otsuka within thirty (30) days following receipt of an invoice therefor from MethylGene.
(i)
Prior to Selection
. With respect to costs and expenses for the preparation, filing, prosecution and maintenance of MethylGene Collaboration Patent Rights identified in the Patent Prosecution Plan or MethylGene Background Patent Rights, in each case incurred after the Effective Date but prior to the identification of all Selected Compounds by Otsuka, Otsuka shall pay:
(A)
[…***…] of MethylGene’s direct, out-of-pocket costs incurred in countries covered by the Patent Prosecution Plan with respect to MethylGene Background Patent Rights that, at the time such costs are incurred, Cover a Program Compound;
(B)
[…***…] of such costs with respect to such MethylGene Collaboration Patent Rights in Major Countries that, at the time such costs are incurred, Cover a Program Compound and include any claim for any use outside the Field;
(C)
[…***…] of such costs with respect to such MethylGene Collaboration Patent Rights in Major Countries that, at the time such costs are incurred, Cover a Program Compound and do not include any claim for any use outside the Field; and
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(D)
[…***…] of such costs with respect to such MethylGene Collaboration Patent Rights in Additional Countries, subject to the right of offset against royalties in Section 6.6(d)(iv).
(ii)
After Selection
. With respect to costs and expenses for the preparation, filing, prosecution and maintenance of MethylGene Collaboration Patent Rights identified in the Patent Prosecution Plan or MethylGene Background Patent Rights in each case incurred after the identification of all Selected Compounds by Otsuka, Otsuka shall pay:
(A)
[…***…] of MethylGene’s direct, out-of-pocket costs incurred in countries covered by the Patent Prosecution Plan with respect to MethylGene Background Patent Rights that, at the time such costs are incurred, Cover a Selected Compound;
(B)
[…***…] of such costs with respect to such MethylGene Collaboration Patent Rights in Major Countries that, at the time such costs are incurred, Cover a Selected Compound and include any claim for any use outside the Field;
(C)
[…***…] of such costs with respect to such MethylGene Collaboration Patent Rights in Major Countries that, at the time such costs are incurred, Cover a Selected Compound and do not include any claim for any use outside the Field; and
(D)
[…***…] of such costs with respect to such MethylGene Collaboration Patent Rights in Additional Countries, subject to the right of offset against royalties in Section 6.6(d)(iv).
Notwithstanding anything in this Agreement to the contrary, after Otsuka selects all of the Selected Compounds, Otsuka shall have no further responsibility to pay any costs or expenses related to the preparation, filing, prosecution, or maintenance of Patent Rights within the MethylGene Background Patent Rights or MethylGene Collaboration Patent Rights that do not Cover any Selected Compounds, and any obligations of MethylGene or rights of Otsuka with respect to such Patent Rights shall cease.
(iii)
Reimbursement of Costs Prior to Effective Date
. Otsuka shall, within ten (10) Business Days following the Effective Date, reimburse MethylGene the amounts set forth on
Schedule 7.2(e)(iii)
, which MethylGene represents and warrants equal […***…] of MethylGene’s out-of-pocket costs and expenses incurred prior to the Effective Date in connection with the National Phase filing for […***…] in[…***…].
(iv)
Sharing of Costs Post-MethylGene Product Launch
. Notwithstanding the foregoing Sections 7.2(e)(i) and (ii), with respect to any MethylGene Collaboration Patent Right for which Otsuka is otherwise responsible for […***…] of the costs and expenses for the preparation, filing, prosecution and maintenance pursuant to Sections 7.2(e)(i) and (ii), in the event MethylGene launches a product Covered by such MethylGene Collaboration Patent Right in a particular country, then MethylGene shall pay […***…] of all costs and expenses for prosecution and maintenance of such MethylGene Collaboration Patent Right in such country incurred after the first commercial sale
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by MethylGene of such Covered product. MethylGene shall provide Otsuka with written notice of its intent to launch such a product at least thirty (30) days prior to the anticipated launch date.
7.3
Third Party Infringement
.
(a)
Background Patent Rights
. MethylGene shall have the sole right, but not the obligation, to initiate a suit or take other action to protect or otherwise enforce MethylGene Background Patent Rights against infringement by Third Parties. Otsuka or its Affiliate, as applicable, shall have the sole right, but not the obligation, to initiate a suit or take other action to protect or otherwise enforce Patent Rights contained in the Otsuka Background Intellectual Property against infringement by Third Parties.
(b)
Notice of Infringement of MethylGene Collaboration Patent Rights
. Each Party shall promptly report in writing to the other Party during the Term any infringement of any of the MethylGene Collaboration Patent Rights in the Field (an “
Infringement Claim
”) of which such Party becomes aware, and shall provide the other Party with all available evidence supporting such infringement.
(c)
Initial Right to Enforce
. Subject to Section 7.3(d), MethylGene shall have in its sole discretion the first right, but not the obligation, to initiate a suit or take other appropriate action that it believes is reasonably required to protect (i.e., prevent or abate actual or threatened infringement of) or otherwise enforce the MethylGene Collaboration Patent Rights relating to a Selected Compound or Licensed Product in the Field in the Territory. Otsuka shall execute such legal papers and cooperate in the prosecution of such suit as may be reasonably requested by MethylGene;
provided that
MethylGene shall promptly reimburse all out-of-pocket expenses (including, without limitation, reasonable counsel fees and expenses) actually incurred by Otsuka in connection with such cooperation.
(d)
Step-In Right
. If MethylGene does not initiate a suit or take other appropriate action that it has the initial right to initiate or take pursuant to Section 7.3(c) within ninety (90) days following receipt of notice of an Infringement Claim pursuant to Section 7.3(b), then Otsuka shall have the right to initiate a suit or take other appropriate action that it believes is reasonably required to protect the MethylGene Collaboration Patent Rights relating to a Selected Compound or Licensed Product in the Field in the Territory. MethylGene shall execute such legal papers and cooperate in the prosecution of such suit as may be reasonably requested by Otsuka;
provided that
Otsuka shall promptly reimburse all out-of-pocket expenses (including, without limitation, reasonable counsel fees and expenses) actually incurred by MethylGene in connection with such cooperation.
(e)
Conduct of Certain Actions; Costs
. At the request and expense of the Party bringing an infringement action under this Section 7.3, the other Party agrees to be joined as a party to the suit if necessary for the initiating Party to bring or maintain an infringement action hereunder and to provide reasonable assistance in any such action. Neither Party may settle any action or proceeding brought under this Section 7.3 in a manner that materially adversely affects the other Party’s interest in the MethylGene Collaboration Patent Rights, without the written consent of such other Party, which consent shall not be unreasonably withheld or delayed. Each Party shall always have the right to be represented by counsel of its
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own selection and its own expense in any suit or other action instituted by the other Party pursuant to this Section 7.3 for infringement in the Field.
(f)
Recoveries
. Any amounts recovered as a result of an action pursuant to this Section 7.3, whether by settlement or judgment, shall be allocated first to reimburse each Party for any costs and expenses incurred by such Party in connection with such action (and not otherwise reimbursed). Any remaining recovery that is related to a Selected Compound or Licensed Product in the Field in the Territory shall be treated […***…]. Recoveries not related to a Selected Compound or Licensed Product in the Field in the Territory shall be retained by the recovering Party.
7.4
Infringement Claims Against Otsuka or MethylGene
. If a Third Party asserts that a Patent Right or other right owned or controlled by such Third Party is infringed by a Party’s or its Affiliate’s or sublicensee’s activities in the Field, the Party first obtaining knowledge of such a claim shall immediately provide the other Party with notice thereof and the related facts in reasonable detail. The Party against whom (or against whose Affiliate or sublicensee) such infringement claim is brought shall control the defense of such claim, unless the Parties mutually agree to jointly defend against such claim. Each Party shall, and each shall cause its Affiliates to, cooperate fully with the other Party in its efforts to defend against such claim and shall agree to be a party in any suit, if requested. Any settlement of such a claim that would admit liability on the part of a non-defending Party or any of its Affiliates shall be subject to such non-defending Party’s prior written approval, such approval not to be unreasonably withheld or delayed. Each Party shall control and bear the expense of its own defense of any Third Party claim of infringement.
7.5
Patent Invalidity Claim
. Each of the Parties shall promptly notify the other in the event of any legal or administrative action by any Third Party against a MethylGene Collaboration Patent Right of which it becomes aware, including, without limitation, any nullity, revocation, reexamination, invalidity, unenforceability or compulsory license proceeding. MethylGene shall have the first right, but not the obligation, to defend against any such action involving a MethylGene Collaboration Patent Right Covering a Selected Compound, in its own name, and the costs of any such defense shall be shared equally by the Parties. Otsuka, upon request of MethylGene, agrees to join in any such action and to cooperate reasonably with MethylGene. If MethylGene does not defend against any such action involving such MethylGene Collaboration Patent Right Covering a Selected Compound, then Otsuka shall have the right, but not the obligation, to defend such action and the costs of any such defense shall be shared equally by the Parties. MethylGene, upon request of Otsuka, agrees to join in any such action and to cooperate reasonably with Otsuka.
7.6
Patent Term Extensions
. Otsuka shall have the exclusive right and obligation to seek patent term extensions under 35 U.S.C. § 156 and corresponding foreign Laws or supplemental patent protection, including, without limitation, supplementary protection certificates, in any country in the Territory in relation to the Licensed Products in the Field at Otsuka’s expense. MethylGene and Otsuka shall cooperate in connection with all such activities, and Otsuka, its agents and attorneys will give due consideration to all timely suggestions
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and comments of MethylGene regarding any such activities;
provided that
all final decisions shall be made by Otsuka.
7.7
Patent Marking
. Otsuka shall mark Licensed Products pursuant to the patent marking statutes in each country in which the Licensed Product is sold by Otsuka, its Affiliates and/or its Sublicensees.
7.8
Certification under Drug Price Competition and Patent Restoration Act
.
(a)
Notice
. If a Party becomes aware of any certification filed pursuant to 21 U.S.C. § 355(b)(2)(A) or 355(j)(2)(A)(vii)(IV), or any amendment or successor statute thereto, claiming that any MethylGene Collaboration Patent Rights Covering a Licensed Product in the Field are invalid or otherwise unenforceable, or that infringement will not arise from the manufacture, use, import or sale of a product by a Third Party (a “
Paragraph IV Claim
”), such Party shall promptly notify the other Party in writing within five (5) Business Days after its receipt thereof.
(b)
Control of Response
. MethylGene shall have the right, but not the obligation, to initiate patent infringement litigation for such Paragraph IV Claim, at its own expense. If MethylGene elects not to assume control over enforcing any Paragraph IV Claim, MethylGene shall notify Otsuka as soon as practicable but in any event not later than thirty (30) days after the date of such Paragraph IV Claim so that Otsuka may, but shall not be required to, assume sole control over enforcing such Paragraph IV Claim using counsel of its own choice. The Parties shall reasonably cooperate in the prosecution of any Paragraph IV Claim, and share any compensation recovered as a result of such prosecution, as set forth in Section 7.3(f) above.
7.9
Exclusive License Registration
. Without limiting anything in Section 13.7, upon request by Otsuka, MethylGene shall register “Senyo Jisshiken” (registered exclusive right) MethylGene’s exclusive license to Otsuka in Section 2.1(a)(ii) in Otsuka’s name at the Japan Patent Office and equivalent Patent Offices in other countries in the Territory which have similar exclusive license registration systems as that of Article 77 of Japan’s Patent Laws,
provided that
such registration specifies the territorial and field limitations of such license, and
provided further
that such registration shall have no effect on the allocation of prosecution and enforcement rights and obligations set forth in this Article VII. MethylGene and Otsuka shall cooperate as necessary to achieve such registration, and Otsuka shall bear all fees associated with such registration. In the event this Agreement expires or is terminated, other than by Otsuka in accordance with Section 11.2, Otsuka shall cooperate with MethylGene and execute appropriate documents for filing with the Japan Patent Office and equivalent Patent Offices in other countries in the Territory to cancel Otsuka’s registered exclusive right.
ARTICLE VIII
CONFIDENTIAL INFORMATION
8.1
Treatment of Confidential Information
. During the Term and thereafter, each Party (the “Receiving Party”) shall maintain Confidential Information (as defined in Section 8.2) of the other Party (the “Disclosing Party”) in confidence, and shall not disclose, divulge or otherwise communicate such Confidential Information to others (except for agents, directors,
36
officers, employees, consultants, subcontractors, licensees, partners, Affiliates that are permitted sublicensees hereunder and advisors (collectively, “Agents”), in each case solely to the extent such Agents require such access to Confidential Information in order for the Receiving Party to fulfill its obligations or exercise its rights hereunder, and under obligations of confidentiality at least as protective of the Disclosing Party and its interest in its Confidential Information as the terms set forth in this Article VIII) and during such period the Receiving Party shall exercise reasonable efforts to prevent and restrain the unauthorized use and unauthorized disclosure of the Disclosing Party’s Confidential Information by any of the Receiving Party’s Agents, which reasonable efforts shall be at least as diligent as those generally used by the Receiving Party in protecting its own confidential and proprietary information of similar importance. Each Party will be responsible for a breach of this Article VIII by its Agents. Neither Party shall use Confidential Information of the other Party for any purpose other than the performance of its obligations and the exercise of its rights or licenses granted or permitted under this Agreement. For clarity, either Party may disclose Confidential Information of the other Party to Governmental Authorities (a) to the extent necessary to exercise its rights and licenses hereunder and (b) in order to respond to inquiries, requests or investigations by Governmental Authorities. For the avoidance of doubt, each member of the JRDC shall be required to execute a written confidentiality agreement in which each such member acknowledges the confidential nature of the reports, data and material obtained or generated by the JRDC and the obligation of such member to maintain such Confidential Information in strict confidence.
8.2
Confidential Information
. “
Confidential Information
” means all trade secrets or other proprietary information, including, without limitation, any proprietary data and materials (whether or not patentable or protectable as a trade secret), regarding a Party’s or its licensor’s technology (including, without limitation, Research Compounds, Program Compounds, and Formulation Technology), products, business, financial status or prospects or objectives regarding the Research Compounds, Program Compounds, or Licensed Products, which is disclosed by a Party to the other Party. All information disclosed prior to the Effective Date by MethylGene to Otsuka pursuant to the confidentiality agreement between the Parties dated as of October 28, 2005 and/or the confidentiality agreement between the Parties dated as of November 7, 2007 (collectively, the “
Confidentiality Agreements
”), shall be deemed “Confidential Information” of MethylGene to the extent otherwise constituting Confidential Information as defined thereunder or hereunder. Further, for the avoidance of doubt, any proprietary information assigned to a Party under this Agreement or under the MTA shall become the Confidential Information of the Party to which such proprietary information has been assigned. Notwithstanding the foregoing, there shall be excluded from the foregoing definition of Confidential Information any of the foregoing that:
(a)
either before or after the date of the disclosure to the Receiving Party is lawfully disclosed to the Receiving Party by Third Parties without any violation of any obligation to the Disclosing Party; or
(b)
either before or after the date of the disclosure to the Receiving Party, becomes published or generally known to the public through no fault or omission on the part of the Receiving Party or its Agents; or
37
(c)
is independently developed by or for the Receiving Party without reference to or reliance upon the Confidential Information as demonstrated by contemporaneous written records of the Receiving Party.
In addition, the Receiving Party may disclose the Confidential Information of the Disclosing Party to the limited extent the Receiving Party is required to do so to comply with applicable Laws, to defend or prosecute litigation or to comply with governmental regulations or the regulations or requirements of any stock exchange,
provided
that the Receiving Party promptly provides prior notice of such disclosure to the Disclosing Party, cooperates with the Disclosing Party, and otherwise uses reasonable efforts to avoid or minimize the degree of such disclosure (including, without limitation, seeking a protective order or submitting a confidential treatment request, as applicable).
8.3
Publication Rights
. Each Party shall submit to the other Party for review and approval all proposed academic, scientific and medical publications and public presentations relating to any activities under this Agreement for review in connection with preservation of Patent Rights and trade secrets or to determine whether Confidential Information should be modified or deleted from the proposed publication or public presentation. Written copies of such proposed publications and presentations shall be submitted to the non-publishing or non-presenting Party no later than […***…] days before the planned submission for publication or presentation and the non-publishing or non-presenting Party shall provide its comments with respect to such publications and presentations within
[…***…]
days after its receipt of such written copy. The review period may be extended for an additional
[…***…]
days if the non-publishing or non-presenting Party can demonstrate a reasonable need for such extension including, without limitation, the preparation and filing of patent applications (which extension shall not be unreasonably withheld or delayed). By written agreement, this period may be further extended (which extension shall not be unreasonably withheld or delayed). Without limiting the foregoing, no publication or presentation shall be made unless and until the non-publishing or non-presenting Party ‘s reasonable comments on the proposed publication or presentation have been addressed and any information has been removed that is determined by the non-publishing or non-presenting Party to be its Confidential Information or that the non-publishing or non-presenting Party desires to maintain in secrecy to preserve the value of its rights under this Agreement. The Parties will each comply with standard academic practice regarding authorship of scientific publications or presentations and recognition of contribution of other Persons in any publications or presentations relating to a Licensed Product and/or Selected Compound or any discovery, research or Development activities under this Agreement.
ARTICLE IX
REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1
MethylGene’s Representations, Warranties and Covenants
. MethylGene warrants and represents to Otsuka that:
(a)
As of the Effective Date, MethylGene is a corporation duly organized, validly existing and in good standing under the laws of Quebec, Canada. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of MethylGene. No consent, approval or agreement of any Person is required to be
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38
obtained by MethylGene in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, which has not been obtained.
(b)
As of the Effective Date, MethylGene solely owns all right, title and interest in and to the MethylGene Background Intellectual Property, free of any liens or restrictions, and MethylGene has the right to grant to Otsuka all of the licenses and other rights with respect to the MethylGene Intellectual Property granted to Otsuka under this Agreement. MethylGene has not and will not enter into any agreement nor grant any Third Party any rights with respect to the MethylGene Intellectual Property that are inconsistent with the rights granted to Otsuka under this Agreement or which would limit or encumber MethylGene’s ability to perform all of the obligations undertaken by MethylGene hereunder or limit or encumber Otsuka’s ability to exercise the rights and licenses granted to Otsuka under this Agreement.
(c)
As of the Effective Date, other than as set forth on
Schedule 9.1(c)
, MethylGene is not aware of any Patent Rights not within the MethylGene Intellectual Property that cover Program Compounds or Research Compounds, or claim composition of matter or use in the Field of Program Compounds or Research Compounds and to MethylGene’s knowledge neither the discovery, research, Development, Manufacture, nor Commercialization of Program Compounds or Research Compounds in the Field does or would infringe or result in the misappropriation of any other intellectual property rights of any Third Party. To MethylGene’s knowledge as of the Effective Date, none of the MethylGene Background Patent Rights are invalid or unenforceable, all fees required to be paid to applicable governmental patent offices in the Territory as of the Effective Date in order to prosecute or maintain such MethylGene Background Patent Rights have been paid on or before the due date for payment, and all such MethylGene Background Patent Rights have been filed and maintained in a manner consistent with standard practice in the Territory and consistent with MethylGene’s corporate practice. As of the Effective Date, there are no existing actions, suits or proceedings against MethylGene, and MethylGene has not received any written claim or demand from a Third Party, that individually or together with any other, does or could have a material adverse effect on the ability of MethylGene to perform its obligations under this Agreement or challenges MethylGene’s rights with respect to the MethylGene Intellectual Property or Program Compounds or Research Compounds (including, without limitation, any invitation to license or other notice of Patent Rights relevant to the subject matter of this Agreement).
(d)
MethylGene shall conduct, and shall cause its Affiliates, sublicensees, contractors and consultants to agree to conduct, all of its activities contemplated under this Agreement in accordance with all applicable Laws of the country in which such activities are conducted.
(e)
MethylGene represents and warrants that
Schedule 1.38
contains a full and complete list of MethylGene Background Patent Rights existing as of the Effective Date and that MethylGene shall promptly update Otsuka in writing with respect to the status of the Patent Rights set forth on such Schedule.
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9.2
Otsuka’s Representations, Warranties and Covenants
.
(a)
Otsuka hereby represents and warrants as of the Effective Date that: Otsuka is a company duly organized, validly existing and in good standing under the laws of Japan. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of Otsuka. No consent, approval or agreement of any person, party, court, government or entity is required to be obtained by Otsuka in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, which has not been obtained.
(b)
Otsuka shall conduct, and shall cause its Affiliates, Sublicensees, contractors and consultants to agree to conduct, all of its activities contemplated under this Agreement in accordance with all applicable Laws of the country in which such activities are conducted, including, but not limited to, current good manufacturing practices, good clinical practices and good laboratory practice standards, as applicable, and all other applicable rules, regulations and requirements of the FDA and other applicable Regulatory Authorities.
(c)
Otsuka hereby represents, warrants and covenants that: (i) neither Otsuka nor, to Otsuka’s actual knowledge, any employee, agent or subcontractor of Otsuka involved or to be involved in the Development of any Selected Compound or Licensed Product has been debarred under Subsection (a) or (b) of Section 306 of the Act (21 U.S.C. 335a); (ii) no Person who is known by Otsuka to have been debarred under Subsection (a) or (b) of Section 306 of said Act will be employed by Otsuka in the performance of any activities hereunder; and (iii) to the actual knowledge of Otsuka, no Person on any of the FDA clinical investigator enforcement lists (including, but not limited to, the (A) Disqualified/Totally Restricted List, (B) Restricted List and (C) Adequate Assurances List) will participate in the performance of any activities hereunder.
9.3
No Warranty
. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY HERETO MAKES ANY REPRESENTATION AND EXTENDS NO WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED. IN PARTICULAR, BUT WITHOUT LIMITATION, METHYLGENE MAKES NO REPRESENTATION AND EXTENDS NO WARRANTY CONCERNING WHETHER ANY PROGRAM COMPOUND OR RESEARCH COMPOUND IS FIT FOR ANY PARTICULAR PURPOSE OR SAFE FOR HUMAN CONSUMPTION.
ARTICLE X
INDEMNIFICATION
10.1
Indemnification in Favor of MethylGene
. Otsuka shall indemnify, defend and hold harmless the MethylGene Parties (as hereinafter defined) from and against any and all Losses incurred by any of the MethylGene Parties or to which any of the MethylGene Parties becomes subject to the extent resulting from any Third Party claim, action, suit, proceeding, liability or obligation (collectively, “
Third Party Claims
”)to the extent resulting from:
(a)
any misrepresentation or breach of any representation, warranty, covenant or agreement made by Otsuka in this Agreement; or
40
(b)
any violation of the Act or any foreign similar Law by Otsuka; or
(c)
any exercise by Otsuka of any of its rights granted by MethylGene under Section 2.1 or pursuant to Otsuka’s retained rights, including, without limitation, the Development, Manufacture, use or Commercialization of a Licensed Product by Otsuka, its Affiliates or Sublicensees, including, without limitation, all Third Party Claims involving death or bodily injury caused or allegedly caused by the use of such Licensed Product; or
(d)
the gross negligence or willful misconduct of any of the Otsuka Parties (as hereinafter defined) in connection with Otsuka’s performance of its obligations under this Agreement.
For purposes of this Article X, “
MethylGene Parties
” means MethylGene, its Affiliates and their respective licensors, agents, consultants, directors, officers, employees and shareholders.
The indemnification obligations set forth in this Section 10.1 shall not apply to the extent that any Loss (i) is the result of a breach of this Agreement by MethylGene or the gross negligence or willful misconduct of any of the MethylGene Parties; or (ii) is otherwise within the scope of the indemnification obligations set forth in Section 10.2 below.
10.2
Indemnification in Favor of Otsuka
. MethylGene shall indemnify, defend and hold harmless the Otsuka Parties (as hereinafter defined) from and against any and all Losses incurred by any of the Otsuka Parties or to which any of the Otsuka Parties becomes subject to the extent resulting from any Third Party Claim to the extent resulting from:
(a)
any misrepresentation or breach of any representation, warranty, covenant or agreement made by MethylGene in this Agreement;
(b)
any violation of the Act or any foreign similar Law by MethylGene;
(c)
any exercise by MethylGene of any of its rights granted by Otsuka under Section 2.2 or pursuant to MethylGene’s retained rights, including, without limitation, the Development, Manufacture, use or Commercialization of any Selected Compound outside the Field by MethylGene, its Affiliates or sublicensees including, without limitation, all Third Party Claims involving death or bodily injury caused or allegedly caused by the use of such Selected Compound outside the Field; or
(d)
the gross negligence or willful misconduct of any of the MethylGene Parties in connection with MethylGene’s performance of its obligations under this Agreement.
For purposes of this Article X, “
Otsuka Parties
” means Otsuka, its Affiliates and their respective licensors, agents, consultants, directors, officers, employees and shareholders.
The indemnification obligations set forth in this Section 10.2 shall not apply to the extent that any Loss (i) is the result of a breach of this Agreement by Otsuka or the gross negligence or willful misconduct of any of the Otsuka Parties; or (ii) is otherwise within the scope of the indemnification obligations set forth in Section 10.1 above.
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10.3
General Indemnification Procedures
.
(a)
A Person seeking indemnification pursuant to this Article X (an “
Indemnified Party
”) shall give prompt notice to the Party from whom such indemnification is sought (the “
Indemnifying Party
”) of the commencement or assertion of any Third Party Claim in respect of which indemnity may be sought hereunder, shall give the Indemnifying Party such information with respect to any indemnified Third Party Claim as the Indemnifying Party may reasonably request, and shall not make any admission concerning any such Third Party Claim, unless such admission is required by applicable Law or legal process, including, without limitation, in response to questions presented in depositions or interrogatories. Any admission made by the Indemnified Party with respect to any such Third Party Claim or the failure to give such notice shall relieve the Indemnifying Party of any liability hereunder only to the extent that the ability of the Indemnifying Party to defend a Third Party Claim is prejudiced thereby (and no admission required by applicable Law or legal process shall be deemed to result in prejudice). The Indemnifying Party shall assume and conduct the defense of any Third Party Claim for which indemnification is sought, with counsel selected by the Indemnifying Party and reasonably acceptable to the Indemnified Party. Subject to the initial and continuing satisfaction of the terms and conditions of this Article X, the Indemnifying Party shall have full control of such Third Party Claim, including, without limitation, settlement negotiations and any legal proceedings. If the Indemnifying Party does not assume the defense of such Third Party Claim in accordance with this Section 10.3, the Indemnified Party may defend the Third Party Claim. If both Parties are Indemnifying Parties with respect to the same Third Party Claim, the Parties shall determine by mutual agreement, within twenty (20) days following their receipt of notice of commencement or assertion of such Third Party Claim (or such lesser period of time as may be required to respond properly to such claim), which Party shall assume the lead role in the defense thereof. Should the Indemnifying Parties be unable to mutually agree on which of them shall assume the lead role in the defense of such Third Party Claim, both Indemnifying Parties shall be entitled to participate in such defense through counsel of their respective choosing.
(b)
Any Indemnified Party or Indemnifying Party not managing the defense of a Third Party Claim shall have the right to participate in (but not control), at its own expense (subject to the immediately succeeding sentence), the defense. The Party managing the defense of an action or proceeding under its control shall not be liable for any litigation cost or expense incurred, without its consent, by the Party not managing the defense;
provided
,
however
, that if the Indemnifying Party managing the defense fails to take reasonable steps necessary to defend such Third Party Claim, the Indemnified Party may assume its own defense, and the Indemnifying Party managing the defense will be liable for all reasonable costs or expenses paid or incurred in connection therewith; and
provided further
that, if the Indemnifying Party assumes control of such defense and the Indemnified Party reasonably concludes, based on advice from counsel, that the Indemnifying Party and the Indemnified Party have conflicting interests with respect to such Third Party Claim, the Indemnifying Party shall be responsible for the reasonable fees and expenses of counsel to the Indemnified Party solely in connection therewith.
(c)
Without the prior written consent of the Indemnified Party, the Indemnifying Party shall not consent to a settlement of, or the entry of any judgment against an Indemnified Party arising from any such Third Party Claim to the extent such judgment or settlement involves (i) equitable or other non-monetary relief from the Indemnified Party,
42
(ii) any monetary relief from the Indemnified Party not fully indemnified under this Agreement, or (iii) the assumption by the Indemnified Party of any liability. No Party shall, without the prior written consent of the other Party, enter into any compromise or settlement that commits the other Party to take, or to forbear to take, any action.
(d)
The Parties shall cooperate in the defense or prosecution of any Third Party Claim and shall furnish such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials and appeals, as may be reasonably requested in connection therewith.
(e)
Any indemnification hereunder shall be made net of any insurance proceeds actually recovered by the Indemnified Party from unaffiliated Third Parties;
provided
,
however
, that if, following the payment to the Indemnified Party of any amount under this Article X, such Indemnified Party recovers any such insurance proceeds in respect of the claim for which such indemnification payment was made, the Indemnified Party shall promptly pay an amount equal to the amount of such proceeds (but not exceeding the amount of such net indemnification payment) to the Indemnifying Party. For the avoidance of doubt, the foregoing shall not be construed to require either Party to obtain any insurance not otherwise required under this Agreement or to first pursue an insurance recovery with respect to any matter for which the Indemnifying Party is otherwise obligated to indemnify the Indemnified Party under this Agreement.
(f)
The Parties agree and acknowledge that the provisions of this Article X represent the Indemnified Party’s exclusive recourse with respect to any Losses for which indemnification is provided to the Indemnified Party under this Article X.
10.4
Insurance
. Otsuka and MethylGene (but only to the extent MethylGene Develops, Manufactures, or Commercializes any Selected Compounds outside the Field) shall secure and maintain in effect during the term of this Agreement and for a period of […***…] years thereafter insurance policy(ies) underwritten by a reputable insurance company having an A.M. Best rating of […***…] (or a comparable rating for its underwriters not doing business in the United States) and in a form and having limits standard and customary for entities in the biopharmaceutical industry for exposures related to the Selected Compounds and/or Licensed Products. Such insurance shall include coverage of not less than U.S. $[…***…] for clinical trial liability, and products liability with respect to such Party’s exercise of its rights hereunder and Commercialization of Licensed Products hereunder and shall name the other Party as an additional insured under a customary and reasonable policy(ies) covering clinical trial liability. Upon request by the other Party, certificates of insurance evidencing the coverage required above shall be provided to the other Party.
ARTICLE XI
TERM AND TERMINATION
11.1
Term
. The term of this Agreement (the “
Term
”) shall commence on the Effective Date and, unless earlier terminated as provided in this Article XI, shall continue in full force and effect, on a country-by-country and Licensed Product-by-Licensed Product basis until the expiration of the Royalty Term with respect to such Licensed Product in such country, at
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43
which time this Agreement shall expire in its entirety with respect to such Licensed Product in such country. The Term shall expire on the date this Agreement has expired, as provided in the preceding sentence, with respect to all Licensed Products in all countries in the Territory.
11.2
Termination for Cause
. In the event of a material breach of this Agreement by a Party, the other Party may give the Party in default notice requiring it to cure such default. If such material breach is not cured within sixty (60) days after receipt of such notice (or within thirty (30) days in the case of a payment breach), or if such breach (other than a payment breach) is not reasonably subject to cure within such sixty (60) day period (and does not involve a material breach of Article VIII) the Party in default does not provide a reasonably detailed plan and statement as to its intent to promptly cure such breach and does not promptly cure such breach within one hundred twenty (120) days from the receipt of notice of the breach, the notifying Party shall be entitled (without prejudice to any of its other rights conferred on it by this Agreement or under applicable Law) to terminate this Agreement by giving written notice to the defaulting Party, with such termination to take effect immediately. The right of either Party to terminate this Agreement as set forth in this Section 11.2 shall not be affected in any way by its waiver of, or failure to take action with respect to, any previous default. If a Party disputes in good faith the existence or materiality of a material breach specified in a notice provided by the other Party pursuant to this Section 11.2 or any assertion by the other Party that such Party has failed to cure or diligently proceed to implement a plan to cure any such material breach, and, in each case, such Party provides notice to the other Party of such dispute within the applicable cure period, the other Party shall not have the right to terminate this Agreement unless and until the existence of such material breach or failure by such Party has been finally determined in accordance with Article XII. It is understood and acknowledged that during the pendency of such a dispute, all of the terms and conditions of this Agreement shall remain in effect and the Parties shall continue to perform all of their respective obligations hereunder.
11.3
Termination for Failure to Select
. In the event Otsuka has not exercised its right to designate at least one Selected Compound during the Selection Period as provided in Section 3.5, as such term may be extended as set forth in Section 3.5, this Agreement shall terminate automatically at the end of the Selection Period.
11.4
Other Termination by Otsuka
. Otsuka may at its option, terminate this Agreement by giving MethylGene ninety (90) days’ prior written notice;
provided that
no termination shall take place before Otsuka has (a) purchased Common Shares of MethylGene as set forth in Section 6. 1, (b) made license payments to MethylGene totaling Two Million Dollars ($2,000,000) as set forth in Section 6.2, and (c) paid Quarterly Research Fees as set forth in Section 6.3 totaling such Quarterly Research Fees as would be due for the full initial Research Term of eighteen (18) months.
11.5
Termination of Otsuka’s Rights in One or More Regions
. If, at any time, MethylGene terminates this Agreement pursuant to Section 11.2 because of a breach of Section 5.1 with respect to one or more Target Regions, then such terminated Target Region(s) (and, if all Target Regions are terminated, the Rest of World region) shall thereafter be excluded from the Territory for all purposes under this Agreement, but this Agreement will remain in effect in the remaining Territory. All of the consequences set forth in Section 11.6 shall apply solely with respect to Selected Compounds and Licensed Products in the terminated region(s).
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44
The termination rights set forth in this Section 11.5 shall constitute MethylGene’s sole and exclusive remedy for any breach by Otsuka of its obligations under Section 5.1.
11.6
Consequences of Certain Terminations
.
(a)
Termination by MethylGene for Cause, Termination for Failure to Select, Termination by Otsuka Without Cause
. If this Agreement is terminated by MethylGene under Section 11.2, terminates automatically pursuant to Section 11.3 or is terminated by Otsuka under Section 11.4, then, subject to Section 11.7 and Section 11. 8, the licenses granted to Otsuka in Section 2.1 shall terminate, and Otsuka shall grant MethylGene any combination of the following elected by MethylGene at MethylGene’s option, such option to be exercised by written notice to Otsuka given no later than thirty (30) days after the effective date of such termination, to the extent applicable:
(i)
Regulatory Matters
. Ownership of all regulatory filings and Regulatory Approvals relating to any Selected Compounds and Licensed Products, including, without limitation, related correspondence with Regulatory Authorities, and provide copies thereof;
(ii)
Pre-clinical and Clinical Matters
. All pre-clinical and clinical data, including, without limitation, pharmacology and biology data, in Otsuka’s possession or control relating to any Selected Compounds and Licensed Products;
(iii)
Manufacturing Matters
. Any one or more of the following:
(A)
assignment of each manufacturing agreement specific to any Selected Compounds or Licensed Products to MethylGene, if such agreement is then in effect and such assignment is permitted under such agreement or by the applicable Third Party;
(B)
cooperation with MethylGene in reasonable respects to transfer manufacturing documents and materials which are used and Controlled (at the time of the termination) by Otsuka in the Manufacture of Selected Compounds and Licensed Products to the extent such manufacturing documents and materials are not obtained by MethylGene pursuant to the assignment of agreements pursuant to paragraph (A) above;
(C)
for a period of up to six (6) months following the effective date of termination, cooperation with MethylGene in reasonable respects to transfer Manufacturing technologies which are used and Controlled (at the time of the termination) by Otsuka in the Manufacture of Selected Compounds and Licensed Products,
provided that
MethylGene shall reimburse Otsuka for Otsuka’s reasonable out-of-pocket expenses to provide such requested assistance, to the extent such Manufacturing technologies are not obtained by MethylGene pursuant to the assignment of agreements pursuant to paragraph (A) above;
(D)
sale of Otsuka’s then existing inventory of Selected Compounds and Licensed Products to MethylGene, at Otsuka’s fully-loaded cost of Manufacture;
(iv)
License Grant
. Expansion of the license granted pursuant to Section 2.2(a)(ii) to include the Field, and to include the right to use Otsuka Collaboration Intellectual Property that is Formulation Technology, solely to make, have made, use, sell, offer
45
for sale and import Compounds that were non-selected Program Compounds, Selected Compounds and Licensed Products in the Field in the Territory, which license shall remain sublicensable pursuant to Section 2.2(b), which Section 2.2(b) shall survive. For the avoidance of doubt, the license above with respect to the Formulation Technology is only granted within the Field.
(v)
Assignment of Trademark
. Assignment to MethylGene all of Otsuka’s right, title and interest in any trademark used solely in connection with any Licensed Products.
(b)
Termination by Otsuka for Cause
. Termination of this Agreement by Otsuka pursuant to Section 11.2 will not terminate the license granted under Section 2.2(a)(ii) or the non-suit covenant with respect to the exercise of such license set forth in Section 2.1(c), subject to Otsuka’s diligence obligations described in Section 5.1 and its payment obligations in Article VI. Upon such termination of this Agreement by Otsuka pursuant to Section 11.2, Otsuka may, as its sole and exclusive remedy hereunder, off-set any direct damages resulting from MethylGene’s breach of this Agreement from any royalty payments due to MethylGene under Section 6.6 of this Agreement.
11.7
Effect of Termination and Expiration; Accrued Rights and Obligations
. Termination of this Agreement for any reason shall not release either Party from any liability that, at the time of such termination, has already accrued or that is attributable to a period prior to such termination (including, without limitation, payment obligations accrued prior to the effective date of termination pursuant to Sections 6.3, 6.4, 6.5, 6.6 and 6.7) nor preclude either Party from pursuing any right or remedy it may have hereunder or at Law or in equity with respect to any breach of this Agreement. It is understood and agreed that monetary damages may not be a sufficient remedy for any breach of this Agreement and that the non-breaching Party may be entitled to seek injunctive relief as a remedy for any such breach.
11.8
Survival
. The rights and obligations set forth in this Agreement shall extend beyond the Term or termination of this Agreement only to the extent expressly provided for in this Agreement or to the extent required to give effect to a termination of this Agreement or the consequences of a termination of this Agreement as expressly provided for in this Agreement. Without limiting the generality of the foregoing, it is agreed that the provisions of Article VIII (Confidential Information), Article IX (Representations, Warranties and Covenants) other than MethylGene’s update obligation under Section 9.1(e), Article X (Indemnification), Article XII (Dispute Resolution), Article XIII (Miscellaneous) and Sections 2.1(a)(iii) (Grant of Certain Jointly Developed MethylGene Collaboration Intellectual Property for Use Outside the Field), 2.1(b)(ii) (Sublicenses), 2.2(a)(ii) (Grant Outside the Field), 2.2(b) (Sublicenses), 2.5 (Rights Retained by the Parties), 2.6 (Exclusivity), 6.1 (Equity), 6.9 (Books and Records; Audit Rights); 6.10 (Taxes), 7.1 (Ownership of Inventions), 7.2(a) (Prosecution and Maintenance of Patent Rights/Background Patent Rights), 7.3(a) (Third Party Infringement/Background Patent Rights), the last sentence of 7.9 (Exclusive License Registration), 11.6 (Consequences of Certain Terminations), 11.7 (Effect of Termination and Expiration; Accrued Rights and Obligations), and this 11.8 (Survival), shall survive expiration or termination of this Agreement for any reason in accordance with their respective terms.
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ARTICLE XII
DISPUTE RESOLUTION
12.1
Resolution of Disputes
. Any dispute, controversy or claim related to matters within the powers and authority of the JRDC shall be resolved by the Parties in accordance with the procedures set forth in Section 3.3(d). Any dispute, controversy or claim related to compliance with the terms of this Agreement, or the validity, breach, termination or interpretation of this Agreement, shall be referred to the JRDC for resolution (but without giving effect to Otsuka’s right to final decision-making authority). If the JRDC is unable to resolve the matter within
thirty (30)
days after referral, such dispute, controversy or claim shall be referred to the Senior Executives for resolution. Subject to Section 3.3(d), in the event the Senior Executives are unable to resolve the matter within
thirty (30)
days after referral, such dispute, controversy or claim shall be resolved through binding arbitration pursuant to Section 12.2.
12.2
Arbitration
.
(a)
In the event that the Senior Executives are unable to resolve any dispute, controversy or claim between the Parties referred to them pursuant to Section 12. 1, such dispute shall at the request of either Party, be finally settled by binding arbitration in accordance with the then current Rules of Arbitration of the International Centre for Dispute Resolution.
(b)
The arbitration panel shall consist of three (3) arbitrators, each of whom must have legal or business experience in pharmaceutical licensing matters. The arbitrators are to be selected as follows, within
thirty (30)
days following receipt of notice from either Party of a request to arbitrate in accordance with Section 12.2(a): Otsuka shall nominate one (1) such qualified arbitrator; MethylGene shall nominate one (1) such qualified arbitrator; and the two arbitrators so nominated shall nominate a third such qualified arbitrator, who shall be the presiding arbitrator.
(c)
The arbitrators shall set a date for a hearing, which shall be no later than
thirty (30)
days after the appointment of the third arbitrator. The arbitrators shall use their best efforts to rule on the dispute within
thirty (30)
days after the completion of such hearing. Any award rendered by the arbitrators shall be final and binding upon the Parties. Judgment upon any award rendered may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be.
(d)
The place of arbitration shall be San Francisco, California and the language of the arbitration shall be English.
(e)
Each Party shall pay its own expenses of arbitration, and the expenses of the arbitrators shall be equally shared between the Parties unless the arbitrators assess as part of their award all or any part of the arbitration expenses of a Party or Parties (including, without limitation, reasonable attorneys’ fees) against the other Party or Parties, as the case may be.
(f)
Except as otherwise provided in this Agreement, the arbitration procedure set forth in this Section 12.2 shall be the sole and exclusive means of settling or resolving any dispute subject to resolution pursuant to this Section 12.2. This Section 12.2 shall not prohibit a
47
Party from seeking injunctive or other equitable relief from a court of competent jurisdiction in the event of a breach or prospective breach of this Agreement by the other Party which would cause irreparable harm to the first Party, or from bringing any action in aid of arbitration.
(g)
Notwithstanding the foregoing, with respect to any dispute related to the necessity of a license to intellectual property from a Third Party, in the event the Senior Executives are unable to resolve the matter within
thirty (30)
days after referral, such dispute shall be submitted to arbitration in accordance with this Section 12.2;
provided that
, to expedite any such arbitration, the arbitral tribunal shall be composed of a single arbitrator mutually agreed by the Parties who will be authorized to determine the procedural rules of such arbitral tribunal with the intention that the tribunal be able to resolve the disputed matter within no more than
sixty (60)
days following the notice to arbitrate.
ARTICLE XIII
MISCELLANEOUS
13.1
Governing Law
. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of New York, without regard to its conflicts of laws rules.
13.2
Waiver
. Waiver by a Party of a breach hereunder by the other Party shall not be construed as a waiver of any succeeding breach of the same or any other provision. No delay or omission by a Party to exercise or avail itself of any right, power or privilege that it has or may have hereunder shall operate as a waiver of any right, power or privilege by such Party. No waiver shall be effective unless made in writing with specific reference to the relevant provision(s) of this Agreement and signed by a duly authorized representative of the Party granting the waiver.
13.3
Notices
. All notices, instructions and other communications hereunder or in connection herewith shall be in writing, shall be sent to the address specified in this Section 13.3 and shall be: (a) delivered personally; (b) sent by registered or certified mail, return receipt requested, postage prepaid; (c) sent via a reputable worldwide courier service; or (d) sent by facsimile transmission. Any such notice, instruction or communication shall be deemed to have been delivered upon receipt if delivered by hand, three (3) Business Days after it is sent by registered or certified mail, return receipt requested, postage prepaid, two (2) Business Day after it is sent via a reputable worldwide courier service, or when transmitted with electronic confirmation of receipt, if transmitted by facsimile (if such transmission is on a Business Day; otherwise, on the next Business Day following such transmission).
Notices to Otsuka shall be addressed to
:
Otsuka Pharmaceutical Co., Ltd.
Shinagawa Grand Central Tower
2-16-4 Konan, Minato-ku
Tokyo 108-8242
Japan
48
Attention: Director, Division of Dermatologicals &
Opthalmologicals
Telephone: 81-3-6717-1400
Fax: 81-3-6717-14801
with a copy to:
Otsuka Pharmaceutical Co., Ltd.
Shinagawa Grand Central Tower
2-16-4 Konan, Minato-ku
Tokyo 108-8242 Japan
Attention: Director, Legal Affairs Department
Telephone: 81-3-6717-1400
Fax: 81-3-6717-14801
Notices to MethylGene shall be addressed to
:
MethylGene Inc.
7220 Frederick Banting
Montreal, Quebec H4S 2A1
Canada
Attention: Chief Executive Officer
Telephone: 514-337-3333
Fax: 514-337-4194
with a copy to:
MethylGene Inc.
7220 Frederick Banting
Montreal, Quebec H4S 2A1
Canada
Attention: Chief Financial Officer
Telephone: 514-337-3333
Fax: 514-337-4194
and
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, MA 02109
USA
Attention: Alfred Server, Esq.
Telephone: 617-526-6000
Fax: 617-526-5000
and
49
Davies Ward Phillips & Vineberg LLP
1501 McGill College Avenue
26th Floor
Montreal, Quebec H3A3N9
Canada
Attention: Richard Cherney, Esq.
Telephone: 514 841 6457
Fax: 514 841 6499
Either Party may change its address by giving notice to the other Party in the manner provided above.
13.4
Entire Agreement
. This Agreement (including, without limitation, Schedules) contains the complete understanding of the Parties with respect to the subject matter of this Agreement and supersedes all prior understandings and writings relating to such subject matter. In particular, and without limitation, it supersedes and replaces the Confidentiality Agreements and any and all term sheets relating to the transactions contemplated by this Agreement and exchanged between the Parties prior to the Effective Date, including, without limitation, the term sheet between the Parties dated November 21, 2007.
13.5
Headings
. Headings in this Agreement are for convenience of reference only and shall not be considered in construing this Agreement.
13.6
Severability
. If any provision of this Agreement is held unenforceable by a court or tribunal of competent jurisdiction because it is invalid or conflicts with any Law of any
50
relevant jurisdiction, the validity of the remaining provisions shall not be affected. In such event, the Parties shall negotiate a substitute provision that, to the extent possible, accomplishes the original business purpose.
13.7
Registration and Filing of the Agreement
. To the extent a Party determines in good faith that it is required by applicable Law to publicly file or register this Agreement with a Governmental Authority, including, without limitation, public filings pursuant to securities Laws, it shall provide the proposed redacted form of the Agreement to the other Party a reasonable amount of time prior to filing for the other Party to review such draft and propose changes to such proposed redactions. The Party making such filing, registration or notification shall incorporate any proposed changes timely requested by the other Party, absent a substantial reason to the contrary, and shall use commercially reasonable efforts to seek confidential treatment for any terms that the other Party timely requests be kept confidential, to the extent such confidential treatment is reasonably available consistent with applicable Law. Each Party shall be responsible for its own legal and other external costs in connection with any such filing, registration or notification.
13.8
Assignment
. Neither this Agreement nor any right or obligation hereunder may be assigned or otherwise transferred by any Party without the consent of the other Party;
provided
,
however
, that any Party may, without such consent, assign this Agreement, in whole or in part: (a) to any of its respective Affiliates;
provided that
such Party shall remain jointly and severally liable with such Affiliate in respect of all obligations so assigned and such Affiliate has acknowledged and confirmed in writing that effective as of such assignment or other transfer, such Affiliate shall be bound by this Agreement as if it were a party to it as and to the identical extent applicable to the transferor or (b) to any successor in interest by way of merger, acquisition or sale of all or substantially all of its assets provided that such successor agrees in writing to be bound by the terms of this Agreement as if it were the assigning party. Any purported assignment in violation of this Section 13.8 shall be void. Any permitted assignee shall assume all obligations of its assignor under this Agreement.
13.9
Counterparts
. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
13.10
Force Majeure
. No Party shall be liable for failure of or delay in performing obligations set forth in this Agreement, and no Party shall be deemed in breach of its obligations, if such failure or delay is due to a natural disaster, explosion, fire, flood, tornadoes, thunderstorms, earthquake, war, terrorism, riots, embargo, losses or shortages of power, labor stoppage, substance or material shortages, damage to or loss of product in transit, events caused by reason of Laws or by reason of any other instructions, guidance, act or failure to act of any Governmental Authority, events caused by acts or omissions of a Third Party, or any other cause reasonably beyond the control of such Party.
13.11
Press Releases and Other Disclosures
. Otsuka acknowledges that MethylGene will issue a press release announcing this Agreement on or near the date of execution of this Agreement, and that Otsuka has received advance copies of MethylGene’s proposed press release, the publication and use of which remains subject to Otsuka’s approval. The Parties also recognize that each Party may from time to time desire to issue additional press releases and make other public statements or disclosures regarding the subject matter of this Agreement. In such event, the Party desiring to issue an additional press release or make a public statement or disclosure shall provide the other Party with a copy of the proposed press release, statement or disclosure for review and approval in advance, which advance approval shall not be unreasonably withheld, conditioned or delayed (except that neither Party shall have any obligation to disclose any of its Confidential Information except to the extent required or permitted pursuant to Article VIII). No other public statement or disclosure concerning the existence or terms of this Agreement shall be made, either directly or indirectly, by either Party, without first obtaining the written approval of the other Party. Once any public statement or disclosure has been approved in accordance with this Section, then either Party may appropriately communicate information contained in such permitted statement or disclosure. Notwithstanding the foregoing provisions of this Section 13.11 or of Article VIII, a Party may (a) subject to the last sentence of Section 8.2 and Section 13.7, disclose the existence and terms of this Agreement (including, without limitation, disclosure of the Agreement itself) where required, as reasonably determined by the disclosing Party, by applicable Law, by applicable stock exchange regulation or by order or other ruling of a competent court, (b) disclose the existence and terms of this Agreement under obligations of confidentiality to agents, advisors, contractors, investors, licensees and sublicensees, and to potential agents, advisors, contractors, investors, licensees and sublicensees, in connection with such Party’s activities hereunder and in connection with such Party’s financing activities and (c) publicly announce any of the matters set forth in the press release described in the first sentence of this Section 13.11,
provided that
such
51
announcements do not entail disclosure of Confidential Information of the other Party (which, for purposes of clarity, excludes clinical trial results) and the announcing Party provides the other Party with a copy of the proposed text of such announcement sufficiently in advance of the scheduled release or publication thereof to afford such other Party a reasonable opportunity to review and comment upon the proposed text.
13.12
Relationship of the Parties
. Each Party shall bear its own costs incurred in the performance of its obligations hereunder without charge or expense to the other, except as expressly provided in this Agreement. Neither Party shall have any responsibility for the hiring, termination or compensation of the other Party’s employees or for any employee compensation or benefits of the other Party’s employees, other than the Quarterly Research Fee to be paid as provided in Section 6.3. No employee or representative of a Party shall have any authority to bind or obligate the other Party for any sum or in any manner whatsoever, or to create or impose any contractual or other liability on the other Party without said other Party’s approval. For all purposes, and notwithstanding any other provision of this Agreement to the contrary, the legal relationship under this Agreement of each Party to the other Party shall be that of independent contractor. Nothing in this Agreement shall be construed to establish a relationship of partners or joint venturers between the Parties.
13.13
Performance by Affiliates
. To the extent that this Agreement imposes obligations on Affiliates of a Party, such Party agrees to cause its Affiliates to perform such obligations.
13.14
No Consequential or Punitive Damages
. NEITHER PARTY HERETO WILL BE LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST PROFITS, ARISING FROM OR RELATING TO THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. NOTHING IN THIS SECTION 13.14 IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY UNDER THIS AGREEMENT WITH RESPECT TO THIRD PARTY CLAIMS, OR EITHER PARTY’S LIABILITY WITH RESPECT TO THE INFRINGEMENT, MISAPPROPRIATION OR UNAUTHORIZED USE OR DISCLOSURE OF THE OTHER PARTY’S INTELLECTUAL PROPERTY RIGHTS OR CONFIDENTIAL INFORMATION.
13.15
Nonsolicitation
. During the Research Term and for […***…] thereafter, neither Party shall directly or indirectly through a Third Party solicit, recruit, or offer employment as an employee, independent contractor or consultant to, personnel of the other Party that performed work in connection with this Agreement without the written consent of the other Party. The Parties agree that general, non-targeted job advertising shall not constitute a violation of this Section 13.15.
[
Remainder of page intentionally left blank.
]
***Confidential Treatment Requested
52
IN WITNESS WHEREOF, the Parties have signed this Agreement as of the Effective Date.
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OTSUKA PHARMACEUTICAL CO., LTD
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METHYLGENE INC.
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By:
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/s/ Tatsuo Higuchi
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By:
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/s/ Donald F. Corcoran
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Name: Tatsuo Higuchi
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Name: Donald F. Corcoran
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Title: President & Representative Director
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Title: President & Chief Executive Officer
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By:
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/s/ Minoru Okada
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Name:
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Minoru Okada
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Title:
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Operating Officer & Director, Division of Dermatologicals & Opthalmologicals
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Schedule 1.38-1
Research Compounds
Group 1 […***…]
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[
…
***
…
]
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[…***…]
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[…***…]
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[…***…]
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[
…
***
…
]
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—
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[
…
***
…
]
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[…***…]
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[…***…]
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[…***…]
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[
…
***
…
]
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—
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[
…
***
…
]
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[…***…]
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[…***…]
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[…***…]
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[
…
***
…
]
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—
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[
…
***
…
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[…***…]
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[…***…]
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[…***…]
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[
…
***
…
]
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—
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[
…
***
…
]
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—
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[…***…]
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[…***…]
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[…***…]
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[
…
***
…
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[
…
***
…
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—
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[…***…]
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[…***…]
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[…***…]
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[
…
***
…
]
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[…***…]
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—
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[…***…]
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[…***…]
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[…***…]
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[
…
***
…
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[…***…]
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—
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[…***…]
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[…***…]
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[…***…]
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[
…
***
…
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[
…
***
…
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—
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[…***…]
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[…***…]
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[…***…]
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[
…
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[
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—
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[…***…]
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[…***…]
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[…***…]
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[
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[
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—
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Group2
[
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[
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[
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[…***…]
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***Confidential Treatment Requested
Schedule 1.38-2
MethylGene Background Patent Rights
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Patent Application Title
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Serial No.
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Publication No.
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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***Confidential Treatment Requested
Schedule 1.56
Program Compounds
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
***Confidential Treatment Requested
Schedule 3.2(b)
Research Plan
[To be added]
Schedule 7.2(e)(iii)
Prosecution Costs for National Phase filing for
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
***Confidential Treatment Requested
Schedule 9.1(c)
Disclosure of Third Party Patents
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
***Confidential Treatment Requested
Exhibit 10.12
***Text Omitted and Filed Separately
with the Securities and Exchange Commission.
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4)
and 240.24b-2.
COLLABORATION AND LICENSE AGREEMENT
This COLLABORATION AND LICENSE AGREEMENT (“
Agreement
”), effective as of this day of October 16, 2003 (the “
Effective Date
”), is made by and between Taiho Pharmaceutical Co., Ltd., a corporation organized under the laws of Japan, with a principal place of business at 1-27 Kandanishiki-cho, Chiyoda-ku, Tokyo 101-8444, Japan (“
Taiho
”), and MethylGene Inc., a corporation organized under the laws of Quebec, Canada with its principal place of business at 7220 Frederick-Banting, Suite 200, Montreal, Quebec H4S 2A1, Canada (“
MG
”). Each of Taiho and MG shall be referred to as a “
Party
,” and together as the “
Parties
.”
BACKGROUND
A.
MG has developed certain proprietary technology related to small molecule HDAC Inhibitors (as defined below), which may be useful for developing pharmaceutical products for the treatment and prophylaxis of cancer in humans.
B.
Taiho possesses pharmaceutical research, development, manufacturing and commercialization capabilities, as well as proprietary technology in a range of therapeutic fields, including cancer.
C.
MG has identified certain novel, proprietary HDAC Inhibitors, including the Compound designated as MGCD 0103, which MG is pursuing as potential development candidates for cancer and for which MG has commenced preclinical development activities.
D.
MG and Taiho desire to collaborate to pursue potential commercial development in the cancer field of one or more HDAC Inhibitors, discovered by MG prior to the Effective Date, and discover and potentially commercialize additional HDAC Inhibitors as potential development compounds for cancer, all on the terms and conditions set forth herein.
E.
In addition, MG desires to grant to Taiho, and Taiho desires to obtain, an exclusive license from MG of HDAC Inhibitors for use in the Territory (as defined below) in the Field (as defined below), on the terms and conditions set forth herein.
NOW THEREFORE, for and in consideration of the covenants, conditions, and undertakings hereinafter set forth, it is agreed by and between the Parties as follows:
ARTICLE 1
DEFINITIONS
1.1
“
Additional Partner
” shall mean each third party who is granted by MG, directly or indirectly, a right to market or commercialize Compounds and/or Products in any part of North America or Europe, other than a Non-Cancer Partner or an Opt-out Non-Cancer Partner. As used herein, a “right to market or commercialize” shall include an option or other right to obtain such rights, provided (a) a right that is merely a right of first discussion, and which does not include
an enforceable right to obtain marketing or commercialization rights with respect to Compounds and/or Products in the Field, and (b) a traditional “right of first refusal,” in which the third party has the right to obtain marketing or commercialization rights from MG only in the event of, and on the same terms as reflected in, a bona fide offer made by another third party (and where the rights may be granted to such other third party on such terms, if the right of first refusal is not exercised), shall not in either case alone be deemed a “right to market or commercialize.”
1.2
“
Affiliate
” shall mean, in the case of a subject entity, another entity which controls, is controlled by or is under common control with the subject entity. For purposes of this definition only, “control” shall mean beneficial ownership (direct or indirect) of at least fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, in the election of the corresponding managing authority). Notwithstanding the foregoing, the Parties acknowledge that a group of over forty (40) distributors collectively own approximately fifty percent (50%) of Taiho. For the avoidance of doubt, it is agreed that the percentage ownership of Taiho by such distributors shall not be combined together for purposes of determining whether any such distributor is an Affiliate of Taiho.
1.3
“
Approved Clinical Studies
” shall mean those certain clinical trials of a Compound and/or Product in North America in the Field, as set forth in the Clinical Development Plan and Budget established in accordance with Article 4 below.
1.4
“
Approved Preclinical Studies
” shall mean those certain Preclinical Development studies in the Field, set forth in the Preclinical Plan and Budget established in accordance with Article 4 below. Notwithstanding the foregoing, however, Approved Preclinical Studies shall not include any Territory-Specific Preclinical Studies.
1.5
“
Clinical Development Plan and Budget
” shall mean the plan and budget for the Approved Clinical Studies, as described in Article 4 below.
1.6
“
Commercially Reasonable and Diligent Efforts
” shall mean the carrying out of obligations in a diligent and sustained manner using efforts reasonably necessary or appropriate to actively develop a product for a large market application in an expeditious manner. Without limiting the foregoing, Commercially Reasonable and Diligent Efforts requires that the applicable party: (a) promptly assign responsibility for such obligations to specific employee(s) who are held accountable for progress and monitor such progress on an on-going basis, (b) set and consistently seek to achieve specific meaningful objectives for carrying out such obligations, and (c) consistently make and implement decisions and allocate the full complement of resources necessary or appropriate to advance progress with respect to such objectives in accordance with the foregoing, in each case in a manner similar to other high priority drug development programs.
1.7
“
Compounds
” shall mean all HDAC Inhibitors identified, synthesized, discovered or acquired (collectively, “
Discovered
”) by or under authority of MG or its Affiliates: (a) prior to the Effective Date, or (b) during the Research Term, or (c) any time during the term of this Agreement after the Research Term, if Discovered in connection with Cancer HDAC Research, or (d) any time during the term of this Agreement prior to […***…] after completion of the last
***Confidential Treatment Requested
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Cancer HDAC Research, if Discovered pursuant to Non-Cancer HDAC Research; provided that in each case such HDAC Inhibitors are used or useful in the Field. With respect to each Compound, such Compound shall include all salts, esters, hydrates, solvates, polymorphs, free base, isomers, prodrugs, metabolites, conjugated forms and/or liposomal or other formulations thereof, and other compositions consisting of such Compound non-covalently bounded with other moieties. As used in this definition, “
Non-Cancer HDAC Research
” means Research conducted by or under authority of MG that is directed only to applications other than cancer and for which MG does not grant a third party rights to commercialize resulting compounds for cancer applications. “
Cancer HDAC Research
” means Research conducted by or under authority of MG that is not conducted as part of Non-Cancer HDAC Research. In the event that MG or its Affiliate enters into an agreement with a third party (including an Additional Partner or Non-Cancer Partner) in connection with the Research or prior to the end of the time periods, each as described in clauses (a) through (d) above, Compounds shall include HDAC Inhibitors Discovered by or under authority of such third party during the term of its right to conduct Research granted by MG, but shall exclude those compounds that were identified or being developed by such third party, as an inhibitor that directly inhibits the activity of HDAC enzymes or that has therapeutic effect through the inhibition of HDAC enzymes, prior to the time an agreement was first entered into with MG or its Affiliate. For clarity, it is understood that as used herein, the term “Discovered” shall be deemed to include HDAC Inhibitors covered by a patent application filed during the particular period, it being understood that the set of HDAC Inhibitors covered by a patent or patent application shall not be deemed a single Compound for purposes of defining Selected Compounds and Non-Cancer Selected Compounds below, solely because they are covered by such patent application (
i.e.
the definition of a single Selected Compound or a Non-Cancer Selected Compound shall be as described in Section 5.2.1(b) and (c) below).
1.8
“
Cost of Goods
” shall mean, with respect to units of a Compound or Product to be supplied to a Party hereunder: (a) those costs of the supplying party associated with the manufacture of such units that would normally be included as inventoriable costs of such units in accordance with GAAP, and would include raw materials (including normal scrap) and actual direct labor costs and a proper allocation of overhead, subject to Section 11.2.1 below (
i.e.
with respect to third party royalties), and would exclude excess capacity, unusable raw materials, cost of capital and other costs not normally included as inventoriable costs as set forth above; or (b) if the units are purchased from a third party that is not an Affiliate, the purchase price thereof. Notwithstanding the foregoing, royalties paid by the manufacturing party with respect to patent rights for generic manufacturing processes used in such manufacture, but that are not primarily used for nor primarily related to Compounds, Products and/or HDAC, shall not be treated as a third party royalties subject to Section 11.2.1 below, for purposes of Section 1.8(a).
1.9
“
Data
” shall mean collectively, Research Data, Preclinical and Clinical Data and Manufacturing Data.
1.10
“
FDA
” shall mean the U.S. Food and Drug Administration, or any successor agency.
3
1.11
“
Field
” shall mean the therapeutic or prophylactic treatment of cancer (including neoplasia and other pre-cancerous conditions) using a Compound or Product.
1.12
“
First Approved Product
” shall mean the first Product for which Marketing Approval in Japan for the Field is obtained by any of Taiho, its Affiliates or its Sublicensee.
1.13
“
Full Time Equivalent
”, or “
FTE
” shall mean one (1) full-time person who qualifies as R&D Personnel, or in the case of less than a full-time dedicated person, a full-time, equivalent person year of activities under the Plans and Budgets performed by R&D Personnel.
1.14
The “
FTE Rate
” for Research conducted by MG hereunder shall be […***…] per FTE. Each Party acknowledges that the foregoing FTE rate has been set to include all salary, employee benefits, materials and other expenses including support staff and overhead for or associated with an FTE.
1.15
“
Funded Work
” shall mean the work conducted by or under authority of MG which is funded, in whole or in part, by Taiho under this Agreement, including without limitation all Research under the Research Plan and Budget, Approved Preclinical Studies, Territory-Specific Preclinical Studies and Approved Clinical Studies.
1.16
“
GAAP
” shall mean United States generally accepted accounting principles, consistently applied.
1.17
“
HDAC
” shall mean histone deacetylase and shall include without limitation any one of a family of enzymes that remove acetyl groups from amino groups of lysine residues at the N-terminus of a histone, including but not limited to […***…], and any histone deacetylase as described or referenced in MG’s patent application […***…], or the articles […***…] or […***…].
1.18
“
HDAC Inhibitors
” shall mean small molecules that directly inhibit the activity of HDAC enzymes or which have therapeutic effect through the inhibition of HDAC enzymes, in each case which are used or useful in the Field. As used herein, “small molecules” means compounds with molecular weight of less than 1500 daltons.
1.19
“
Initial Clinical Candidate
” shall mean the Compound designated internally at MG as MGCD 0103, and specified as such to Taiho in writing prior to the Effective Date.
1.20
“
IND
” shall mean an Investigational New Drug application, as defined in the U.S. Federal Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or comparable filing in a foreign jurisdiction, in each case with respect to a Product for use within the Field.
1.21
“
Licensed Technology
” shall mean the Licensed Patents and Licensed Technical Information.
***Confidential Treatment Requested
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1.21.1
“
Licensed Patents
” shall mean all patents and all reissues, renewals, re-examinations, and extensions thereof, and patent applications therefor, and any divisions or continuations, in whole or in part, thereof, which claim or otherwise cover the composition, manufacture, sale or use of a Compound(s) or a Product(s), that are owned or acquired by MG or its Affiliates, or that cover inventions made by or under authority of MG or its Affiliates, prior to or during the term of this Agreement, including those patents and applications listed on Exhibit 1.21.1. It is understood and agreed that for purposes of this Agreement, “acquired” when applied to patents, information, data, materials or other intellectual property shall include such items that are in-licensed, of or within the scope of the relevant licenses, rights or obligations herein.
1.21.2
“
Licensed Technical Information
” shall mean all material confidential information and tangible materials related to the development, manufacture, sale or use of a Compound or a Product, including, but not limited to: pharmaceutical, chemical, biological and biochemical compositions; and technical data and information; available descriptions, if any, of assays, methods and processes; the results of tests, including without limitation screening results, SAR data, optimization data, in vitro and in vivo data; preclinical, clinical and research, manufacturing processes and procedures; analytical and quality control data; and plans, specifications and/or other documents containing said information and data; in each case which are owned or acquired by MG prior to the Effective Date or discovered, developed or acquired by or under authority of MG or its Affiliates during the term of this Agreement.
1.22
“
Major Country
” shall mean the United States, Canada, Australia, Japan, or any country of the European Union.
1.23
“
Manufacturing Data
” shall mean all material information and data relating to or used in connection with the manufacturing of Compounds and/or Products by MG or its Affiliates, Additional Partners, or others working under authority of such entities, including without limitation, such information and data as generated or used during process development, stability studies, formulation development, scale-up of manufacturing, production of preclinical and clinical product batches, validation studies, development of quality assurance/quality control testing, and related regulatory affairs; and all information and data contained in the DMF or in the CMC section of an IND or NDA (or their counterparts in other countries) with respect to Compounds and/or Products. Without limiting the foregoing, Manufacturing Data shall include information and data described in Exhibit 1.23. Notwithstanding the foregoing, to the extent MG, Additional Partners and their Affiliates do not have rights to such know-how, the term “Manufacturing Data” shall exclude any proprietary manufacturing know-how described in a DMF that was disclosed by a contract manufacturer of MG, Additional Partners or their Affiliates directly to the Regulatory Authority (and not to MG, Additional Partners or their Affiliates), which know-how had been independently developed by such contract manufacturer outside of its relationship with MG, the Additional Partner or their Affiliates; provided that MG ensures that, upon the request of Taiho, such contract manufacturer shall file with Regulatory Authorities in the Territory a similar DMF containing such know-how in support of Taiho’s regulatory filings.
1.24
“
Marketing Approval
” shall mean all approvals, registrations or authorizations of any governmental entity that are necessary for the manufacturing, use, storage, import, transport
5
and sale of a Compound or Product in a regulatory jurisdiction. For countries where governmental approval is required for pricing or reimbursement for the Product to be reimbursed by national health insurance, Marketing Approval shall not be deemed to occur until such pricing or reimbursement approval is obtained; provided, that Marketing Approval shall be deemed to have occurred in such country where government approval of pricing has not been obtained if, at any time, the party undertakes a full commercial launch of such Product in the country without obtaining pricing approval.
1.25
“
Net Sales
” shall mean the gross invoice price for Product sold by Taiho or its Affiliates or their Sublicensees to a non-Affiliate third party customer
less
the reasonable and customary accrual-basis deductions from such gross amounts for: (i) normal and customary trade, cash and other discounts, allowances and credits actually allowed and taken directly with respect to sales of Product; (ii) credits or allowances actually granted for damaged goods, returns or rejections of Product; (iii) sales taxes or similar taxes (including duties or other governmental charges levied on, absorbed or otherwise imposed directly on the sales of Product, including, without limitation, value added taxes or other governmental charges otherwise measured by the billing amount) which are included in billing amount, and excluding any taxes imposed on or measured by the net income or profits of the selling party; (iv) charge back payments and rebates granted to trade customers, including but not limited to, wholesalers; (v) packaging, handling fees, freight, insurance and the like, provided that amounts deducted under this subsection (v) shall not exceed […***…] of Net Sales and (vi) actual uncollectible accounts, up to […***…] of Net Sales. Such amounts shall be determined from the books and records of Taiho, its Affiliates and their Sublicensees maintained in accordance with GAAP consistently applied, and such amounts shall be calculated using the same accounting principles used for other Taiho products. Sales between or among Taiho, its Affiliates and Sublicensees shall be excluded from the computation of Net Sales if such Affiliates or Sublicensees are not end-users, but Net Sales shall include the subsequent final sales to non-Affiliate third parties by any such Affiliates or Sublicensees. Where (a) Product is sold by Taiho, its Affiliates or Sublicensees other than in an arms-length sale or as one of a number of items without a separate invoiced price; or (b) consideration for Product shall include any […***…], the Net Sales applicable to any such transaction shall be deemed to be Taiho’s average Net Sales for the applicable quantity of the Product at that time; provided, however, Net Sales shall not include Product sold or used for development of the Product hereunder (including for clinical trials) or as samples ([…***…]).
1.26
“
New Compound
” shall mean a Compound which was not first synthesized by MG […***…]. Compounds that were first synthesized by MG […***…] shall be demonstrated upon […***…] of MG made […***…]. MG represents that Exhibit 1.26 is a partial list of Compounds synthesized by MG prior to the Effective Date.
1.27
“
North America
” shall mean the United States of America and Canada.
1.28
“
Phase I
” shall mean human clinical trials, the principal purpose of which is preliminary determination of safety in healthy individuals or patients (for example, as described in 21 C.F.R. §312.21, or similar clinical study in a country other than the United States).
***Confidential Treatment Requested
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1.29
“
Phase II
” shall mean human clinical trials conducted at multiple sites, for which the primary endpoints include a determination of dose ranges and a preliminary determination of efficacy in patients being studied (for example, as described in 21 C.F.R. §312.21, or similar clinical study in a country other than the United States).
1.30
“
Phase III
” shall mean large scale pivotal human clinical trials conducted at multiple sites, which is sufficiently powered and designed to establish safety and efficacy of one or more particular doses in patients being studied and to provide the statistical basis for Marketing Approval for the respective drug (for example, as described in 21 C.F.R. § 312.21, or similar clinical study in a country other than the United States).
1.31
“
Plans and Budgets
” shall mean collectively, the Research Plans and Budgets, the Preclinical Plans and Budgets and the Clinical Development Plans and Budgets. As of the Effective Date, the preliminary Plans and Budgets regarding the Initial Clinical Candidate are set forth in Exhibit 1.31.
1.32
“
Preclinical and Clinical Data
” shall mean all filings and supporting documents submitted or to be submitted to a Regulatory Authority in a Major Country relating to the Compound(s) or Product(s), and all data contained therein, including, without limitation, any INDs, NDAs and their counterparts in other countries, investigator’s brochures, correspondence to and from such Regulatory Authorities, minutes from teleconferences with Regulatory Authorities, registrations and licenses, regulatory drug lists, advertising and promotion documents shared with Regulatory Authorities, adverse event files and complaint files. In addition, Preclinical and Clinical Data shall include all investigator reports (both preliminary and final), statistical analysis, expert opinions and reports, safety and other electronic databases and all other material documentation and information related to Preclinical Development or clinical development of a Compound or a Product. Without limiting the foregoing, Preclinical and Clinical Data shall include all items described in Exhibit 1.32 that are generated from the Funded Work.
1.33
“
Preclinical Development
” shall mean those preclinical studies with respect to the Compounds and/or Products that are specifically required for an IND, including without limitation ADME and GLP toxicology studies, or studies required for the CMC section of an IND or an NDA. It is understood that “preclinical” testing will continue after the filing of an IND in support of the clinical development of a Compound or Product, including ongoing toxicology, metabolic, PK and other non-clinical testing of such Compound or Product, and that “Preclinical Development” as used herein shall include such ongoing non-clinical testing.
1.34
“
Preclinical Plan and Budget
” shall mean the plan and budget for Preclinical Development, as described in Article 4 below.
1.35
“
Product(s)
” shall mean product(s), in any formulation, containing a Compound(s) as an active ingredient(s).
7
1.36
“
Program Director
” shall mean a development executive appointed by each Party pursuant to Section 3.1 to serve as such Party’s principal coordinator and liaison for the Funded Work.
1.37
“
R&D Personnel
” shall mean employees of a Party assigned (full- or part-time) to conduct research, scientific and/or technical activities under the Plans and Budgets and having qualifications reasonably approved by the JSC, including scientists, clinical research staff, post-doctoral fellows and similarly qualified technicians, but excluding personnel performing non-scientific or non-technical activities such as project management personnel, patent counsel, business development personnel, secretarial staff or the like. For purposes of the Research funded under Section 9.1.1 below, R&D Personnel will include […***…] for MG’s […***…]. For purposes of the Preclinical Development conducted hereunder, R&D personnel may include manufacturing personnel performing QA/QC and other GMP-related activities. In addition, internal costs of the Approved Preclinical Studies may include approved actual costs of MG’s Program Director, on a percentage of time basis.
1.38
“
Regulatory Authority
” shall mean any national (e.g., the FDA), supra-national (e.g., the European Commission, the Council of the European Union, or the EMEA), or other governmental entity in any jurisdiction of the world involved in the granting of Marketing Approval for pharmaceutical products.
1.39
“
Reimbursable Clinical Costs
” shall mean all out-of-pocket clinical trial costs incurred by MG in conducting the Approved Clinical Studies, plus Cost of Goods for the clinical supplies of Compounds and/or Products used therein, and up to a maximum of […***…] per year of mutually agreed internal costs of approved FTE’s of MG (at an agreed reimbursement rate) for the Approved Clinical Studies. It is understood that such internal costs will include approved actual costs of […***…].
1.40
“
Research
” shall mean activities directed to the research, discovery, characterization, optimization,
in vitro
testing and/or
in vivo
evaluation of HDAC Inhibitors, conducted by or under authority of MG.
1.41
“
Research Data
” shall mean all material screening results, SAR data, optimization information,
in vitro
and
in vivo
data, compositions, samples and other information generated in the course of research conducted by or under authority of MG or Taiho with respect to Compounds and/or Products, including without limitation all information and data described in part 1.41A of Exhibit 1.41. In case of data that is generated by an entity with rights with respect to Compounds and/or Products both in and outside of the Field, Research Data shall mean the foregoing, but only to the extent it is not specific to non-cancer indications. With respect to such data generated by Non-Cancer Partners, Research Data shall mean only the items set forth in part 1.41B of Exhibit 1.41.
1.42
“
Research Plan and Budget
” shall mean the plan and budget for Research, as described in Article 4 below.
***Confidential Treatment Requested
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1.43
“
Research Term
” shall mean the period beginning upon the Effective Date and, unless earlier terminated in accordance with Article 20, terminating two (2) years after the Effective Date, unless extended by the Parties in writing upon mutual agreement.
1.44
“
Royalty Term
” shall mean, with respect to a particular Product in a country, the period commencing on the Effective Date and continuing until the later of (a) expiration or abandonment of the last Valid Claim within the Licensed Patents covering such Product in the particular country (on a Product-by-Product and country-by-country basis), or (b) […***…] years after the first commercial sale in Japan of the first Product containing the same Compound as is contained in such Product.
1.45
“
Sublicensee
” shall mean a non-Affiliate third party to whom Taiho has granted (i) the right to distribute a Product made in accordance with this Agreement, provided that such third party has primary responsibility for the marketing and promotion of such Product in its distribution territory and has the right to record sales of such Product for its account or (ii) the right to make and sell a Product, with respect to Products made and sold by such third party, within the scope of the license hereunder. For clarity, Sublicensee shall exclude any wholesaler or reseller of Product which are not primarily responsible for marketing or promotion of the Product. In addition, Taiho and MG shall not be deemed Sublicensees of the other, nor shall either Party be deemed to be acting “under authority” of the other Party.
1.46
“
Territory
” shall mean Japan, South Korea (or both South and North Korea if unified), Taiwan and China.
1.47
“
Valid Claim
” shall mean (a) a claim of an issued and unexpired patent, which has not been held unenforceable, unpatentable or invalid by a final decision of a court or other governmental agency of competent jurisdiction, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise, or (b) a claim in a pending patent application being prosecuted in good faith that has not been abandoned or finally rejected and which has been pending for less than […***…]. In the event subsequent to such […***…] period, such pending claim is issued as a claim of an issued and un-expired patent included within (a) above, such claim shall be reinstated thereafter as a “Valid Claim” in accordance with clause (a) above.
1.48
Additional Definitions
. In addition, the following terms shall have the meaning described in the corresponding section of this Agreement. Other terms may be defined throughout the Agreement.
|
Term
|
|
Section Defined
|
|
“acquired”
|
|
1.21.1
|
|
“Approved Product”
|
|
10.1.6(b)
|
|
“Agreement”
|
|
Preamble
|
|
“Annual Net Sales”
|
|
11.1
|
|
“Approved Preclinical Costs”
|
|
9.1.2
|
|
“Audited Party,” “Auditing Party”
|
|
12.5.1
|
***Confidential Treatment Requested
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|
“Back-up Compound”
|
|
10.1.4(a)
|
|
“Base Royalties”
|
|
9.4.1
|
|
“Bridging Study”
|
|
10.1.4(b)
|
|
“Cancer HDAC Research”
|
|
1.7
|
|
“Collaboration Term”
|
|
20.1
|
|
“Combination Therapy”
|
|
10.1.4(e)
|
|
“Confidential Information”
|
|
16.1
|
|
“Cumulative Net Sales”
|
|
10.2.3(a)
|
|
“Disclosed Know-how”
|
|
8.4
|
|
“Discovered”
|
|
1.7
|
|
“Effective Date”
|
|
Preamble
|
|
“Excluded Third Party IP”
|
|
11.2.1
|
|
“First Approval”
|
|
10.1.6
|
|
“Generic Competition”
|
|
11.4.1
|
|
“Global Development Committee”
|
|
3.4
|
|
“Indemnitor,” “Indemnitee”
|
|
19.4
|
|
“JAMS”
|
|
21.1
|
|
“Joint Intellectual Property”
|
|
17.2
|
|
“Joint Development Team,” “JDT”
|
|
3.2
|
|
“Joint Steering Committee,” “JSC”
|
|
3.3
|
|
“Large Market Tumors”
|
|
10.1.4(d)
|
|
“Licensed Product Use Diagnostics”
|
|
8.1.2
|
|
“Material Non-Performance”
|
|
20.2.2
|
|
“MG”
|
|
Preamble
|
|
“MG Indemnitees”
|
|
19.2
|
|
“Non-Cancer HDAC Research”
|
|
1.7
|
|
“Non-Cancer Partner”
|
|
5.2.1(a)
|
|
“Non-Cancer Reserve Compounds”
|
|
5.2.1(e)
|
|
“Non-Cancer Selected Compounds”
|
|
5.2.1(c)
|
|
“Opt-out Non-Cancer Partner”
|
|
8.3.4
|
|
“Party”, “Parties”
|
|
Preamble
|
|
“preclinical”
|
|
1.33
|
|
“Product Use Diagnostics”
|
|
8.1.2
|
|
“Prosecution”
|
|
17.4.4
|
|
“R&D Events”
|
|
10.1, 10.1.2(c)
|
|
“Recoupable Costs”
|
|
9.4
|
|
“Resolution”
|
|
20.2.2(a)
|
|
“Selected Compounds”
|
|
5.2.1(b)
|
|
“Set of R&D Event Payments”
|
|
10.1.6
|
|
“small molecules”
|
|
1.18
|
|
“Small Market Tumors”
|
|
10.1.4(c)
|
|
“Subsequent Approved Product”
|
|
10.2.2
|
|
“Taiho”
|
|
Preamble
|
|
“Taiho Blocking Patents”
|
|
8.5
|
***Confidential Treatment Requested
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|
“Taiho Budgeted Funds”
|
|
9.1
|
|
“Taiho Indemnitees”
|
|
19.3
|
|
“Taiho Reserve Compounds”
|
|
5.2.1(d)
|
|
“Territory-Specific Preclinical Study”
|
|
5.1.2
|
|
“Third Party IP”
|
|
11.2.1
|
|
“Transitioned Product”
|
|
20.4.4(a)
|
|
“under authority”
|
|
1.45
|
|
“US Indication”
|
|
10.1.5(c)
|
|
“US Product”
|
|
10.1.5(c)
|
|
“US Product Data”
|
|
10.1.5(c)
|
ARTICLE 2
COLLABORATION
2.1
Scope of Collaboration
. Subject to the terms and conditions of this Agreement, the Parties shall collaborate: (a) to conduct Research to identify, characterize and discover Compounds useful in the Field; and (b) recognizing that Products will be developed both in North America and in the Territory and that regulatory and budget efficiencies can be achieved through the worldwide use of appropriate data and files, to cooperatively conduct the Approved Preclinical Studies and Approved Clinical Studies of Selected Compounds in North America.
2.2
Conduct of the Collaboration
. Subject to the terms and conditions of this Agreement, each Party shall use Commercially Reasonable and Diligent Efforts to conduct Research in accordance with the Research Plan and Budget, Preclinical Development in accordance with the Preclinical Plan and Budget, and the Approved Clinical Studies in accordance with the Clinical Development Plan and Budget, in each case under the supervision of the JSC. Each Party agrees to keep the JSC informed as to the progress of its activities under the Plans and Budgets.
ARTICLE 3
GOVERNANCE
3.1
Program Directors
. MG and Taiho shall each appoint a Program Director within thirty (30) days after the Effective Date. Each Party shall have the right, after consulting with the other Party, to designate a different Program Director from time to time thereafter. The Program Directors shall jointly oversee the conduct of the Funded Work, shall lead the Joint Development Team, and shall report to the Joint Steering Committee.
3.2
Joint Development Teams
. Prior to commencing any Approved Preclinical Studies or Approved Clinical Studies, the Joint Steering Committee shall establish a “
Joint Development Team,
” or “
JDT
” in accordance with this Section 3.2 to oversee operational activities under the Preclinical Plan and Budget and Clinical Development Plan and Budget.
3.2.1
Membership
. The JDT shall be comprised of an equal number of representatives from each of MG and Taiho as determined by the Program Directors, and shall
11
include each Party’s Program Director. The JDT shall be under the supervision of the Joint Steering Committee, and its members may be replaced at any time upon the determination of the JSC.
3.2.2
Meetings
. During such time periods as Funded Work is ongoing under the Preclinical Plans and Budgets and/or the Clinical Development Plans and Budgets, the JDT shall meet or communicate no less frequently than monthly, or as otherwise agreed by the Parties, by phone, video conference, web-cast or at mutually agreed locations alternating between Japan and Canada, or at such other locations as the Parties agree. Each Party shall bear its own personnel, travel and lodging expenses relating to JDT meetings. It is understood that the JDT shall be disbanded and shall not have any further responsibilities or decision making powers after the end of the Funded Work.
3.2.3
Responsibilities
. The JDT shall be responsible for (a) monitoring and coordinating operational activities of the Approved Preclinical Studies and Approved Clinical Studies, (b) reviewing and approving during the period of the Funded Work regulatory correspondence, final study reports and submissions to Regulatory Authorities in North America relating to Selected Compounds and/or Products, and (c) without limiting Section 5.2.2 below, proposing subsequent candidates for Preclinical Development or clinical trials to the JSC.
3.2.4
Decisions of the JDT
. Decisions of the JDT shall be made by agreement of the Program Directors, with each Program Director having one vote. Actions that may be taken at a meeting of the JDT also may be taken without a meeting if a written consent setting forth the action so taken is signed by the Program Directors. It is understood that the decisions of the JDT, whether under this Section 3.2.4 or under any other section of this Agreement, shall not vary the terms of this Agreement. In the event that the Program Directors are unable to reach agreement on an issue as set forth in this Section 3.2.4, the issue shall be finally decided by Joint Steering Committee.
3.3
Joint Steering Committee
. Within thirty (30) days after the Effective Date, MG and Taiho shall establish a “
Joint Steering Committee
” or “
JSC
” in accordance with this Section 3.3 to provide oversight and management of certain activities, as further described in this Section 3.3.
3.3.1
Membership
. The JSC shall be comprised of an equal number of representatives from each of MG and Taiho, selected by such Party. The exact number of such representatives on each of the JSC shall be two (2) for each of MG and Taiho, or such other number as the Parties may agree. Taiho and MG may replace its respective JSC representatives at any time, with prior written notice to the other Party.
3.3.2
Meetings
. During such time periods as Funded Work is ongoing under the Plans and Budgets, the JSC shall meet no less frequently than once each calendar quarter, or as otherwise agreed by the Parties, at mutually agreed locations alternating between Japan and Canada, or if agreed, by phone, video conference, web-cast, or at such other locations as the Parties agree, and thereafter as the Parties agree. Each Party shall bear its own personnel, travel and lodging
12
expenses relating to JSC meetings. It is understood that the JSC shall be disbanded and shall not have any further responsibilities or decision making powers after the end of the Funded Work.
3.3.3
Responsibilities
. At its meetings, the JSC shall, consistent with the terms and conditions of this Agreement, (i) formulate and review the objectives of the Parties’ collaboration hereunder, (ii) monitor the progress of the Parties toward those objectives, (iii) review and approve the Plans and Budgets, pursuant to Article 4 of this Agreement, (iv) undertake and/or approve such other matters as are specifically provided for the JSC under this Agreement, and (v) serve as a forum for communication between the Parties and to resolve issues as mutually agreed. Other representatives of Taiho or MG may attend JSC or subcommittee meetings as non-voting observers.
3.3.4
Decisions of the JSC
. Decisions of the JSC shall be made by unanimous agreement of the members present in person or by other means (
e.g.
, teleconference) at any meeting; provided that at least one (1) representative of each Party is present at such meeting. It is understood that the decisions of the JSC, whether under this Section 3.3.4 or under any other section of this Agreement, shall not vary the terms of this Agreement. In the event that the JSC is unable to reach unanimous agreement on an issue as set forth in this Section 3.3.4 (except with respect to approving the selection of a Selected Compound under Section 5.2.2 below or a Research Plan and Budget with fewer than […***…] per year during the Research Term), Taiho shall have the right to cast a deciding vote, which shall be deemed the decision of the JSC.
3.4
Global Development Committee
. At such time as any Preclinical Development or clinical trial is undertaken by or under authority of Taiho or MG (including by an Additional Partner) anywhere in the world within the Field with respect to a Compound and/or Product outside of the Funded Work, the Parties shall establish a joint committee among MG, Taiho and any Additional Partner(s) to discuss and coordinate such development of such Compound and/or Product (the “
Global Development Committee
”). To the extent there are not Additional Partners, and if Funded Work is still ongoing at the time, the function of the Global Development Committee set forth in this Section 3.4 shall be handled by the JSC. The primary role of such Global Development Committee shall be to provide a forum for communication between MG, Taiho and any Additional Partner(s) with respect to activities related to the ongoing Preclinical Development and clinical development of Compounds and/or Products in the Field, outside the Funded Work. Taiho, MG and each Additional Partner having rights to such Compounds or Products shall each have at least two (2) representatives on such Global Development Committee. Each member of the Global Development Committee shall keep the other members fully informed in English (subject to Section 6.6) as to the ongoing Preclinical Development and clinical development of, and regulatory activities with respect to, such Compounds or Products in the Field. It is understood and agreed, however, that formal approval of such Global Development Committee shall not be required for any such activities. The Global Development Committee shall meet no less frequently than twice each calendar year, or as otherwise agreed by the Parties, until the termination or expiration of this Agreement and each of Taiho, MG and any Additional Party shall give a full report in English (subject to Section 6.6) at each such meeting of activities relating to the particular Compounds and Products such Party or Additional Partner has rights to that is undergoing Preclinical Development or clinical development in the Field. Additional Partners will participate in such meeting only with
13
respect to Compounds and/or Products for which they have rights. It is further understood that MG shall not be deemed in breach of this Section 3.4 in the event an Additional Partner fails to comply with this Section 3.4, provided that MG has obtained in its agreement with such Additional Partner the obligation to comply with this Section 3.4, and has used reasonable efforts to cause such Additional Partner to comply with such agreement.
ARTICLE 4
PLANS AND BUDGETS
4.1
Contents of the Plans and Budgets
. The Plans and Budgets shall specify the objectives and work plan activities of the Research to be conducted during the Research Term, Approved Preclinical Studies and Approved Clinical Studies, respectively, including the out-of-pocket costs budgeted to be incurred by MG therefor, and in the case of the Approved Preclinical Studies and Approved Clinical Studies the number and type of FTEs (including in each case by category(ies) of cost or activity, if so decided by the JSC). Unless otherwise stated in the respective Plan and Budget, any monetary amounts budgeted therein shall refer to only the out-of-pocket costs of MG for the respective activity. Likewise, unless otherwise stated in the respective Plan and Budget, any headcounts budgeted therein shall refer only to the number of a Party’s FTEs working on the respective activity.
4.1.1
Initial and Renewal Plans and Budgets
. Promptly after the Effective Date, the JSC shall review and approve more complete, formal initial Plans and Budgets in accordance with this Section 4.1 and Section 4.2 below. Until such approval of Plans and Budgets by the JSC in accordance with this Article 4, the preliminary Plans and Budgets set forth in Exhibit 1.31 shall be deemed the Plans and Budgets then in effect. Thereafter, the JSC shall establish and approve in accordance with this Article 4 renewal Plans and Budgets, prior to the expiration of the Plans and Budgets then in effect, to the extent Funded Work is to be conducted after such expiration.
4.1.2
Periodic Review
. JSC shall review the Plans and Budgets on an quarterly basis and may make any changes thereto as it deems necessary or appropriate, in accordance with Section 4.2 below.
4.1.3
Taiho Participation
. The Plans and Budgets shall provide such reasonable detail as either Party may request. Without limiting the foregoing, with respect to clinical trials, the Plans and Budgets shall include budgets, CROs, schedules, trial sites, investigators, protocols and the like, as requested by either Party. It is understood and agreed that Taiho shall have the right to check, request changes to, participate in revisions of and finally approve all Plans and Budgets for the Funded Work.
4.2
Approval of Plans and Budgets by the JSC
. Each Plan and Budget, including any changes thereto, must be reviewed and approved by the JSC and Taiho before it becomes effective. Each such approval by the JSC and Taiho shall render such Plan and Budget effective for a period of twelve (12) months after such date of approval. The JSC may forecast plans and budgets for longer periods, but such approvals shall not render a Plan and Budget effective for a period of more than twelve (12) months after the date of such approval, and the portions of each Plan
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and Budget setting forth activities after its expiration shall be non-binding for either Party. Upon request by Taiho, the Preclinical Plan and Budget and the Clinical Development Plan and Budget shall include separate plans and budgets for each Compound, Product, and clinical trial.
ARTICLE 5
CONDUCT OF FUNDED WORK
5.1
General
. MG shall conduct the Research, Approved Preclinical Studies and Approved Clinical Studies in accordance with the applicable Plans and Budgets, and shall use Commercially Reasonable and Diligent Efforts to achieve the objectives and timelines within such Plans and Budgets. Without limiting the foregoing, unless otherwise agreed by the Parties and specified in the Research Plan and Budget, MG agrees to dedicate […***…] FTEs per year during the Research Term to performing the Research Plan and Budget. It is understood, however, that MG shall not be obligated to incur any costs in performing the Plans and Budgets that are not reimbursed by Taiho, except that it is understood that Taiho shall be obligated to reimburse only the Reimbursable Clinical Costs of the Approved Clinical Studies. The Approved Preclinical Studies and the Approved Clinical Studies shall be designed in a manner to maximize the usefulness of the resulting Data for Taiho’s regulatory efforts for Products in the Territory, and to comply (to the extent practicable) with any clinical or regulatory requirements in the Territory, while at the same time providing data that is directed at obtaining Marketing Approval for the Products in North America.
5.1.1
Activities to be Conducted by Taiho through the JSC
. In addition to Taiho’s participation as set forth in this Article 5 below, Taiho and MG may mutually agree from time to time on research and preclinical development activities with respect to Compounds and/or Products to be conducted by Taiho in connection with the Plans and Budgets. The Parties acknowledge that Taiho expects to conduct some such activities, including as of the Effective Date, those Taiho activities set forth in the preliminary Plans and Budgets, but shall not be obligated to do so. During the Research Term and for […***…] thereafter, Taiho agrees not to conduct any […***…] specifically directed to compounds that directly inhibit the activity of HDAC enzymes or have therapeutic effect through the inhibition of HDAC enzymes, […***…], other than those to be conducted in connection with or in the exercise of rights granted under this Agreement, unless Taiho agrees to treat […***…] under this Agreement.
5.1.2
Territory-Specific Preclinical Studies
. In the event Taiho requests MG to perform preclinical studies with respect to Compounds and/or Products solely to satisfy particular requirements for preclinical data in the Territory beyond that which would be required or useful in North America or Europe (each, a “
Territory-Specific Preclinical Study
”), MG agrees to perform such study as approved and overseen by the JSC. MG shall be compensated for such work to the extent set forth in Section 9.1.3 below. Activities set forth in the Research Plan and Budget or the Preclinical Plan and Budget shall not be deemed part of Territory-Specific Preclinical Studies unless specifically labeled as such therein.
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5.1.3
Visiting Taiho Personnel
. The Parties agree that Taiho may designate certain employees reasonably acceptable to MG to visit MG’s facilities where the Plans and Budgets are being performed, for purposes of observing and participating in the performance of the Plans and Budgets. The arrangements and duration of such visits shall be reasonably agreed by the Parties so as to minimize any disruption to MG’s business while providing Taiho meaningful participation in the performance the Plans and Budgets as requested by Taiho. It is understood that such visits shall be on a temporary, short-term basis and shall not include longer-term residency unless agreed by the Parties. While at MG, Taiho employees shall have full access at MG to Data and Licensed Technical Information pertaining to the Compounds and/or Products.
5.1.4
Subcontracting
. Neither Party shall delegate or subcontract its performance of the Plans and Budgets, except as approved by the JSC. In addition, any agreements to be entered into by either Party with a third party to perform any portion of the Plans and Budgets shall be approved by the JSC. Such agreements shall contain provisions as materially protective of each Party’s rights, including without limitation with respect to access to Data, ownership and licenses of intellectual property rights and protection of confidential information, as set forth in this Agreement with respect to work performed by the other Party. In the event MG engages a CRO(s) to perform part or all of the Approved Preclinical Studies or Approved Clinical Studies, the Data available to Taiho under Section 6.1 shall include all information and data communicated to and from such CRO(s) with respect to the Compounds and/or Products in the Field.
5.2
Selection of Compounds
.
5.2.1
Certain Definitions
.
(a)
“
Non-Cancer Partner
” shall mean a non-Affiliate third party who (i) is or will be granted by MG, directly or indirectly, a right to develop, market and/or commercialize Compounds and/or Products outside the Field, (ii) is not and will not be granted by MG, directly or indirectly, any rights with respect to Compounds or Products in the Field anywhere in the world, and (iii) who is not an Opt-out Non-Cancer Partner. A Non-Cancer Partner and all of its Affiliates shall be deemed a single Non-Cancer Partner (for example, for purposes of Section 5.2.4(b)(ii) below).
(b)
“
Selected Compounds
” shall mean the Initial Clinical Candidate and (i) those other individual Compounds selected as a Selected Compound by the JSC under Section 5.2.2, (ii) those Compounds that are Selected Compounds under Section 5.2.3(b), (iii) Compounds for which an Additional Partner or third party has rights to develop, market or commercialize as described in Section 5.2.6, and (iv) all Taiho Reserve Compounds in compliance with such 5.2.3(a) below. With respect to each such Compound, the Selected Compound shall include prodrugs, metabolites, salts, esters, hydrates, solvates, free base, polymorphs, isomers thereof, conjugated forms and/or liposomal or other formulations thereof and other compositions consisting of such Compound non-covalently bonded with other moieties, which together shall be deemed a single Selected Compound (and a single Taiho Reserve Compound) for purposes of Sections 5.2.2, 5.2.3(a)(ii) and 5.2.3(b) below.
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(c)
“
Non-Cancer Selected Compounds
” shall mean (i) those individual Compounds selected by Non-Cancer Partners under Section 5.2.4(d), (ii) those Compounds that are Non-Cancer Selected Compound in accordance with Section 5.2.4(c) below, and (iii) Non-Cancer Reserve Compounds selected in accordance with Section 5.2.4(b) below, in each case subject to Section 5.2.5 and provided that MG has obtained all rights and covenants as set forth in Section 8.3.1(b) from the respective Non-Cancer Partner. With respect to each such Compound, the Non-Cancer Selected Compound shall also include the prodrugs, metabolites, salts, esters, hydrates, solvates, free base, polymorphs, isomers thereof, conjugated forms and/or liposomal or other formulations thereof and other compositions consisting of such Compound non-covalently bonded with other moieties, which together shall be deemed a single Non-Cancer Selected Compound (and a single Non-Cancer Reserve Compound) for purposes of Sections 5.2.4(b)(ii), 5.2.4(c) and 5.2.4(d) below.
(d)
“
Taiho Reserve Compounds
” shall mean a list of up to […***…] individual Compounds designated by Taiho as potential development candidates which Taiho desires to reserve in the Territory for the Field in accordance with Section 5.2.3(a) below.
(e)
“
Non-Cancer Reserve Compounds
” shall mean a list of up to […***…] individual Compounds designated by a Non-Cancer Partner as potential development candidates which such Non-Cancer Partner desires to reserve in the Territory outside the Field in accordance with Section 5.2.4(b) below.
5.2.2
Selection by the JSC
. From time to time, either Party or the JDT may suggest that the JSC consider a particular Compound (whether or not such Compound is then a Selected Compound) to be further advanced into Approved Preclinical Studies and/or Approved Clinical Studies. Upon approval of the JSC of such Compound for such Approved Preclinical Studies or Approved Clinical Studies, the Parties shall proceed to establish the appropriate Plans and Budgets for such Compound (it being understood that, upon the approval of such Compound by the JSC, the same shall be deemed a Selected Compound). In the event the Parties have not begun […***…] or […***…] of such Compound […***…] within […***…] after its […***…] by the JSC under this Section 5.2.2, such Compound shall thereafter […***…] (and cannot be […***…] as […***…] under this Section 5.2.2 for at least a period of […***…]) but such Compound may be immediately re-selected or may remain as a Selected Compound pursuant to Sections 5.2.3(a) or 5.2.6 below.
5.2.3
Designation by Taiho
.
(a)
Taiho’s Designation of Reserve Compounds
. Taiho may designate a Compound as a Taiho Reserve Compound at any time upon notice to MG, provided at the time of such notice (i) such Compound is not then a Non-Cancer Selected Compound, and (ii) there are not then more than […***…] Taiho Reserve Compounds. In the event there are then-currently […***…] Taiho Reserve Compounds, then Taiho shall not have the right to include any additional Compound(s) as Taiho Reserve Compounds, until Taiho has removed an equal number of Compounds from the list of Taiho Reserve Compounds, chosen at Taiho’s sole discretion. For the foregoing purpose, it is understood and agreed that Taiho shall have the right to remove any
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Compound from the list of Taiho Reserve Compounds at any time upon written notice to MG. In the event a Compound is so removed from the list of Taiho Reserve Compounds, then such Compound shall thereafter cease to be a Selected Compound, unless re-designated in accordance with this Section 5.2.3(a), or such Compound becomes a Selected Compound in accordance with Section 5.2.2 above or 5.2.6 below.
(b)
Elevation of Taiho Reserved Compounds
. Upon commencement of (i) Phase I clinical studies by or under authority of Taiho with respect to a Compound(s) in the Field, and provided that (ii) such Compound(s) are Taiho Reserve Compound(s) at the time of Taiho’s notice to MG of such commencement under this Section 5.2.3(b), such Compound shall cease to be a Taiho Reserved Compound but shall remain a Selected Compound hereunder (
i.e
., such Compound will no longer count against the maximum number of […***…] Taiho Reserve Compounds). Taiho shall promptly notify MG of any Compounds for which Phase I studies have been commenced by or under its authority.
5.2.4
Rights of Non-Cancer Partners; Designation by Non-Cancer Partners
.
(a)
Rights granted to Non-Cancer Partners
. MG may grant each Non-Cancer Partner rights to develop, market and/or commercialize in the Territory outside the Field only a limited number of individual Compounds (and Products containing the same) which have been selected as Non-Cancer Selected Compounds in accordance with this Section 5.2.4.
(b)
Non-Cancer Partner’s Designation of Reserved Compounds
. A Non-Cancer Partner may designate a Compound as a Non-Cancer Reserve Compound at any time after the Effective Date upon notice to MG, provided at the time of such notice (i) such Compound is not then a Selected Compound, and (ii) there are not then more than […***…] Non-Cancer Reserve Compounds for such Non-Cancer Partner. In the event the Non-Cancer Partner then-currently has […***…] Non-Cancer Reserve Compounds, then such Non-Cancer Partner shall not have the right to include any additional Compound(s) as Non-Cancer Reserve Compounds, until such Non-Cancer Partner has removed an equal number of Compounds from its list of Non-Cancer Reserve Compounds, chosen at such Non-Cancer Partner’s sole discretion. For the foregoing purpose, it is understood and agreed that a Non-Cancer Partner shall have the right to remove any Compound from its list of Non-Cancer Reserve Compounds at any time upon written notice to MG. In the event a Compound is so removed from the list of Non-Cancer Reserve Compounds, then such Compound shall thereafter cease to be a Non-Cancer Selected Compound (unless re-designated in accordance with this Section 5.2.4(b)), and the Non-Cancer Partner shall have no further rights to develop, market and/or commercialize such Compounds in the Territory outside the Field.
(c)
Elevation of Non-Cancer Reserve Compounds
. Upon commencement of (i) Phase I clinical studies by or under authority of a Non-Cancer Partner with respect to a Compound(s) outside the Field, and provided that (ii) such Compound(s) are Non-Cancer Reserve Compound(s) at the time of the Non-Cancer Partner’s notice to MG of such commencement under this Section 5.2.4(c) such Compound shall cease to be a Non-Cancer Reserved Compound but shall remain a Non-Cancer Selected Compound hereunder (
i.e.
, such
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Compound will no longer count against the maximum number of […***…] Non-Cancer Reserve Compounds for such Non-Cancer Partner).
(d)
Development Candidate Selection by a Non-Cancer Partner
. With respect to each Non-Cancer Partner, such Non-Cancer Partner may designate one (1) Compound at any time after the Effective Date (that is its development candidate outside the Field) to be a Non-Cancer Selected Compound, provided that such Compound is not-then currently a Selected Compound. In the event MG and such Non-Cancer Partner have not begun Preclinical Development or clinical trials of such Compound […***…] within […***…] after such […***…], such Compound shall thereafter […***…] (and cannot be […***…] as […***…] under this Section 5.2.4(d) for at least a period of […***…]) but such Compound may be immediately re-selected as or may remain a Selected Compound pursuant to Section 5.2.4(b) above.
5.2.5
Coordination
.
(a)
Designation by Non-Cancer Partner
. A Non-Cancer Partner’s designation, or removal, of a Compound as a Non-Cancer Selected Compound or Non-Cancer Reserve Compound shall be effective only upon notice to […***…] of such designation or removal.
(b)
Designation by Taiho
. MG shall have a period of […***…], to inform Taiho of any reasons under this Agreement why such Compound cannot be a Taiho Reserve Compound, including without limitation if such Compound is already a Non-Cancer Selected Compound prior to such notice (a “
Rejection
”). In the event […***…] does not notify Taiho in writing of a Rejection within such […***…] period, or notifies Taiho during such […***…] period that such Compound has been accepted as a Taiho Reserve Compound, then Taiho’s designation of such Compound as a Taiho Reserve Compound shall conclusively be deemed effective under Section 5.2.3(a) above. In the event a Compound is Rejected as a Taiho Reserve Compound, then MG agrees to promptly notify Taiho if such Compound is thereafter removed from any list of Non-Cancer Selected Compounds, no later than MG notifies any other third party of such removal.
(c)
Disclosure
. […***…] shall promptly disclose to Taiho the structures of all Non-Cancer Selected Compounds, to the extent MG has the right to do so under its agreement with the Non-Cancer Partner that designated such Non-Cancer Selected Compound. To the extent that […***…] has the right to disclose structures of such Non-Cancer Selected Compounds to Taiho, […***…] may reciprocally disclose to such Non-Cancer Partner the structures of the Selected Compounds hereunder; but […***…] shall not disclose the structures of Selected Compounds to a Non-Cancer Partner who does not permit […***…] to disclose its Non-Cancer Selected Compounds to Taiho.
5.2.6
Selection by Additional Partners
. At such time as […***…] grants an Additional Partner or any other third party rights to develop, market and/or commercialize any Compounds in the Field, such Compounds that are selected or reserved for development by such Additional Partner or such third party shall thereafter be deemed Selected Compounds under this
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Agreement. […***…] shall promptly notify Taiho of any such Compounds. It is understood that as used herein, a right to “market and/or commercialize” under this Section 5.2.6 shall include an option to acquire such rights, as defined in the last sentence of Section 1.1 (but excluding the rights described in Section 1.1(a) and (b)). Compounds that are “selected or reserved for development” shall include any Compounds that are selected or reserved for development by the Additional Partner or third party in a manner similar to this Section 5.2 (i.e. Compounds that cannot become Non-Cancer Selected Compounds without such Additional Partner or third party’s consent) and all Compounds for which the Additional Partner or third party has actually commenced Preclinical Development or clinical studies in the Field. […***…] shall notify Taiho of all Selected Compounds under this Section 5.2.6.
5.2.7
No Obligation to Develop Reserve Compounds
. It is understood that neither Taiho nor the Non-Cancer Partners shall have any obligation to advance any Reserve Compounds into Preclinical Development or clinical development, but each may do so in its discretion in accordance with its respective licenses and rights.
ARTICLE 6
PRECLINICAL AND CLINICAL DATA; LICENSED TECHNICAL INFORMATION
6.1
Taiho’s Access to Data
. MG shall provide Taiho with prompt and complete access and the right to use for any purposes relating to Compounds and/or Products in the Field and to file with Regulatory Authorities, all Data generated by or under authority of MG (whether or not generated under the Plans and Budgets or in the course of Funded Work) at […***…]. Without limiting the foregoing, upon request by Taiho from time to time, MG shall promptly provide to Taiho copies of all Data in MG’s possession, and reasonable access to all originals of Data, such as original patient report forms, whether or not in MG’s possession. With respect to Data that is in the possession of a third party only, MG shall secure Taiho the right to obtain copies of such Data from such third party, and shall cooperate fully with and assist Taiho in obtaining such copies.
6.2
MG’s Access to Data
. Taiho shall provide MG with prompt and complete access and the right to use for any purposes relating to Products and/or Compounds in the Field and to file with Regulatory Authorities, all Research Data and Preclinical and Clinical Data generated by Taiho at […***…]. Without limiting the foregoing, upon request by MG from time to time, Taiho shall promptly provide to MG copies of all such Research Data and Preclinical and Clinical Data generated by Taiho, and reasonable access to all originals of such Data, such as original patient report forms. Notwithstanding the foregoing, Taiho shall be obligated to provide to MG Preclinical and Clinical Data with respect to a Compound only to the extent that MG, the Additional Partners and/or Non-Cancer Partners have provided Taiho with access to and use of Preclinical and Clinical Data for such Compound in the Field, generated outside of the Funded Work, at an equivalent stage of preclinical or clinical development. In addition, MG shall not provide to any of its partners, contractors or others outside the Field any Data relating to Compounds and/or Products that is specific to cancer, and shall not provide to Non-Cancer Partners
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any Data generated by Taiho or generated in connection with the Funded Work except those set forth on part 1.41B of Exhibit 1.41.
6.3
Transfer of Technical Information
Promptly after the Effective Date, MG shall use Commercially Reasonable and Diligent Efforts to transfer to Taiho copies of all Licensed Technical Information that MG reasonably believes to be existing as of the Effective Date. Thereafter during the term of this Agreement, upon request of Taiho, MG shall transfer to Taiho all previously undisclosed Licensed Technical Information, if any, including without limitation those developed or acquired after the Effective Date; and shall provide reasonable quantities of Compounds, for further evaluation by Taiho. It is understood that MG’s efforts to provide Taiho with quantities of Compounds as requested under this Section 6.3 may be counted against the […***…] FTE’s performing Research during the Research Term.
6.4
Assistance
Subject to Section 6.6 below, each Party shall provide the other with such assistance as the other Party reasonably requests from time to time, to enable such other Party to fully understand and implement the Data and Licensed Technical Information to be provided hereunder.
6.5
Coordination with Additional Partners, Non-Cancer Partner and Others
6.5.1
By MG
.
(a)
Additional Partners
. It is understood that MG shall be responsible to obtain for Taiho prompt access to, copies of (or the right to promptly obtain copies if the Data is not already in the possession of MG), and use rights with respect to Data generated by Additional Partners, or other third parties authorized by MG (but excluding Non-Cancer Partners, except as provided in Section 6.5.1(b) below), with respect to Compounds and/or Products that are used or useful in the Field, together with the same type of assistance by such Additional Partner or such third parties that MG would be obligated to provide under Section 6.4 with respect to such Data. Without limiting Section 8.3 below, a failure to obtain such access, copies or assistance shall […***…] of this Section 6.5. MG shall not provide any Data to an Additional Partner that fails to provide any Data to Taiho; nor shall MG provide Taiho’s Data to any Additional Partner, directly or indirectly (including by way of cross-referencing for regulatory purposes), except as permitted under Section 6.5.2.
(b)
Non-Cancer Partners
. MG shall be responsible to obtain for Taiho prompt access to, copies of and use rights with respect to Research Data (as described in part 1.41B of Exhibit 1.41) generated by Non-Cancer Partners, together with the same type of assistance by such Non-Cancer Partner that MG would be obligated to provide under Section 6.4 with respect to such Research Data. Without limiting Section 8.3 below, a failure to obtain such access, copies or assistance shall […***…] of this Section 6.5. MG shall not provide any Data to a Non-Cancer Partner that fails to provide any Data to Taiho; nor shall MG provide Taiho’s Data to any Non-Cancer Partner, directly or indirectly (including by way of cross-referencing for regulatory purposes), except as permitted under Section 6.5.2 and 6.2.
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6.5.2
By Taiho
.
(a)
Taiho shall provide to Additional Partners the same access to, copies of and use rights with respect to Research Data and Preclinical and Clinical Data as set forth in Section 6.2 above, together with the same type of assistance as Taiho would be obligated to provide MG under Section 6.4 above with respect to such Data, but only to the extent such Additional Partners has provided Taiho with access and use of Data generated by or on behalf of such Additional Partners as provided for in Section 6.5.1 above, which is for the same Compound in the Field and at an equivalent stage of preclinical or clinical development.
(b)
Non-Cancer Partners
. Taiho shall provide to Non-Cancer Partners the same access to and copies of Research Data (as described in Part 1.41B of Exhibit 1.41) generated by Taiho, together with the same type of assistance as Taiho would be obligated to provide under Section 6.4 with respect to such Research Data, but only to the extent such Non-Cancer Partner has provided Taiho with access to and use of Research Data generated by or on behalf of such Non-Cancer Partner.
6.6
No Obligation to Translate
. It is understood and agreed that any Data to be provided by MG, Taiho, an Additional Partner or a Non-Cancer Partner may be provided in the language in which such Data exists, and neither MG, Taiho, the Additional Partner nor the Non-Cancer Partner shall be obligated to provide translations of such Data (to the extent such translation has not already been prepared).
6.7
Data to Conform with ICH Guidelines
. All Preclinical and Clinical Data and Manufacturing Data required to be provided to either Party under this Article 6 shall conform with ICH Guidelines, to the extent consistent with the laws, regulations and requirements of Regulatory Authorities of the country or jurisdiction for which such Data was generated by the supplying entity.
ARTICLE 7
REPORTS; RECORDS; PUBLICATIONS
7.1
Reports
. In addition to any other information required to be provided by each Party hereunder, prior to each JSC meeting under Section 3.3 above, each Party shall provide the JSC with a written report in English summarizing the progress of such Party’s activities under the Plans and Budgets during the preceding period. MG also agrees to keep the JSC informed as to those Compounds for which any Preclinical Development or clinical development will be conducted outside of the Plans and Budgets in the Field.
7.2
Records
. Taiho and MG shall use reasonable efforts to maintain records of work performed under the Plans and Budgets (or cause such records to be maintained) in sufficient detail and in good scientific manner as will properly reflect all work done and results achieved. Upon reasonable advance notice, each Party shall allow the other to have reasonable access to all records, materials and data generated by or on behalf of such Party under the Plans and Budgets with
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respect to each Product and/or Compound within the Field at reasonable times, in a reasonable manner and, upon request by either Party.
7.3
Publications
. As soon as is practicable prior to the oral public disclosure, and prior to the submission to any outside person for publication of scientific or technical data relating to Compounds in each case to the extent the contents of the oral disclosure or publication have not been previously disclosed pursuant to this Section 7.3 before such proposed disclosure, Taiho or MG, as the case may be, shall disclose to the other Party a copy of the publication, or a written summary of any oral public disclosure, to be made or submitted, and shall allow the other Party at least […***…] days, if feasible, to determine whether such disclosure or publication contains subject matter for which patent protection should be sought prior to publication or which either Party believes should be modified to avoid disclosure of Confidential Information or regulatory or other issues. With respect to publications by investigators or other third parties, such disclosures and publications shall be subject to review by the reviewing Party under this Section 7.3 only to the extent that Taiho or MG (as the case may be) has the right to do so. During such […***…] day review period, the Parties may discuss the merits of making the particular publication at such time, and the Party proposing such publication shall consider in good faith the comments of the other Party, but the publishing Party shall have the final decision of whether or not to publish, so long as such publication does not disclose Confidential Information of the other party.
ARTICLE 8
TAIHO’S LICENSE
8.1
License and License Fee
.
8.1.1
General
. As consideration for the license fee set forth in Section 8.1.4 and the royalties set forth in Article 11, MG hereby grants to Taiho an exclusive right and license, with the right to grant and authorize sublicenses, under the Licensed Technology to research, develop, make, have made, use, sell, have sold, offer for sale, import and otherwise distribute Compounds and Products, for use in the Field. Such license shall be limited to the Territory, except that such license shall include (a) the right to make and have made Compounds and Products outside the Territory, for use, import and/or sale in the Territory; and (b) the right to conduct Preclinical Development and/or clinical trials of Products and/or Compounds in the Field outside the Territory, for submission to Regulatory Authorities within the Territory as follows: […***…] Notwithstanding the foregoing, the license set forth in this Section 8.1 shall exclude the right to develop, import, sell or offer for sale Non-Cancer Selected Compounds, and Products containing Non-Cancer Selected Compounds,
23
provided such Non-Cancer Selected Compounds and Products containing the same are not used within the Field in the Territory.
8.1.2
Diagnostics
. MG hereby grants to Taiho a non-exclusive right and license, with the right to grant and authorize sublicenses, under any patents owned or controlled by MG to make, have made, use, sell, have sold, offer for sale, import and otherwise distribute products and services, for use as Product Use Diagnostics. Such license shall be limited to the Territory, except that such license shall include the right to make and have made such products and services outside the Territory, for use, import and/or sale as Product Use Diagnostics in the Territory. As used herein, “
Product Use Diagnostics
” means […***…] The gross invoice price charged by Taiho for products or services sold by Taiho, its Affiliates or Sublicensees as Product Use Diagnostics under the foregoing license, the sale of which would infringe an issued patent of MG licensed under this Section 8.1.2 (“
Licensed Product Use Diagnostics
”), shall be deemed the gross invoice price of a Product for purposes of calculating “Net Sales” for which royalties will be due hereunder, subject to the deductions set forth in Section 1.25. To the extent Taiho purchases a Licensed Product Use Diagnostics from a third party, and has rights to commercialize such Licensed Product Use Diagnostic worldwide, and has the right to sell such Licensed Product Use Diagnostic to MG and the Additional Partners, Taiho agrees to sell to MG reasonable quantities of such Licensed Product Use Diagnostics for use in the Field outside the Territory, at the same price at which Taiho purchases the same from such third party, pursuant to a mutually agreed, commercially reasonable supply agreement, and agrees to use reasonable efforts to obtain for MG the right to purchase such Licensed Product Use Diagnostics from such third party, on the same terms as Taiho, provided that it is agreed that failure to obtain such rights shall not be deemed a breach of this Section 8.1.2.
8.1.3
Other HDAC Inhibitors
. MG covenants that it shall not, nor shall it assist, cooperate with, nor grant any rights to any third parties to, research, develop (including conducting clinical trials or filing for regulatory approval), market, sell, import, distribute or otherwise exploit any HDAC Inhibitors or products containing the same, in the Territory for use within the Field, whether or not the same are “Compounds.”
8.1.4
License Fee
. Taiho agrees to pay MG within ten (10) days after the Effective Date, One Million Dollars (US $1,000,000) as a license fee.
8.2
MG’s Retained Rights for Compounds in the Territory
. MG shall retain all of its rights in the Territory for uses outside of the Field of Compounds that are not Selected Compounds, subject to Section 5.2.4. However, MG shall not, nor shall it assist or cooperate with, nor grant rights to any third party to, research, develop (including conducting clinical trials or filing for regulatory approval), market, sell, import or distribute (a) the Selected Compounds or any products containing Selected Compounds, in the Territory for uses in or outside of the Field or (b) any Compounds, other than the Selected Compounds, for uses within the Field in the Territory.
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8.3
Agreement with Additional Partners and Other Third Parties; Exempt Patent Licensees; Opt-out Non-Cancer Partner
.
8.3.1
Coordination with this Agreement
(a)
Additional Partner
. MG shall ensure that its agreements with licensees of MG with rights in the Field (including Additional Partners) are in compliance with Section 5.2, and requires such third parties to abide by the provisions of this Article 8, as well as Sections 3.4, 13.2, 14.4, 14.5, 15.2, 15.3, and Article 6 hereof (including Sections 20.2.2, 20.4.2, 22.7 and Article 1, as they relate to such provisions), and with respect to patent rights of such third party sublicensed to Taiho hereunder, Sections 17.4.2 and 17.6; provided that this Section 8.3.1(a) shall not apply to Non-Cancer Partners (except as set forth in Section 8.3.1(b) below), Opt-out Non-Cancer Partners or Exempt Patent Licensees. Without limiting the foregoing, MG shall retain and/or obtain the right from such licensees and third parties to license or sublicense all Compounds to Taiho in accordance with Section 8.1, including without limitation to so exclusively license or sublicense to Taiho in the Territory for the Field all patent rights owned or controlled by such licensee or third party that, in whole or in part, claim or otherwise cover the composition, manufacture, sale or use of Compounds and/or Products and all information, data and materials relating to the development, manufacture, sale or use of Compounds and/or Products. In addition, MG shall obtain an express covenant from such licensee or third party, that such licensee or third party and its affiliates shall not develop or commercialize, or authorize any third party to develop or commercialize, a Compound or any other HDAC Inhibitor (or a product containing the same) in the Field in the Territory during the term of this Agreement, and shall ensure that such licensee or third party (and any affiliate of such licensee or third party) shall not develop or commercialize any Selected Compounds for any purpose, either inside or outside the Field, in the Territory during the term of this Agreement. Further, without limitation, MG shall ensure that such licensees and others abide by the provisions of Article 6 and that Taiho is able to gain prompt access to and copies of the Data generated by or under authority of such licensees and other third parties. It is understood that a failure by MG to ensure such rights, access and copies for Taiho shall be deemed a breach of this Agreement by MG, and if such failure is material, such breach shall be deemed a material breach of this Agreement. For clarity purposes, the obligation in this Section 8.3.1 requiring third parties operating under authority of MG to abide by Sections 17.4.2, 17.6, 20.2.2, 20.4.2 and 22.7 means that such third party is required to abide by such Sections with respect to the Licensed Patents owned or controlled by such third party(ies), as if such third party(ies) were named in place of “MG” therein (including as a “Party”).
(b)
Non-Cancer Partner
. With respect to Non-Cancer Partners:
(i)
MG shall ensure that its agreements with Non-Cancer Partners are in compliance with Sections 5.2 and requires such Non-Cancer Partners abide by Section 6.5.1(b), and MG shall retain and/or obtain the right from Non-Cancer Partners to license or sublicense to Taiho the same rights with respect to patent rights and Research Data (as described in part 1.41B of Exhibit 1.41) owned or controlled by such Non-Cancer Partners, as are granted to Taiho under Article 8 with respect to patent rights and Research Data owned by MG.
25
(ii)
MG shall obtain an express covenant from Non-Cancer Partners, that neither they nor their affiliates shall develop or commercialize, or authorize any third party to develop or commercialize, a Compound or any other HDAC Inhibitor (or a product containing the same) in the Field in the Territory during the term of this Agreement, and shall ensure that Non-Cancer Partners and their affiliates shall not develop or commercialize any Selected Compounds for any purpose, either inside or outside the Field, during the term of this Agreement.
(iii)
It is understood that a failure by MG to ensure such rights, access and copies for Taiho shall be deemed a breach of this Agreement. It is understood and agreed that MG shall ensure that its agreements with Non-Cancer Partners require such Non-Cancer Partners to abide by Sections 17.4.2, 17.6, 20.2.2, 20.4.2 and Taiho’s right to assign under 22.7, as they relate to the foregoing rights obtained or retained for MG from the Non-Cancer Partners, as if named in place of “MG” therein (including as a “Party”).
8.3.2
Certificate by Additional Partners
. At such time as MG enters into an agreement with an Additional Partner, the Additional Partner shall certify to Taiho in writing that the Additional Partner agrees to comply with those provisions referenced in Section 8.3.1(a) above. Taiho’s receipt of such certificate shall be a condition to the Additional Partner’s obtaining any rights from MG. Similarly, upon the request of the Additional Partner, Taiho shall certify to such Additional Partner in writing that Taiho agrees to comply with its obligations to such Additional Partners, under those provisions of this Agreement with which the Additional Partner is required to comply under Section 8.3.1(a) above. MG agrees not to grant any such rights or enter into an agreement with such Additional Partner, and not to provide any Data to such Additional Partner (directly or indirectly, including by way of cross-referencing for purposes of regulatory filings) unless such Additional Partner provides the certificate set forth in this Section 8.3.2, provided that it is agreed that the foregoing shall not prevent MG from providing Data to a potential Additional Partner, for evaluation purposes only, as part of customary and reasonable due diligence by such potential partner prior to entering into an agreement with such potential Additional Partner, subject to reasonable obligations of confidentiality to MG with respect to such Data.
8.3.3
Exempt Patent Licensees
.
(a)
An “
Exempt Patent Licensee
” means a third party who (a) is not collaborating with MG, and is not provided or licensed any Licensed Technical Information or Data (nor provided any assistance, services or materials other than the patents and patent applications licensed or contemplated to be licensed by such third party and their file histories) directly or indirectly by MG relating to Compounds, Products, HDAC or HDAC Inhibitors; (b) is granted rights under the Licensed Patents only outside the Field, and such rights in the Territory extend only to Target Claims; and (c) agrees in writing not to research, develop (including conducting clinical trials or filing for regulatory approval), market, sell, import, distribute or otherwise exploit HDAC Inhibitors (and/or products containing the same) in the Field, whether in or outside the Territory.
26
(b)
“
Target Claims
” means those claims of the Licensed Patents in the Territory that describe the function of inhibiting HDAC but do not include formulae or specifics as to structures or class(es) of structures useful for such function.
(c)
Exempted Requirements
. Sections 8.3.1 and 8.3.2 shall not apply to Exempt Patent Licensees. In addition, Exempt Patent Licensees shall be deemed to be not acting “under authority” of MG for purposes of Sections 1.7 (Compounds), 1.21 (Licensed Technology), 1.23 (Manufacturing Data), 1.32 (Preclinical and Clinical Data), 1.41 (Research Data), 3.4 (Global Development Committee) and 10.1 (R&D Event Payments). Exempt Patent Licensees shall not be deemed an “Additional Partner” for purposes of Section 1.1 nor a “Non-Cancer Partner” for purposes of Section 5.2, but shall be deemed “licensees” of MG for purposes of Sections 17.2.2 (Joint Intellectual Property).
8.3.4
Opt-out Non-Cancer Partners
.
(a)
An “
Opt-out Non-Cancer Partner
” means a third party who (a) is collaborating with MG with respect to HDAC Inhibitors solely outside the Field and has elected to opt out of participating in the pool of Compounds under this Agreement; (b) is not and has not been granted any rights with respect to Compounds and/or Products in any country, and is not and has not been provided any Data or Licensed Technical Information relating to Compounds and/or Products; and (c) agrees in writing not to research, develop (including conducting clinical trials or filing for regulatory approval), market, sell, import, distribute or otherwise exploit HDAC Inhibitors (and/or products containing the same) in the Field, whether in or outside the Territory.
(b)
Exempted Requirements
. Sections 8.3.1 and 8.3.2 shall not apply to Opt-out Non-Cancer Partners. In addition, Opt-out Non-Cancer Partners shall be deemed to be not acting “under authority” of MG for purposes of Sections 1.7 (Compounds), 1.21 (Licensed Technology), 1.23 (Manufacturing Data), 1.32 (Preclinical and Clinical Data), 1.41 (Research Data), 3.4 (Global Development Committee) and 10.1 (R&D Event Payments). Opt-out Non-Cancer Partners shall not be deemed an “Additional Partner” for purposes of Section 1.1 nor a “Non-Cancer Partner” for purposes of Section 5.2.
8.4
Additional Know-how License
. Each Party grants to the other Party a world-wide perpetual, irrevocable, royalty-free, non-exclusive right and license under any information or data controlled by such Party and disclosed to the other Party hereunder (“
Disclosed Know-how
”), to use and disclose such information or data for any purposes or uses outside the scope of the collaboration hereunder, subject to the licenses granted under, and provisions of, this Article 8 and Section 6.5 above. The rights and license granted in this Section 8.4 shall not extend to any patent rights in such Disclosed Know-how. In addition, notwithstanding the foregoing, neither Party shall have the right to file with a Regulatory Authority any Preclinical and Clinical Data, except with respect to Compounds and Products within the Field as permitted under Sections 6.1, 6.2 and 6.5, nor shall MG have the right to provide any Data within the Disclosed Know-how that it receives from Taiho, except in compliance with Section 6.5 and 8.3 above.
27
8.5
Taiho Blocking Patents
. Taiho hereby grants to MG a non-exclusive license, with the right to grant sublicenses (except to Exempt Patent Licensees and Opt-out Non-Cancer Partners), under the Taiho Blocking Patents to research, develop, make, have made, use, sell, have sold, offer for sale, import and otherwise distribute Compounds and Products, in the Field outside the Territory. Notwithstanding the foregoing, MG shall not sublicense any of its rights under this Section 8.5 to an Additional Partner or any other third party, unless MG has obtained all rights and […***…] required under Section 8.3 above to be obtained from such Additional Partner or third party. As used herein, “
Taiho Blocking Patents
” shall mean […***…].
ARTICLE 9
RESEARCH AND DEVELOPMENT COLLABORATION FUNDING
9.1
R&D Collaboration Funding by Taiho
. In accordance with Section 9.2 below, Taiho agrees to provide funding for MG’s performance of the following activities under the Plans and Budgets (the total amount of such funding and reimbursement, the “
Taiho Budgeted Funds
”):
9.1.1
[…***…]
FTE’s for Research
. Taiho agrees to fund […***…] FTE’s of MG at the FTE Rate for the performance of the Research Plan and Budget in accordance with this Agreement, during each of the first two years after the Effective Date.
9.1.2
Approved Pre-clinical Studies
. Subject to this Section 9.1.2, Taiho agrees to reimburse MG for […***…] percent[…***…] of MG’s costs (including the Costs of Goods of Compounds used therein) for the Approved Preclinical Studies (“
Approved Preclinical Costs
”) for the Initial Clinical Candidate and certain other Compounds described in Section 9.1.2(c) below, incurred in accordance with the Preclinical Plan and Budget:
(a)
Additional Partner in North America
. At such time as MG enters into an agreement with an Additional Partner covering North America, Taiho’s obligation to reimburse the Approved Preclinical Costs under this Section 9.1.2 thereafter shall be reduced from […***…] of such costs to […***…]percent[…***…] of such costs. MG shall promptly notify Taiho of such occurrence.
(b)
Other Additional Partners
. In the event MG enters into an agreement with an Additional Partner (other than of the type described in Section 9.1.2(a) above) or a third party, under which such Additional Partner or third party would provide funding for Preclinical Development of Compound(s) in the Field, Taiho’s […***…] obligation of funding […***…], as the case may be, of Approved Preclinical Studies for such Compound(s) under Section 9.1.2(c) below shall be […***…] by the Additional Partner. In the event Additional Partner or third party funds the costs of Approved Preclinical Studies, Taiho’s obligation to fund Approved Preclinical Studies shall be […***…]. If such Additional Partner or third party is reimbursing costs of Approved Preclinical Studies already paid for by Taiho, Taiho shall receive a credit for such reimbursement, usable against any amounts owed by Taiho under this Agreement. To the extent such credit is not
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used by the end of the Funded Work, MG shall refund to Taiho within thirty (30) days thereafter the unused portion of such credit.
(c)
Total Funding for Approved Preclinical Studies
. Taiho shall not be obligated to reimburse MG in excess of […***…]Dollars (US[…***…] in the aggregate with respect to the Initial Clinical Candidate under this Section 9.1.2. In addition, (i) in the event the JSC terminates or postpones the Approved Preclinical Studies and Approved Clinical Studies with respect to the Initial Clinical Candidate, Taiho shall […***…] for up to […***…] Dollars (US $[…***…]) in the aggregate with respect to […***…], subject to Sections 9.1.2(a) and 9.1.2(b) above; and (ii) at such time as Taiho desires MG to pursue a second generation Selected Compound, Taiho shall reimburse MG for up to […***…] Dollars (US $[…***…]) in the aggregate with respect to Approved Preclinical Studies on a mutually-agreed second generation Selected Compound, subject to Sections 9.1.2(a) and 9.1.2(b) above. For the avoidance of doubt, it is understood and agreed that in no event shall Taiho be obligated to reimburse MG in excess of […***…] Dollars (US $[…***…]) under this Section 9.1.2, totaling the costs of all Approved Preclinical Studies reimbursed by Taiho during the term of this Agreement (and such limit shall reach […***…] Dollars (US $[…***…]) only in the event both (i) and (ii) above apply).
9.1.3
Territory-Specific Preclinical Studies
. If MG expects to incur material costs over the Approved Preclinical Costs in performing any Territory-Specific Preclinical Studies, MG shall notify Taiho prior to commencing such studies, specifying such costs. If Taiho still requests MG to perform such studies, then the Parties shall establish a plan and budget for such work in accordance with Section 4.1.3 above, and Taiho agrees to […***…] to generate the Territory-Specific preclinical data requested by Taiho.
9.1.4
Approved Clinical Studies
. Subject to this Section 9.1.4, Taiho agrees to pay […***…] percent ([…***…]) of the Reimbursable Clinical Costs of the Approved Clinical Studies that are Phase I and Phase II clinical trials:
(a)
Additional Partner in the Field in North America
. At such time as MG enters into an agreement with an Additional Partner in the Field covering North America, Taiho’s obligations to pay for the Approved Clinical Studies under this Section 9.1.4 shall thereafter terminate. MG shall promptly notify Taiho of such occurrence. It is understood, as used in this Section 9.1.4(a) and Section 9.1.2(a) above, that an agreement shall be deemed to “cover” North America, if it includes a right to market or commercialize a Product in North America, including an option to acquire such right as defined in Section 1.1 (but excluding rights described in Sections 1.1(a) and (b)).
(b)
Other Additional Partners
. In the event (i) MG enters into an agreement with an Additional Partner, other than of the type described in Section 9.1.4(a) above, under which such Additional Partner would provide funding for Approved Clinical Studies or (ii) MG is reimbursed for any costs of Approved Clinical Studies by any third party, Taiho’s
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obligations thereafter to pay for the Approved Clinical Studies under this Section 9.1.4 shall be reduced by the amount to be so funded or reimbursed by the Additional Partner or third party. In the event MG is reimbursed by an Additional Partner or third party for costs of Approved Clinical Studies which have been paid for by Taiho, Taiho shall receive a credit for such costs, usable against any amounts owed by Taiho under this Agreement. To the extent such credit is not used by the end of the Funded Work, MG shall refund to Taiho within thirty (30) days thereafter the unused portion of such credit.
(c)
Total Funding for Approved Clinical Studies
. Notwithstanding anything to the contrary in this Section 9.1.4, Taiho shall not be obligated to pay MG: (i) in excess of […***…] Dollars (US $[…***…]), totaling the Reimbursable Clinical Costs of all Approved Clinical Studies (including those described in (ii) below) funded by Taiho under this Section 9.1.4 over the term of this Agreement; nor (ii) in excess of […***…] Dollars (US $[…***…]), totaling the Reimbursable Clinical Costs of all Approved Clinical Studies that are Phase I clinical trials, funded by Taiho under this Section 9.1.4 over the term of this Agreement.
9.1.5
Budgets
. Notwithstanding anything to the contrary in this Article 9, Taiho shall not be obligated to fund or reimburse MG with respect to any category(ies) of Taiho Budgeted Funds (including via FTE’s) in excess of the budgeted amounts for the respective category (or in the case of FTE’s, the budgeted number of MG FTE’s for the category), as set forth in the Plans and Budgets in effect at the time. In addition, MG shall ensure that […***…] percent ([…***…]%) of Taiho’s funding of the cost of MG personnel for Research, including without limitation the MG FTE’s funded under Section 9.1.1 above shall be for personnel with […***…]. It is understood that the qualifications for the MG FTEs performing Approved Preclinical Studies and Approved Clinical Studies shall be as reasonably approved by the JSC.
9.2
Timing of the Funding
.
9.2.1
Research FTE Funding
. Within thirty (30) days prior to the beginning of each calendar quarter during the Research Term, MG shall invoice Taiho for the number of MG FTE’s who will be performing Research in such calendar quarter, as specified in the Research Plan and Budget. In the event the Research Plan and Budget does not specify the number of MG FTE’s by quarter, then the […***…] MG FTE’s specified for each year of the Research Term shall be deemed divided equally among each quarter in such year. Taiho shall pay such invoice within thirty (30) days after receipt thereof, up to the total number of FTEs set forth in Section 9.1.1 above.
9.2.2
Approved Preclinical and Clinical Studies
. Within thirty (30) days following the end of each calendar month in which Approved Preclinical Studies or Approved Clinical Studies was performed, MG shall provide Taiho a detailed invoice for the amount of Taiho Budgeted Funds actually incurred by MG during such calendar month for such Studies, classified by using the same categories as used in the Plans and Budgets. Within thirty (30) days after receiving such invoice, Taiho shall pay MG the amount of Taiho Budgeted Funds for the costs of such studies actually incurred by MG in such month and owed under Section 9.1 above.
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9.3
Performance of Funded Work
. MG agrees to perform Funded Work in a professional, quality and cost-effective manner, in close consultation with Taiho, and in accordance with all applicable laws and regulations in North America. In addition, MG shall keep Taiho fully informed on a timely basis as to the Funded Work, and shall follow any reasonable suggestions by Taiho with respect thereto.
9.4
Recoupable Costs
. As used herein, the “
Recoupable Costs
” of a Product(s) shall mean the Reimbursable Clinical Costs with respect to such Product(s) actually paid by Taiho under Section 9.1.4 (less any amounts repaid to Taiho under Section 9.1.4(b) above). Taiho shall be entitled to recoup its Recoupable Costs using one or both of the methods set forth in this Section 9.4 below:
9.4.1
Credit Against Royalties
. Subject to Section 9.4.3 below, Taiho shall be entitled to credit the Recoupable Costs against royalties owed under Article 11, provided that the Base Royalties shall not be so reduced under any circumstances, in any reporting period, to (a) less than […***…] of Net Sales of Product(s) sold in the Territory by Taiho, its Affiliates and Sublicensees, with respect to Product(s) for which Section 11.2.2 does not apply, and (b) less than […***…] of Net Sales of such Product(s) sold in the Territory by Taiho, its Affiliates and Sublicensees, with respect to Product(s) for which Section 11.2.2 applies. Any amounts not able to be credited due to the foregoing proviso may be carried forward to […***…]. As used herein, “
Base Royalties
” shall mean the royalties payable or reimbursed to MG calculated in accordance with Article 11, less any credits applied under this Section 9.4.1 and Section 17.4.3. The calculation of Base Royalties shall include the effect of Section 11.2.1 as follows: royalties paid by MG (whether via a deduction by Taiho or a payment directly by MG) to a […***…] with respect to […***…] acquired by […***…] shall be treated as a […***…] of the Base Royalties; likewise, […***…] paid by […***…] to a third party with respect to […***…] acquired by MG shall […***…] on Base Royalties. In addition, for the avoidance of doubt, the calculation of Base Royalties shall exclude the effect of any […***…] accruing under Sections 9.1.2(b) and 9.1.4(b) which are applied by Taiho, and any adjustments to royalties hereunder under Sections 11.3 and 12.4.
9.4.2
License Proceeds
.
(a)
Subject to Section 9.4.3 below, in the event MG enters into an agreement with an Additional Partner covering rights to North America with respect to Compound(s) or Product(s), MG shall pay Taiho […***…] percent ([…***…]%) of any payments received by MG in connection with the grant of rights to such Additional Partner with respect to such Compound(s) or Product(s), excluding any amounts received by MG as contemporaneous reimbursement (or payment in advance) for ongoing research and/or development expenses incurred by MG after such grant. MG shall pay Taiho such fifteen percent (15%) owed to Taiho, within thirty (30) days after receiving each respective payment, or the occurrence of Section 9.4.2(b)(ii) below, whichever is later. In addition, MG shall promptly disclose to Taiho for its information a copy of all
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agreement(s) entered into with such Additional Partner(s); provided that MG may redact from such agreement provisions that are not relevant to determining compliance with this Section 9.4.2.
(b)
Notwithstanding the foregoing, in the event MG enters into such agreement with such Additional Partner prior to the initiation of […***…], and MG and/or such Additional Partner funds the out-of-pocket costs of Phase I and/or Phase II clinical studies of the Product that was the subject of the Approved Clinical Studies at the time MG entered into such agreement (or such Additional Partner takes over out-of-pocket costs that had been budgeted in good faith to be incurred by MG in the course of performing such studies without the Additional Partner) in an amount exceeding […***…] Dollars (US $[…***…]), provided that such […***…] of expenses are incurred after entry into such agreement and prior to (i) Taiho’s funding more than […***…] Dollars (US $[…***…]) of the Reimburseable Clinical Costs under Section 9.1.4 above and prior to (ii) the […***…] for Compound(s) and/or Product(s), then this Section 9.4.2 shall not be applicable to amounts received from such Additional Partner under such agreement.
9.4.3
Total Recoupment
. It is understood and agreed that the cumulative total amounts credited by Taiho under Section 9.4.1 and paid by MG under Section 9.4.2 shall not exceed […***…] Dollars (US $[…***…]) and shall not in any event exceed the total Recoupable Costs.
9.5
Preclinical Development Prior to the Effective Date
. Taiho agrees to pay MG […***…] within ten (10) days after the Effective Date as reimbursement for MG’s costs of performing certain Preclinical Development activities with respect to the Initial Clinical Candidate in the Field prior to the Effective Date, as described in Exhibit 9.5, provided that supporting invoices for such costs have been received by Taiho. It is understood and agreed that all such activities shall be deemed included within the Approved Preclinical Studies for the Initial Clinical Candidate and the Funded Work and performed under the Plans and Budgets, and the amounts paid under this Section 9.5 by Taiho shall be counted as part of the $1,500,000 maximum costs of the Approved Preclinical Studies for the Initial Clinical Candidate under Section 9.1.2(c) above.
9.6
Reimbursement for Non-Cancer Compound Royalty
. As used herein, a “
Non-Cancer Compound
” shall mean a New Compound, the manufacture, use, or sale of which would infringe Non-Cancer Partner IP but not Joint Intellectual Property or Pre-existing IP. “
Non-Cancer Partner IP
” means Valid Claims within the Licensed Patents, to the extent such Valid Claims consist of inventions made solely in the course of performing Non-Cancer HDAC Research under a material collaboration agreement with a Non-Cancer Partner. “
Pre-existing IP
” means Valid Claims within the Licensed Patents that are owned or controlled by MG or its Affiliates prior to the Effective Date. Taiho shall reimburse MG for the royalties owed by MG to the respective Non-Cancer Partner on the Net Sales of Products containing Non-Cancer Compounds by Taiho, its Affiliates or Sublicensees, up to a […***…] percent ([…***…]%) of such Net Sales. It is understood and agreed that amounts paid with respect to the Non-Cancer Partner IP shall not be subject to Section 11.2 below.
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ARTICLE 10
R&D EVENTS AND COMMERCIALIZATION MILESTONES
10.1
R&D Event Payments
. As reimbursement for past and future expenses with respect to the development of Compounds and/or Products, Taiho agrees to pay MG upon the occurrence of each of the following “
R&D Events
” (numbers 1 through 6) with respect to a Product in accordance with this Section 10.1.
|
R&D EVENTS 1 TO 6
|
|
PAYMENT
|
|
|
[…***…]
|
|
US $
|
[…***…]
|
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|
|
|
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|
[…***…]
|
|
US $
|
[…***…]
|
|
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[…***…]
|
|
US $
|
[…***…]
|
|
|
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|
|
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|
[…***…]
|
|
US $
|
[…***…]
|
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[…***…]
|
|
US $
|
[…***…]
|
|
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|
|
|
[…***…]
|
|
US $
|
[…***…]
|
|
10.1.1
Timing and Amount of the R&D Event Payments
. The payment (if applicable) for each R&D Event shall be due within thirty (30) days after such R&D Event is achieved, subject to Section 10.1.6. The amount due for each R&D Event shall be the corresponding
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amounts set forth in the tables of this Section 10.1, subject to all applicable adjustments set forth in this Section 10.1.
10.1.2
Certain Reductions Based on Tumor Type and Treatment Type
(a)
In the event the Marketing Approval triggering R&D Event 5 is obtained for the treatment of a […***…], or a treatment […***…], then the payment otherwise due for R&D Event 5 (after other adjustments) shall be reduced by […***…]%.
(b)
In the event the Marketing Approval triggering R&D Event 6 is obtained for the treatment of a […***…], or a treatment […***…], then the payment otherwise due for R&D Event 6 (after other adjustments) shall be reduced by […***…]%.
(c)
In the event
both
Sections 10.1.2(a) and 10.1.2(b) above are applicable with respect to a Product that triggers a payment under this Section 10.1, and only in such event, then Taiho shall pay MG for the following additional “
R&D Events
” (numbers 7 and 8):
|
R&D EVENTS 7 AND 8
|
|
PAYMENT
|
|
|
[…***…]
|
|
US $
|
[…***…]
|
|
|
|
|
|
|
|
|
[…***…]
|
|
US $
|
[…***…]
|
|
10.1.3
Certain Reductions if no Bridging Studies
. In the event Taiho is required to conduct additional clinical studies in Japan beyond the Bridging Study to establish the safety and/or efficacy of a Product to obtain or to maintain Marketing Approval in Japan (even if required to be conducted after obtaining such Marketing Approval), then the payments (if any) otherwise due for R&D Events […***…] and […***…] (after other adjustments) with respect to such Product shall be reduced by […***…] percent ([…***…]%). It is understood and agreed that Taiho shall have the right, in its sole judgment, to determine whether such additional clinical studies would be “required” and if Taiho so determines, then such additional studies shall be deemed to have been required for purposes of this Section 10.1.3.
10.1.4
Certain Definitions Relating to the R&D Event Payments
(a)
“
Back-up Compound
” shall mean the first Compound other than the Initial Clinical Candidate selected by the JSC under Section 5.2.2 above for the conduct of Approved Preclinical Studies, and for which a Preclinical Plan and Budget is approved under Section 4.2 above.
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(b)
“
Bridging Study
” shall mean […***…] It is understood that a Bridging Study shall not include […***…].
(c)
“
Small Market Tumors
” shall mean […***…].
(d)
“
Large Market Tumors
” shall mean […***…]. In the event the market size in the Territory for Products directed to […***…]becomes as large as the market size in the Territory for Products directed to the Large Market Tumors, Taiho and MG will discuss adding […***…] as a Large Market Tumor. Notwithstanding, […***…]shall not be included as a Large Market Tumor unless, and until, the Parties agree in writing to add prostate cancer as a Large Market Tumor.
(e)
“
Combination Therapy
” shall mean that the approved label for the Products specifies that the tumor is treated (or recommended to be treated) using a combination of the Compound with one or more other drug(s) or active ingredient(s) that are related to the treatment of cancer but are not Compound(s). For clarity, it is understood that if the approved labeling for the Product specifies use as a single agent (i.e. not in such combination), the fact that physicians actually use the Product in combination will not caused such Product to be deemed a “Combination Therapy.” In the event the market size for a specific Product marketed as a Combination Therapy for a specific tumor is as large as a market for Products marketed as a single-agent therapy for such tumor, then the Parties will discuss elimination of the […***…] percent ([…***…]%) reduction set forth in Section 10.1.2 with respect to such specific Product and such tumor. Notwithstanding, the […***…] percent ([…***…]%) reductions set forth in Section 10.1.2 shall continue to apply, unless and until, the Parties agree in writing on a change thereto.
10.1.5
Notice and Provision of Data
(a)
MG shall promptly notify Taiho upon the submission of each IND in North America with respect to Products in the Field by or under authority of MG, and upon commencement of each Phase I, Phase II and Phase III clinical trial with respect to the Products in the Field by or under authority of MG.
(b)
Payment for R&D Events […***…] through […***…] shall be conditioned upon Taiho having received a copy of all Data, including without limitation all Research Data, Preclinical and Clinical Data and Manufacturing Data, existing as of the date such R&D Events are
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triggered, whether generated in or outside of the collaboration hereunder. This paragraph shall not be deemed to limit Section 8.3 above.
(c)
With respect to R&D Events […***…] through […***…], in the event the Product and indication triggering such R&D Events (“[…***…]
Product
” and “[…***…]
Indication
,” respectively) is not a Product and/or indication that Taiho is then developing in Japan, Taiho may elect not to pay for the achievement of such R&D Event by such Product for such indication. If Taiho so elects, then Taiho shall have no further access to the Data for such […***…] Product with respect to the […***…] Indication (but not including Data that is reasonably necessary for a Product and indication that Taiho is developing) (the “[…***…]
Product Data
”). Thereafter, in the event Taiho desires to develop such US Product for the US Indication or desires access to such […***…] Product Data, Taiho may notify MG and pay MG for the skipped R&D Events with respect to such […***…] Product for the […***…] Indication, in an amount equal to […***…] the amount that would have been owed for each such skipped R&D Event under this Article 10 had Taiho not elected to skip such R&D Events. Upon such notice and payment, Taiho shall have full access to, copies of and use of any and all […***…] Product Data therefor. For purposes of clarity, a “skipped” R&D Event shall mean only those R&D Events […***…] through […***…] which are otherwise payable under this Article 10 at the time Taiho elected to skip such R&D Event, and for which Taiho elected under this Section 10.1.5(c) not to pay, and provided Taiho did not subsequently pay for such R&D Event with respect to another Product as part of the same Set of R&D Event Payments. In the event Taiho subsequently paid for such R&D Event with respect to another Product as part of the same Set of R&D Event Payments, then such R&D Event shall not be deemed a “skipped” R&D Event, and Taiho shall be entitled to receive all Data with respect to all […***…] Products so skipped. In such event, Taiho may owe a R&D Event payment with respect to such […***…] Products as part of a subsequent Set of R&D Event Payments in accordance with Section 10.1.6 below, but the […***…] set forth in this Section 10.1.5(c) shall not apply thereto. In addition, it is understood that the […***…] amounts paid due to the […***…] set forth in this Section 10.1.5(c) (
i.e.
the […***…]) shall […***…] under Section 10.2 below. Notwithstanding the foregoing, this Section 10.1.5 shall not apply to R&D Events […***…] and […***…] that are met under the Approved Clinical Studies or by the Initial Clinical Candidate.
10.1.6
Multiple Sets of R&D Event Payments
. Until R&D Event […***…] is first achieved […***…], each R&D Event shall be paid for only once, regardless of the number of times such R&D Event is achieved. The amount of such payment shall be determined by the first Product to achieve and trigger payment on such R&D Event (
i.e.
any adjustment that applies to such first Product shall apply to the payment). Thereafter, the R&D Events shall be paid for in sets, as described below. Each set of payments for R&D Events under this Section 10.1.6 shall be referred to as a “
Set of R&D Event Payments
.” For purposes of explanation, the effect of the provisions of this Section 10.1.6 is to ensure that, even if the R&D Events are not achieved serially with respect to a single Product at a time, each R&D Event is not paid for more than […***…] until there is one Approved Product, and thereafter not more than a total of […***…] (as […***…] Sets of R&D Event Payments) until there are […***…] Approved Products, and thereafter not more than a total of […***…] times each (as three Sets of R&D Event Payments) until there are […***…] Approved Products, and so on.
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(a)
The first Set of R&D Event Payments shall mean only payments for the first achievement of each of R&D Events […***…] through […***…] prior to […***…]. In the event R&D Events […***…],[…***…] and […***…] are achieved thereafter, they shall be paid for in the first Set of R&D Event Payments only if they are triggered by the same Product that triggered […***…]. The achievement of all other R&D Events, if triggering a payment obligation, shall be paid for in a subsequent Set of R&D Event Payments.
(b)
Each Set of R&D Event Payments after the first set (e.g. the second set, the third set, etc.) shall become payable, if ever, only upon the triggering of payment of R&D Event […***…] within the immediately previous Set of R&D Event Payments. With respect to each Set of R&D Event Payments, the Product triggering payment of R&D Event […***…] therein shall be referred to as the “
Approved Product
” for such Set of R&D Event Payments. In the event R&D Events […***…],[…***…] and […***…] are thereafter achieved with respect to a Product, such R&D Events shall be deemed part of that previous Set of R&D Event Payments for which the Approved Product is the same as such Product.
(c)
The second (and any subsequent) Sets of R&D Event Payments shall not include R&D Event […***…] (
i.e.
R&D Event […***…] can only be achieved and become payable as part of the first Set of R&D Event Payments). In addition, with respect to the second (and any subsequent) Sets of R&D Event Payments, the following adjustments shall apply: (i) the payments for R&D Events […***…] and […***…] therein shall not be due unless and until R&D Event 4 therein is triggered, and (ii) the payments for all R&D Events within the second (and any subsequent) Sets of R&D Event Payments shall be reduced by […***…] percent ([…***…]%) in addition to any applicable reductions set forth in Sections 10.1.2, 10.1.3, 10.1.4 and 10.1.5 above.
(d)
Within each Set of R&D Event Payments (whether the first set or any subsequent set), each R&D Event shall be paid for at most once, regardless of the number of times such R&D Event is achieved. Payment for each R&D Event within a Set of R&D Event Payments shall be triggered upon its […***…] achievement at any time by a Product that contains a Compound that was not present in any of the Products that triggered payment for the same R&D Event in the previous Sets of R&D Event Payments. For the avoidance of doubt, in the event such […***…] achievement of an R&D Event within a Set of R&D Event Payments occurred prior to the time such Set of R&D Event Payments becomes payable, the payment for such R&D Event shall be made at the time such Set of R&D Event Payments becomes payable, if ever.
10.1.7
Certain Reductions if New Compound
. With respect to the […***…] Set of R&D Event Payments, in the event the Product triggering payment on the R&D Events therein contains a New Compound as an active ingredient, then the payments due for such R&D Events shall be reduced by […***…] percent ([…***…]%) respectively.
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10.2
Commercialization Milestones
.
10.2.1
First Approved Product
.
(a)
In the case where the First Approved Product does not contain a New Compound, to the extent the payments made by Taiho for the first Set of R&D Event Payments total less than […***…] Dollars (US $[…***…]) in the aggregate, Taiho agrees to pay a set of commercialization milestones with respect to such First Approved Product, based on the cumulative sales thereof until the total payments to MG under this Section 10.2 with respect to such First Approved Product and the first Set of R&D Event Payments equal […***…] Dollars (US $[…***…]), as follows.
|
COMMERCIALIZATION MILESTONES
|
|
PAYMENT
|
|
|
a. Cumulative Net Sales of such Approved Product in the Territory first exceeding […***…] Dollars (US $[…***…])
|
|
US $
|
[…***…]
|
|
|
|
|
|
|
|
|
b. Cumulative Net Sales of such Approved Product in the Territory first exceeding […***…] Dollars (US $[…***…])
|
|
US $
|
[…***…]
|
|
|
|
|
|
|
|
|
c. Cumulative Net Sales of such Approved Product in the Territory first exceeding […***…] Dollars (US $[…***…])
|
|
US $
|
[…***…]
|
|
|
|
|
|
|
|
|
d. Each time thereafter such Cumulative Net Sales of the Approved Product in the Territory first exceeds the next […***…] Dollars (US $[…***…]) increment
|
|
US $
|
[…***…]
|
|
(b)
In the case where the First Approved Product contains a […***…], to the extent the payments made by Taiho for the first Set of R&D Event Payments total less than […***…] Dollars (US $[…***…]) in the aggregate, Taiho agrees to pay commercialization milestones “a,” “b,” “c,” and “d” above at the time such First Approved Product achieves the corresponding Cumulative Net Sales until the total payments to MG under this Section 10.2 with respect to such First Approved Product and the […***…] Set of R&D Event Payments equal […***…] Dollars (US $[…***…]); provided that the amount of each such payment shall be reduced by […***…] percent ([…***…]%) (
i.e.
, each such payment shall equal US $[…***…] rather than US $[…***…]).
10.2.2
Subsequent Approved Products
. With respect to Approved Products other than the First Approved Product (each, a “
Subsequent Approved Produc
t”), regardless of whether such Product contains a […***…], to the extent the payments made by Taiho for the Set of R&D Event Payments corresponding to such Subsequent Approved Product total less than
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[…***…] Dollars (US $[…***…]), Taiho agrees to pay the commercialization milestones “a”, “b,” “c” and “d” above at the time such Subsequent Approved Product achieves the corresponding Cumulative Net Sales until the total payments to MG under this Section 10.2 with respect to each such Subsequent Approved Product and its corresponding Set of R&D Event Payments equal […***…] Dollars (US $[…***…]), provided that the amount of each such payment shall be reduced by […***…] percent ([…***…]%) (
i.e.
, such payments shall each equal US $[…***…] rather than US $[…***…]).
10.2.3
Certain Terms
(a)
“
Cumulative Net Sales
” shall mean the cumulative total Net Sales of the respective Approved Product in the Territory by Taiho, its Affiliates and Sublicensees over the entire Royalty Term.
(b)
Subject to Section 10.2.3 below, Taiho shall pay the amount set forth in the table above with respect to an Approved Product within thirty (30) days after the occurrence of the Cumulative Net Sales thereof first exceeding the respective threshold set forth in the table above.
(c)
It is understood and agreed that the total amounts paid by Taiho with respect to each Set of R&D Event Payments plus the total amounts paid by Taiho in commercialization milestones for the Approved Product therein shall not exceed (i) […***…] Dollars (US $[…***…]) in the aggregate in the case of the First Approved Product, where such First Approved Product does not contain a […***…]; (ii) […***…] Dollars (US $[…***…]) in the aggregate in the case of the First Approved Product, where such First Approved Product contains a […***…]; and (iii) […***…] Dollars (US $[…***…]) in the aggregate in the case of each Subsequent Approved Product, regardless of whether or not such Subsequent Approved Product contains a […***…].
10.3
[…***…].
10.3.1
Payment upon Marketing Approval in
[…***…]. Within thirty (30) days after Taiho obtains the first Marketing Approval with respect to the first Product for the first indication in […***…], Taiho agrees to pay MG […***…] Dollars (US $[…***…]), provided that such Product contains a Compound the composition of which is covered by a Valid Claim of Licensed Patents in […***…] or of patent rights owned by Taiho in […***…]. Such payment shall not be subject to any of the adjustments set forth in Section 10.1.
10.3.2
Payment upon Marketing Approval in
[…***…]. In the event R&D Event […***…] becomes payable with respect to an Approved Product containing a Compound, the composition of which is covered by a Valid Claim of Licensed Patents in […***…] or of patent rights owned by Taiho in […***…], Taiho agrees to pay MG an additional […***…] Dollars (US $[…***…]). Such payment shall not be subject to any of the adjustments set forth in Section 10.1, except for the adjustment set forth in Section 10.1.6(c)(ii) if the triggering R&D Event […***…] occurred in the second or any subsequent Sets of R&D Event Payments. It is understood and agreed that any payment under
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this Section 10.3.2 shall […***…] set forth in Section 10.2 above.
10.3.3
Parallel Imports
. Taiho agrees to use diligent efforts to prevent Products sold by Taiho or its Sublicensees for use in […***…] from being resold or distributed outside the Territory.
ARTICLE 11
ROYALTIES
11.1
Payment of Royalties during the Royalty Term
. In consideration of the licenses granted to Taiho in Section 8.1 above, beginning with the first commercial sale of Products in a country of the Territory, Taiho shall pay MG a running royalty on the Net Sales of Products sold in such country by Taiho, its Affiliates and Sublicensees during the Royalty Term for such Product in such country, calculated in accordance with this Article 11 and paid in accordance with Article 12 below. The applicable royalty rate shall be as set forth in the table below (subject to any applicable adjustments set forth in this Article 11 below) based on Annual Net Sales of such Product in the Territory. As used herein, “
Annual Net Sales
” shall mean, with respect to a Product and a calendar year, the Net Sales of such Product sold in the Territory by Taiho, its Affiliates and Sublicensees during such calendar year during the applicable Royalty Term.
|
NET SALES
|
|
ROYALTY PERCENTAGE
|
|
|
With respect to that portion of Annual Net Sales of such Product less than or equal to US $[…***…] Dollars (US $[…***…])
|
|
[…***…]
|
%
|
|
|
|
|
|
|
With respect to that portion of Annual Net Sales of such Product, greater than US $[…***…] Dollars (US $[…***…]) and less than or equal to US $[…***…] Dollars (US $[…***…])
|
|
[…***…]
|
%
|
|
|
|
|
|
|
With respect to that portion of Annual Net Sales of such Product, greater than US $[…***…] Dollars (US $[…***…]) and less than or equal to US $[…***…] Dollars (US $[…***…])
|
|
[…***…]
|
%
|
|
|
|
|
|
|
With respect to that portion of Annual Net Sales of such Product, greater than US $[…***…] Dollars (US $[…***…])
|
|
[…***…]
|
%
|
11.1.1
Initial Clinical Candidate not First Approved
. In the event the First Approved Product does not contain the Initial Clinical Candidate, and Marketing Approval is obtained hereunder with respect to one or more Products containing […***…], the applicable royalty percentage shall be reduced by […***…] percent ([…***…]%) (
i.e.
multiplied by […***…]) with respect to such Products containing […***…].
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11.1.2
Initial Clinical Candidate First Approved
. In the event the First Approved Product contains the Initial Clinical Candidate, then the applicable royalty percentage shall be (a) decreased by […***…] ([…***…]%) (
i.e.
subtract […***…]%) with respect to all subsequent Products not containing a […***…] and (b) reduced by […***…] percent ([…***…]%) (
i.e.
multiplied by […***…]) with respect to all subsequent Products containing […***…].
11.2
Third Party Royalties
.
11.2.1
Sharing
. In the event Taiho, its Affiliates or Sublicensees pays royalties on their sales of Products in the Field in the Territory, which are in consideration for patent rights, trade secrets or other intellectual property or technology obtained from a non-Affiliate third party (“
Third Party IP
”), or in the event MG owes royalties to a Non-Affiliate third party who is neither an Additional Partner nor a Non-Cancer Partner on such sales of Products by Taiho, its Affiliates or Sublicensees in the Field in the Territory in consideration for Third Party IP acquired after the Effective Date covering such Products within the Licensed Technology (other than those Third Party IP required to be obtained by MG under Section 8.3), the Parties shall […***…] in the payment of such royalties. Each Party shall promptly notify the other Party of any applicable Third Party IP and the method of calculating royalties owed thereunder to the respective third party. MG agrees not to incorporate into any Product being developed under this Agreement any Third Party IP, which MG has in-licensed or of which MG is otherwise aware, without Taiho’s prior written approval. If after the Effective Date, MG acquires from a third party any Third Party IP within the Licensed Technology that is subject to a royalty to such third party which Taiho would be required to reimburse under this Section 11.2.1, then MG shall promptly notify Taiho, specifying the applicable royalty rate and the method of calculation. Taiho may elect upon written notice at any time to exclude such Third Party IP from the Licensed Technology, and upon such notice, Taiho shall thereafter not be licensed under Section 8.1 with respect to such Third Party IP (“
Excluded Third Party IP
”) and shall not be obligated to share in the payment of royalties therefor under this Section 11.2.1. The Parties shall discuss from time to time at the JSC whether any Third Party IP is necessary or desirable to obtain with respect to the Compounds and/or Products in the Field.
11.2.2
Adjustment to Running Royalty
. In addition to Section 11.2.1, in the event Taiho, its Affiliates or its Sublicensee pays (or reimburses MG for) third party royalties on the sales of a Product(s) in the Territory in consideration for Third Party IP under Section 11.2.1 above, the royalties payable under this Article 11 (after any adjustments under Sections 11.1.1 and 11.1.2) shall be: (i) decreased by the amount of Taiho’s share of such royalties, up to […***…] percentage points ([…***…]%) (
i.e.
subtract up to […***…]%), in case the Product does not contain a […***…], or (ii) decreased by the amount of Taiho’s share of such royalties, up to […***…] percentage point ([…***…]%) (
i.e.
subtract up to […***…]%), in case the Product contains a […***…].
11.3
Combination Products
. In the event that a Product is sold for a single combined price in combination with other products, components (including active ingredients) or services for which no amounts would be payable to the other Party hereto if sold separately, amounts invoiced for such combination sales for purposes of calculating Net Sales on the sales of the Product in such combination shall be reasonably allocated between such amounts attributable for Product and amounts in consideration for such other products, components or services by the Party under whose
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authority such sale was made. Such allocation shall be based on the relative value(s) of such Product and of such other products, components or services, but in no event shall the Net Sales of the Product in such combination be less than the average arms-length price of such Product, if being sold separately.
11.4
Generic Competition
.
11.4.1
Generic Competition Defined
. “
Generic Competition
” shall occur when a product (a “
Generic Version
”) that contains the same Compound as an active ingredient as in a Product sold in the Field in any country within the Territory by Taiho, its Affiliates or Sublicensees (“
Taiho Product
”), is sold in such country in the Territory by a third party who is not under authority of Taiho, its Affiliates or Sublicensees, during a period of time within the Royalty Term when the Taiho Product does not have, or loses its marketing exclusivity in such country (whether due to failure to obtain patent protection, or expiration, invalidity of enforceability of Licensed Patents covering the Taiho Product in such country, loss or expiration of any marketing exclusivity conferred by the Regulatory Authority in such country or other cause). The foregoing adjustment shall not apply, however, by reason of sale of a Generic Version that is used solely outside the Field, provided the introduction and sale of such Generic Version does not result in a lower price for the Product hereunder.
11.4.2
Adjustment to Royalties
. In the event of Generic Competition occurs with respect to a Taiho Product in any country in the Territory, the royalties payable thereafter under this Article 11 with respect to such Taiho Product sold in such country (after any adjustments under Sections 11.1.1, 11.1.2 and 11.2.2) shall be reduced by […***…] percent ([…***…] %). Notwithstanding the foregoing, this Section 11.4.2 shall not apply to Net Sales of Taiho Products in […***…].
ARTICLE 12
PAYMENTS; BOOKS AND RECORDS
12.1
Quarterly Royalty Reports
. Commencing on the first commercial sale of Products in the Territory, Taiho shall make quarterly reports to MG within […***…] days after the end of each calendar quarter, which reports shall include, in reasonable detail, a calculation of any Net Sales in such quarter and an itemization of any deductions or adjustments applicable to such Net Sales by the categories set forth in Section 1.25. Concurrently with making such report, Taiho shall remit payment to MG for any royalty due under Article 11 above.
12.2
Payment Method
. All payments under this Agreement shall be made by bank wire transfer in immediately available funds to an account designated by the payee. All dollar amounts specified in this Agreement, and all payments made hereunder, are and shall be made in U.S. dollars. Any payments due under this Agreement which are not paid by the date such payments are due under this Agreement shall bear interest to the extent permitted by applicable law at the U.S. prime rate per annum quoted by the Wall Street Journal (U.S., Eastern Edition), or its successor, on the first business day after such payment is due, plus an additional two percentage points (2%), calculated on the number of days such payment is delinquent. This Section 12.2 shall in no way limit any other remedies available to either Party.
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12.3
Currency Conversion
. If any currency conversion shall be required in connection with the calculation of amounts payable hereunder, such conversion shall be made using the TTS (Telegraphic Transfer Selling) rate for conversion of the foreign currency into U.S. dollars, quoted for current transactions reported by Bank of Tokyo-Mitsubishi, or its successor, for the last business day of the calendar quarter to which such payment pertains.
12.4
Taxes
. Each Party shall bear and, except as otherwise expressly provided in this Section 12.4, pay any and all taxes, duties, levies, and other similar charges (and any related interest and penalties), however designated, imposed on that Party as a result of the existence or operation of this Agreement. If in the paying Party’s judgment, laws or regulations require that taxes be withheld, the paying Party will (i) deduct those taxes from the remittable payment, (ii) timely pay the taxes to the proper taxing authority, and (iii) send proof of payment to the other Party within sixty (60) days following that payment. It is understood that if the paying Party believes there is a likelihood that taxes must be withheld, then it may do so and shall not be deemed in breach of this Agreement by reason of such withholding.
12.5
Records; Inspection
.
12.5.1
General
. Each Party and its Affiliates shall keep complete, true and accurate books of accounts and records for the purpose of determining payments due pursuant to this Agreement. Such books and records shall be kept for at least […***…] years following the end of the calendar quarter to which they pertain. Such records will be open, for such […***…] year period, for inspection at the principal place of business of such Party or its Affiliates, as the case may be, (“
Audited Party
”) during such three (3) year period by an independent auditor chosen by the other Party (“
Auditing Party
”) and reasonably acceptable to the Audited Party for the purpose of verifying the amounts payable by Audited Party hereunder. All such inspections may be made no more than once each calendar year, at reasonable times and on reasonable notice. The independent auditor shall be obligated to execute a reasonable confidentiality agreement prior to commencing any such inspection.
12.5.2
Sublicensees
. Taiho shall either: (a) require each of its Sublicensees to maintain similar books and records and to open such records for inspection to an independent auditor chosen by MG and reasonably acceptable to such Sublicensee in the manner paralleling that set forth in Section 12.5.1, or (b) obtain such audit rights from the Sublicensee for itself and exercise such audit rights on behalf of MG upon MG’s request and disclose the results thereof to MG. In either case MG shall be deemed the Auditing Party, and such Sublicensee the Audited Party for purposes of Section 12.5.3 below.
12.5.3
Costs
. Inspections conducted under this Section 12.5 shall be at the expense of the Auditing Party, unless a variation or error producing an underpayment in amounts payable exceeding […***…] percent ([…***…]%) of the amount paid for the period covered by the inspection is established in the course of any such inspection, whereupon the Audited Party shall reimburse the Auditing Party for all reasonable out-of-pocket costs relating to the inspection for such period. The Parties will endeavor to minimize disruption of the Audited Party’s normal business activities to the extent reasonably practicable.
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ARTICLE 13
DUE DILIGENCE
13.1
Due Diligence by Taiho
. Taiho shall use Commercially Reasonable and Diligent Efforts to develop and commercialize at least […***…] in Japan. Notwithstanding the foregoing but subject to Section 13.3 below, it is understood and agreed that Taiho shall not be obligated to develop or commercialize any Compound and/or Product in Japan prior to Marketing Approval for such Compound or Product being obtained in the United States and all Data underlying or generated for purposes of obtaining such Marketing Approval has been provided to Taiho.
13.2
Due Diligence by MG and Additional Partners
. MG shall use Commercially Reasonable and Diligent Efforts to obtain Marketing Approval within the Field for at least […***…] containing a Selected Compound in the United States. In the event MG grants rights to commercialize Products within the Field in the United States to an Additional Partner, MG shall ensure that such Additional Partner uses at least Commercially Reasonable and Diligent Efforts to obtain Marketing Approval within the Field for at least […***…] Product containing a Selected Compound in the United States.
13.3
Due Diligence in Pursuing the Collaboration
. Each Party shall use Commercially Reasonable and Diligent Efforts to establish Plans and Budgets to accomplish the purpose of this Agreement, consistent with the terms and conditions hereof, provided that such obligation shall in any event terminate after the Parties have progressed at least […***…] in North America to the start of […***…]. For clarity purposes, it is understood that Taiho’s agreement to fund […***…] of the Approved Preclinical Studies and Approved Clinical Studies was conditioned upon Taiho having the right to check, request changes to and finally approve those studies; and without limiting such rights, Taiho shall have the final right to determine whether or not to continue development of a given Compound as part of the Approved Preclinical Studies and/or Approved Clinical Studies, provided that if Taiho elects not to continue development of a given Compound as part of the Approved Preclinical Studies and/or Approved Clinical Studies, Taiho will use Commercially Reasonable and Diligent Efforts to establish Plans and Budgets for Approved Preclinical Studies and/or Approved Clinical Studies for an […***…]. In the event the Parties have a difference of opinion as to whether or not to continue development of a given Compound as part of the Approved Preclinical Studies and/or Approved Clinical Studies, or the design of such studies, the Parties agree to consult one or more mutually agreed independent scientific experts in the Field, and to consider in good faith their suggestions.
ARTICLE 14
MANUFACTURING RIGHTS
14.1
Taiho’s Manufacture
. Without limiting Section 8.1 above, it is understood that Taiho shall have the exclusive right to manufacture or have manufactured Compounds and Products for use, import and/or sale within the Territory in accordance with this Agreement, including the right to determine the methods and procedures for the manufacture and supply of all Products, whether in bulk or final form, including quantities to be used, for such supply. In cases where Taiho is manufacturing clinical and/or commercial supplies of Products that are being
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developed in the Field both inside and outside the Territory, Taiho agrees to comply with ICH guidelines and cGMP (as defined by ICH guidelines) therefor, to the extent consistent with applicable laws, regulations, requirements of Regulatory Authorities and the Marketing Approval in the Territory.
14.2
Right to Supply Products outside the Territory
. MG agrees to use reasonable efforts to secure for Taiho the exclusive right to supply […***…] bulk active Compounds for use in the Field […***…]. MG agrees to discuss such issue with all actual or potential Additional Partners, and shall keep Taiho informed and consult with Taiho with respect to such discussions. For such purposes, MG shall promptly disclose to Taiho all of its Additional Partners in the Field outside the Territory. In all cases, MG shall ensure that Taiho has full access to Manufacturing Data and manufacturing know-how used to produce such Compounds, and MG agrees to promptly provide the same to Taiho upon Taiho’s request. In the event Taiho agrees to manufacture clinical and/or commercial supplies of Compounds for MG and/or Additional Partners, Taiho shall manufacture such Compounds in compliance with applicable laws, regulations and requirements of Regulatory Authorities and the Marketing Approval in the country or regulatory jurisdiction for which such Compounds being supplied.
14.3
Taiho’s Right to Purchase Products from or through MG
. In the event MG purchases any bulk and/or final Compounds and/or Products from any third party, MG agrees to use diligent efforts to obtain for Taiho the right to purchase such materials from such third party, on the same terms as MG. Upon Taiho’s request from time to time, MG agrees to disclose to Taiho all of its third party suppliers of such materials, and shall keep Taiho informed and consult with Taiho with respect to its discussions with such third party suppliers regarding supplying Taiho. In the event MG purchases Compounds or Products from a third party and Taiho wishes to purchase such materials from MG rather than the third party, or in the event MG produces such materials itself, MG agrees to supply such materials to Taiho, as requested by Taiho, at MG’s Cost of Goods therefor. Such supplies by MG shall be either cGMP or non-GMP, and shall comply with applicable specifications, as requested by Taiho. Such specifications shall be reasonable and customary to meet ICH guidelines, to the extent consistent with applicable laws, regulations, requirements of Regulatory Authorities and the Marketing Approval in the Territory. In addition, MG agrees to maintain or have maintained batch records and take such other actions as is necessary to comply with applicable laws and regulations, and to otherwise cooperate reasonably with Taiho to ensure consistent and adequate supply of such materials.
14.4
Taiho’s Right to Purchase Certain Products from or through Additional Partners
. In the event MG grants any Additional Partner the right to make or have made Compounds and/or Products containing Compounds for such Additional Partner’s own requirements, MG shall obtain for Taiho the right to purchase Taiho’s requirements of such Compounds and/or Products in bulk or final form from such Additional Partner as follows. Such Additional Partner shall supply such Compounds and/or Products in bulk or final form, as requested by Taiho: (a) at […***…], with respect to Compounds and/or Products intended to be used for the conduct of Preclinical Development and/or human clinical trials, and (b) at […***…] percent ([…***…]%) of such Additional Partner’s Cost of Goods, with respect to Compounds and/or Products intended for commercial sale and use, provided that […***…].
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Such supply of materials by the Additional Partner shall be either cGMP or non-GMP, as requested by Taiho, and shall comply with applicable specifications. For purposes of the foregoing, the “applicable specifications” shall mean those specifications that the Additional Partner applies for its own purposes, modified as Taiho and such Additional Partner may agree. Such specifications shall be reasonable and customary to meet ICH guidelines, to the extent consistent with applicable laws, regulations, requirements of Regulatory Authorities and the Marketing Approval in the Territory. The Additional Partner shall maintain or have maintained batch records and take such other actions as is necessary to comply with applicable laws and regulations, and to otherwise cooperate reasonably with Taiho to ensure consistent and adequate supply of such materials.
14.5
Terms of Supply by MG and the Additional Partners
. In supplying Compound and/or Product to Taiho in accordance with Section 14.3 or 14.4 above, MG and the Additional Partner shall supply the same in an expeditious manner and shall comply with standards of performance at least equivalent to those generally expected for the supply of bulk compounds and pharmaceutical products by top-tier toll manufacturers. Upon the request of Taiho, the Additional Partner shall enter into a written agreement with Taiho with respect to such supply containing terms and conditions that are commercially reasonable (including without limitation reasonable and customary forecasting and ordering provisions) but in any case not less protective of Taiho than those set forth in this Agreement. In the event there are not sufficient quantities of a particular Compound or Product, then Taiho shall be allocated a reasonable share of the available quantities. In the event Taiho procures Compound or Product from an Additional Partner, and the Additional Partner thereafter ceases to have the right to manufacture such Compound or Product, the Additional Partner shall continue to supply the same to Taiho in accordance with Section 14.5 until Taiho is able, using Commercially Reasonable and Diligent Efforts, to procure adequate alternative supply. In such event, the Additional Partner shall use Commercially Reasonable and Diligent Efforts to assist Taiho in obtaining such alternative supply, and in transitioning the manufacturing process to the alternative manufacturer. All supplies of Compounds and Products to Taiho under this Article 14 by MG and/or Additional Partners shall be F.O.B. […***…], unless otherwise agreed.
ARTICLE 15
REGULATORY MATTERS
15.1
Regulatory Matters
Taiho shall be responsible, directly or through third parties, for the preparation, filing and maintenance of all regulatory documents in the Territory with respect to the Products, which shall be filed in the name of Taiho or its designee. MG shall be responsible, directly or through third parties, for the preparation, filing and maintenance of all regulatory documents worldwide outside of the Territory with respect to the Products, which shall be filed in the name of MG or its designee; provided that while the Funded Work is still ongoing, Taiho shall have the right to have one or more of its representatives participate in any of MG’s substantive discussions and meetings with Regulatory Authorities in North America with respect to Selected Compounds and/or Products in the Field.
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15.2
Reporting Adverse Experiences
With respect to any adverse drug experiences, including adverse events and serious adverse events, relating to any Product, the Parties shall promptly report such experiences to the appropriate regulatory authorities in the countries in which such Product is being developed or commercialized, in accordance with the appropriate laws and regulations of the relevant countries and authorities, and shall share any and all Data, including Manufacturing Data, required for such reporting. Each Party shall ensure that its Affiliates and licensees comply with all such reporting obligations. The Parties also agree to develop and implement such other procedures as may be necessary or appropriate to ensure that each Party remains in compliance with all reporting requirements imposed by any regulatory authority. In addition, at the request of either Party, the Parties (or such Party and an Additional Partner(s) or other third party(ies) with rights to develop Compounds and/or Products) shall enter into a commercially reasonable and mutually agreeable “Agreement on Exchange Procedures for Safety Information and Adverse Events,” for the purposes of ensuring compliance with reporting requirements with regulatory authorities.
15.3
Regulatory Cooperation
Notwithstanding any other provision of this Agreement, Taiho, MG and each Additional Partner (each, an “
Enabling Party
”) shall cooperate with the other (the “
Filing Party
”) to comply with specific requests of a Regulatory Authority (such as requests to inspect clinical trial sites or manufacturing facilities, or to provide Manufacturing Data), with respect to Data supplied or to be supplied by the Enabling Party to the Filing Party for filing with such Regulatory Authority, or with respect to quantities of Compound or Product supplied by the Enabling Party. Each Enabling Party shall ensure that its contractors likewise comply with this Section 15.3. In this regard, but without limiting any Enabling Party’s obligations under Article 6, each Enabling Party agrees to provide to a Filing Party solely for filing with Regulatory Authorities, or file itself and provide reference rights to the Filing Party, Manufacturing Data (including such information as is required for the CMC section of an IND or NDA, or a DMF) specifically requested by the Filing Party, as available, which is reasonably necessary for the Filing Party to obtain, proceed towards and/or maintain regulatory approval for the Products worldwide.
ARTICLE 16
CONFIDENTIALITY
16.1
Confidential Information
. Except as expressly provided herein, the Parties agree that the receiving Party shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by the other Party pursuant to this Agreement which if disclosed in tangible form is marked “Confidential” or with other similar designation to indicate its confidential or proprietary nature or if disclosed orally is indicated orally to be confidential or proprietary by the Party disclosing such information at the time its first disclosure and is confirmed in writing as confidential or proprietary by the disclosing Party within a reasonable time after such disclosure (collectively, “
Confidential Information
”). Notwithstanding the foregoing, Confidential Information shall not include information that, in each case is demonstrated by written documentation:
(a)
was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure hereunder;
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(b)
was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party hereunder;
(c)
became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement; or
(d)
was subsequently lawfully disclosed to the receiving Party by a person other than a Party or developed by the receiving Party without reference to any Confidential Information disclosed by the disclosing Party.
16.2
Permitted Disclosures
Notwithstanding the provisions of Section 16.1 above, each Party hereto may disclose the other Party’s Confidential Information to the extent such disclosure is reasonably necessary to exercise the rights granted to it, or reserved by it, under this Agreement (including without limitation entering into and/or performing business or scientific relationships with respect to Compounds and Products for the Field in the Territory as permitted hereunder), in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations, submitting information to tax or other governmental authorities (including regulatory authorities), or conducting clinical trials hereunder with respect to Compounds and/or Products, provided that if a Party is required by law to make any such disclosure of the other Party’s Confidential Information, to the extent it may legally do so, it will give reasonable advance notice to the latter Party of such disclosure and, except to the extent inappropriate in the case of patent applications or otherwise, will use its reasonable efforts to secure confidential treatment of such Confidential Information prior to its disclosure (whether through protective orders or otherwise).
ARTICLE 17
INTELLECTUAL PROPERTY
17.1
Ownership of Sole Inventions
.Title to all inventions and other intellectual property made solely by Taiho personnel in connection with the research, development and commercialization of the Compounds and/or Products shall be owned by Taiho. Title to all inventions and other intellectual property made solely by MG personnel in connection with the research, development and commercialization of the Compounds and/or Products (other than in the course of Funded Work) shall be owned by MG.
17.2
Joint Intellectual Property
.Subject to this Section 17.2 below, title to all patent rights in (a) inventions made jointly by Taiho personnel and MG personnel in connection with the collaboration herein and (b) inventions conceived or first actually reduced to practice by MG personnel in the course of Funded Work, shall be owned jointly by Taiho and MG (“
Joint Intellectual Property
”). Each Party agrees to execute any and all assignments and other documents necessary to effectuate the foregoing.
17.2.1
Taiho
. As between the Parties, Taiho shall have exclusive rights with respect to the Joint Intellectual Property in the Territory in the Field.
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17.2.2
MG
. As between the Parties, MG shall have exclusive rights with respect to the Joint Intellectual Property outside the Territory. In consideration for the exclusive rights granted to MG under this Section 17.2.2, MG shall pay Taiho a running royalty of […***…] percent ([…***…]%) of net sales by MG, its Affiliates and/or its licensees of all products and services outside the Field that are covered by such Joint Intellectual Property, and after termination of this Agreement, in addition to the foregoing, […***…] percent ([…***…]%) of net sales by MG, its Affiliates and/or its licensees of all products and services in the Field in the Territory that are covered by such Joint Intellectual Property. With respect to such royalties paid by MG, the definition of MG’s net sales, the royalty term, the treatment of combination products, royalty reporting obligations and audit rights, shall be reciprocal to such terms that govern Taiho’s payment of royalties hereunder. For such purposes (and for the purpose of defining Net Sales under Section 20.4.4 below), it is understood that clause (iv) of the definition of Section 1.25 may include charge back payments and rebates granted to managed health care organizations or to federal, state and local governments, their agencies, and purchasers and reimbursers or to chain and pharmacy buying groups and rebates charged by national, state, provincial or governmental authorities, to the extent such charge back payments and rebates are permitted under applicable law.
17.2.3
Shared
. Except as set forth in this Section 17.2, neither MG nor Taiho shall have any obligation to account to the other for profits with respect to, or to obtain any approval of the other to license, assign or exploit, any jointly owned intellectual property arising from this Agreement by reason of their joint ownership thereof, and each of Taiho and MG waives any such right it may have under the applicable laws in any country.
17.2.4
Upon Termination
. Upon the termination of this Agreement by Taiho under Section 20.3 or by MG upon a material breach of Taiho, Taiho shall assign to MG all of its right, title and interest to any patent rights within the Joint Intellectual Property. However, such assignment shall not affect MG’s obligations under Section 17.2.2 above.
17.3
Ownership of Collaboration Data
.All Data generated in the performance of the Approved Preclinical Studies and the Approved Clinical Studies shall be jointly owned by Taiho and MG; provided that: (a) to the extent all of Taiho’s funding obligations terminates with respect to the Approved Clinical Studies under Section 9.1.4(a), then the Data generated in portions of such Approved Clinical Studies that are not funded by Taiho shall be owned by MG, and (b) to the extent an […***…] takes over […***…] percent ([…***…]%) or more of the ongoing funding obligations for the Approved Clinical Studies under Section 9.1.4(b)(i), then the Data generated in portions of such Approved Clinical Studies so funded shall be jointly owned by Taiho, MG and such Additional Partner. Notwithstanding, all preclinical data generated from the Territory-Specific Preclinical Studies shall be solely owned by Taiho. Each Party shall be provided a copy of, and shall have the right to use and disclose (subject to the limitations of Articles 6 and 8 above) for any purposes, any Data jointly owned under this Section 17.3.
17.4
Patent Prosecution
.17.4.1
MG
. MG shall control, and agrees to use Commercially Reasonable and Diligent Efforts to undertake, the Prosecution of the Licensed Patents in the Territory and Joint
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Intellectual Property, using counsel of its choice and in such countries as MG deems appropriate (but including at least the Territory). MG shall keep Taiho informed as to such Prosecution, including providing Taiho drafts of patent applications, responses and other filings in advance of their submission to the respective patent offices, and providing Taiho copies of any correspondence with or notices from the patent offices. MG shall duly consider and follow any reasonable comments provided by Taiho with respect to Prosecution of the Licensed Patents in the Territory pertaining to the Compounds and/or Products in the Field, and the Joint Intellectual Property. Taiho shall reimburse MG for […***…] percent ([…***…]%) of MG’s reasonable out-of-pocket costs of Prosecution of the Licensed Patents in the Territory directed to Compounds in the Field, and Joint Intellectual Property in the Territory in accordance with this Section 17.4.1, subject to Section 17.4.3 below. MG shall invoice Taiho for such costs within thirty (30) days after the end of each calendar quarter, itemizing such costs by patent or patent application within such Licensed Patents in the Territory and Joint Intellectual Property, and describing the Prosecution activities performed with respect to such patents and patent applications. Taiho shall pay the amounts due under this Section 17.4.1 for each calendar quarter within thirty (30) days after receipt of such invoice.
17.4.2
Taiho
. In the event MG does not desire to undertake or continue the Prosecution of any item of the Licensed Patents in the Territory relevant to the Field or Joint Intellectual Property, MG shall notify Taiho at least […***…] ([…***…]) days prior to any required action (or such shorter period as is reasonably practicable for non-extendable deadlines). In such event, Taiho shall have the right, but not the obligation, to control the Prosecution of such item of Licensed Patents or Joint Intellectual Property, and MG shall cooperate with Taiho with respect thereto. Taiho shall keep MG reasonably informed of such Prosecution as requested by MG. It is understood that, in the event Taiho takes over Prosecution of a Licensed Patent or Joint Intellectual Property in accordance with this Section 17.4.2, Taiho shall have complete discretion with respect to any decisions regarding such Prosecution, and shall not owe any duties, express or implied, to MG with respect to such decisions.
17.4.3
Credits for Prosecution Costs
. Taiho may credit (a) its reimbursement of MG’s costs of Prosecution under Section 17.4.1 and (b) […***…] percent ([…***…]%) of its costs of Prosecution of the Licensed Patents in the Territory or Joint Intellectual Property under Section 17.4.2 above, against […***…]; provided that the Base Royalties shall not be […***…]. Any amounts not able to be […***…] due to the foregoing proviso may be carried forward to […***…].
17.4.4
“
Prosecution
” shall mean the preparing, filing, prosecuting and maintenance of patent applications and patents and re-examinations, reissues and requests for patent term extensions therefor, together with the conduct of any interference, opposition or other similar proceeding pertaining to patent applications or patents.
17.5
Defense of Third Party Infringement Claims
.If the development, manufacture, sale or use of any Product within the Field results in a claim, suit or proceeding (collectively, “
Actions
”) alleging patent infringement against either Party (or its respective Affiliates
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or Sublicensees), such Party shall promptly notify the other Party hereto in writing. MG (if the Action is brought against Products made, sold or used outside the Territory) and Taiho (if the Action is brought against Products made, sold or used within the Territory) shall have the exclusive right to defend and control the defense of any such Action using counsel of its own choice (the “
Controlling Party
”); provided, however, that the other Party shall be kept informed of all material developments in connection with any such Action. The Controlling Party shall not enter into any settlement relating to the Licensed Technology that admits the invalidity or unenforceability of any Licensed Patent within the Field without the other Party’s approval, which shall not be withheld or delayed unreasonably. Any cost, liability or expense (including amounts paid in settlement) (together, “
Liabilities
”) shall be borne by the Controlling Party; provided that Taiho may treat its Liabilities as royalties paid to a third party under Article 11 in consideration for Third Party IP under Section 11.2.
17.6
Enforcement
.Subject to the provisions of this Section 17.6, in the event that Taiho or MG reasonably believes that any Licensed Technology or Joint Intellectual Property is infringed or misappropriated in the Territory by a third party within the Field, or with respect to a Selected Compound outside the Field or is subject to a declaratory judgment action arising from either of such type of infringement in the Territory (collectively, “
Subject Infringements
”), MG or Taiho (respectively) shall promptly notify the other Party. Promptly after such notice the Parties shall meet to discuss the course of action to be taken with respect to an Enforcement Action (as defined below) with respect to such infringement or misappropriation, including the control thereof and sharing of costs and expenses related thereto, for the purposes of entering into a litigation agreement setting forth the same (“
Litigation Agreement
”). If the Parties do not enter such Litigation Agreement, Taiho shall have the initial right (but not the obligation) to enforce the Licensed Technology and Joint Intellectual Property in the Territory with respect to the Subject Infringement, or defend any declaratory judgment action with respect thereto (for purposes of this Section 17.6, an “
Enforcement Action
”). In the event Taiho does not notify MG that it intends to enforce or defend the Licensed Technology and Joint Intellectual Property against a Subject Infringement within one hundred and twenty (120) days after notice by either Party of an alleged Subject Infringement in the Territory, then MG shall have the right (but not the obligation) to enforce or defend against such alleged Subject Infringement. Absent a Litigation Agreement, the Party controlling the enforcement shall keep the other Party reasonably informed of the progress of any Enforcement Action, and the other Party shall have the right to participate with counsel of its own choice at its own expense, and shall reasonably cooperate with the Party initiating the Enforcement Action (including joining as a party plaintiff to the extent necessary and requested by the other Party). Unless otherwise agreed, all amounts recovered in the Enforcement Action, after reimbursing the Party initiating such Enforcement Action for its costs and expenses incurred in such Enforcement Action, shall be shared between the Parties as follows: (a) if such Enforcement Action is initiated by Taiho, […***…]% to Taiho and […***…]% to MG and (b) if such Enforcement Action is initiated by MG, […***…]% to MG and […***…]% to Taiho.
ARTICLE 18
REPRESENTATIONS AND WARRANTIES
18.1
Taiho Warranties
.Taiho warrants and represents to MG that (i) it is a corporation duly organized, validly existing and in good standing under the laws of Japan; and
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(ii) the execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of Taiho; (iii) no consent, approval or agreement of any person, party, court, government or entity is required to be obtained by Taiho and/or any of its Affiliates in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, which has not been obtained; or (iv) as of the Effective Date, Taiho does not own any Taiho Blocking Patents.
18.2
MG Warranties
.MG warrants and represents to Taiho that
18.2.1
MG is a corporation duly organized, validly existing and in good standing under the laws of Quebec, Canada. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of MG. No consent, approval or agreement of any person, party, court, government or entity is required to be obtained by MG and/or any of its Affiliates in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, which has not been obtained.
18.2.2
As of the Effective Date, MG solely owns all right, title and interest in and to the Licensed Technology free of any liens or restrictions, and MG has the right to grant to Taiho all of the licenses and other rights with respect to the Licensed Technology granted to Taiho under this Agreement. MG has not and will not enter into any agreement nor grant any third party any rights with respect to the Licensed Technology that is inconsistent with the rights granted to Taiho under this Agreement or which would limit MG’s ability to perform all of the obligations undertaken by MG hereunder. MG is not a party to, nor otherwise bound by, any contract that will result in any person or entity obtaining any interest in, or which would give any third party any right to assert any claim in or with respect to, Taiho’s rights under this Agreement. MG shall not suffer or permit any liens or restrictions to be imposed on the Licensed Technology without the prior written consent of Taiho unless the lien holder agrees to take the Licensed Technology subject to Taiho’s rights therein.
18.2.3
Exhibit 1.21.1 accurately and completely identifies all patents and patent applications that is within the Licensed Technology as of the Effective Date. In addition, there are no Non-Cancer Selected Compounds as of the Effective Date.
18.2.4
As of the Effective Date, no item of Licensed Technology is in-licensed by MG from a third party. With respect to each item of Licensed Technology in-licensed by MG from a third party after the Effective Date, MG shall maintain such in-licenses in full force and effect during the full terms thereof, and shall not terminate nor give such third party any cause to terminate such in-licenses. MG shall notify Taiho in the event of any dispute between MG and any such in-licensor.
18.2.5
As of the Effective Date, MG is not aware of any patents or patent applications (including international and provisional applications) not within the Licensed Technology that cover or claim any current or contemplated Compounds (including without limitation the Initial Clinical Candidate) or their manufacture or use as part of Products in the Field.
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To MG’s knowledge as of the Effective Date, none of the Licensed Patents are invalid unenforceable, nor have been misused. As of the Effective Date, there are no existing actions, suits or proceedings, and MG has not received any written claim or demand from a third party, that challenges MG’s rights with respect to the Licensed Technology, Compounds and/or Products or MG’s rights to enter into this Agreement or that asserts that development, manufacture or sale of the Compounds and/or Products would infringe the intellectual property rights of a third party.
18.2.6
MG has not omitted to furnish Taiho any information requested by Taiho. MG has not intentionally concealed from Taiho, any material information in its possession concerning the Licensed Technology, Compounds (including without limitation the Initial Clinical Candidate), Products or the transactions contemplated by this Agreement. Nor has MG failed to disclose to Taiho any information which makes the information disclosed misleading. Without limiting the foregoing, MG has disclosed to Taiho any information MG has that indicates a substantial likelihood that the Compounds (including without limitation the Initial Clinical Candidate) will not prove to be safe or efficacious.
18.3
Disclaimer of Warranties
.EXCEPT AS SET FORTH IN THIS ARTICLE 18, TAIHO AND MG EXPRESSLY DISCLAIM ANY WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE COLLABORATION, THE LICENSED TECHNOLOGY OR ANY OTHER SUBJECT MATTER RELATING TO THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, NONINFRINGEMENT, OR FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
ARTICLE 19
INSURANCE; INDEMNIFICATION
19.1
Insurance
.Each Party shall secure and maintain in effect during the term of this Agreement and for a period of […***…] years thereafter insurance policy(ies) underwritten by a reputable insurance company having an A.M. Best rating of A:VIII or better (or a comparable rating for its underwriters not doing business in the United States) and in a form and having limits standard and customary for entities in the biopharmaceutical industry for exposures related to the Compounds and/or Products. Such insurance shall include coverage for clinical trial liability and products liability with respect to such Party’s performance of the collaboration herein and commercialization of Products hereunder, and shall name the other Party as an additional insured under a customary and reasonable policy(ies) covering clinical trial liability. Upon request by the other Party hereto, certificates of insurance evidencing the coverage required above shall be provided to the other Party.
19.2
Indemnification of MG
.Taiho shall indemnify each of MG and its Affiliates and the directors, officers, and employees of MG and such Affiliates and the successors and assigns of any of the foregoing (the “
MG Indemnitees
”), and hold each MG Indemnitee harmless from and against any and all liabilities, damages, settlements, claims, actions, suits, penalties, fines, costs or expenses (including, without limitation, reasonable attorneys’ fees and other expenses of litigation) incurred by any MG Indemnitee, arising from or occurring as a result of any claim, action, suit, or
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other proceeding brought by third parties against a MG Indemnitee arising from or occurring as a result of: (i) product liability claims relating to any Products used, sold or otherwise distributed, or the conduct of clinical trials, by Taiho, its Affiliates or Sublicensees, or (ii) the supply by Taiho to MG of Compounds or Products that fail to comply with applicable specifications, or (iii) any infringement of Excluded Third Party IP by Taiho’s manufacture, sale or use of the Products after Taiho’s election to exclude such intellectual property under Section 11.2.1 above; except in each case to the extent such claim is caused by the gross negligence or willful misconduct of MG.
19.3
Indemnification of Taiho
.MG shall indemnify each of Taiho and its Affiliates and the directors, officers, and employees of Taiho and such Affiliates and the successors and assigns of any of the foregoing (the “
Taiho Indemnitees
”), and hold each Taiho Indemnitee harmless from and against any and all liabilities, damages, settlements, claims, actions, suits, penalties, fines, costs or expenses (including, without limitation, reasonable attorneys’ fees and other expenses of litigation) incurred by any Taiho Indemnitee arising from or occurring as a result of any claim, action, suit, or other proceeding brought by third parties against a Taiho Indemnitee arising from or occurring as a result of product liability claims relating to any Products used, sold or otherwise distributed, or the conduct of clinical trials, by MG, its Affiliates or Sublicensees, or by the supply by MG to Taiho of Compounds or Products that fail to comply with applicable specifications, except to the extent such claim is caused by the gross negligence or willful misconduct of Taiho.
19.4
Procedure
.A Party that intends to claim indemnification under any provision of this Agreement (for purposes of this Section 19.4, the “
Indemnitee
”) shall promptly notify the indemnifying Party (the “
Indemnitor
”) in writing of any claim, action, suit, or other proceeding brought by third parties in respect of which the Indemnitee or any of its Affiliates, or their directors, officers, employees, successors or assigns intend to claim such indemnification hereunder. As between the Parties, the Indemnitor shall have the right to control the defense and settlement of such claim, action, suit, or other proceeding; provided, that the Indemnitee shall have the right to participate in such defense or settlement with counsel of its own choosing at its expense. Notwithstanding the foregoing, the indemnity agreement in this Article 19 shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Indemnitor, to the extent such consent is not withheld unreasonably or delayed. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 19 but the omission so to deliver written notice to the Indemnitor shall not relieve the Indemnitor of any liability that it may have to any Indemnitee otherwise than under this Article 19. Without limiting the foregoing, the Indemnitor shall keep the Indemnitee fully informed of the progress of any claim, action, suit, or other proceeding for which it intends to claim indemnification under this Article 19.
ARTICLE 20
TERM AND TERMINATION
20.1
Term
.This Agreement shall become effective as of the Effective Date and, unless earlier terminated pursuant to the other provisions of this Article 20, shall continue in full
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force and effect until the date no further payments are due by either Party under this Agreement (the “
Collaboration Term
”).
20.2
Termination for Cause
. 20.2.1
Failure to Pay
. MG may terminate this Agreement upon written notice in the event Taiho fails to make any undisputed payment due under Articles 9, 10 or 11, and fails to cure such default within thirty (30) days following receipt of written notice specifying such default and MG’s intention to terminate.
20.2.2
Other Material Non-Performance/Misrepresentation
. Other than a breach as set forth in Section 20.2.1 in the event of (i) a Party’s default in any other material respect in the performance or observance of any other material term, covenant or provision of this Agreement (including payment obligations not covered by 20.2.1 above), or (ii) if any representation by a Party contained in this Agreement shall prove to have been incorrect in any material respect when made, resulting in material adverse consequences for the other Party (any such default or material incorrect representation a “
Material Non-Performance
”), such Material Non-Performance shall be remedied only as provided in this Section 20.2.2.
(a)
In the event of any Material Non-Performance by a Party, the other Party shall, without reasonable delay following discovery of such Material Non-Performance notify the defaulting Party in writing, and the Parties shall consult with each other in good faith to endeavor to agree upon the most effective means to cure such Material Non-Performance and, if necessary, to effect a remedy in favor of the non-defaulting Party for the consequences of such Material Non-Performance by the defaulting Party (collectively, the “
Resolution
”). The Parties agree to initially discuss the dispute at the organizational level at which such dispute arises. If either Party believes there has been sufficient discussion of the matter at such level without reaching a Resolution, then such Party, by written notice to the other Party, may have such dispute referred to, in the case of MG, the Chief Executive Officer of MG, and in the case of Taiho, the head of the Taiho’s Discovery Center, or its successor (the “
Senior Representatives
”), who shall attempt to resolve such dispute by good faith negotiations within thirty (30) days of such referral.
(b)
In the event (i) the Parties are unable to agree upon Resolution within thirty (30) days after the notice of Material Non-Performance or thirty (30) days after being referred to the Senior Representatives, whichever occurs later, or (ii) the defaulting Party, in the exercise of reasonable diligence shall have been unable to remedy such Material Non-Performance within ninety (90) days, then in either such event the remedy of the non-defaulting Party with respect to the Material Non-Performance by the defaulting Party shall be determined by arbitration pursuant to Section 21.1 hereof, and the arbitrators shall be authorized to fashion such remedy, including equitable relief, which may include termination of this Agreement in whole or in part if the breaching Party fails to cure the breach after the arbitrators determine that a breach has occurred, except that termination of this Agreement in whole shall only be the remedy of last resort and shall apply only in such case.
55
20.3
Termination Upon Notice
.Taiho may terminate this Agreement upon thirty (30) days written notice to MG, provided that such termination is effective no earlier than two (2) years after the Effective Date. In the event of termination of this Agreement under this Section 20.3, Taiho shall continue to pay MG the costs required to be paid by Taiho under Article 9 during the six (6)-month period after the notice of termination, to continue any Approved Preclinical Studies and Approved Clinical Studies that were initiated prior to such termination for such period. For purposes of this Section 20.3. a human clinical trial shall be deemed “initiated” upon the initial dosing of the first patient in such trial in accordance with the protocol therefor.
20.4
Effect of Termination
. 20.4.1
Accrued Obligations
. Termination of this Agreement for any reason shall not release either Party hereto from any liability which, at the time of such termination, has already accrued to the other Party or which is attributable to a period prior to such termination nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement.
20.4.2
Survival
. Articles and Sections 1, 8.4, 15.2, 16 (for five (5) years thereafter), 17.1, 17.2, 17.3, 17.6 (with respect to infringement or alleged infringement prior to expiration or termination) 18, 19, 20, 21 and 22 shall survive any expiration or termination of this Agreement. In addition, upon expiration (but not termination) of this Agreement, Taiho shall have a fully-paid up, royalty-free, perpetual, irrevocable license under Section 8.1. Sections 9.1.2(b), 9.1.4(b) and 9.4 shall survive in the event of any expiration or termination of this Agreement, other than termination by MG under Section 20.2. Notwithstanding, any credits that accrued under Sections 9.1.2(b) and 9.1.4(b) prior to expiration or termination of this Agreement shall be refunded to Taiho upon any termination or expiration hereof, subject to any justified offsets MG may have against Taiho. Section 9.4.2 shall survive any expiration or termination of this Agreement by MG under Section 20.2 with respect to agreements entered into by MG prior to such expiration or termination.
20.4.3
Survival of Licenses to and from Additional Partners
. In the event of termination of this Agreement by MG under Section 20.2 or by Taiho under Section 20.3, Section 8.5 shall survive only with respect to those Additional Partners and/or others to whom MG has granted sublicenses thereunder prior to such termination, and only to the extent of such sublicenses. Likewise, MG shall ensure that in the event MG’s agreement(s) with Additional Partners and/or others is terminated, any license or sublicense rights granted to Taiho under Article 8 from such Additional Partners, Non-Cancer Partners and others shall survive such termination. In the event the license from MG to Taiho under Section 8.1 is terminated, then any rights sublicensed to Taiho thereunder from Additional Partners, Non-Cancer Partners and others shall likewise terminate.
20.4.4
Transitioning Products back to MG
. In the event of a termination of this Agreement other than for breach by MG, and only in such event, Taiho shall transition certain Products back to MG as follows:
56
(a)
Taiho shall assign or cause to be assigned to MG (or if not so assignable, Taiho shall take all reasonable actions to make available to MG) all regulatory filings and registrations (including Marketing Approvals and applications therefor) with respect to each Product for which an IND has been filed in the Territory by or on behalf of Taiho prior to the termination of this Agreement (each, a “
Transitioned Product
”). In each case such assignment (or availability) shall be made within thirty (30) days after such termination.
(b)
In the event that a Transitioned Product is commercialized by MG, its Affiliates or licensees in the Field in the Territory, MG shall pay to Taiho a royalty on net sales of such Transitioned Product by MG, its Affiliates or licensees at the rates set forth below based on the last stage of development (
i.e.
the highest applicable percentage below) conducted in any regulatory jurisdiction worldwide by or under authority of Taiho or MG with respect to such Transitioned Product at the time of termination of this Agreement, as follows.
|
Stage of Development
|
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Royalty
|
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[…***…]
|
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[…***…]
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%
|
|
[…***…]
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|
[…***…]
|
%
|
|
[…***…]
|
|
[…***…]
|
%
|
|
[…***…]
|
|
[…***…]
|
%
|
It is understood that, in connection with establishing the royalties under this Section 20.4.4(b), the ancillary terms of such royalty, such as the term for which such royalties are due, the definition of MG’s net sales, royalty reporting, audit rights, royalty offsets and the like will also be established, which terms will be no less favorable to Taiho than the corresponding terms of this Agreement for MG.
ARTICLE 21
DISPUTE RESOLUTION
21.1
Arbitration
.Any dispute, controversy or claim with respect to the breach, interpretation or enforcement of this Agreement, including disputes relating to termination of this Agreement, shall be settled by binding arbitration in the manner described in this Section 21.1. The arbitration shall be conducted by the Judicial Arbitration and Mediation Services, Inc. (“JAMS”) under its rules of arbitration then in effect. Notwithstanding those rules, the following provisions shall apply to the arbitration hereunder:
21.1.1
Arbitrators
. The arbitration shall be conducted by a single JAMS arbitrator; provided that at the request of either Party, the arbitration shall be conducted by a panel of three (3) arbitrators, with one (1) JAMS arbitrator chosen by each of Taiho and MG and the third appointed by the other two (2) arbitrators. If the Parties are unable to agree upon a single arbitrator, or the third arbitrator in case of a panel of three (3), such single or third arbitrator (as the case may be) shall be appointed in accordance with the rules of JAMS. In any event, the arbitrator or arbitrators selected in accordance with this Section 21.1.1 are referred to herein as the “
Panel
” and
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57
shall be comprised of arbitrators who are familiar with worldwide research and business development in the biotechnology industry, unless otherwise agreed.
21.1.2
Proceedings
. Except as otherwise provided herein, the Parties and the arbitrators shall use their best efforts to complete the arbitration within nine (9) months after the appointment of the Panel under Section 21.1.1 above, unless a Party can demonstrate to the Panel that the complexity of the issues or other reasons warrant the extension of one or more of the time tables. In such case, the Panel may extend such time table as reasonably required. The Panel shall, in rendering its decision, apply the substantive law of the State of New York, without regard to its conflicts of laws provisions, except that the interpretation of and enforcement of this Article 21 shall be governed by the U.S. Federal Arbitration Act. The proceeding shall take place in San Francisco, California. The decision and/or award rendered by the arbitrator(s) shall be written, final and non-appealable, and judgment on such decision and/or award may be entered in any court of competent jurisdiction. The fees of the Panel shall be paid by the losing Party which Party shall be designated by the Panel. If the Panel is unable to designate a losing Party, it shall so state and the fees shall be split equally between the Parties. Each Party shall bear the costs of its own attorneys’ and experts’ fees; provided that the Panel may in its discretion award the prevailing Party all or part of the costs and expenses incurred by the prevailing Party in connection with the arbitration proceeding.
21.1.3
Interim Relief
. Notwithstanding anything in this Article 21 to the contrary, Taiho and MG shall each have the right to apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction, or other similar interim or conservatory relief, as necessary, pending resolution under the above described arbitration procedures. Nothing in the preceding sentence shall be interpreted as limiting the powers of the arbitrators with respect to any dispute subject to arbitration under this Agreement. The Panel may award injunctive relief.
ARTICLE 22
MISCELLANEOUS
22.1
Confidential Terms
.Except as expressly provided herein, each Party agrees not to disclose any terms of this Agreement to any third Party without the consent of the other Party, except (i) as required by securities or other applicable laws or (ii) to prospective and actual investors, sublicensees, acquisition partners and such Party’s accountants, attorneys and other professional advisors, or (iii) to others under reasonable conditions of confidentiality. Notwithstanding the foregoing, the Parties have agreed on a press release that can be used to describe this transaction and the terms and conditions of this Agreement, and each Party acknowledges and agrees that the other Party may disclose information from the mutually agreed press release at any time and from time to time without the consent of the other Party.
22.2
Governing Law
.. This Agreement and any dispute arising from the performance or breach hereof shall be governed by and construed and enforced in accordance with, the laws of the State of New York, without reference to conflicts of laws principles.
22.3
Force Majeure
.Nonperformance of any Party shall be excused to the extent that performance is rendered impossible by strike, fire, earthquake, flood, governmental acts or
58
orders or restrictions, failure of suppliers, or any other reason where failure to perform is beyond the reasonable control of the nonperforming Party. In such event Taiho or MG, as the case may be, shall promptly notify the other Party of such inability and of the period for which such inability is anticipated to continue. Without limiting the foregoing, the Party subject to such inability shall use reasonable efforts to minimize the duration of any force majeure event.
22.4
No Implied Waivers; Rights Cumulative
.No failure on the part of Taiho or MG to exercise and no delay in exercising any right under this Agreement, or provided by statute or at law or in equity or otherwise, shall impair, prejudice or constitute a waiver of any such right, nor shall any partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.
22.5
Independent Contractors
.Nothing contained in this Agreement is intended implicitly, or is to be construed, to constitute Taiho or MG as partners in the legal sense. No Party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of any other Party or to bind any other Party to any contract, agreement or undertaking with any third party.
22.6
Notices
.All notices, requests and other communications hereunder shall be in writing and shall be personally delivered or sent by registered or certified mail, return receipt requested, postage prepaid; facsimile transmission (receipt verified); or express courier service (signature required), in each case to the respective address specified below, or such other address or fax number as may be specified in writing to the other Parties:
MG:
MethylGene Inc.
7220 Frederick-Banting,
Suite 200, St. Laurent
Montreal, Quebec H4S 2A1
Canada
Attn: Chief Executive Officer
Fax: (514) 337-4194
with a copy to:
Attn: Chief Financial Officer
MethylGene, Inc.
[same address as above]
and a copy to:
Attn: Senior Vice President, Research and Development
MethylGene, Inc.
[same address as above]
59
and a copy to:
Davies Ward Phillips & Vineberg s.r.l.
1501 McGill College Ave., 26
th
Floor
Montreal, Quebec H3A 3N9
Canada
Attn: Elias Benhamou
Fax: (514) 841-6499
Taiho:
Taiho Pharmaceutical Co., Ltd.
1-27, Misugidai
Hanno-shi, Saitama, 357-8527, Japan
Attn: Director, Hanno Research Center
Fax: 81-429-72-8913
with a copy to:
Attn: Director, Cancer Research Lab.
Taiho Pharmaceutical Co., Ltd.
[same address as above]
and a copy to:
Attn: Kazuharu Noguchi, Ph.D.
Taiho Pharmaceutical Co., Ltd.
[same address as above]
and a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Kenneth A. Clark, Esq.
Fax: (650) 493-6811
22.7
Assignment
.This Agreement shall not be assignable by either Party to any third party without the written consent of the other Party; except that each Party shall assign this Agreement, without the need to obtain the other Party’s consent, to an entity that acquires substantially all of the business or assets of such Party pertaining to this Agreement, in each case whether by merger, transfer of assets, purchase of all outstanding shares or otherwise. Each Party shall notify the other Party at least […***…] days prior to an assignment or attempted assignment of this Agreement. Upon a permitted assignment of this Agreement, all references herein to the assigning party shall be deemed to include both the assigning party and the party to whom the Agreement is so assigned and its Affiliates, each of whom shall be bound by this Agreement. Any assignment in contravention of the foregoing shall be void and of no effect. Any change of control of a Party shall be deemed an assignment of this Agreement by such Party, and neither Party shall enter into or become the subject of a change of control, unless the party acquiring such control and its ultimate parent operating company agrees to be bound by this Agreement and to ensure that its Affiliates comply with the terms hereof. Neither Party shall transfer nor assign any substantial asset relating to this Agreement, unless the acquiring Party agrees in writing to honor the other Party’s rights under this Agreement with respect to such asset. Notwithstanding the foregoing, it is
***Confidential Treatment Requested
60
understood that the purchase of shares by one or more purely financial investors shall not be deemed a change of control for purposes of this Section 22.7.
22.8
Modification
.No amendment or modification of any provision of this Agreement shall be effective unless in writing signed by all Parties. 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 all Parties.
22.9
Severability
.If any provision hereof should be held invalid, illegal or unenforceable in any jurisdiction, the Parties shall negotiate in good faith a valid, legal and enforceable substitute provision that most nearly reflects the original intent of the Parties and 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 as nearly as may be possible. Such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of such provision in any other jurisdiction.
22.10
Counterparts
.This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together, shall constitute one and the same instrument.
22.11
Headings
.Headings used herein are for convenience only and shall not in any way affect the construction of or be taken into consideration in interpreting this Agreement.
22.12
Patent Marking
.Taiho agrees to mark and have their Affiliates and permitted Sublicensees mark all patented Products they sell or distribute pursuant to this Agreement in accordance with the applicable patent statutes or regulations in the country or countries of manufacture and sale thereof.
22.13
Export Laws
.Notwithstanding anything to the contrary contained herein, all obligations of Taiho and MG are subject to prior compliance with United States and foreign export regulations and such other United States and foreign laws and regulations as may be applicable, and to obtaining all necessary approvals required by the applicable agencies of the governments of the United States and foreign jurisdictions. Taiho and MG shall cooperate with each other and shall provide assistance to the other as reasonably necessary to obtain any required approvals.
22.14
Security Interest
.MG represents that it has not granted a security interest in any of its patent rights to any third party as of the Effective Date. MG covenants that it shall not grant any security interest in its patent rights to any third party having rights with respect to the Licensed Patents, including any Additional Partners, unless prior to granting such security interest, MG grants Taiho a security interest in the Licensed Patents in the Territory, whether now owned or hereafter acquired, and all proceeds thereof, as security for Taiho’s rights and MG’s performance under this Agreement, including without limitation Taiho’s rights under Articles 6 and 8. MG agrees to promptly execute any documents, make any filings and provide any other reasonable assistance to Taiho in order to record, complete and perfect in Taiho the foregoing security interest. MG covenants that it shall not grant to any third party a security interest in the Licensed Patents in
61
the Territory unless such third party agrees to take such interest subject to Taiho’s rights under this Agreement.
22.15
Entire Agreement
.This Agreement (including the Exhibits hereto) constitutes the entire agreement, both written or oral, with respect to the subject matter hereof, and supersedes all prior or contemporaneous understandings or agreements, whether written or oral, between Taiho and MG with respect to such subject matter.
[Signatures on next page]
62
IN WITNESS WHEREOF, the Parties have caused this Collaboration and License Agreement to be duly executed and delivered in duplicate originals as of the date first above written.
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METHYLGENE INC.
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By:
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/s/ Donald Corcoran
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Name:
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Title:
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TAIHO PHARMACEUTICAL CO., LTD.
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By:
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/s/ Toru Usami
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Name:
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Title:
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63
EXHIBIT 1.21.1
EXISTING LICENSED PATENTS
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No.
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Patent Name
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Country
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Filing Date/ Due Date
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Application No./
Patent No.
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…][…***…]
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[…***…][…***…]
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[…***…][…***…]
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[…***…]
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[…***…]
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[…***…][…***…]
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[…***…]
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[…***…][…***…]
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[…***…]
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[…***…]
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[…***…][…***…]
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[…***…]
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[…***…][…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…][…***…]
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[…***…]
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Note:
1. PCT filing date and PCT application number
2. National filing number and Due date for National Entry
***Confidential Treatment Requested
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EXHIBIT 1.23
MANUFACTURING DATA
[…***…]
1.
[…***…]
(a)
[…***…]
(i)
[…***…]
(ii)
[…***…]
(iii)
[…***…]
(iv)
[…***…]
(v)
[…***…]
(vi)
[…***…]
(vii)
[…***…]
(b)
[…***…]
(i)
[…***…]
(ii)
[…***…]
(iii)
[…***…]
(iv)
[…***…]
***Confidential Treatment Requested
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(c)
[…***…]
(i)
[…***…]
(ii)
[…***…]
(iii)
[…***…]
(d)
[…***…]
(i)
[…***…]
(e)
[…***…]
(i)
[…***…]
(f)
[…***…]
(i)
[…***…]
(ii)
[…***…]
(iii)
[…***…]
(g)
[…***…]
(i)
[…***…]
(h)
[…***…]
(i)
[…***…]
***Confidential Treatment Requested
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(ii)
[…***…]
(i)
[…***…]
(i)
[…***…]
(ii)
[…***…]
(j)
[…***…]
(i)
[…***…]
(ii)
[…***…]
2.
[…***…]
(a)
[…***…]
(i)
[…***…]
(1)
[…***…]
(2)
[…***…]
(3)
[…***…]
(4)
[…***…]
(5)
[…***…]
(6)
[…***…]
(7)
[…***…]
(8)
[…***…]
***Confidential Treatment Requested
67
(9)
[…***…]
(10)
[…***…]
(11)
[…***…]
(12)
[…***…]
(ii)
[…***…]
(1)
[…***…]
(2)
[…***…]
(3)
[…***…]
(4)
[…***…]
(5)
[…***…]
(b)
[…***…]
(i)
[…***…]
(1)
[…***…]
(2)
[…***…]
(3)
[…***…]
(4)
[…***…]
(5)
[…***…]
(6)
[…***…]
(7)
[…***…]
(8)
[…***…]
***Confidential Treatment Requested
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(9)
[…***…]
(10)
[…***…]
(11)
[…***…]
(12)
[…***…]
(13)
[…***…]
(c)
[…***…]
(1)
[…***…]
(2)
[…***…]
(3)
[…***…]
(4)
[…***…]
(5)
[…***…]
(6)
[…***…]
(7)
[…***…]
(8)
[…***…]
(d)
[…***…]
(i)
[…***…]
(e)
[…***…]
[…***…]
***Confidential Treatment Requested
69
EXHIBIT 1.26
PARTIAL LIST OF EXISTING COMPOUNDS
|
[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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|
[…***…]
|
***Confidential Treatment Requested
70
EXHIBIT 1.31
PRELIMINARY PLANS AND BUDGETS
Preliminary Research Plan and Budget
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…].
***Confidential Treatment Requested
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Preliminary Preclinical Plan and Budget
[…***…]
***Confidential Treatment Requested
72
[…***…]
***Confidential Treatment Requested
73
Preliminary Clinical Plan and Budget
MGCD0103 Clinical Development Preliminary Plan and Budget
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
***Confidential Treatment Requested
74
[…***…]
[…***…]
|
[…***…]
[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
|
[…***…]
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|
[…***…]
|
[…***…]
|
|
|
|
***Confidential Treatment Requested
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EXHIBIT 1.32
PRECLINICAL AND CLINICAL DATA
1.
[…***…]
2.
[…***…]
3.
[…***…]
4.
[…***…]
(a)
[…***…]
(b)
[…***…]
(c)
[…***…]
(d)
[…***…]
5.
[…***…]
6.
[…***…]
***Confidential Treatment Requested
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EXHIBIT 1.41
RESEARCH DATA
[…***…]
1.
[…***…]
(a)
[…***…]
(b)
[…***…]
(c)
[…***…]
(d)
[…***…]
2.
[…***…]
(a)
[…***…]
(b)
[…***…]
(c)
[…***…]
(d)
[…***…]
(e)
[…***…]
(f)
[…***…]
(g)
[…***…]
(h)
[…***…]
3.
[…***…]
(a)
[…***…]
(b)
[…***…]
4.
[…***…]
***Confidential Treatment Requested
77
(a)
[…***…]
(b)
[…***…]
(c)
[…***…]
(d)
[…***…]
5.
[…***…]
(a)
[…***…]
(b)
[…***…]
(c)
[…***…]
[…***…]
1.
[…***…]
2.
[…***…]
3.
[…***…]
***Confidential Treatment Requested
78
EXHIBIT 9.5
CERTAIN PRECLINICAL DEVELOPMENT ACTIVITIES BY MG PRIOR TO THE EFFECTIVE DATE
[…***…]
|
[…***…]
[…***…]
|
|
|
[…***…]
|
[…***…]
|
|
[…***…]
|
[…***…]
|
[…***…]
|
|
[…***…]
|
[…***…]
|
[…***…]
|
|
[…***…]
|
[…***…]
|
[…***…]
|
|
[…***…]
|
[…***…]
|
[…***…]
|
|
[…***…]
|
[…***…]
|
[…***…]
|
|
[…***…]
|
[…***…]
|
[…***…]
|
|
[…***…]
|
[…***…]
|
[…***…]
|
|
[…***…]
|
[…***…]
|
[…***…]
|
|
[…***…]
|
[…***…]
|
[…***…]
|
|
[…***…]
|
[…***…]
|
[…***…]
|
|
[…***…]
|
[…***…]
|
[…***…]
|
***Confidential Treatment Requested
79
Exhibit 10.15
***Text Omitted and Filed Separately
with the Securities and Exchange Commission.
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4)
and 240.24b-2.
EXECUTION COPY
COLLABORATION AGREEMENT
made by and between
ENVIVO PHARMACEUTICALS, INC.
and
METHYLGENE INC.
Dated as of February 7, 2005
TABLE OF CONTENTS
|
|
|
|
Page
|
|
|
|
|
|
|
ARTICLE I
|
DEFINITIONS
|
|
1
|
|
|
|
|
|
|
ARTICLE II
|
SCOPE AND STRUCTURE OF THE COLLABORATION
|
|
23
|
|
2.1
|
General
|
|
23
|
|
2.2
|
Exclusive Relationship
|
|
23
|
|
2.3
|
EVP’s Restrictive Covenant; Limitations
|
|
23
|
|
|
|
|
|
|
ARTICLE III
|
MANAGEMENT
|
|
24
|
|
3.1
|
Joint Steering Committee
|
|
24
|
|
3.2
|
Decision-Making
|
|
25
|
|
3.3
|
Disputes and Deadlocks
|
|
26
|
|
|
|
|
|
|
ARTICLE IV
|
GRANTS; RESERVATIONS OF RIGHTS; RESTRICTIONS
|
|
26
|
|
4.1
|
Grants of Rights from MethylGene to EVP
|
|
26
|
|
4.2
|
Grants of Rights from EVP to MethylGene
|
|
27
|
|
4.3
|
Licensing and Sublicensing of Rights to Third Parties
|
|
27
|
|
4.4
|
Agreement with Non-ND Partners and Opt-Out Non-ND Partners
|
|
29
|
|
4.5
|
Grants of Rights from Back-Out Party to Pursuing Party
|
|
30
|
|
4.6
|
No Other Rights or Licenses
|
|
31
|
|
|
|
|
|
|
ARTICLE V
|
PAYMENTS; PROGRAM FUNDING
|
|
31
|
|
5.1
|
Up-Front License Fee
|
|
31
|
|
5.2
|
Warrant Coverage
|
|
31
|
|
5.3
|
FTE Payments
|
|
32
|
|
5.4
|
Funding of the Research and Development Program
|
|
32
|
|
5.5
|
Net Profits and Losses
|
|
35
|
|
5.6
|
Royalty Payments and Obligations
|
|
37
|
|
5.7
|
Audits and Interim Reviews
|
|
39
|
|
|
|
|
|
|
ARTICLE VI
|
RESEARCH AND DEVELOPMENT PROGRAM
|
|
40
|
|
6.1
|
Conduct of the Research and Development Program
|
|
40
|
|
6.2
|
Selection and Protection of Compounds
|
|
42
|
|
6.3
|
Registration of Compounds; Access to Data; Transfer of Licensed MethylGene Technology
|
|
53
|
|
6.4
|
Regulatory Approval Filings
|
|
56
|
|
6.5
|
Preclinical and Clinical Data
|
|
57
|
|
|
|
|
|
|
i
TABLE OF CONTENTS
(continued)
|
|
|
|
Page
|
|
|
|
|
|
|
6.6
|
Facilities Visit
|
|
57
|
|
6.7
|
Material Contracts
|
|
57
|
|
|
|
|
|
|
ARTICLE VII
|
COMMERCIALIZATION
|
|
57
|
|
7.1
|
Commercialization Plans
|
|
57
|
|
7.2
|
Designation of Marketing Party
|
|
58
|
|
7.3
|
Marketing Party Responsibilities
|
|
59
|
|
7.4
|
Co-Promotion
|
|
59
|
|
7.5
|
Recalls
|
|
60
|
|
|
|
|
|
|
ARTICLE VIII
|
MANUFACTURE AND SUPPLY
|
|
61
|
|
8.1
|
Process Development
|
|
61
|
|
8.2
|
Manufacture and Supply of Collaboration Product
|
|
61
|
|
8.3
|
Certificates of Analysis
|
|
62
|
|
8.4
|
Manufacturing Compliance
|
|
62
|
|
8.5
|
Access to Facilities
|
|
63
|
|
|
|
|
|
|
ARTICLE IX
|
RIGHTS TO DEVELOP AND COMMERCIALIZE COMPOUNDS OUTSIDE THE COLLABORATION
|
|
63
|
|
9.1
|
Unilateral Development and Commercialization
|
|
63
|
|
9.2
|
Third Party Development and Commercialization of Collaboration Products
|
|
66
|
|
|
|
|
|
|
ARTICLE X
|
[RESERVED.]
|
|
67
|
|
|
|
|
|
|
ARTICLE XI
|
CONFIDENTIALITY
|
|
67
|
|
|
|
|
|
|
11.1
|
Confidential Terms
|
|
67
|
|
11.2
|
Confidential Information
|
|
68
|
|
11.3
|
Publications and Disclosure
|
|
69
|
|
|
|
|
|
|
ARTICLE XII
|
INTELLECTUAL PROPERTY RIGHTS
|
|
69
|
|
|
|
|
|
|
12.1
|
Ownership; Rights; Disclosure
|
|
69
|
|
12.2
|
Ownership of Data
|
|
70
|
|
12.3
|
Prosecution
|
|
71
|
|
12.4
|
Defense of Third Party Infringement Claims
|
|
73
|
|
12.5
|
Enforcement
|
|
73
|
|
|
|
|
|
|
ARTICLE XIII
|
REPRESENTATIONS, WARRANTIES AND COVENANTS
|
|
74
|
|
|
|
|
|
|
13.1
|
Authorization; Binding Effect; No Conflicts
|
|
74
|
|
|
|
|
|
|
ii
TABLE OF CONTENTS
(continued)
|
|
|
|
Page
|
|
|
|
|
|
|
13.2
|
Cooperation of Employees
|
|
75
|
|
13.3
|
Intellectual Property Rights
|
|
75
|
|
13.4
|
Disclosure
|
|
77
|
|
13.5
|
Warranties
|
|
77
|
|
13.6
|
Disclaimer of Representations and Warranties
|
|
77
|
|
13.7
|
Limitation of Liability
|
|
77
|
|
|
|
|
|
|
ARTICLE XIV
|
INDEMNIFICATION
|
|
78
|
|
14.1
|
Indemnification By MethylGene
|
|
78
|
|
14.2
|
Indemnification by EVP
|
|
78
|
|
14.3
|
Contribution
|
|
79
|
|
14.4
|
Claims for Indemnification
|
|
79
|
|
14.5
|
Insurance
|
|
80
|
|
|
|
|
|
|
ARTICLE XV
|
TERM AND TERMINATION
|
|
80
|
|
15.1
|
Term
|
|
80
|
|
15.2
|
Termination
|
|
80
|
|
15.3
|
Effects of Termination
|
|
82
|
|
15.4
|
Survival of Rights and Duties
|
|
83
|
|
15.5
|
Survival of Licenses to and from Non-ND Partners
|
|
83
|
|
15.6
|
Cooperation
|
|
84
|
|
|
|
|
|
|
ARTICLE XVI
|
DISPUTE RESOLUTION
|
|
84
|
|
16.1
|
Arbitration
|
|
84
|
|
16.2
|
Interim Relief
|
|
85
|
|
|
|
|
|
|
ARTICLE XVII
|
MISCELLANEOUS
|
|
85
|
|
17.1
|
Interpretation
|
|
85
|
|
17.2
|
Exchange Controls
|
|
85
|
|
17.3
|
Withholding Taxes
|
|
86
|
|
17.4
|
Interest on Late Payments
|
|
86
|
|
17.5
|
Force Majeure
|
|
86
|
|
17.6
|
Assignment
|
|
86
|
|
17.7
|
Severability
|
|
86
|
|
17.8
|
Notices
|
|
87
|
|
17.9
|
Applicable Law and Waiver of Jury
|
|
88
|
|
|
|
|
|
|
iii
TABLE OF CONTENTS
(continued)
|
|
|
|
Page
|
|
|
|
|
|
|
17.10
|
Entire Agreement
|
|
88
|
|
17.11
|
Headings
|
|
88
|
|
17.12
|
Independent Contractors
|
|
88
|
|
17.13
|
Agreement Not to Solicit Employees
|
|
88
|
|
17.14
|
Waiver
|
|
89
|
|
17.15
|
Counterparts
|
|
89
|
|
17.16
|
Benefit
|
|
89
|
|
17.17
|
Compliance
|
|
89
|
|
|
|
|
|
SCHEDULE 1-A
|
EVP HDAC PATENT RIGHTS
|
|
1-A-1
|
|
SCHEDULE 1-B
|
EVP SCREENING PLATFORM
|
|
1-B-1
|
|
SCHEDULE 1-C
|
LICENSED METHYLGENE PATENT RIGHTS
|
|
1-C-1
|
|
SCHEDULE 1-D
|
MANUFACTURING DATA
|
|
1-D-1
|
|
SCHEDULE 1-E
|
METHYLGENE PROGRAM COMPOUNDS
|
|
1-E-1
|
|
SCHEDULE 1-F
|
OTHER NEURODEGENERATIVE DISEASES
|
|
1-F-1
|
|
SCHEDULE 1-G
|
PRECLINICAL AND CLINICAL DATA
|
|
1-G-1
|
|
SCHEDULE 1-H
|
QUALIFIED HIT COMPOUNDS
|
|
1-H-1
|
|
SCHEDULE 1-I
|
RESEARCH DATA
|
|
1-I-1
|
|
SCHEDULE 1-J
|
TAIHO HIT COMPOUNDS
|
|
1-J-1
|
|
SCHEDULE 5.6.2
|
TAIHO PROGRAM COMPOUNDS
|
|
5.6.2-1
|
|
SCHEDULE 13.3.1
|
LIENS (METHYLGENE); EXCEPTIONS TO REPRESENTATIONS
|
|
13.3.1-1
|
|
SCHEDULE 13.3.2
|
LIENS (ENVIVO); EXCEPTIONS TO REPRESENTATIONS
|
|
13.3.2-1
|
|
APPENDIX A
|
TERMS AND CONDITIONS OF LICENSE GRANT FOR UNILATERAL PRODUCTS
|
|
A-1
|
|
APPENDIX B
|
AD R&D PLAN, HD R&D PLAN AND PD R&D PLAN
|
|
B-1
|
|
APPENDIX C
|
TAIHO AGREEMENT AND FIRST AMENDMENT TO TAIHO AGREEMENT
|
|
C-1
|
|
APPENDIX D
|
WARRANT
|
|
D-1
|
|
|
|
|
|
|
iv
COLLABORATION AGREEMENT
THIS COLLABORATION AGREEMENT dated as of February 7, 2005 (this “
Agreement
”) is made by and between EnVivo Pharmaceuticals, Inc. (“
EVP
”) and MethylGene Inc. (“
MethylGene
”). EVP and MethylGene are each sometimes referred to herein as a “
Party
,” and collectively as the “
Parties
.”
WHEREAS, EVP has
in vivo
biological models suitable for the assessment of efficacy and safety of potential therapeutics including HDAC inhibitors for the treatment of neurodegenerative diseases, including Huntington’s disease, and can generate data relating to phenotypic models in the Field (as defined below); and
WHEREAS, MethylGene has developed and owns and/or controls patents and patent applications claiming pan and isotypic selective small molecule inhibitors directly, specifically and solely targeting HDAC enzymatic activity, an enzyme family regulating gene expression, has the biological tools for research into HDAC expression in diseases, and has medicinal, combinatorial, analytical and computational expertise to design and synthesize HDAC inhibitors as well as other possible therapeutics in the Field; and
WHEREAS, the Parties entered into that certain Proof of Concept and Option Agreement dated as of March 31, 2004, as amended (the “
POC Agreement
”) for the screening of certain Compounds (as defined below) by EVP in […***…] models of Huntington’s Disease and other specific activities in furtherance thereof; and
WHEREAS, EVP completed the POC Research Activities contemplated by the POC Agreement to the satisfaction of the Parties, and duly exercised its Collaboration Option to enter into the Collaboration Agreement pursuant to the POC Agreement on July 12, 2004; and
WHEREAS, subject to the terms and conditions hereof, the Parties desire to commence the Collaboration as set forth herein;
NOW THEREFORE, in consideration of the promises and undertakings set forth herein, and for other good and valid consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the terms defined in this Article shall have the meanings specified below. The definitions of the terms herein shall apply equally to the singular and plural forms of the terms defined.
“
Actions
” has the meaning set forth in Section 12.4.
“
Additional Compound(s)
” has the meaning set forth in Section 6.2.2(b).
***Confidential Treatment Requested
“
AD Product
” means any product which contains a Compound as an active ingredient and is researched, developed and commercialized for the treatment or prevention of Alzheimer’s Disease.
“
AD R&D Program
” means a program for the research, pre-clinical and clinical development of Collaboration Product(s) for the treatment or prevention of Alzheimer’s disease and any of the Other Neurodegenerative Diseases, including the research, discovery, characterization, optimization,
in vitro
testing and/or
in vivo
evaluation of Compounds for such purposes, conducted by or on behalf of the Parties hereunder, as more specifically described in Section 6.1.
“
Adverse Reaction Information
” has the meaning set forth in Section 6.3.9.
“
Affiliate
” means, in the case of a subject entity, another entity which controls, is controlled by or is under common control with the subject entity. For purposes of this definition, and the definition of subsidiary only, “control” shall mean beneficial ownership (direct or indirect) of at least fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, in the election of the corresponding managing authority). Notwithstanding the foregoing, for purposes of the rights granted by EVP to MethylGene and its Affiliates in Articles IV and VI, no entity that is beneficially owned, directly or indirectly, by a Non-ND Partner shall be deemed an Affiliate of MethylGene hereunder, unless such Non-ND Partner does not control such entity, is purely a financial investor in such entity, and does not have any right, contractually or otherwise, to participate in the management of its business or affairs, or the development or commercialization of any of its intellectual property, products or services.
“
ALS
” means amyotrophic lateral sclerosis.
“
Applicable Field
” means the Field, but only as to the disease indications within the Research and Development Program that is the subject of a Back-Out (i.e., the AD R&D Program, the HD R&D Program or the PD R&D Program), in each case including any of the Other Neurodegenerative Diseases.
“
Assigned Territory
” means those countries for which a Party is designated by the JSC as the Marketing Party with respect to a Collaboration Product.
“
Back-Out
” has the meaning set forth below in Section 9.1.1.
“
Back-Out Notice
” has the meaning set forth in Section 9.1.1.
“
Back-Out Party
” has the meaning set forth in Section 9.1.1.
“
Bona Fide Internal Research and Development Program(s)
” has the meaning set forth in Section 6.2.3(f)(ii).
“
Business Day
” means any day other than Saturday, Sunday, any day banks are authorized or required to be closed in Quebec or Massachusetts, or any other day on which a Party’s principal place of business is closed in connection with any holiday.
2
“
Cancer Assay
” means the […***…] also known as […***…].
“
Cancer Hit Criteria
” means inhibition at an […***…] using the Cancer Assay.
“
Collaboration
” means the research, development, manufacturing and commercialization collaboration between the Parties pursuant to this Agreement.
“
Collaboration Costs
” means all Research and Development Costs and Commercialization Costs, in each case as such costs are incurred on or after the Effective Date.
“
Collaboration Patent Rights
” means any Patent Rights that Cover Collaboration Technology.
“
Collaboration Products
” means all products which contain a Compound or an EVP HDAC Inhibitor as an active ingredient.
“
Collaboration Technology
” means any Technology that is (1) related to or useful for the development, manufacture, sale or use of a Compound or a Collaboration Product and (2) made, conceived, devised, invented, created, developed, written, or otherwise reduced to practice or tangible medium by or on behalf of a Party or its Affiliates as a result of its performance of its activities under the Collaboration, but excluding any Technology related to the EVP Screening Platform.
“
Commercialization Costs
” with respect to a Collaboration Product means the variable costs and fixed costs properly incurred by each Party with respect to work performed by the Parties and their subcontractors in connection with the conduct of the applicable Commercialization Plan for such Collaboration Product, including (a) the Fully Absorbed Cost of Goods for batches of such Collaboration Product manufactured and supplied, (b) the pro rata share of ordinary marketing, distribution and sales expenses, including, costs related to performing market research, post-marketing studies, advertising, producing Product Promotional Materials, sponsoring seminars and symposia, sales training meetings and seminars, originating sales, providing reimbursement and other patient support services, distribution costs, transportation expenses including insurance (but only to the extent not charged to customers), duties and taxes, and costs associated with cash discounts and allowances and other marketing concessions to customers, inventory losses (except to the extent caused by the gross negligence or willful misconduct of a Party), allocated based upon the proportion of such expenses directly attributable to such Collaboration Product or the activities of the Parties in connection with the conduct of the Commercialization Program, and (c) subject to Sections 5.6.2 or 5.6.3, and to the extent not included in the Fully Absorbed Cost of Goods of a Collaboration Product, a pro rata share of license fees, milestone payments and other amounts required to be paid to Third Parties as a result of performance of the applicable Commercialization Plan as agreed to pursuant to this Agreement, allocated based on the proportion of such costs directly attributable to such Collaboration Product. For purposes of this paragraph, “
variable costs
” shall be deemed to be the cost of labor, raw materials, supplies and other resources directly consumed in the execution of the applicable Commercialization Plan and the manufacture of the Collaboration Product for
***Confidential Treatment Requested
3
sale or distribution. For purposes of this paragraph, “
fixed costs
” shall be deemed to be the cost of facilities, utilities, insurance, facility and equipment depreciation and other fixed costs directly related to the execution of the applicable Commercialization Plan and the manufacture of the Collaboration Product for sale or distribution, allocated based upon the proportion of such costs directly attributable to support of the applicable Commercialization Plan and the manufacture of the Collaboration Product for sale or distribution or by such other method of cost allocation as may be approved by the Steering Committee. All cost determinations made hereunder shall be made in accordance with GAAP. Commercialization Costs shall exclude all costs otherwise reimbursed pursuant to this Agreement.
“
Commercialization Plan
” means, with respect to a Collaboration Product, the comprehensive plan and budget for such Collaboration Product, as more fully described in Section 7.1 and approved by the Joint Steering Committee in accordance Section 3.1.4.
“
Commercialization Program
” means, with respect to a Collaboration Product, the program for the commercialization of such Collaboration Product, as more fully described in Article VII and the applicable Commercialization Plan.
“
Commercially Reasonable and Diligent Efforts
” means the carrying out of obligations in a diligent and sustained manner using efforts reasonably necessary or appropriate to actively develop and commercialize a product in an expeditious manner taking into consideration the country or countries in question and, as to a particular Compound or Collaboration Product, the market application(s) therefor. Without limiting the foregoing, Commercially Reasonable and Diligent Efforts requires that the applicable Party: (a) promptly assign responsibility for such obligations to specific employee(s) who are held accountable for progress and monitor such progress on an on-going basis, (b) set and consistently seek to achieve specific meaningful objectives for carrying out such obligations, and (c) consistently make and implement decisions and allocate the full complement of resources necessary or appropriate to advance progress with respect to such objectives in accordance with the foregoing, in each case in a manner similar to other high priority drug development programs.
“
Compounds
” means compounds that (1) were or are identified, synthesized, discovered, designed or acquired by or on behalf of (A) MethylGene or its Affiliates either prior to the date hereof or during the Term, (B) EVP or its Affiliates during the term of the Research and Development Program, or (C) a Non-ND Partner or its Affiliates either prior to the date hereof or during the Term, but only if during the term of a Non-ND Research Program, (2) either (a) are HDAC Inhibitors or (b) are developed pursuant to the Collaboration (subject to the last sentence of this defined term “Compound”); (3) possess certain basic drug characteristics and range of chemotypes with pan and sub-type selective HDAC inhibition characteristics, as mutually agreed to by the Parties from time to time, and (4) are used or useful in the Field. With respect to each Compound, such Compound shall include all salts, esters, hydrates, solvates, polymorphs, free base, isomers, prodrugs, metabolites, conjugated forms and/or liposomal or other formulations thereof, and other compositions consisting of such Compound non-covalently bounded with other moieties. Any compounds that otherwise meet the aforementioned criteria shall be considered “Compounds useful in the Field” until the JSC determines otherwise as a result of a Research and Development Program. The foregoing notwithstanding, the term “Compound”
4
excludes EVP HDAC Inhibitors. For clarity, no Third Party shall have access to Compounds developed pursuant to the Collaboration if such Compounds are not also HDAC Inhibitors.
“
Compound Disclosure Date
” means the date which is (i) ninety (90) days after the Effective Date with respect to the Taiho Hit Compounds, and (ii) ninety (90) days after the Compound Registration Date with respect to any Compound other than a Taiho Hit Compound.
“
Compound Registration Date
” means (i) with respect to the Taiho Hit Compounds, the Effective Date, and (ii) with respect to all Compounds other than the Taiho Hit Compounds, the date such Compound is Registered in the MethylGene Compound Registry which shall be no later than thirty (30) days after the date such Compound is first synthesized or acquired by or on behalf of MethylGene or its Affiliates, a Non-ND Partner or its Affiliates or EVP or its Affiliates, as the case may be.
“
Control
”, “
Controlled
” or “
Controlling
” means, with respect to any (a) material, item of information, method, data or other know-how, or (b) intellectual property right, the possession (whether by ownership or license) by a Party or its Affiliates of the ability to grant to the other Party access and/or a license or sublicense as provided herein under such item or right without violating the terms of any agreement or other arrangement with any Third Party.
“
Controlling Party
” has the meaning set forth in Section 12.4.
“
Co-Promote
” or “
Co-Promoting
” or “
Co-Promotion
” means to promote jointly a Collaboration Product in a particular country through EVP and MethylGene and their respective sales forces under both Parties’ trade names (in accordance with Section 7.4), unless otherwise agreed.
“
Cover
”, “
Covered
” or “
Covering
” means, with respect to a Patent Right and the subject matter at issue, that, but for a license granted to a Party under an issued Valid Claim included in such Patent Right, the manufacture, use, sale or importation by such Party of the subject matter at issue would infringe such Valid Claim or, in the case of a Patent Right that is a patent application, would infringe a Valid Claim in such patent application if it were to issue as a patent.
“
Data
” means collectively, Research Data, Preclinical and Clinical Data and Manufacturing Data.
“
Deadlock
” of a JSC means that after reasonable deliberation regarding a matter requiring action by such body, the members of such body are equally divided for and against such action, with all of EVP’s representatives to such body in opposition to all of MethylGene’s representatives.
“
Defaulting Party
” has the meaning set forth in Section 15.6.
“
Dementia
” means, collectively, dementia - multi infarct and vascular dementia.
“
Dispute
” between the Parties means any dispute, controversy or claim between the Parties relating to, arising out of, or in any way connected to the entering into of this Agreement,
5
or any term or condition hereof, or the performance or nonperformance, or compliance or non-compliance, by either Party of its obligations or covenants hereunder.
“
Effective Date
” means the date first above written.
“
Election Notice
” has the meaning set forth in Section 9.1.2.
“
Enforcement Action
” has the meaning set forth in Section 12.5.
“
Evaluation Period
” means, with respect to each EVP Evaluation Compound, the sixty-day period commencing on the later of (A) the date EVP receives the Minimum Quantity of the EVP Evaluation Compound from MethylGene as provided in Section 6.2.2(a)(ii), and (B) the date EVP notifies MethylGene in writing that the EVP Screening Platform is available and ready to evaluate such EVP Evaluation Compound, but in no event later than thirty (30) days after the date in (A).
“
EVP
” has the meaning set forth in the recitals.
“
EVP Blocking Patents
” means all patents owned and controlled by EVP during the term of this Agreement which are necessarily infringed by the composition, manufacture, sale or use of Compounds.
“
EVP Collaboration Patent Rights
” means Collaboration Patent Rights that are owned by EVP pursuant to Section 12.1.1.
“
EVP Collaboration Technology
” means Collaboration Technology that is owned by EVP pursuant to Section 12.1.1.
“
EVP Evaluation Compound(s)
” means the […***…] MethylGene Program Compounds with respect to which EVP obtains an exclusive right to evaluate during the Evaluation Period in accordance with Section 6.2.2(a).
“
EVP HDAC Inhibitor(s)
” means a compound(s) claimed in the EVP HDAC Patent Rights.
“
EVP HDAC Patent Rights
” means the patent applications and patents identified on
Schedule 1-A
.
“
EVP Indemnified Parties
” has the meaning set forth in Section 14.1.
“
EVP Screening Platform
” means any
in vivo
screening methods and/or screening technology for the assessment of efficacy and safety of potential therapeutics that is owned or Controlled by EVP, including methods and/or technology that use automation, pattern recognition software, and biological models, including […***…]. The patent applications and patents claiming the EVP Screening Platform are set forth on
Schedule 1-B
.
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“
FDA
” means the United States Food and Drug Administration, any successor agency, or the Regulatory Authority of any country other than the United States with responsibilities comparable to those of the United States Food and Drug Administration.
“
Field
” means the treatment or prevention of Huntington’s disease, Parkinson’s disease, Alzheimer’s disease, and the Other Neurodegenerative Diseases using an HDAC Inhibitor or any Compound developed pursuant to the Collaboration;
provided, however,
that the term Field shall cease to include ALS or Dementia if, as to a particular Subject Indication:
(1) The EVP representatives on a JSC fail to authorize the inclusion of research activities for a Subject Indication in one of the Research and Development Programs hereunder within […***…] after the date of MethylGene’s written request therefor, unless the Parties are then already pursuing the research or development of such Subject Indication pursuant to any such Research and Development Programs, or EVP is already exercising Commercially Reasonable and Diligent Efforts as a Pursuing Party to conduct work on such Subject Indication,
provided
that each of the Parties (1) determine in good faith, based on then available scientific data, and not on their respective Share of Profits and Losses, in which Research and Development Program the Subject Indication shall be included and (2) agree to amend the applicable Research and Development Program to include such Subject Indication, and further agree to equally fund the Research and Development Costs of all related activities for at least twelve months following its inclusion therein; and
(2) In the case where EVP is a Pursuing Party as to all of the Research and Development Programs hereunder, EVP fails to initiate and thereafter use Commercially Reasonable and Diligent Efforts to conduct work in ALS or Dementia, as the case may be, within one year after the date of MethylGene’s written request therefor.
For clarity, (i) if the criteria set forth herein with respect to only one of ALS or Dementia are not met, then only that indication (e.g. ALS or Dementia) shall be excluded from the Field, and (2) the criteria for Dementia shall be deemed met hereunder if such criteria are met with respect to either dementia — multi infarct or vascular dementia.
“
Former Pursuing Party
” has the meaning set forth in Section 9.1.3.
“
FTE Payments
” has the meaning set forth in Section 5.3.
“
FTE Rate
” means, for activities conducted by either Party pursuant to the Collaboration, US$[…***…] per FTE. Each Party acknowledges that the foregoing FTE rate has been set to include […***…].
“
Full Time Equivalent
”, or “
FTE
” means one (1) full-time person who qualifies as R&D Personnel, or in the case of less than a full-time dedicated person, a full-time, equivalent person year of activities under the Research and Development Program performed by R&D Personnel.
“
Fully Absorbed Cost of Goods
” with respect to units of a Collaboration Product means (a) the variable costs and fixed costs incurred by a Party associated with the manufacture (inclusive of finishing processes including filling, packaging, labeling and/or other preparation)
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7
quality assurance, quality control and other testing, storage and shipping of batches of such units of such Collaboration Product or (b) if such units or components of a Collaboration Product are not manufactured by the Parties, the amounts paid to the vendor plus costs associated with acquisition from such vendor. For purposes of this definition, “
variable costs
” means the cost of labor, raw materials, scrap, obsolescence, supplies and other resources directly consumed in the manufacture, quality assurance, quality control and other testing, storage and shipping of batches of such Collaboration Product. For purposes of this definition, “
fixed costs
” means the cost of facilities, utilities, insurance (including any product liability insurance or accrual for self-insurance), facility and equipment depreciation and other fixed costs directly related to the manufacture, quality assurance, quality control and other testing, storage and shipping of batches of such Collaboration Product, as well as amounts paid to Third Parties under a Third Party Agreement as a result of the manufacture, use or sale of such units of Collaboration Products. Fixed costs shall be allocated to such units of Collaboration Product based upon the proportion of such costs directly attributable to support of the manufacturing, quality assurance, quality control and other testing, storage and shipping processes for such Collaboration Product. If a facility is used to manufacture Collaboration Products and has the capacity to manufacture products for other programs of either EVP or MethylGene, fixed costs shall be allocated in proportion to the actual use of such facility for the manufacture of Collaboration Products and the capacity to manufacture products for such other programs. For the avoidance of doubt, no idle capacity of a manufacturing facility, or a proportionate use thereof, shall be included in Fully Absorbed Cost of Goods except, in the case of a facility dedicated solely to the manufacture of Collaboration Products, it shall be included to the extent the JSC determines in good faith that such facility is appropriately sized. Fully Absorbed Cost of Goods shall exclude all costs otherwise covered under Collaboration Costs. Except as otherwise provided in this Agreement, all cost determinations made hereunder shall be made in accordance with GAAP.
“
Future Compound
” has the meaning set forth in Section 6.2.3(b).
“
Future EVP Compound
” has the meaning set forth in Section 6.2.3(b).
“
Future MethylGene Compound
” has the meaning set forth in Section 6.2.1(a).
“
Future Non-ND Partner Compound
” has the meaning set forth in Section 6.2.1(a).
“
Future Outside Compound
” has the meaning set forth in Section 6.2.1(a).
“
GAAP
” means United States generally accepted accounting principles, consistently applied.
“
HD R&D Program
” means a program for the research, pre-clinical and clinical development of Collaboration Product(s) for the treatment or prevention of Huntington’s disease and any of the Other Neurodegenerative Diseases, including the research, discovery, characterization, optimization,
in vitro
testing and/or
in vivo
evaluation of Compounds for such purposes, conducted by or on behalf of the Parties hereunder, as more specifically described in Section 6.1.
“
HDAC
” means HDAC Class I and HDAC Class II, collectively.
8
“
HDAC Assay
” means the evaluation
in vitro
of a compound’s dose dependent inhibition of at least […***…] isolated, partially purified, recombinant human HDAC enzyme from the HDAC Class I or HDAC Class II enzyme families.
“
HDAC Class I
” means a class of […***…]enzymes that are structurally related to […***…], including but not limited to […***…].
“
HDAC Class II
” means a class of […***…]enzymes that are structurally related to […***…], including but not limited to […***…].
“
HDAC Inhibitors
” means Small Molecules that directly inhibit HDAC Class I or HDAC Class II enzymatic activity or which have therapeutic effect through the inhibition of HDAC Class I or HDAC Class II enzymes. The Parties hereby agree that such inhibition must be with an IC50 value less than or equal to […***…] using the HDAC Assay,
provided
that such qualification shall not apply as to Compounds that are identified, synthesized, discovered, designed or acquired by or on behalf of a Non-ND Partner, or MethylGene, pursuant to a Non-ND Research Program, unless and until the applicable Non-ND Partner Agreement contains a similar qualification as to Compounds that are identified, synthesized, discovered, designed or acquired by or on behalf of EVP or MethylGene hereunder.
“
IND
” means an Investigational New Drug application, as defined in the U.S. Federal Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or comparable filing in a foreign jurisdiction, in each case with respect to a Collaboration Product for use within the Field.
“
Indemnified Party
” has the meaning set forth in Section 14.4.
“
Indemnifying Party
” has the meaning set forth in Section 14.4.
“
Initial Commitment
” has the meaning set forth in Section 5.4.2.
“
Information
” has the meaning set forth in Section 11.2.
“
Joint Collaboration Patent Rights
” means Collaboration Patent Rights that are jointly owned by EVP and MethylGene pursuant to Section 12.1.3.
“
Joint Collaboration Technology
” means Collaboration Technology that is jointly owned by EVP and MethylGene pursuant to Section 12.1.3.
“
Joint Marketing Committee
” or a “
JMC
” means a committee to be established by the JSC Section 3.1.4 to oversee the day-to-day activities to be conducted by the Parties in the commercialization of Collaboration Products.
“
Joint Research Management Committee
” or a “
JRMC
” means a committee to be established by the JSC pursuant to Section 3.1.4 to oversee the day-to-day activities to be
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conducted by the Parties pursuant to the conduct of the R&D Plan under the Collaboration, to prepare and propose budgets, and to recommend goals and objectives to the JSC.
“
Joint Steering Committee
” or a “
JSC
” means a committee to be established by the Parties pursuant to Section 3.1 to manage an R&D Plan under the Collaboration, set goals and objectives, determine responsibilities and approve budgets.
“
Liabilities
” has the meaning set forth in Section 12.4.
“
Licensed EVP Rights
” means the Licensed EVP Patent Rights and the Licensed EVP Technology.
“
Licensed EVP Patent Rights
” means the EVP Collaboration Patent Rights and EVP’s interest in the Joint Collaboration Patent Rights.
“
Licensed EVP Technology
” means the EVP Collaboration Technology and EVP’s interest in the Joint Collaboration Technology.
“
Licensed MethylGene Rights
” means the Licensed MethylGene Patent Rights and the Licensed MethylGene Technology.
“
Licensed MethylGene Patent Rights
” means the MethylGene Collaboration Patent Rights, MethylGene’s interest in the Joint Collaboration Patent Rights, and all other Patent Rights that are owned or Controlled by MethylGene or its Affiliates prior to the Effective Date or during the Term and Cover (1) a Compound or Collaboration Product or (2) any Technology that is used or useful in the Field and made, conceived, devised, invented, created, developed, written, or otherwise reduced to practice or tangible medium (a) by or on behalf of MethylGene or its Affiliates either prior to the Effective Date or during the Term or (b) by or on behalf of a Non-ND Partner or its Affiliates either prior to the Effective Date or during the Term if pursuant to a Non-ND Research Program or included within the definition of Non-ND Partner Blocking Patents, including those patents and applications listed on
Schedule 1-C
hereto.
“
Licensed MethylGene Technology
” means the MethylGene Collaboration Technology, MethylGene’s interest in the Joint Collaboration Technology, and all other Technology that is (1) owned or Controlled by MethylGene prior to the Effective Date or during the Term, including Know-How it owns or Controls pursuant to the terms of a Non-ND Partner Agreement, and (2) related to or useful for the development, manufacture, sale or use of a Compound or a Collaboration Product, including pharmaceutical, chemical, biological and biochemical compositions; technical data and information; available descriptions, if any, of assays, methods and processes; the results of tests, including screening results, SAR data, optimization data,
in vitro
and
in vivo
data; preclinical, clinical and research, manufacturing processes and procedures; analytical and quality control data; and plans, specifications and/or other documents containing said information and data. Notwithstanding the foregoing, Licensed MethylGene Technology shall not include confidential information, data or tangible materials generated by a Non-ND Partner or MethylGene in collaboration with a Non-ND Partner, by MethylGene pursuant to a Bona Fide Internal Research and Development Program (in each case, other than those items set forth in
Part B
of
Schedule 1-I)
, or by an Opt-Out Non-ND Partner or MethylGene in collaboration with an Opt-Out Non-ND Partner. As used in this definition, and
10
in the definitions “Manufacturing Data,” “Preclincal and Clinical Data” and “Research Data” below, information, data or materials shall be deemed generated by MethylGene “in collaboration” with a Non-ND Partner or an Opt-Out Non-ND Partner only if such information, data or materials is generated in the course of a Non-ND Research Program or an Opt-Out Non-ND Research Program directed solely to indications other than those set forth in the Field that: (a) is conducted pursuant to an agreement with such Non-ND Partner or Opt-Out Non-ND Partner in compliance with this Agreement, (b) is funded in whole or in part by such Non-ND Partner or Opt-Out Non-ND Partner over the entire course of such research, and (c) as to any Opt-Out Non-ND Partner Research Program, is not conducted by MethylGene medicinal chemists who are involved in research directed to indications in the Field.
“
Licensed Technology
” has the meaning set forth in Section 12.4.
“
Licensed Patents
” has the meaning set forth in Section 12.4.
“
Liens
” has the meaning set forth in Section 13.3.
“
Litigation Agreement
” has the meaning set forth in Section 12.5.
“
Losses
” has the meaning set forth in Section 14.1.
“
Majority Party
” has the meaning set forth in Section 3.1.2.
“
Major Market Countries
” means Canada, China, France, Germany, India, Italy, Japan, Spain, the United Kingdom and the United States.
“
Manufacturing Data
” means all material information and data relating to or used in connection with the manufacturing of Compounds and/or Collaboration Products by MethylGene or its Affiliates or others working under authority of such entities (but, for the avoidance of doubt, excluding Taiho), including without limitation, such information and data as generated or used during process development, stability studies, formulation development, scale-up of manufacturing, production of preclinical and clinical product batches, validation studies, development of quality assurance/quality control testing, and related regulatory affairs; and all information and data contained in the DMF or in the CMC section of an IND or NDA (or their counterparts in other countries) with respect to Compounds and/or Collaboration Products. Without limiting the foregoing, Manufacturing Data shall include information and data described in
Schedule 1-D
. Notwithstanding the foregoing, to the extent MethylGene and its Affiliates do not have rights to such know-how, the term “Manufacturing Data” shall exclude any proprietary manufacturing know-how described in a DMF that was disclosed by a contract manufacturer of MethylGene or its Affiliates directly to the Regulatory Authority (and not to MethylGene or its Affiliates), which know-how had been independently developed by such contract manufacturer outside of its relationship with MethylGene or its Affiliates; provided that MethylGene ensures that, upon the request of EVP, such contract manufacturer shall file with Regulatory Authorities in the Territory a similar DMF containing such know-how in support of EVP’s regulatory filings. In addition, notwithstanding the foregoing, Manufacturing Data shall not include information or data generated by a Non-ND Partner or MethylGene “in collaboration with” a Non-ND Partner (as defined above under Licensed MethylGene Technology), by an Opt-Out Non-ND Partner or MethylGene “in collaboration with” an Opt-Out Non-ND Partner (as defined above under
11
Licensed MethylGene Technology) or by MethylGene pursuant to a Bona Fide Internal Research and Development Program.
“
Manufacturing Party
” means a Party, or Parties, designated by the JSC to manufacture a Collaboration Product pursuant to Section 8.2.
“
Marketing Party
” means the Party designated by the JSC as responsible for obtaining Regulatory Approval and for marketing, sales and distribution of a Collaboration Product within a particular country or region, as set forth in Sections 7.2, 7.3 and 7.4.
“
Method of Use Joint Collaboration Patent Rights
” has the meaning set forth in Section 12.3.3.
“
MethylGene
” has the meaning set forth in the recitals.
“
MethylGene Blocking Patents
” means all patents owned and controlled by MethylGene which are necessarily infringed by the composition, manufacture, sale, use or importation of any Opt-Out Non-ND Partner Selected HDAC Inhibitor which is also a Compound.
“
MethylGene Collaboration Patent Rights
” means Collaboration Patent Rights that are owned by MethylGene pursuant to Section 12.1.2.
“
MethylGene Collaboration Technology
” means Collaboration Technology that is owned by MethylGene pursuant to Section 12.1.2.
“
MethylGene Compound Registry
” means the comprehensive registry of Compounds maintained by or on behalf of MethylGene, which comprehensive registry includes (i) all Compounds, (ii) the chemical structure of each Compound, (iii) a unique identifying number for each Compound, (iv) the Compound Registration Date for such Compound, (v) the potency of each Compound, as determined using the HDAC Assay, and (vi) such other information and Data as MethylGene may determine to include in the MethylGene Compound Registry from time to time, in each case in a format suitable to reasonably enable EVP to access and use Compounds as contemplated by this Agreement.
“
MethylGene Indemnified Parties
” has the meaning set forth in Section 14.2.
“
MethylGene Non-ND Reserved Compound
” means up to forty (40) individual Compounds designated by MethylGene as potential development candidates which MethylGene desires to reserve in the Territory in the fields of MethylGene’s Bona Fide Internal Research and Development Programs in accordance with Section 6.2.3(f) below.
“
MethylGene Non-ND Selected Compound
” means (i) all MethylGene Reserved Compounds, and (ii) those Compounds that cease to be MethylGene Reserved Compounds, but continue as MethylGene Selected Compounds pursuant to Section 6.2.3(f). With respect to each such Compound, the Selected Compound shall include prodrugs, metabolites, salts, esters, hydrates, solvates, free base, polymorphs, isomers thereof, conjugated forms and/or liposomal or other formulations thereof and other compositions consisting of such Compound non-covalently
12
bonded with other moieties, which together shall be deemed a single MethylGene Selected Compound (and a single MethylGene Reserved Compound) for purposes of Section 6.2.3(f).
“
MethylGene Program Compounds
” means the approximately (
+
5%) 1014 Compounds which were identified, synthesized, discovered, designed or acquired after October 16, 2003 and prior to the Effective Date by or on behalf of MethylGene pursuant to activities funded solely by MethylGene. For clarity, MethylGene Program Compounds exclude the Taiho Program Compounds and the Taiho Hit Compounds. The MethylGene Program Compounds existing as of November 30, 2004, together with their corresponding Compound Registration Dates, are identified on
Schedule 1-E
. Within ten (10) days of the Effective Date MethylGene will update
Schedule 1-E
to include all MethylGene Program Compounds existing as of the Effective Date, together with their corresponding Compound Registration Dates.
“
Minimum Quantity
” has the meaning set forth in Section 6.2.2(a)(ii)
“
Minority Party
” has the meaning set forth in Section 3.1.2.
“
Net Profits and Losses
” means, as to any period for which there is a determination thereof, […***…] less […***…],
provided
that in no event shall any amounts deducted from […***…] for the purpose of calculating the […***…] also be counted toward the amount of […***…]. To the extent […***…] and to the extent […***…]
“
Net Revenues
” means the sum of (a) […***…] plus, if any, (b) […***…].
“
Net Sales
” means the […***…] less […***…] (i) […***…]; (ii) […***…]; (iii) […***…] (including[…***…], including, without limitation, […***…])[…***…], but excluding[…***…]; (iv) […***…]
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[…***…]; (v) […***…],
provided
that amounts deducted under this subsection (v) shall not exceed […***…] and (vi) […***…], which amount shall not exceed […***…]. Such amounts shall be determined from the books and records of the applicable Party and its Affiliates maintained in accordance with GAAP consistently applied, and such amounts shall be calculated using the same accounting principles used for other products of the applicable Party. Sales between or among a Party and its Affiliates shall be excluded from the computation of Net Sales if such Affiliates are not end-users, but Net Sales shall include the subsequent final sales to non-Affiliate Third Parties by any such Affiliates. Where (a) Collaboration Products are sold by a Party or its Affiliates other than in an arms-length sale or as one of a number of items without a separate invoiced price; or (b) consideration for Collaboration Products shall include any non-cash element, the Net Sales applicable to any such transaction shall be deemed to be the Party’s average Net Sales for the applicable quantity of the Collaboration Product at that time.
For purposes of this Agreement, “
sale
” means any transfer or other distribution or disposition, but shall not include transfers or other distributions or dispositions of reasonable quantities of Collaboration Products, at no charge, for pre-clinical, clinical or regulatory purposes or in connection with patient assistance programs or other charitable purposes, but not in connection with price volume discounts.
For purposes of Section 9.1, Net Sales shall have the meaning set forth in
Appendix A.
“
New Compound
” has the meaning set forth in Section 5.6.2.
“
Non-ND Partner
” means a Third Party who has been, or will be, granted by MethylGene, directly or indirectly, a right to research, develop, market and/or commercialize HDAC Inhibitors and resulting products, but only for the treatment or prevention of diseases outside of the Field, and is not an Opt-Out Non-ND Partner.
“
Non-ND Partner Agreement
” means any written agreement or arrangement between MethylGene or its Affiliates and a Non-ND Partner that governs a Non-ND Research Program or the manufacture or commercialization of HDAC Inhibitors and resulting products for the treatment or prevention of diseases outside of the Field.
“
Non-ND Partner Blocking Patents
” means all patents owned and controlled by a Non-ND Partner which are necessarily infringed by the composition, manufacture, sale, use or importation of Compounds. For the avoidance of doubt, Non-ND Partner Blocking Patents shall include Taiho Blocking Patents.
“
Non-ND Partner Compound
” has the meaning set forth in Section 5.6.2.
“
Non-ND Partner IP
” has the meaning set forth in Section 5.6.2.
“
Non-ND Partner Reserved Compounds
” means up to […***…] individual Compounds designated by a Non-ND Partner as potential development candidates which such Non-ND
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14
Partner desires to reserve in the Territory outside the Field in accordance with Section 6.2.3(b) below.
“
Non-ND Partner Selected Compounds
” means (i) Non-ND Partner Reserved Compounds selected in accordance with Section 6.2.3(b) below, (ii) those Compounds that cease to be Non-ND Partner Reserved Compounds, but continue as Non-ND Partner Selected Compounds upon elevation pursuant to Section 6.2.3(c), and (iii) up to […***…] additional Compound selected by Non-ND Partners under Section 6.2.3(d), in each case subject to Section 6.2.4 and provided that MethylGene has obtained all rights and covenants as set forth in Sections 4.4.1 and 4.4.2 from the respective Non-ND Partner. With respect to each such Compound, the Non-ND Partner Selected Compound shall also include the prodrugs, metabolites, salts, esters, hydrates, solvates, free base, polymorphs, isomers thereof, conjugated forms and/or liposomal or other formulations thereof and other compositions consisting of such Compound non-covalently bonded with other moieties, which together shall be deemed a single Non-ND Partner Selected Compound (and a single Non-ND Partner Reserved Compound) for purposes of Sections 6.2.3(b)(iii), 6.2.3(c) and 6.2.3(d) below.
“
Non-ND Research Program
” means activities directed to the research, discovery, characterization, optimization,
in vitro
testing,
in vivo
evaluation, preclinical and/or clinical development of HDAC Inhibitors other than for the treatment or prevention of diseases within the Field, which activities are conducted by or on behalf of a Non-ND Partner or its Affiliates pursuant to any written agreement or arrangement with MethylGene or its Affiliates.
“
Opt-Out Non-ND Partner
” means a Third Party who (a) is collaborating with MethylGene with respect to HDAC Inhibitors solely outside the Field and has elected to opt out of participating in the pool of Compounds under this Agreement; (b) is not and has not been granted any rights with respect to Compounds and/or Products in any country (other than as permitted under Sections 4.3.4(b) and 6.2.7(a)(ii)); and (c) is not and has not been provided any Data or Licensed MethylGene Technology relating to Compounds and/or Products. For purposes of this definition of Opt-Out Non-ND Partner, the terms Data and Licensed MethylGene Technology shall be deemed to include information, data, materials, filings and supporting documentation, reports, analysis, databases and tangible materials generated by a Non-ND Partner or by MethylGene in collaboration with a Non-ND Partner or by MethylGene pursuant to a Bona Fide Internal Research and Development Program.
“
Opt-Out Non-ND Partner Blocking Patents
” means all patents owned and controlled by an Opt-Out Non-ND Partner or its Affiliates during the Term which are necessarily infringed by the composition, manufacture, sale, use or importation of Selected Compounds.
“
Opt-Out Non-ND Partner Reserved HDAC Inhibitor
” shall mean a list of up to […***…] individual compounds designated by an Opt-Out Non-ND Partner as potential development candidates which such Opt-Out Non-ND Partner desires to reserve outside the Field in accordance with Section 6.2.7(b) below. It is understood that an Opt-Out Non-ND Partner and all of its Affiliates shall be deemed a single Opt-Out Non-ND Partner (for example, for purposes of Section 6.2.7(b)(iii)).
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“
Opt-Out Non-ND Partner Selected HDAC Inhibitor
” shall mean (i) those compounds that are Opt-Out Non-ND Partner Selected HDAC Inhibitors in accordance with Section 6.2.7(c), and (ii) Opt-Out Non-ND Partner Reserved HDAC Inhibitors selected in accordance with Section 6.2.7(b) below, in each case subject to Section 6.2.4 and provided that MethylGene has obtained all rights and covenants as set forth in Section 4.4.5 and 4.4.6 from the respective Opt-Out Non-ND Partner. With respect to each such compound, the Opt-Out Non-ND Partner Selected HDAC Inhibitor shall also include the prodrugs, metabolites, salts, esters, hydrates, solvates, free base, polymorphs, isomers thereof, conjugated forms and/or liposomal or other formulations thereof and other compositions consisting of such compound non-covalently bonded with other moieties, which together shall be deemed a single Opt-Out Non-ND Partner Selected HDAC Inhibitor (and a single Opt-Out Non-ND Partner Reserved HDAC Inhibitor) for purposes of Sections 6.2.7(b)(iii) and 6.2.7(c) below.
“
Opt-Out Non-ND Research Program
” means activities directed to the research, discovery, characterization, optimization,
in vitro
testing,
in vivo
evaluation, preclinical and/or clinical development of HDAC Inhibitors other than for the treatment or prevention of diseases within the Field, which activities are conducted by or on behalf of an Opt-Out Non-ND Partner or its Affiliates pursuant to any written agreement or arrangement with MethylGene or its Affiliates.
“
Originating R&D Program
” has the meaning set forth in Section 6.2.5(a).
“
Other Neurodegenerative Diseases
” means the neurodegenerative diseases listed on
Schedule 1-F
hereto.
“
Other ND Product
” means any product which contains a Compound as an active ingredient and is researched, developed and commercialized for the treatment or prevention of an Other Neurodegenerative Disease.
“
Over Funding Party
” has the meaning set forth in Section 5.4.5.
“
Panel
” shall have the meaning set forth in Section 16.1.1.
“
Party
” and the “
Parties
” has the meaning set forth in the recitals.
“
Patent Rights
” means a patent or patent application, including all provisionals, divisions, continuations, continuations-in-part, reissues, reexaminations, extensions, supplementary protection certificates, and foreign counterparts of any of the foregoing.
“
PD R&D Program
” means a program for the research, pre-clinical and clinical development of Collaboration Product(s) for the treatment or prevention of Parkinson’s disease and any of the Other Neurodegenerative Diseases, including the research, discovery, characterization, optimization,
in vitro
testing and/or
in vivo
evaluation of Compounds for such purposes, conducted by or on behalf of the Parties hereunder, as more specifically described in Section 6.1.
“
Person
” means an individual or a limited liability company, corporation, partnership, trust, unincorporated organization, association or other entity.
16
“
Phase I
” shall mean human clinical trials, conducted at one or more sites, the principal purpose of which is preliminary determination of safety in healthy individuals or patients (for example, as described in 21 C.F.R. §312.21, or similar clinical study in a country other than the United States).
“
Phase II
” shall mean human clinical trials conducted at multiple sites, for which the primary endpoints include a determination of dose ranges and a preliminary determination of efficacy in patients being studied (for example, as described in 21 C.F.R. §312.21, or similar clinical study in a country other than the United States).
“
Phase III
” shall mean large scale pivotal human clinical trials conducted at multiple sites, which are sufficiently powered and designed to establish safety and efficacy of one or more particular doses in patients being studied and to provide the statistical basis for Marketing Approval for the respective drug (for example, as described in 21 C.F.R. § 312.21, or similar clinical study in a country other than the United States).
“
POC Agreement
” has the meaning set forth in the recitals.
“
Preclinical and Clinical Data
” means all filings and supporting documents submitted or to be submitted to a Regulatory Authority in the Territory relating to the Compound(s) or Collaboration Product(s), and all data contained therein, including, without limitation, any INDs, NDAs and their counterparts in other countries, investigator’s brochures, correspondence to and from such Regulatory Authorities, minutes from teleconferences with Regulatory Authorities, registrations and licenses, regulatory drug lists, advertising and promotion documents shared with Regulatory Authorities, adverse event files and complaint files. In addition, Preclinical and Clinical Data shall include all investigator reports (both preliminary and final), statistical analysis, expert opinions and reports, safety and other electronic databases and all other material documentation and information related to Preclinical Development or clinical development of a Compound or a Product. Without limiting the foregoing, Preclinical and Clinical Data shall include all items described in
Schedule 1-G
that are generated from a Research and Development Program. Notwithstanding the foregoing, Preclinical and Clinical Data shall not include filings, supporting documents, data, reports, analysis, databases or other documentation or information generated by a Non-ND Partner or MethylGene “in collaboration with” a Non-ND Partner (as defined above under Licensed MethylGene Technology), by an Opt-Out Non-ND Partner or MethylGene “in collaboration with” an Opt-Out Non-ND Partner (as defined above under Licensed MethylGene Technology) or by MethylGene pursuant to a Bona Fide Internal Research and Development Program.
“
Preclinical Development
” shall mean those preclinical studies with respect to the Compounds and/or Collaboration Products that are specifically required for an IND, including without limitation ADME and GLP toxicology studies, or studies required for the CMC section of an IND or an NDA. It is understood that “preclinical” testing will continue after the filing of an IND in support of the clinical development of a Compound or Collaboration Product, including ongoing toxicology, metabolic, PK and other non-clinical testing of such Compound or Collaboration Product, and that “Preclinical Development” as used herein shall include such ongoing non-clinical testing.
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“
Pre-Existing IP
” has the meaning set forth in Section 5.6.2.
“
Product Promotional Materials
” means all sales representative training materials and all written, printed, graphic, electronic, audio or video matter related to the marketing or promotion of a Collaboration Product, including, but not limited to, journal advertisements, sales visual aids, direct mail, direct-to-consumer advertising, Internet postings, broadcast advertisements, and sales reminder aids (e.g., scratch pads, pens and other such items) intended for use or used by or for a Party in connection with such marketing or promotion.
“
Prosecution
” means the preparing, filing, prosecuting and maintenance of patent applications and patents and re-examinations, reissues and requests for patent term extensions therefor, together with the conduct of any interference, opposition or other similar proceeding pertaining to patent applications or patents.
“
Protected Action
” has the meaning set forth in Section 3.2.
“
Protected Compounds
” has the meaning set forth in Section 6.2.5(c).
“
Providing Party
” has the meaning set forth in Section 6.3.2.
“
Pursuing Party
” has the meaning set forth in Section 9.1.2.
“
Qualified Hit Compound
” means the […***…] Qualified Compounds (as defined in the POC Agreement) which were identified as hits by EVP prior to the Effective Date through use of the EVP Screening Platform, including any salts, esters, hydrates, solvates, polymorphs, free base, isomers, prodrugs, metabolites, conjugated forms and/or liposomal or other formulations thereof, or of any other composition consisting of a Qualified Hit Compound non-covalently bounded with other moieties. The Qualified Hit Compounds are identified on
Schedule 1-H
.
“
Qualified Service Provider
” shall mean a Third Party vendor or service provider who is engaged to provide goods or services, on a fee for services basis, on behalf of a Party hereunder, and who enters into an appropriate assignment of inventions agreement, and an appropriate confidentiality agreement covering the disclosure of any Information hereunder.
“
R&D Personnel
” means employees of a Party assigned (full- or part-time) to conduct research, scientific and/or technical activities under the Plans and Budgets and having qualifications reasonably approved by the JSC, including scientists, clinical research staff, post-doctoral fellows and similarly qualified technicians, but excluding personnel performing non-scientific or non-technical activities such as project management personnel, patent counsel, business development personnel, secretarial staff or the like.
“
Receiving Party
” has the meaning set forth in Section 6.3.2.
“
Register
” or “
Registration
” means entering a compound into the MethylGene Compound Registry together with (i) a unique identifying number for such compound, (ii) the chemical structure of such compound, and (iii) the Compound Registration Date for such compound, in each case in a format suitable to reasonably enable EVP to access and use
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Compounds, their chemical structures and any related Data included in the MethylGene Compound Registry, as contemplated by this Agreement.
“
Regulatory Approvals
” means all approvals from Regulatory Authorities in any country in the Territory required lawfully to manufacture and market a Collaboration Product in any such country, any establishment license application filed with the FDA to obtain approval of the facilities and equipment to be used to manufacture a Collaboration Product, any Investigational New Drug or other investigational filing, and any product pricing approvals where applicable.
“
Regulatory Authority
” means mean any national (e.g., the FDA), supra-national (e.g., the European Commission, the Council of the European Union, or the EMEA), or other governmental entity in any jurisdiction of the world involved in the granting of Marketing Approval for pharmaceutical products.
“
Regulatory Scheme
” means the United States Public Health Service Act, the Food, Drug, and Cosmetic Act and the regulations, interpretations and guidelines promulgated thereunder by the FDA or the regulatory scheme applicable to any of the Collaboration Products in any country other than the United States, as such statutes, regulations, interpretations and guidelines or regulatory schemes may be amended from time to time.
“
Rejection
” has the meaning set forth in Section 6.2.4.
“
Reporting Period
” has the meaning set forth in Section 5.4.6(a).
“
Research Data
” means all material screening results, SAR data, optimization information,
in vitro
and
in vivo
data, compositions, samples and other information generated in the course of activities under a Research and Development Program conducted by or under authority of MethylGene or EVP with respect to Compounds and/or Collaboration Products, including without limitation all information and data described in
Part A
of
Schedule 1-I
. In case of data that is generated by an entity with rights with respect to Compounds and/or Collaboration Products outside of the Field, Research Data shall mean the foregoing, but only to the extent it is not specific to the Field. With respect to such data generated by Non-ND Partners or MethylGene “in collaboration with” a Non-ND Partner (as defined above under Licensed MethylGene Technology), or by MethylGene pursuant to a Bona Fide Internal Research and Development Program, Research Data shall mean only the items set forth in
Part B
of
Schedule 1-I
, and shall exclude entirely data generated by an Opt-Out Non-ND Partner” or by MethylGene “in collaboration with” an Opt-Out Non-ND Partner (as defined above under Licensed MethylGene Technology).
“
Research and Development Costs
” with respect to a Collaboration Product means the variable costs and fixed costs incurred after the Effective Date by a Party pursuant to the conduct of activities covered by this Agreement and in accordance with the R&D Plan (and, to the extent provided below, the Commercialization Plan), for the development of such Collaboration Product, including (a) direct, out-of-pocket external costs, including clinical grants, clinical laboratory fees, positive controls and the cost of studies conducted and services provided by contract research organizations for clinical development and IND enabling studies and individuals, consultants, toxicology contractors, and manufacturers necessary or useful for the
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purpose of obtaining Regulatory Approvals for such Collaboration Product, (b) costs related to research and development and pre-commercialization sales and marketing efforts as set forth in the R&D Plan for such Collaboration Product, including the efforts of EVP and MethylGene to develop and document process methods and procedures for the manufacture of such Collaboration Product and the Fully Absorbed Cost of Goods for batches of such Collaboration Product manufactured and supplied for use in preclinical and clinical trial and pre-commercialization activities, (c) costs related to data management, statistical designs and studies, document preparation and other expenses associated with the clinical testing program for such Collaboration Product, (d) costs for preparing, submitting, reviewing or developing data or information for the purpose of submission of applications to obtain Regulatory Approvals for such Collaboration Product (including user fees), (e) subject to Sections 5.6.2 and 5.6.3, and to the extent not otherwise included in Fully Absorbed Cost of Goods of a Collaboration Product, license fees and other amounts paid to a Third Party pursuant to a Third Party Agreement as a result of performance of the Research and Development Program as agreed to pursuant to this Agreement, and (f) Commercialization Costs until such time as there have been Net Profits for three consecutive calendar months. For purposes of this definition, “
variable costs
” means […***…] directly consumed in the conduct of and in accordance with the Research and Development Program and the manufacture of the Collaboration Product for use in preclinical and clinical trials and pre-commercialization activities. For purposes of this definition, “
fixed costs
” means the cost of […***…] (including […***…]),[…***…], allocated based upon the proportion of such costs directly attributable to the support or performance of the Research and Development Program and the manufacture of the Collaboration Product for use in preclinical and clinical trials and pre-commercialization activities or by such other method of cost allocation as may be approved by the Board of Directors. All cost determinations made hereunder shall be made in accordance with GAAP. Research and Development Costs shall exclude all costs otherwise reimbursed pursuant to this Agreement.
“
Research and Development Program
” means the AD R&D Program, the HD R&D Program and the PD R&D Program.
“
Research and Development Work Plan
” or “
R&D Plan
” means the comprehensive plan and budget for a Research and Development Program, as more specifically described in Section 6.1 and approved by the Joint Steering Committee in accordance with Section 3.1.4.
“
Reserved Compounds
” means up to […***…] individual Compounds designated by the JSC, or by EVP, as potential development candidates which EVP desires to reserve in the Territory for the Field in accordance with Section 6.2.1(a) below.
“
Second Election Notice
” has the meaning set forth in Section 9.1.3.
“
Second Back-Out Notice
” has the meaning set forth in Section 9.1.3.
“
Second Pursuing Party
” has the meaning set forth in Section 9.1.3.
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“
Secretary
”, with respect to the JSC, JRMC or the JMC, has the meaning set forth in Section 3.1.3.
“
Selected Compounds
” means (i) all Reserved Compounds under Section 6.2.1(a), (ii) those Compounds that cease to be Reserved Compounds, but continue as Selected Compounds pursuant to Section 6.2.1(b), and (iii) up to […***…] other individual Compound approved as a Selected Compound by the JSC under Section 6.2.1(c). With respect to each such Compound, the Selected Compound shall include prodrugs, metabolites, salts, esters, hydrates, solvates, free base, polymorphs, isomers thereof, conjugated forms and/or liposomal or other formulations thereof and other compositions consisting of such Compound non-covalently bonded with other moieties, which together shall be deemed a single Selected Compound (and a single Reserved Compound) for purposes of Section 6.2.1.
“
Share of Net Profits and Losses
” has the meaning set forth in Section 5.5.1.
“
Small Molecule
” means a compound with a molecular weight no greater than […***…].
“
Specifications
” with respect to a particular Collaboration Product means the written specifications for such Collaboration Product determined and approved by the JSC;
provided, that
, such specifications shall at all times comply with the relevant Regulatory Scheme in the country of sale and in the country of use. The Specifications may be amended from time to time by the JSC. Copies of the then current Specifications shall be maintained by both EVP and MethylGene and shall become a part of this Agreement as if incorporated herein.
“
Subject Indications
” means ALS and Dementia, and a Subject Indication means either ALS, dementia - multi infarct, or vascular dementia.
“
Subject Infringements
” has the meaning set forth in Section 12.5.
“
Sublicensable Research Data
” means those items of Research Data generated by or on behalf of a Party or its Affiliates under a Research and Development Program that are set forth in
Part B
of
Schedule 1-I
.
“
Subsidiary
” means, in the case of a subject entity, another entity which controls (as defined in the definition of Affiliate) the subject entity.
“
Taiho
” means Taiho Pharmaceutical, Co., Ltd.
“
Taiho Agreement
” means the Collaboration and License Agreement dated as of October 16, 2003 between MethylGene and Taiho, as amended on January 25, 2005, in the redacted form attached hereto as
Appendix C
.
“
Taiho Blocking Patents
” means all patents owned and controlled by Taiho during the term of the Taiho Agreement which are necessarily infringed by the composition, manufacture, sale or use of Compounds.
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“
Taiho Hit Compound(s)
” means the […***…] Compounds which (i) were identified, synthesized, discovered, designed or acquired after October 16, 2003 and prior to the Effective Date by or on behalf of Taiho pursuant to funding provided by Taiho in accordance with the Taiho Agreement, (ii) have been screened for cancer pursuant to the Cancer Assay, and (iii) meet the Cancer Hit Criteria. The Taiho Hit Compounds, together with their corresponding Compound Registration Dates, are identified on
Schedule 1-J
. The Taiho Hit Compounds shall cease to be designated as Taiho Hit Compounds as of the first anniversary of the Effective Date.
“
Taiho Program Compound(s)
” means the approximately […***…] Compounds, which were identified, synthesized, discovered, designed or acquired after October 16, 2003 and prior to the Effective Date by or on behalf of Taiho pursuant to funding provided by Taiho in accordance with the Taiho Agreement;
provided, that,
a Compound shall cease to be designated as a Taiho Program Compound effective as of the first anniversary of its Compound Registration Date. The Taiho Program Compounds existing as of November 30, 2004, together with their corresponding Compound Registration Dates, are identified on
Schedule 5.6.2
. Within ten (10) days of the Effective Date, MethylGene will update
Schedule 5.6.2
to include all Taiho Program Compounds existing as of the Effective Date, together with their corresponding Compound Registration Dates.
“
Technology
” means inventions, discoveries, trade secrets, copyrights, know-how, methods, data, and other intellectual property of any kind (excluding trademark rights), whether or not patentable, including any proprietary biological or other materials, compounds, reagents or devices.
“
Term
” has the meaning set forth in Section 15.1.
“
Territory
” means the world.
“
Third Party
” means any Person other than MethylGene or EVP and their respective Affiliates.
“
Third Party IP
” has the meaning set forth in Section 5.6.3.
“
Under Funding Party
” has the meaning set forth in Section 5.4.5.
“
Unilateral Right to Approve
” has the meaning set forth in Section 3.2.
“
Unilateral Product
” has the meaning set forth in Section 9.1.2.
“
Up-Front License Fee
” has the meaning set forth in Section 5.1.
“
Valid Claim
” means a claim (a) of an issued, unexpired patent which has not been revoked or held unenforceable or invalid by a decision of a court or governmental agency of competent jurisdiction from which no appeal can be taken, or with respect to which an appeal is not taken within the time allowed for appeal, and which has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue, disclaimer or otherwise, or (b) of any patent application which shall not have been cancelled, withdrawn, or abandoned, or been
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pending for more than seven (7) years from the earliest priority date claimed for such application, unless and until such claim becomes an issued claim of an issued patent.
“
Withholding Party
” has the meaning set forth in Section 5.5.2(d).
ARTICLE II
SCOPE AND STRUCTURE OF THE COLLABORATION
2.1
General
. EVP and MethylGene have entered into this Agreement in order to research, develop and commercialize Compounds and Collaboration Products in and throughout the Territory. The Parties will undertake the Research and Development Program(s) for the Compounds and Collaboration Products, with each of the Parties assuming responsibility for those portions of the Research and Development Program(s) allocated to it under the R&D Plan(s). Upon completion of a Research and Development Program, EVP, MethylGene, their Affiliates, or some combination thereof, to the extent provided for in Article VIII, will manufacture the Collaboration Product(s) for commercial sale, and EVP, MethylGene, their Affiliates, or some combination thereof, to the extent provided for in Article VII, will market and sell the Collaboration Product(s) exclusively or co-exclusively, as the case may be, on the terms and conditions set forth in this Agreement or such other terms and conditions as the Parties may agree upon.
2.2
Exclusive Relationship
. During the Term, neither EVP or its Subsidiaries, nor MethylGene or its Affiliates, shall, directly or indirectly, on its own or in collaboration with a Third Party, conduct research or development regarding, or engage in the manufacture, marketing, sale or distribution of, any products or services for use within the Field, or grant any Third Parties the rights to do any of the foregoing, other than as part of the Collaboration or as a Pursuing Party. Additionally, for so long as one Party is a Pursuing Party under Article IX, the foregoing obligations of exclusivity shall apply to the other Party.
2.3
EVP’s Restrictive Covenant; Limitations
. Except as set forth below, neither EVP nor any of its Subsidiaries shall (1) research, develop or commercialize, or authorize any Third Party to research, develop or commercialize, a Compound or any other HDAC Inhibitor (or a product containing the same) outside of the Field in the Territory, or (2) research, develop or commercialize any Non-ND Partner Selected Compounds in the Territory for any purpose, either inside or outside the Field (other than internal research in the Field). The covenant in clause (1) of the preceding sentence shall terminate upon the earlier to occur of (i) […***…] after the expiration of the Research and Development Program (which expiration shall include a Back-Out by EVP as to all Research and Development Programs) or earlier termination of this Agreement and (ii) as to a field of use governed by a particular Non-ND Partner Agreement (other than the Taiho Agreement), (a) such time as […***…] or (b) such time as […***…]. Notwithstanding the foregoing, as to the Field and Territory as defined in the Taiho Agreement, the aforementioned covenant shall terminate upon the earlier to occur of (x) the […***…] or (y) such shorter time as Taiho may permit.
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ARTICLE III
MANAGEMENT
3.1
Joint Steering Committee
.
3.1.1
General
. The Parties shall establish a Joint Steering Committee, the JSC, within thirty (30) days after the Effective Date. At such time, if ever, as one Party’s Share of Net Profits and Losses is greater than another Party’s Share of Net Profits and Losses as to any Collaboration Product(s) resulting from a particular Research and Development Program, but not proportionally as to all Research and Development Programs, the Parties shall establish a separate JSC for such Research and Development Program within thirty (30) days thereafter. Subject to Section 3.1.2, each JSC shall be composed of an equal number of representatives (and no fewer than two (2)) appointed by each of the Parties. Such representatives will include individuals with such expertise and responsibilities as required by the JSC to perform its obligations under this Agreement. A Party may change one or more of its representatives to the JSC at any time by providing prior written notice to the other Party. Representatives of either EVP or MethylGene who are not members of the JSC may attend meetings of the JSC if and as agreed to by the representative members of the other Party. A member of the JSC may be represented at any meeting by a deputy. The JSC may designate project teams or subcommittees to the extent it deems it necessary or advisable.
3.1.2
Majority Party Control of JSC
. If either MethylGene or EVP becomes a Minority Party (as defined below), such Minority Party shall lose one representative on the applicable JSC(s) and promptly determine and notify the other Party (the “
Majority Party
”) in writing which of such Minority Party’s designees is to be removed from such JSC. Such designee shall be removed from such JSC, without any further action required by such designee, Minority Party or Majority Party, and replaced by an individual designated in writing by the Majority Party. If a Minority Party fails to so notify the Majority Party within ten (10) days after the date such Party becomes a Minority Party, the Majority Party shall have the right to determine which of the Minority Party’s JSC designees shall be so removed. The term “
Minority Party
” means, as to a particular Research and Development Program, either MethylGene or EVP, at such time as such Party’s Share of Net Profits and Losses of any Collaboration Product(s) resulting from such Research and Development Program becomes less than […***…] percent ([…***…]%) at any time. For so long as MethylGene and EVP continue to have any Share of Net Profits and Losses, each shall be entitled to designate at least one JSC member.
3.1.3
Meetings; Minutes
. The JSC(s) shall meet as needed but not less than quarterly. Such meetings shall be at times and places or in such form (e.g., telephone or video conference) as the JSC shall agree. Either MethylGene or EVP may call a special meeting of a JSC upon five (5) Business Days’ advance notice to the other Party. Each of MethylGene and EVP shall appoint Co-Chairpersons, who shall chair alternate meetings. Such Co-Chairpersons shall be responsible for calling meetings of the JSC and for leading the meetings. The Co-Chairperson chairing a particular meeting shall designate a secretary (a “
Secretary
”), who shall be responsible for the preparation of draft minutes of meetings of the JSC during which decisions were made, or resolutions were proposed for approval, by the JSC. Draft minutes shall be sent to all members of the JSC within five (5) Business Days after each such meeting and shall include a
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description in reasonable detail of the discussions had at the meeting and a list of actions, decisions or determinations approved by the JSC. Such minutes shall be approved or disapproved, and revised as necessary, at the next meeting. Final minutes of each such meeting shall be distributed to the members of the JSC by the Secretary. All records of the JSC shall at all times be available to all of the Parties.
3.1.4
JSC Functions
. The JSC(s) shall approve, oversee and control the conduct of the Collaboration under the applicable R&D Plans and Commercialization Plans, set goals and determine objectives, determine responsibilities, set budgets, and oversee the development and commercialization of Collaboration Products. It is anticipated that each JSC will (a) appoint a Joint Research Management Committee, or JRMC, to develop the R&D Plan (including annual development budgets) for each Collaboration Product for submission to and approval by the JSC, and to expedite and oversee the development of Collaboration Products to obtain Regulatory Approvals under the supervision of the JSC; (b) appoint a Joint Marketing Committee, or JMC, to develop the Commercialization Plan for each Collaboration Product for submission to and approval by the JSC, and to expedite and oversee the launch and commercialization of the applicable Collaboration Product(s) under the supervision of the JSC, including (i) oversight of planning, annual budgeting, manufacturing, marketing, sales and distribution, and licensing of Collaboration Products, all subject to JSC approval; (ii) monitoring actual expenses incurred in the manufacture, marketing, sale and distribution of Collaboration Products and reporting of such information to the JSC; (iii) overseeing any post-marketing studies of a Collaboration Product approved by the JSC. In addition the JSC will facilitate the flow of information with respect to development and commercialization work being conducted for each applicable Collaboration Product throughout the Territory and discuss and cooperate regarding the conduct of such development and commercialization work.
3.1.5
Procedures Applicable to JRMCs and JMCs
. The composition, decision-making procedures, conduct of meetings and dispute resolution procedures of any JRMC or JMC appointed by the JSC shall be the same as those applicable to the appointing JSC from time to time,
mutatis mutandis
, except that (i) all decisions of a JRMC and JMC shall be subject to the approval of the appointing JSC, under such procedures as the JSC shall specify; and (ii) any Deadlock arising within a JRMC or JMC shall be submitted to the appointing JSC for resolution; any inability of the JSC to resolve such Deadlock shall be resolved pursuant to Section 3.3 below.
3.2
Decision-Making
. Until a Majority Party becomes entitled to a Unilateral Right to Approve (as defined below), any approval, determination or other action agreed to by a majority of the members of a JSC, appointed by each of MethylGene and EVP or their deputies present at the JSC meeting, or by written consent whether or not at a meeting, shall be the approval, determination or other action of the JSC. As soon as a Majority Party becomes entitled to a Unilateral Right to Approve, any approval, determination or other action approved by a majority of such Majority Member’s representatives on a JSC (whether at a meeting or by written consent), shall be the approval, determination or other action of the JSC, provided that such decisions are reasonable in the circumstances having regard to the customary practice in the development of drugs in the field of neurodegenerative diseases and to the actual stage of development of the relevant Compounds or Collaboration Products, and provided further that any Protected Action shall require the approval by the Minority Party’s representative on a JSC.
25
As used herein, a Majority Party shall be entitled to a “
Unilateral Right to Approve
” as to a particular Research and Development Program and/or Commercialization Program under either of the following circumstances: (i) immediately upon the Majority Party acquiring a Share of Net Profits and Losses exceeding […***…] percent ([…***…]%) of any Collaboration Product(s) resulting from such Research and Development Program or covered by such Commercialization Program or (ii) […***…][…***…] following the Majority Party acquiring a Share of Net Profits and Losses exceeding […***…] percent ([…***…]%) but not exceeding […***…] percent ([…***…]%) of such Collaboration Product(s). As used herein, a “
Protected Action
” shall mean any of the following actions: (1) any change in the definition of Compound, (2) any action which would result in the noncompliance of a provision in this Agreement intended to protect the rights of a Non-ND Partner, and (3) safety, toxicity and regulatory issues. If a JSC is unable to reach agreement on any matter before it, the issue shall be resolved in accordance with Section 3.3 hereof.
3.3
Disputes and Deadlocks
. Any Dispute between the Parties, or Deadlock of a JSC, shall be subject to the procedures set forth below. For the avoidance of doubt, except with respect to a Protected Action, a Deadlock may not occur under this Section 3.3 as to a particular Research and Development Program or Commercialization Program once a Majority Party obtains a Unilateral Right to Approve as to such program(s).
3.3.1
The representatives to the JSC will negotiate in good faith to attempt to resolve the Dispute or Deadlock for a period of not more than thirty (30) days after a representative of one Party to such committee provides written notice to a representative of the other Party that he or she believes a Dispute or Deadlock has arisen (unless such representatives agree to extend such thirty (30) day period).
3.3.2
If the Dispute or Deadlock is not resolved after the period specified in Section 3.3.1, then the representatives shall promptly present the Dispute or Deadlock in writing to the Chief Executive Officers of EVP and MethylGene or a designee of each such Chief Executive Officer reasonably acceptable to the other Party.
3.3.3
Such executives shall meet or discuss in a telephone or video conference each of EVP’s and MethylGene’s views and explain the basis for the Dispute or Deadlock. If the executives cannot resolve the disagreement within thirty (30) days after it was presented to them in writing by the JSC (or such longer period as the executives may agree to), then the dispute shall be subject to the procedures set forth in Article XVI hereof.
ARTICLE IV
GRANTS; RESERVATIONS OF RIGHTS; RESTRICTIONS
4.1
Grants of Rights from MethylGene to EVP
. Except as otherwise expressly provided herein, MethylGene hereby grants to EVP and its Affiliates an exclusive right and license or sublicense during the Term under the Licensed MethylGene Rights to research, develop, make, have made, use, sell, distribute and import Compounds and Collaboration Products in the Field throughout the Territory pursuant to a Research and Development Program or a Commercialization Program;
provided, that
, MethylGene retains, for itself and its Affiliates, the rights under the Licensed MethylGene Rights, to research, develop, make, have made, use,
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sell and import Compounds and Collaboration Products in the Field throughout the Territory in order to conduct those activities assigned to it in a Research and Development Program or a Commercialization Program. Notwithstanding the foregoing, the license set forth in this Section 4.1 shall exclude the right to make or use (other than to internally make or use for research purposes in the Field), develop, import, sell or offer for sale (a) Non-ND Partner Selected Compounds, and Products containing Non-ND Partner Selected Compounds, (b) MethylGene Non-ND Selected Compounds and Products containing MethylGene Non-ND Selected Compounds, and (c) Opt-Out Non-ND Partner Selected HDAC Inhibitors and Products containing Opt-Out Non-ND Partner Selected HDAC Inhibitors.
4.2
Grants of Rights from EVP to MethylGene
. Except as otherwise expressly provided herein, EVP hereby grants to MethylGene and its Affiliates (1) an exclusive right and license or sublicense during the Term under the Licensed EVP Rights and the EVP HDAC Patent Rights, to research, develop, make, have made, use, sell, distribute and import Compounds and Collaboration Products in the Field throughout the Territory pursuant to a Research and Development Program or a Commercialization Program and (2) a non-exclusive right and license or sublicense during the Term under the Licensed EVP Patent Rights and EVP’s interest in any Sublicensable Research Data to research, develop, make, have made, use, sell and import Compounds and resulting products outside of the Field throughout the Territory;
provided, that
, EVP retains, for itself and its Affiliates, the rights under the Licensed EVP Rights and the EVP HDAC Patent Rights, to research, develop, make, have made, use, sell and import Compounds and Collaboration Products in the Field throughout the Territory in order to conduct those activities assigned to it in a Research and Development Program and a Commercialization Program. Notwithstanding the foregoing, the license set forth in clause 2 of this Section 4.2 shall exclude the right to make or use (other than to internally make or use for research purposes outside of the Field), develop, import, sell or offer for sale Selected Compounds, and products containing Selected Compounds whether inside or outside of the Field.
4.3
Licensing and Sublicensing of Rights to Third Parties
. Each of the Parties may license or sublicense its rights under Section 4.1 or 4.2, as applicable, to Third Parties only to the extent permitted under this Section 4.3.
4.3.1
Non-ND Partners for Use Outside of the Field
. Subject to the terms and conditions hereof, MethylGene may grant (1) a non-exclusive right and sublicense under any Licensed EVP Patent Rights and EVP’s interest in any Sublicensable Research Data that have applicability outside of the Field and (2) an exclusive right and license under any MethylGene Collaboration Patent Rights and MethylGene’s interest in any Joint Collaboration Patent Rights and Sublicensable Research Data that have applicability outside of the Field, in each case only to Non-ND Partners who are in compliance with the covenants required under Sections 4.4.1 and 4.4.2, and only to research, develop, make, have made, use, sell, distribute and import Compounds and resulting products outside of the Field throughout the Territory. Notwithstanding the foregoing, MethylGene may not grant the right to make or use (other than to internally make or use for research purposes outside of the Field), develop, import, sell or offer for sale Selected Compounds, and products containing Selected Compounds whether inside or outside of the Field. For the avoidance of doubt, MethylGene shall not have the right to grant sublicenses under the EVP HDAC Patent Rights without the prior written consent of EVP.
27
4.3.2
For Use Within the Field
. Either Party may grant a license or sublicense, without the right to grant further sublicenses, to its rights under Sections 4.1 and 4.2 to a Qualified Service Provider in connection with such Party’s performance of the activities assigned to it under a Research and Development Program or a Commercialization Program. Except as set forth in this Section 4.3.2, neither Party shall license or sublicense to a Third Party its rights under Sections 4.1 or 4.2 in the Field unless such license or sublicense is (A) consistent with the terms hereof (including those intended to protect the rights of Non-ND Partners) and (B) (1) expressly provided for under an R&D Plan or Commercialization Plan, (2) approved by the JSC, or (3) with the express written consent of the other Party.
4.3.3
MethylGene’s Retained Rights for Compounds
. MethylGene shall retain all of its rights in the Territory for uses outside of the Field of Compounds that are not Selected Compounds, subject to Section 6.2.3 and 6.2.7(a). MethylGene shall not, directly or indirectly, however, nor shall it assist or cooperate with, nor grant rights to, any Third Party to, research, make, have made, use (other than pursuant to a Non-ND Partner Research Program or a Bona Fide Internal Research and Development Program to internally make or use for research purposes outside the Field only), develop (including conducting clinical trials or filing for regulatory approval), promote, sell, offer for sale or import (a) the Selected Compounds or any products containing Selected Compounds in the Territory for uses in or outside of the Field or (b) any HDAC Inhibitors for uses within the Field in the Territory (in either case other than pursuant to the Collaboration in accordance with the terms hereof). The obligations set forth in the foregoing sentence shall survive for the longer of (i) the Term or (ii) such time as EVP is a Pursuing Party under Article IX.
4.3.4
EVP Blocking Patents
. EVP hereby grants to MethylGene a non-exclusive license, with the right to grant sublicenses as set forth below, under the EVP Blocking Patents to research, develop, make, have made, use, sell, have sold, offer for sale, import and otherwise distribute Compounds and Products outside the Field in the Territory. Notwithstanding the foregoing:
(a)
MethylGene shall not sublicense any of its rights under this Section 4.3.4 to a Non-Cancer Partner, Opt-out Non-Cancer Partner or any other Third Party, unless (1) MethylGene has obtained all rights, covenants and certificates required under Section 4.4 below to be obtained from such Non-Cancer Partner, Opt-out Non-Cancer Partner or Third Party, and (2) MethylGene has obtained EVP’s prior written consent as to any Third Party who is not a Non-ND Partner or Opt-Out Non-ND Partner; and
(b)
Any sublicense hereunder to an Opt-Out Non-ND Partner shall be limited to the research, development, marketing and/or commercialization of Opt-Out Non-ND Partner Selected HDAC Inhibitors which are also Compounds. MethylGene shall otherwise not grant any rights, nor provide any Data or EVP Licensed Technology, to such Opt-Out Non-ND Partners to research, develop, market and/or commercialize outside the Field any such Opt-Out Non-ND Partner Selected HDAC Inhibitor.
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4.4
Agreement with Non-ND Partners and Opt-Out Non-ND Partners
.
4.4.1
MethylGene shall (1) ensure that all Non-ND Partner Agreements are consistent and comply with Section 6.2, (2) require that all Non-ND Partners abide by Section 6.3.4, and (3) retain and/or obtain the right from all Non-ND Partners to license or sublicense to MethylGene the same rights, with the right to sublicense, with respect to Patent Rights and Technology owned or Controlled by such Non-ND Partners, as are granted by EVP to MethylGene under Sections 4.2, 4.3.1 and 4.3.4 with respect to Licensed EVP Rights, the Sublicensable Research Data, and EVP Blocking Patents.
4.4.2
MethylGene shall obtain an express covenant from Non-ND Partners, that neither they nor their Affiliates shall research, develop or commercialize, or authorize any Third Party to research, develop or commercialize, a Compound or any other HDAC Inhibitor (or a product containing the same) in the Field in the Territory during the term of their respective Non-ND Research Programs, and for […***…][…***…] thereafter, except that a Non-ND Partner may passively license in the Field to a non-Affiliate Third Party compound(s) (and products containing the same) which were identified, or being developed by, such Non-ND Partner as an HDAC Inhibitor prior to the time a Non-ND Partner Agreement was first entered into with MethylGene or its Affiliates. In addition, MethylGene shall ensure that Non-ND Partners and their Affiliates shall not research (other than internally outside the Field only), develop or commercialize any Selected Compounds for any purpose, either inside or outside the Field, during the Term or for so long as EVP is a Pursuing Party under Article IX,
provided
that, as to a particular Non-ND Partner, EVP is in compliance with its covenant under Section 2.3 hereof with respect to the field of use set forth in its Non-ND Partner Agreement. As used herein, an entity “passively” licensing a compound in the Field means (1) such entity exclusively licenses in the Field, assigns or otherwise transfers all, right, title in and to such compound (and products containing the same), including all technology, intellectual property and other assets relating thereto, without such entity or its Affiliates retaining or reserving any rights, license or interest in the Field (other than upon termination of such license), and (2) neither such entity nor its Affiliates will be involved in nor controlling any research, development (including conducting clinical trials or filing for regulatory approval) marketing or commercialization of such compound (or products containing the same).
4.4.3
MethylGene agrees to ensure that all Non-ND Partner Agreements require such Non-ND Partners to abide by the last sentence of Section 12.3.6 and Sections 12.5, 15.4 and 15.5 and EVP’s right to assign under Section 17.6, as they relate to the foregoing rights obtained or retained for MethylGene from the Non-ND Partners, as if named in place of “MethylGene” therein (including as a “Party”).
4.4.4
EVP acknowledges and agrees that the Taiho Agreement shall be deemed to comply with the provisions of this Section 4.4.
4.4.5
MethylGene shall obtain an express covenant from the Opt-Out Non-ND Partners, that neither they nor their Affiliates shall research, develop (including conducting clinical trials for filing for regulatory approval), make, have made, use, sell, import, or otherwise exploit HDAC Inhibitors (and/or products containing the same) in the Field anywhere in the Territory;
provided
, that, an Opt-Out Non-ND Partner may passively (as defined in Section
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4.4.2) license in the Field to a non-Affiliate Third Party, compound(s) (and products containing the same) which were identified, or being developed by, such Opt-Out Non-ND Partner as an HDAC Inhibitor prior to the time an agreement was first entered into with MethylGene or its Affiliates. In addition, MethylGene shall ensure that its agreements with Opt-Out Non-ND Partners are in compliance with Section 6.2, and shall obtain an express covenant from Opt-Out Non-ND Partners that neither they nor their Affiliates shall develop or commercialize, or authorize any third party to develop or commercialize, any Selected Compounds, Non-ND Partner Selected Compounds or MethylGene Non-ND Selected Compounds (or, in each case, products containing the same) for any purpose, either in or outside the Field, during the term of this Agreement.
4.4.6
(a)
MethylGene shall retain and/or obtain the right from each Opt-Out Non-ND Partner to license or sublicense to EVP and its Affiliates the rights granted under this Section 4.4.6, and hereby grants a sublicense thereunder to EVP and its Affiliates.
(b)
A non-exclusive, royalty-free license, with the right to grant sublicenses, under the Opt-Out Non-ND Partner Blocking Patents to research, develop, make, have made, use, sell, have sold, offer for sale, import and otherwise distribute Selected Compounds (and products containing the same), in the Field in the Territory.
(c)
It is understood that a failure by MethylGene to obtain the rights and covenants set forth in this Section 4.4.6 for EVP shall be deemed a breach of this Agreement. Upon expiration (but not termination) of this Agreement, EVP shall have a fully-paid up, royalty-free, perpetual irrevocable license under this Section 4.4.6. MethylGene shall ensure that in the event MethylGene’s agreement(s) with Opt-Out Non-ND Partners is terminated, any license or sublicense granted to EVP from such Opt-Out Non-ND Partners shall survive such termination. In the event the license from MethylGene under Section 4.1 and Section 4.5.1 is terminated, then any rights sublicensed to EVP under this Section 4.4.6 from Opt-Out Non-ND Partners shall likewise terminate. EVP shall have the right to assign its license under this Section 4.4.6 to any entity that acquires substantially all of the business or assets of EVP pertaining to this Agreement, in each case whether by merger, transfer of assets, purchase of all outstanding shares or otherwise.
4.5
Grants of Rights from Back-Out Party to Pursuing Party
. If either Party becomes a Pursuing Party under Section 9.1, then:
4.5.1
Grants to EVP
. If EVP is a Pursuing Party, (1) the grant of rights under Section 4.1 shall convert automatically into an exclusive right and license or sublicense to EVP and its Affiliates, with the right to assign and grant further sublicenses, under the Licensed MethylGene Patent Rights, MethylGene Collaboration Technology, Licensed MethylGene Technology, and MethylGene’s interest in Joint Collaboration Technology to research, develop, make, have made, use, sell, distribute and import Compounds and Unilateral Products in the Field or the Applicable Field (as the case may be), throughout the Territory in accordance with the terms set forth on
Appendix A
and (2) the grant of rights under Section 4.2 shall terminate (subject to Section 4.5.2);
provided
that MethylGene shall retain its rights to license and sublicense under Section 4.3.1. Notwithstanding the foregoing, the license set forth in this Section 4.5.1 shall exclude the right to make or use (other than to internally make or use for
30
research purposes in the Field), develop, import, sell or offer for sale (a) Non-ND Partner Selected Compounds and Products containing Non-ND Partner Selected Compounds, (b) MethylGene Non-ND Selected Compounds and Products containing MethylGene Non-ND Selected Compounds, and (c) Opt-Out Non-ND Partner Selected HDAC Inhibitors and Products containing Opt-Out Non-ND Partner Selected HDAC Inhibitors.
4.5.2
Grants to MethylGene
. If MethylGene is the Pursuing Party, then (1) the grant of rights under Section 4.2 shall automatically convert into an exclusive right and license or sublicense to MethylGene and its Affiliates, with the right to assign and grant further sublicenses, under the Licensed EVP Rights, to research, develop, make, have made, use, sell, distribute and import Compounds and Unilateral Products in the Field or the Applicable Field (as the case may be), throughout the Territory in accordance with the terms set forth on
Appendix A
, (2) the grant of rights under Section 4.1 shall terminate (subject to Section 4.5.1), and (3) MethylGene shall retain its rights to license and sublicense under Section 4.3.1 with regard to such Licensed EVP Rights.
4.6
No Other Rights or Licenses
. Nothing hereunder shall be deemed to grant MethylGene any rights whatsoever in any of EVP’s intellectual property rights, nor to grant EVP any rights whatsoever in any of MethylGene’s intellectual property rights, in each case other than as expressly described herein. Without limiting the generality of the foregoing, MethylGene acknowledges and agrees that nothing hereunder shall be deemed to grant MethylGene any rights to make, use or sell the EVP Screening Platform, and that any and all Technology related to the EVP Screening Platform, including any improvement, modification or enhancement thereto, that is made, conceived, devised, invented, created, developed, written, or otherwise reduced to practice or tangible medium by either Party or its Affiliates as a result of its performance of its activities hereunder shall be exclusively owned by EVP, and MethylGene hereby assigns and agrees to assign to EVP any and all of its rights thereunder.
ARTICLE V
PAYMENTS; PROGRAM FUNDING
5.1
Up-Front License Fee
. Within thirty (30) days after the Effective Date, in consideration for the rights granted pursuant to Section 4.1, EVP shall pay MethylGene an up-front payment of US$500,000 (the “
Up-Front License Fee
”), which shall not be deemed a Research and Development Cost of EVP.
5.2
Warrant Coverage
. Within thirty (30) days after the Effective Date, MethylGene shall issue EVP a warrant for 52,500 Common Shares substantially in the form attached hereto as
Appendix D
, with an exercise price of US$4.286 per share, to be vested and fully exercisable upon grant thereof and for a period of two years thereafter, and which shall not be deemed a Research and Development Cost of MethylGene. The issuance of the warrant will be conditioned upon receipt by MethylGene of a representation letter from EVP substantially in the form of Schedule 3 of the warrant and such other documentation as MethylGene may reasonably request to establish that the issuance of the warrant will be made in compliance with all applicable securities laws.
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5.3
FTE Payments
. Assuming MethylGene remains in compliance with its FTE obligations set forth in the R&D Plan as well as its other funding obligations under this Article V, and subject to the last sentence of Section 6.1.4, EVP shall pay MethylGene US$[…***…] for […***…] FTEs (the “
FTE Payments
”), as follows: (1) US$[…***…] on or before […***…] from the Effective Date, (2) US$[…***…] on or before […***…], (3) US$[…***…] on or before […***…] and (4) US$[…***…] on or before […***…]. Such FTE Payments shall not be deemed Research and Development Costs of EVP.
5.4
Funding of the Research and Development Program
.
5.4.1
Research and Development Costs
. The Research and Development Costs for each of the Research and Development Programs shall be set forth in the R&D Plans and budgets approved by the JSC on an annual basis, and subject to a […***…] review, in accordance with Section 6.1.3. Unless mutually agreed by EVP and MethylGene, or unless either Party has a Unilateral Right to Approve as to the applicable R&D Plan, in which case only the approval of such Party will be required, the annual Research and Development Costs for each Research and Development Program shall not exceed the amounts set forth in the applicable R&D Plans and budgets attached hereto as
Appendix B
for the period commencing on the Effective Date and expiring on the dates specified in each such R&D Plan and budget.
5.4.2
Initial Commitment
. Each of EVP and MethylGene hereby agrees to fund […***…] percent ([…***…]%) of the Research and Development Costs of all three of the Research and Development Programs incurred by either Party from and after the Effective Date until December 31, 2005, as set forth in the initial R&D Plans and budgets attached hereto as
Appendix B
(the “
Initial Commitment
”). For purposes of calendar years 2005 and 2006, each Party’s Research and Development Costs for an FTE assigned to perform activities exclusively pursuant to the Research and Development Program shall be deemed to equal the FTE Rate, regardless of the actual costs to the relevant Party.
5.4.3
AD R&D Program; Provision of Certain Compounds
.
(a)
Notwithstanding anything herein to the contrary, and as more fully set forth in the R&D Plan for the AD R&D Program, EVP will incur the first US$[…***…] of the Research and Development Costs for the Alzheimer’s disease transgenic work performed under such AD R&D Program, provided, that a percentage of such costs equal to MethylGene’s then Share of Net Profits and Losses shall be deemed incurred by MethylGene for purposes of the Parties’ respective Share in Net Profits and Losses. Thereafter, the Research and Development Costs as to any Alzheimer’s disease transgenic work within the AD R&D Program shall not exceed US$[…***…] per Compound tested in each Alzheimer’s disease transgenic model (i.e., any excess incurred by a Party over such amounts for such activities may not be included by such Party as Research and Development Costs)
.
(b)
The EVP Evaluation Compounds to be provided by MethylGene to EVP pursuant to Section 6.2.2(a)(ii) and the Additional Compounds provided by MethylGene to EVP prior to the Effective Date pursuant to Section 6.2.2(b), have been or shall be provided to EVP at MethylGene’s cost, and MethylGene shall have no right to apply any such costs to its Collaboration Costs hereunder. Any costs incurred by EVP in the conduct of research or
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development activities with respect to such EVP Evaluation Compounds and Additional Compounds shall not be included in EVP’s Collaboration Costs hereunder, unless and until EVP designates any such EVP Evaluation Compounds and Additional Compounds as a Selected Compound in accordance with Section 6.2.1, and only as to costs incurred after such designation.
(c)
The […***…] EVP Evaluation Compounds to be provided by MethylGene to EVP pursuant to Section 6.2.2(a)(iii), if any, shall be synthesized by MethylGene for EVP at the FTE Rate, and MethylGene shall invoice EVP directly for such costs. MethylGene shall have no right to apply any such costs to its Collaboration Costs. Any costs incurred by EVP in the conduct of research or development activities with respect to such EVP Evaluation Compounds shall be excluded from EVP’s Collaboration Costs hereunder, unless and until EVP designates any such EVP Evaluation Compound as a Selected Compound in accordance with Section 6.2.1, and only as to costs incurred after such designation.
5.4.4
Future Rights and Obligations
.
(a)
Right to Fund
. Following the Initial Commitment, each of EVP and MethylGene shall have the right, but not the obligation (subject to paragraph (b) of this Section 5.4.4), to fund a fraction of the Research and Development Costs of all or any one of the Research and Development Programs incurred by either Party equal to its then Share of Net Profits and Losses (initially, one half (1/2)) until the later of (1) completion of all updated R&D Plans as approved by the JSC and (2) such time as there have been Net Profits for three consecutive calendar months.
(b)
Commitment to Fund
. Within ten (10) Business Days after approval by the JSC of an annual R&D Plan budget for a particular Research and Development Program, each of the Parties shall provide a written notice to the other Party setting forth what fraction of the Research and Development Costs specified in such annual budget it agrees to fund, if any, up to its then current Share of Net Profits and Losses with respect to such Research and Development Program. Such notice shall constitute a binding commitment by the providing Party to fund such amount of the Research and Development Costs of each such Research and Development Program during the applicable period;
provided, that,
if, as a result of such funding commitment, a Party’s Share of Net Profits and Losses with respect to the particular R&D Plan budget falls below […***…] percent ([…***…]%) but remains above […***…] percent ([…***…]%), then such Party shall be deemed to have reserved its rights under Section 5.4.5(b).
5.4.5
Refusal or Failure to Fund
.
(a)
Breach of Commitment
. If either Party breaches its funding obligations under Sections 5.4.2 or 5.4.4(b), in whole or in part, the other Party may elect in its sole discretion to (1) enforce such funding obligation in accordance with the terms hereof, (2) terminate this Agreement in accordance with Section 15.2.1 and pursue any and all remedies available at law or in equity, or (3) assume the unmet funding obligations of the breaching Party, with the same consequences as set forth in clause (b) of this Section 5.4.5.
(b)
Adjustments to Shares of Net Profits and Losses
. If either Party (i) fails to exercise its rights under Section 5.4.4(a) and (b) to fund the Research and Development
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Costs provided for in any updated R&D Plan budget following approval thereof by the JSC to the extent of its then current Share of Net Profits and Losses, or (ii) exercises such rights, but subsequently breaches its funding commitment (an “
Under-Funding Party
”), then the other Party (the “
Over-Funding Party
”) may assume some or all of the shortfall in the Under-Funding Party’s funding of such Research and Development Costs in addition to its own Share of Net Profits and Losses (including by reducing such budget by an amount equal to the difference between the amount the Under-Funding Party actually funds and such Under-Funding Party’s then current Share of the Net Profits and Losses), in which case: (A) (i) the Over-Funding Party’s Share of Net Profits and Losses shall increase as to the Collaboration Product(s) resulting from the applicable Research and Development Program(s), and (ii) it shall thereafter have the right, but not the obligation, to fund future Research and Development Costs equal to its adjusted Share of Net Profits and Losses thereof; and (B) (i) the Under-Funding Party’s Share of Net Profits and Losses shall decrease as to the Collaboration Product(s) resulting from such Research and Development Program(s), and (ii) it may not thereafter incur future Research and Development Costs in excess of its adjusted Share of Net Profits and Losses thereof without the prior written approval of the other Party. Notwithstanding the foregoing, (i) in the event the Under-Funding Party timely elects, pursuant to Section 5.4.4(b), to fund some portion of the Research and Development Costs provided for in any updated R&D Plan budget following approval thereof by the JSC, but not to the full extent of its then current Share of Net Profits and Losses, then the Over-Funding Party may not reduce such budget without first offering the Under-Funding Party its right to fund such reduced budget as set forth in Section 5.4.4, and (ii) if as a result of a Minority Party’s failure or refusal to fund Research and Development Costs of a particular Research and Development Program, its Share of Net Profits and Losses of Collaboration Product(s) resulting from such Research and Development Program is adjusted below […***…] percent ([…***…]%), but remains above […***…] percent ([…***…]%), such Minority Party may, on or before […***…] following the effective date of such adjustment, fund Research and Development Costs of such Research and Development Program in amounts necessary so as to raise its Share of Net Profits and Losses of such Collaboration Product(s) up to […***…] percent ([…***…][…***…]%), but not more without the prior written approval of the other Party.
5.4.6
Periodic Reporting and Reconciliation
.
(a)
Reports
. Within thirty (30) days after the end of the second and fourth calendar quarters, each Party shall submit a written report to the other Party and to the JSC setting forth in reasonable detail all Research and Development Costs incurred by or on behalf of the reporting Party during such period (a “
Reporting Period
”). Such report shall provide supporting detail for each of the categories of expenses included within Research and Development Costs, as determined by the JSC.
(b)
Reconciliation
. Within forty-five (45) days following the end of each Reporting Period, the JSC shall submit to each of the Parties a written report setting forth in reasonable detail the calculation of any net amount owed by EVP to MethylGene or by MethylGene to EVP, as the case may be, in order to ensure the sharing of Research and Development Costs in accordance with the Parties’ respective Shares of Net Profits and Losses. The net amount payable shall be paid by EVP or MethylGene, as the case may be, within thirty (30) days after receipt of such written report;
provided, that
in the event of a dispute as to the amounts under this Section 5.4.6(b), the disputing Party shall pay the amount not in dispute and
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shall provide written notice within such thirty (30) day period after receipt of the written report in question, specifying in detail such dispute. The Parties shall promptly thereafter meet and negotiate in good faith a resolution to such dispute. In the event that the Parties are unable to resolve such dispute within sixty (60) days after notice by the disputing Party, the matter shall be resolved in a manner consistent with the procedures set forth in Article XVI (
provided, that
, in the case that the matter has not been resolved by the Executive Officers, rather than invoking arbitration under Section 16.1, the Parties shall (i) use reasonable efforts to reach agreement on the appointment of one (1) internationally-recognized independent accounting firm to determine the matter, (ii) if the Parties cannot reach agreement on such accounting firm, then each Party shall appoint one (1) internationally-recognized accounting firm to determine the matter, and (iii) if such firms cannot reach agreement, such firms shall choose a third internationally-recognized independent accounting firm to make the final determination). Interest shall be payable on any disputed amounts determined to be due in the same manner as provided in Section 17.4, with interest accruing from the end of the thirty (30) day period during which such payment should have been made.
5.5
Net Profits and Losses
.
5.5.1
Sharing of Net Profits and Losses
.
(a)
The Parties shall share equally in the Net Profits and Losses for so long as each of EVP and MethylGene funds […***…] percent ([…***…]%) of the Research and Development Costs; otherwise, subject to Article IX, each Party shall be entitled to a fraction of the Net Profits and Losses equal to the aggregate Research and Development Costs funded by such Party divided by the aggregate Research and Development Costs funded by both Parties (its “
Share of Net Profits and Losses
”).
(b)
A Party’s Share of Net Profits and Losses as to a particular Collaboration Product shall initially be […***…], and shall be re-calculated upon (i) provision of notice of a commitment to fund under Section 5.4.4(b), (ii) any uncured breach of a funding obligation, and (iii) on a […***…] basis, giving effect to reconciliation payments as set forth in Section 5.4.6(b).
(c)
If the JSC and, to the extent there is more than one JSC, each applicable JSC, approves the development of a Selected Compound or Protected Compound under a Research and Development Program other than the Research and Development Program under which it was initially allocated for development, all in accordance with Section 6.2.5, then the aggregate Research and Development Costs funded by each Party as to such Selected Compound or Protected Compound within such other Research and Development Program (but not within the original Research and Development Program), shall be deemed to be zero as of the date of such approval, with each of the Parties’ respective Share in Net Profits and Losses as to such Selected Compounds or Protected Compounds within such Research and Development Program, and as to any resulting Collaboration Products within a resulting Commercialization Program, being equal to […***…] percent ([…***…]%) and subject to adjustment as to future funding thereof pursuant to Section 5.5.
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(d)
If any applicable JSC approves the development of a Collaboration Product as a Selected Compound under a Research and Development Program other than the Originating R&D Program, all in accordance with Section 6.2.5, then the aggregate Research and Development Costs funded by each Party as to such Collaboration Product within such other Research and Development Program (but not within the Commercialization Program resulting from the Originating R&D Program), shall be deemed to be zero as of the date of such approval, with each of the Parties’ respective Share in Net Profits and Losses as to such Collaboration Product within such Research and Development Program and resulting Commercialization Program, being equal to […***…] percent ([…***…]%) and subject to adjustment as to future funding thereof pursuant to Section 5.5.
5.5.2
Periodic Reporting and Reconciliation
.
(a)
Reports
. Within thirty (30) days after the end of each Reporting Period during the Commercialization Program, each Party shall submit a written report to the other Party and to the JSC setting forth in reasonable detail, separately with respect to each Collaboration Product and each country in the Territory during such Reporting Period, as applicable, Net Revenues, Net Sales and Commercialization Costs, including Fully-Absorbed Cost of Goods, incurred by or on behalf of the reporting Party in each country in the Territory during such Reporting Period. Such report shall provide supporting detail for such sales, revenues and costs.
(b)
Commercialization Costs reported pursuant to clause (a) shall be included in the determination of Net Profits and Losses, as applicable, only to the extent made or incurred in conjunction with an approved budget line item in the applicable Commercialization Plan budget or as otherwise may be approved by the Joint Marketing Committee.
(c)
Costs and expenses included in Commercialization Costs, as well as the deductions taken from Net Sales, shall not be double counted (i.e., any item of expense included in any expense category shall not also be included in any other expense category).
(d)
Within thirty (30) days following the receipt of each Party’s reports under clause (a), the JSC shall submit to each Party a written report setting forth in reasonable detail the calculation of Net Profits and Losses and the calculation of any net amount owed by EVP to MethylGene or by MethylGene to EVP, as the case may be, in order to ensure the sharing of Net Profits and Losses is as specified in Section 5.5.1. If either Party (a “
Withholding Party
”) shall, in accordance with applicable law or regulations (as determined in its reasonable judgement), withhold and pay over taxes on the other Party’s Share of Net Profits, such taxes shall be treated as an amount of Net Profits received by the other Party (and not by the Withholding Party) for purposes of determining amounts owed under the preceding sentence. In all events, the other Party shall promptly reimburse or otherwise make whole the Withholding Party for any amounts so withheld.
(e)
The net amounts payable under clause (d) shall be paid by EVP or MethylGene, as the case may be, within thirty (30) days after receipt of each such written report,
provided
that, in the event of a dispute as to the amounts under clause (d), the disputing Party shall pay the amount not in dispute and shall provide written notice within such thirty (30) day
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period after receipt of the written report in question, specifying in detail such dispute. The Parties shall promptly thereafter meet and negotiate in good faith a resolution to such dispute. In the event that the Parties are unable to resolve such dispute within sixty (60) days after notice by the disputing Party, the matter shall be resolved in a manner consistent with the procedures set forth in Article XVI;
provided that
, in the case that the matter has not been resolved by the Executive Officers, rather than invoking arbitration under Section 16.1, the Parties shall (i) use reasonable efforts to reach agreement on the appointment of one (1) internationally-recognized independent accounting firm to determine the matter, (ii) if the Parties cannot reach agreement on such accounting firm, then each Party shall appoint one (1) internationally-recognized accounting firm to determine the matter, and (iii) if such firms cannot reach agreement, such firms shall choose a third internationally-recognized independent accounting firm to make the final determination). Interest shall be payable on any disputed amounts determined to be due in the same manner as provided for in Section 17.4, with interest accruing from the end of the thirty (30) day period during which such payment should have been made.
(f)
With respect to each Reporting Period, each Party shall provide to the other Party reports setting forth (i) actual Net Revenues for each month in such Reporting Period (on a country-by-country and Collaboration Product-by-Collaboration Product basis), to be provided within thirty (30) days after the end of each such period, (ii) actual Net Revenues for such Reporting Period (on a country-by-country and Collaboration Product-by-Collaboration Product basis), to be provided within thirty (30) days after the end of such period, and (iii) the most current forecast of Commercialization Costs, including Fully-Absorbed Cost of Goods of each Collaboration Product, for such period (broken down on a monthly basis), to be provided within thirty (30) days after the end of such Reporting Period. The Parties recognize that the forecasts provided pursuant to subsection (iii) are estimates only, and the Party providing such forecast shall have no liability to the other Party based thereon. The Parties agree to consider in good faith the utilization of more rapid and detailed reporting mechanisms in order to meet the reporting requirements of the Parties.
5.6
Royalty Payments and Obligations
.
5.6.1
Royalties for Grants to Third Parties
. In consideration for its rights under clause (2) of Section 4.2, its right to grant sublicenses thereunder pursuant to Section 4.3.1, its rights to grant licenses under Section 4.1 pursuant to Section 4.3.1, and its right to grant licenses or sublicenses under Sections 6.2.7(ii) and 6.2.7(iii):
(a)
MethylGene shall charge royalties of no less than […***…] percent ([…***…]%) of any Net Sales (i) by its Non-ND Partners, and their respective Affiliates and Sublicensees, of products or services (“
Non-ND Licensed Products
”) for use outside the Field that are Covered by Collaboration Patent Rights or result from Collaboration Technology, including any Compounds (other than Selected Compounds), that are designed or synthesized by the Parties pursuant to this Collaboration, for use outside the Field. For purposes of this Agreement, such royalties shall not be included within MethylGene’s Net Revenues;
provided,
that MethylGene shall pay EVP a fraction of such royalties equal to EVP’s then Share of Net Profits and Losses aggregated across all Research and Development Programs and Commercialization Programs in the Collaboration,
except
that (i) if EVP is a Pursuing Party as to all Collaboration Products, MethylGene shall pay EVP all of such royalties minus a percentage thereof equal to the percentage of Sublicense
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Income due to MethylGene in connection with Unilateral Products, and (ii) if MethylGene is a Pursuing Party with respect to all Collaboration Products, MethylGene shall pay EVP a percentage of all such royalties equal to the percentage of Sublicense Income due to EVP in connection with Unilateral Products.
(b)
MethylGene shall pay directly to EVP a royalty equal to the product obtained by multiplying (i) […***…] percent ([…***…]%) of any Net Sales by MethylGene, and its Affiliates and Sublicensees (other than Non-ND Partners and their respective Affiliates), of Non-ND Licensed Products for use outside the Field by (ii) EVP’s then Share of Net Profits and Losses aggregated across all Research and Development Programs and Commercialization Programs in the Collaboration,
except
that (i) if EVP is a Pursuing Party as to all Collaboration Products, MethylGene shall pay to EVP all of such royalties minus a percentage thereof equal to the percentage of Sublicense Income due to MethylGene in connection with Unilateral Products, and (ii) if MethylGene is a Pursuing Party with respect to all Collaboration Products, MethylGene shall pay EVP a percentage of all such royalties equal to the percentage of Sublicense Income due to EVP in connection with Unilateral Products
.
(c)
Such royalty payments shall not be deemed Collaboration Costs of MethylGene, shall be subject to terms substantially the same as those set forth on
Appendix A
as to a Pursuing Party, and shall be in addition to any obligations of MethylGene in the Field in the event it becomes a Pursuing Party under Section 9.1.
(d)
For purposes of clause (a) of this Section 5.6.1, the term Net Sales may differ from the definition set forth in Article I hereof to the extent required by a Non-ND Partner in its particular Non-ND Partner Agreement, provided that such differing term is negotiated in good faith by MethylGene and is commercially reasonable (it being acknowledged by EVP that the Net Sales definition in the Taiho Agreement was negotiated in good faith by MethylGene and is commercially reasonable).
5.6.2
Royalties Owed to Non-ND Partners.
(a)
MethylGene may include as its Research and Development Costs, or Commercialization Costs, as the case may be, of a particular Collaboration Product, the royalties owed by MethylGene to a Non-ND Partner on the Net Sales by either of the Parties, and their respective Affiliates or permitted sublicensees, of such a Collaboration Product that contain Non-ND Partner Compounds, but only up to […***…] percent ([…***…]%) of such Net Sales. It is understood and agreed that amounts paid with respect to the Non-ND Partner IP shall not be subject to Section 5.6.3 below. As used herein, (i) a “
Non-ND Partner Compound
” shall mean a New Compound, the manufacture, use, or sale of which would infringe Non-ND Partner IP but not MethylGene Collaboration Patents, MethylGene Collaboration Technology, MethylGene’s interests in Joint Collaboration Patents or Joint Collaboration Technology, or Pre-existing IP, (ii) “
Non-ND Partner IP
” means Valid Claims within the MethylGene Licensed Patents, to the extent such Valid Claims consist of inventions made solely in the course of performing research activities under a Non-ND Partner Research Plan pursuant to a Non-ND Partner Agreement, (iii) “
Pre-existing IP
” means Valid Claims within the MethylGene Licensed Patents that are owned or controlled by MethylGene or its Affiliates prior to the effective date of the applicable Non-ND Partner Agreement, and (iv) a “
New Compound
” means a Compound which was not first
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synthesized by MethylGene prior to the effective date of the applicable Non-ND Partner Agreement. Compounds that were first synthesized by MethylGene prior to the effective date of the applicable Non-ND Partner Agreement shall be demonstrated upon EVP’s request by contemporaneous written scientific records of MethylGene made prior to such effective date. MethylGene represents that
Schedule 5.6.2
is a complete list of Compounds synthesized by MethylGene prior to the Effective Date and with respect to which a royalty will be owed by MethylGene to Taiho pursuant to the Taiho Agreement.
(b)
For purposes of clause (a) of this Section 5.6.2, the term Net Sales may differ from the definition set forth in Article I hereof to the extent required by a Non-ND Partner in its particular Non-ND Partner Agreement,
provided
that such differing term is negotiated in good faith by MethylGene and is commercially reasonable (it being acknowledged by EVP that the Net Sales definition in the Taiho Agreement was negotiated in good faith by MethylGene and is commercially reasonable).
5.6.3
Royalties and other Payments Owed to Other Third Parties
. In the event that either EVP or MethylGene, or their respective Affiliates, pays any fees or royalties in connection with the research, development, manufacture, use or sale of Compounds or Collaboration Products in the Field in the Territory, which are in consideration for patent rights, trade secrets or other intellectual property or technology obtained from a Third Party other than a Non-ND Partner (“
Third Party IP
”), such Party may include as part of its Research and Development Costs or Commercialization Costs of a relevant Collaboration Product such fees and/or royalties (1) to the extent described on
Schedule 5.6.3
hereto or (2) to the extent approved by the JSC. Each Party shall promptly notify the other Party of any applicable Third Party IP and the method of calculating fees or royalties owed thereunder to the respective Third Party. Each of the Parties agrees not to incorporate into any Collaboration Product being developed under this Agreement any Third Party IP, which it has in-licensed or of which it is otherwise aware, without the approval of the applicable JSC (
provided
that the terms of the licenses described on
Schedule 13.3.2
shall be deemed pre-approved), and the Parties shall discuss from time to time through the JSC, whether any Third Party IP is necessary or desirable to obtain with respect to the Compounds and/or Collaboration Products in the Field. Any Deadlock as to whether or not a license or sublicense under any Third Party IP is required shall be subject to the dispute resolution procedures set forth in Section 3.3. In the event that the Parties, or an arbitrator, ultimately determine that such a license or sublicense is not required, either Party shall be free to secure, at its own cost, and for its sole benefit, any such license or sublicense it deems necessary or advisable, in which case it shall bear all royalties and fees due thereunder (which shall not be included in its Research and Development Costs or Commercialization Costs).
5.7
Audits and Interim Reviews
. Each Party shall maintain accurate books and records regarding Research and Development Costs, Commercialization Costs, Net Revenues, and Net Sales, sufficient to enable the calculation of amounts payable hereunder to be verified, and shall retain such books and records for each quarterly period for three (3) years after submission of the corresponding report pursuant to this Agreement. Either Party shall have the right to request that an independent certified public accountant selected by it (but excluding its own accountant) and reasonably acceptable to the other Party perform an audit, not more than once in any four (4) consecutive calendar quarters during the Term, but including one post-termination audit and, if any such audit results in a material restatement of records (i.e., a
39
discrepancy of 5% or more for any calendar year), such Party shall be permitted an additional examination within such four (4) quarter period, of the other Party’s books of accounts covering the preceding three (3) year period for the sole purpose of verifying compliance with the payment provisions of this Agreement. Such audits will be conducted at the expense of the requesting Party at reasonable times during regular business hours and upon at least twenty (20) Business Days’ prior notice. Audit results will be shared with both Parties, subject to Article XI,
provided
that the accounting firm may not disclose copies of the audited Party’s books of accounts (or excerpts thereof) to the requesting Party or any other party. Any accounting firm conducting such an audit shall enter into a confidentiality agreement with both Parties substantially similar to the confidentiality provisions of Article XI limiting the disclosure and use of information contained in such books and records for the purposes expressly permitted by this Section 5.7. Any inspection or audit pursuant to this Section 5.7 shall be at the expense of the Party initiating the audit
; provided, however
, that if the Party’s accountants reasonably determine that Net Profits or royalties have been understated or Net Losses, Research and Development Costs, or Commercialization Costs (including associated FTEs, reimbursable costs and expenses) have been overstated by an amount equal to or greater than five percent (5%), for any calendar year, the Paying Party shall pay the reasonable fees of such accountants for such audit, in addition to remitting the Net Profits or royalty payment or refund of Net Losses, Research and Development Costs, or Commercialization Costs (including associated FTEs, reimbursable costs and expenses) with interest thereon computed in accordance with Section 17.4.
ARTICLE VI
RESEARCH AND DEVELOPMENT PROGRAM
6.1
Conduct of the Research and Development Program
.
6.1.1
General
. The Parties each agree to collaborate diligently in the development of Compounds and Collaboration Products for use in the Field and to use Commercially Reasonable and Diligent Efforts to file for and obtain Regulatory Approvals for and bring to market and commercialize Collaboration Products for use in the Field and in the Territory as soon as practicable, all in accordance with the R&D Plans and the Commercialization Plans for such Collaboration Products. The Parties agree to use Commercially Reasonable and Diligent Efforts to execute and substantially perform and to cooperate with each other in carrying out the R&D Plans and the Commercialization Plans for each Collaboration Product. A Party shall be deemed to have met its obligation under this Section 6.1.1. to exercise Commercially Reasonable and Diligent Efforts throughout the entire Territory if such Party exercises Commercially Reasonable and Diligent Efforts with respect to the Major Market Countries.
6.1.2
R&D Plans
. Each Research and Development Program shall be conducted by the Parties in accordance with the corresponding then-current R&D Plan which shall describe the proposed overall program of development for each Collaboration Product, including research, pre-clinical studies, toxicology, formulation, manufacturing, clinical trials and regulatory plans and other key elements necessary to obtain Regulatory Approvals for such Collaboration Product. Pursuant to an R&D Plan, development work may be subcontracted by EVP and MethylGene to their respective Affiliates or to Qualified Service Providers. The R&D
40
Plans shall each include (i) a summary of estimated Research and Development Costs expected to be incurred by each Party hereunder in performing activities of such Research and Development Program assigned to such Party pursuant to Section 6.1.4 below and (ii) a detailed budget for all development activities proposed for the applicable period and for each Collaboration Product.
6.1.3
Initial and Updated R&D Plan
. The Parties have agreed to the initial R&D Plans and budgets for the research and development and pre-commercialization activities of the Research and Development Programs, which are attached hereto as
Appendix B
, for the period beginning on the Effective Date and ending on December 31, 2005. Each R&D Plan shall be updated and approved for a particular calendar year by the JSC not later than November 30
th
of the prior calendar year, and shall be subject to review and adjustment by the JSC on or before June 30
th
of each calendar year (it being understood that no such adjustment will be made unless approved by the JSC). Each such updated R&D Plan shall include (a) an overall R&D Plan for each Collaboration Product which sets forth all major development tasks remaining to be accomplished prior to submission of filings for Regulatory Approvals and (b) a detailed description and budget for the development and pre-commercialization activities proposed for the forthcoming calendar year. Each of the Parties shall employ, and shall ensure that its representatives on the applicable JSC employ, diligent, good faith efforts to reach agreement on the annual updates to the R&D Plans and budgets, regardless of what portion, if any, of the Research and Development Costs of the corresponding Research and Development Programs such Party intends to fund pursuant to Section 5.4.4. In connection with the preparation of such updates, the applicable JSC shall consult with EVP and MethylGene regarding the identification, timing and execution of and budget for the major tasks and detailed activities required to perform the updated R&D Plan. Each such updated R&D Plan approved by a JSC shall be signed by an authorized representative of each of MethylGene and EVP unless and until one Party has a Unilateral Right to Approve in connection with the corresponding Research and Development Program, in which case it need only be signed by an authorized representative of the Majority Party, and disclosed to the Minority Party within five (5) days thereafter. The members of the JSC(s) shall actively consult with one another throughout the term of the R&D Plans so as to adjust the specific work performed under the R&D Plans to conform to evolving developments in technology and the results of the development work performed. All significant changes in the scope or direction of the work and any changes in funding exceeding […***…] percent ([…***…]%) of the total amount budgeted in any calendar year for a Research and Development Program, on a line item and Collaboration Product-by-Collaboration Product basis, must be approved by the Parties, in the absence of which approval the most recently approved R&D Plan shall remain in effect.
6.1.4
Execution and Performance
. Each of the Research and Development Programs shall allocate among the Parties responsibility for each of the activities described therein. The JSC(s) will coordinate preclinical and clinical testing of the Collaboration Products in the Territory and work with designated individuals at MethylGene and EVP in the preparation of Regulatory Approval filings for the Collaboration Products and filing the same with regulatory agencies designated by the JSC(s). All as more fully set forth in the initial R&D Plans, (i) MethylGene’s responsibilities shall include medicinal and analytical chemistry, enzymology, isotypic pharmacology and early PK bioanalytical sample analysis, with a minimum commitment of […***…] FTEs per year for each of calendar years 2005 and 2006, and
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(ii) EVP’s responsibilities shall include
in vitro
and
in vivo
biology, with a minimum of […***…] FTEs per year for each of calendar years 2005 and 2006, it being understood that during the period commencing on the Effective Date and expiring on December 31, 2006, each of MethylGene and EVP shall commit an FTE effort equivalent to the effort of […***…] FTEs per annum over a twenty-four-month period.
6.1.5
Attendance at Regulatory Meetings; Correspondence
. Each Party shall provide the other with prior notice of all meetings and teleconferences between representatives of the notifying Party and Regulatory Authorities regarding any Collaboration Product intended for sale in any part of the Territory. Except as otherwise provided herein, the Party receiving such notice shall have the right to have representatives present as observers at all such meetings and teleconferences. Each Party shall use reasonable efforts to provide the other Party with a reasonable opportunity to review and comment upon submissions to, and correspondence with, any Regulatory Authority in the Territory, with respect to Collaboration Products prior to the filing or delivery of such submissions or correspondence. Without limiting the foregoing, each Party shall use reasonable efforts to confirm in writing to the other Party all communications with a Regulatory Authority with respect to a Regulatory Approval (including filings therefor) and to provide to the other Party copies of all documents sent to or received from such Regulatory Authority regarding such Regulatory Approvals.
6.2
Selection and Protection of Compounds
.
6.2.1
Designation by JSC or EVP
.
(a)
Reserved Compounds
. The JSC may designate a Compound as a Reserved Compound at any time upon written notice to EVP and MethylGene,
provided
that at the time of such notice (i) as to any Compound that is identified, synthesized, discovered, designed or acquired after the Effective Date by or on behalf of MethylGene or its Affiliates pursuant to a Bona Fide Internal Research and Development Program (a “
Future MethylGene Compound
”), or by or on behalf of a Non-ND Partner or its Affiliates pursuant to a Non-ND Research Program (a “
Future Non-ND Partner Compound
” and, together with a Future MethylGene Compound, a “
Future Outside Compound
”), one year has elapsed since its Compound Registration Date, (ii) such Compound is not then a Taiho Program Compound, a Taiho Hit Compound, a Non-ND Partner Selected Compound, an Opt-Out Non-ND Partner Selected HDAC Inhibitor or a MethylGene Non-ND Selected Compound, and (iii) there are not then more than […***…] Reserved Compounds. Notwithstanding the preceding sentence, and the first sentence of clause (c) of this Section 6.2.1, if a Non-ND Partner (including Taiho) grants MethylGene the right to designate, as a MethylGene Non-ND Selected Compound(s), one or more Future Non-ND Partner Compound(s) prior to expiration of the one-year period in clause (i) above, then MethylGene shall not exercise such right unless such Non-ND Partner also agrees to permit EVP to designate, as a Selected Compound(s) hereunder, an equal number of Future Non-ND Partner Compound(s) prior to expiration of such one-year period,
provided
, that EVP must make any such designation within twenty (20) days of the date MethylGene provides EVP with written notice that such Non-ND Partner will permit EVP to make such designations, together with a listing of the Compounds subject to such right of selection and, to the extent available, the items of Research Data related to such Compounds set forth in
Part B
of
Schedule 1-I
. Similarly, if MethylGene permits any Non-ND Partner to designate, as a Non-ND Partner
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Selected Compound, one or more Future MethylGene Compound(s) prior to expiration of the one year period in clause (i) above, then MethylGene shall also permit EVP to designate, as a Selected Compound hereunder, an equal number of Future MethylGene Compound(s) prior to expiration of such one-year period;
provided
, that, EVP must make any such designation(s) within twenty (20) days of the date MethylGene notifies EVP in writing that it has permitted such designation(s) by a Non-ND Partner, together with a listing of the Compounds subject to such right of selection and, to the extent available, the items of Research Data related to such Compounds set forth in
Part B
of
Schedule 1-I
. In the event the JSC does not agree on the designation of such a Compound as a Reserved Compound, then EVP may decide unilaterally whether or not to so designate, upon written notice to MethylGene. In the event there are then […***…] Reserved Compounds, then the JSC, or EVP, as the case may be, shall not have the right to include any additional Compound(s) as Reserved Compounds, until the JSC or EVP has removed an equal number of Compounds from the list of Reserved Compounds, chosen at the JSC’s or EVP’s sole discretion, as the case may be. For the foregoing purpose, it is understood and agreed that the JSC shall have the right to remove any Compound from the list of Reserved Compounds at any time upon written notice to EVP and MethylGene. In the event the JSC does not agree on the removal of such a Compound from the list of Reserved Compounds, then EVP may decide unilaterally whether or not to so remove, upon notice to MethylGene. In the event a Compound is so removed from the list of Reserved Compounds, then such Compound shall thereafter cease to be a Selected Compound, unless re-designated in accordance with this Section 6.2.1(a), or such Compound becomes a Selected Compound in accordance with Section 6.2.1(c) below. Within a reasonable period of time after the date of designation of any Compound as a Selected Compound hereunder, such Compound shall be determined to be useful in, the Field.
(b)
Elevation of Reserved Compound
. Upon commencement of (i) […***…] by or on behalf of either Party hereunder with respect to a Compound(s) in the Field, and provided that (ii) such Compound(s) are Reserved Compound(s) at the time of such commencement under this Section 6.2.1(b), such Compound shall cease to be a Reserved Compound but shall remain a Selected Compound hereunder (i.e., such Compound will no longer count against the maximum number of […***…] Reserved Compounds). Each Party shall promptly notify the other of any Compounds for which Phase I studies have been commenced by or on its behalf.
(c)
Designation by the JSC
. From time to time, the JSC may consider a particular Compound to be further advanced into pre-clinical studies and/or clinical studies, whether or not such Compound is then a Selected Compound, but only if (i) as to any Future Outside Compound, one year has elapsed since its Compound Registration Date, and (ii) such Compound is not then a Taiho Program Compound, a Taiho Hit Compound, a Non-ND Partner Selected Compound, an Opt-Out Non-ND Partner Selected HDAC Inhibitor or a MethylGene Non-ND Selected Compound. Upon approval of the JSC of such Compound for such preclinical studies or clinical studies, the Parties shall proceed to establish the appropriate Research and Development Program and budget for such Compound (it being understood that, upon the approval of such Compound by the JSC, the same shall be deemed a Selected Compound). In the event the JSC does not agree on the designation of such a Compound as a Selected Compound, then EVP may decide unilaterally whether or not to so designate, upon written notice to MethylGene. In the event the Parties have not begun preclinical development or clinical trials of such Compound in the Field within […***…][…***…] after its approval by the JSC under this
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Section 6.2.1(c), such Compound shall thereafter cease to be a Selected Compound (and cannot be reselected as Selected Compound under this Section 6.2.1(c) for at least a period of […***…][…***…] thereafter) but such Compound may be immediately re-selected or may remain as a Selected Compound pursuant to Sections 6.2.1(a) above.
6.2.2
Provision of Certain MethylGene Program Compounds and Additional Compounds
.
(a)
Provision of Certain MethylGene Program Compounds
.
(i)
Within five (5) Business Days after the Effective Date, MethylGene shall disclose to EVP all MethylGene Program Compounds, which disclosure shall include the chemical structure of each MethylGene Program Compound, together with all Data related to each such MethylGene Program Compound existing as of the Effective Date. Disclosure of such MethylGene Program Compounds to EVP pursuant to this Section 6.2.2(a)(i) may occur, in whole or in part, via Registration of such MethylGene Program Compounds in the MethylGene Compound Registry, or pursuant to such other mechanism as is mutually agreed to by the Parties,
provided
that in any case EVP obtains the listing of the MethylGene Program Compounds, their chemical structures and associated Data within the time periods set forth in this Section 6.2.2(a) and in a format suitable to reasonably enable EVP to evaluate such MethylGene Program Compounds and identify […***…] EVP Evaluation Compounds as contemplated by this Section 6.2.2(a)(ii).
(ii)
Promptly after receipt of the disclosure of the MethylGene Program Compounds pursuant to Section 6.2.2(a)(i), EVP shall work with MethylGene to identify a total of […***…] EVP Evaluation Compounds with respect to which EVP desires to obtain an exclusive right to evaluate during the Evaluation Period;
provided,
that, EVP shall have the right to continue to identify EVP Evaluation Compounds until the date which is […***…] following the date on which MethylGene discloses to EVP the last structure of the last MethylGene Program Compound, in accordance with Section 6.2.2(a)(i). Upon receipt of a designation of an EVP Evaluation Compound by EVP, and subject to Section 6.2.2(a)(iii), MethylGene shall promptly provide a minimum of […***…] (the “
Minimum Quantity
”) of each such EVP Evaluation Compound to EVP for research and development purposes during the Evaluation Period. During the Evaluation Period, EVP shall have the exclusive right to designate any such EVP Evaluation Compound as a Selected Compound.
(iii)
In the event EVP requests that MethylGene provide it with one or more EVP Evaluation Compounds, and MethylGene does not have the Minimum Quantity of such EVP Evaluation Compound in MethylGene’s inventory, then EVP shall have the right, with respect to […***…] such EVP Evaluation Compounds, to request that MethylGene synthesize the Minimum Quantity of each such EVP Evaluation Compound for provision to EVP at EVP’s cost, in accordance with Section 5.4.3(c) hereof. If MethylGene synthesizes any such EVP Evaluation Compound pursuant to this Section 6.2.2(a)(iii), then EVP shall be required to commence preparation of the EVP Screening Platform on or about the time MethylGene commences synthesis of the applicable EVP Evaluation Compound. If EVP requests more than […***…] EVP Evaluation Compounds with respect to which MethylGene does not have the Minimum Quantity in its inventory, then MethylGene shall have no obligation to synthesize the
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Minimum Quantity of more than […***…] such EVP Evaluation Compounds for EVP; provided, that, such EVP Evaluation Compounds shall not count against the […***…] EVP Evaluation Compounds EVP may obtain hereunder, and EVP shall have the right to promptly request an equal number of replacement EVP Evaluation Compounds until such time as MethylGene has provided EVP with a total of […***…] EVP Evaluation Compounds in quantities of at least the Minimum Quantity per Evaluation Compound.
(iv)
If, after expiration of the Evaluation Period with respect to any EVP Evaluation Compound such EVP Evaluation Compound has not been designated by EVP as a Selected Compound, then EVP shall continue to have the right to use such EVP Evaluation Compounds in accordance with this Agreement (including to designate such Compounds as Selected Compounds or as Protected Compounds), but EVP shall no longer have the exclusive right to designate such EVP Evaluation Compound as a Selected Compound.
(b)
Provision of Certain Additional Compounds
. Prior to the Effective Date EVP and MethylGene have mutually agreed upon and identified […***…] Compounds which were identified, synthesized, discovered, designed or acquired by or on behalf of MethylGene prior to October 16, 2003 and which are not MethylGene Program Compounds (the “
Additional Compounds
”), and the Minimum Quantity of each such Additional Compound was provided by MethylGene to EVP prior to the Effective Date, at no cost to EVP, for EVP’s research and development purposes. Within five (5) Business Days of the Effective Date, MethylGene shall disclose to EVP the chemical structures of, and all Data associated with, the Additional Compounds.
6.2.3
Rights of Non-ND Partners; Designation of Non-ND Partner Selected Compounds; Designation of MethylGene Non-ND Selected Compounds
.
(a)
Rights granted to Non-ND Partners
. MethylGene may grant each Non-ND Partner rights to develop, market and/or commercialize in the Territory outside the Field only a limited number of individual Compounds (and Products containing the same) which have been selected as Non-ND Partner Selected Compounds in accordance with this Section 6.2.3.
(b)
Non-ND Partner’s Designation of Reserved Compounds
. A Non-ND Partner may designate a Compound (including the Taiho Program Compounds and the Taiho Hit Compounds if Taiho is the Non-ND Partner) as a Non-ND Partner Reserved Compound upon notice to MethylGene,
provided,
that at the time of such notice (i) as to any Future Outside Compound, or any Compound that is identified, synthesized, discovered, designed or acquired after the Effective Date by or on behalf of EVP or its Affiliates hereunder (including by MethylGene or its Affiliates hereunder) (a “
Future EVP Compound
” and, together with a Future Outside Compound a “
Future Compound
”), one year has elapsed since its Compound Registration Date, (ii) such Compound is not then a Selected Compound nor an EVP Evaluation Compound, nor an Opt-Out Non-ND Partner Selected HDAC Inhibitor nor a MethylGene Non-ND Selected Compound, nor, in the case of a Non-ND Partner other than Taiho, a Taiho Program Compound or a Taiho Hit Compound, and (iii) there are not then more than […***…] Non-ND Partner Reserved Compounds for such Non-ND Partner. In the event the Non-ND Partner then has […***…] Non-ND Partner Reserved Compounds, then such Non-ND Partner
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shall not have the right to include any additional Compound(s) as Non-ND Partner Reserved Compounds, until such Non-ND Partner has removed an equal number of Compounds from its list of Non-ND Partner Reserved Compounds, chosen at such Non-ND Partner’s sole discretion. For the foregoing purpose, it is understood and agreed that a Non-ND Partner shall have the right to remove any Compound from its list of Non-ND Partner Reserved Compounds at any time upon written notice to MethylGene. In the event a Compound is so removed from the list of Non-ND Partner Reserved Compounds, then such Compound shall thereafter cease to be a Non-ND Partner Selected Compound (unless re-designated in accordance with this Section 6.2.3(b)), and the Non-ND Partner shall have no further rights to develop, market and/or commercialize such Compounds in the Territory outside the Field.
(c)
Elevation of Non-ND Partner Reserved Compounds
. Upon commencement of (i) Phase I clinical studies by or under authority of a Non-ND Partner with respect to a Compound(s) outside the Field, and provided that (ii) such Compound(s) are Non-ND Partner Reserved Compound(s) at the time of the Non-ND Partner’s notice to MethylGene of such commencement under this Section 6.2.3(c), such Compound shall cease to be a Non-ND Partner Reserved Compound but shall remain a Non-ND Partner Selected Compound hereunder (i.e., such Compound will no longer count against the maximum number of […***…] Non-ND Partner Reserved Compounds for such Non-ND Partner).
(d)
Development Candidate Selection by a Non-ND Partner
. With respect to each Non-ND Partner, such Non-ND Partner may, upon notice to MethylGene, designate […***…] Compound at any time after the Effective Date (that is its development candidate outside the Field) to be a Non-ND Partner Selected Compound,
provided
that (i) as to any Future Compound, one year has elapsed since its Compound Registration Date, and (ii) such Compound is not then a Selected Compound, nor an EVP Evaluation Compound, nor an Opt-Out Non-ND Partner Selected HDAC Inhibitor; nor a MethylGene Non-ND Selected Compound,
and provided, further
that, except where the Non-ND Party is Taiho, the Compound is not then a Taiho Program Compound or a Taiho Hit Compound. In the event MethylGene and such Non-ND Partner have not begun preclinical development or clinical trials of such Compound outside the Field within […***…] months after such selection, such Compound shall thereafter cease to be a Non-ND Partner Selected Compound (and cannot be reselected as Non-ND Partner Selected Compound under this Section 6.2.3(d) for at least a period of […***…] months thereafter) but such Compound may be immediately re-selected as or may remain a Non-ND Partner Selected Compound pursuant to Section 6.2.3(b) above.
(e)
Taiho and Additional Cancer Partners
. EVP hereby acknowledges that (i) Taiho has the right to designate the Compound designated internally at MethylGene as […***…] as one of its Non-ND Partner Selected Compounds without such Compound counting towards its maximum number of […***…] Non-ND Partner Reserved Compounds, and (ii) each of Taiho and MethylGene’s “Additional Partners” (as such term is defined in the Taiho Agreement) have certain rights to each other’s Non-ND Partner Selected Compounds without such Compounds counting towards their respective maximum number of […***…] Non-Partner Reserved Compounds, as set forth in Section 5.2.6 of the Taiho Agreement.
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(f)
MethylGene Bona Fide Internal Research and Development Programs
.
(i)
MethylGene shall have the right, pursuant to one or more Bona Fide Internal Research and Development Program(s) (as hereinafter defined in Section 6.2.3(f)(ii)), to research, develop, market and/or commercialize in the Territory and outside the Field up to […***…] individual Compounds (and Products containing the same) which are selected by MethylGene as MethylGene Non-ND Selected Compounds in accordance with this Section 6.2.3(f). MethylGene shall select and reserve such MethylGene Non-ND Selected Compounds using the selection procedures applicable to Non-ND Partners, Non-ND Partner Reserved Compounds and Non-ND Partner Selected Compounds under Sections 6.2.3(b) and 6.2.3(c),
mutatis mutandis
, except that (i) all notices referenced in such provisions shall be provided by MethylGene to Patent Counsel (as defined in Section 6.2.3(g) below), (ii) the Compounds reserved or selected by MethylGene, as the case may be, shall be referred to as MethylGene Non-ND Reserved Compounds and MethylGene Non-ND Selected Compounds, and (iii) MethylGene shall not have the right to designate as a MethylGene Non-ND Selected Compound (a) as to any Future EVP Compound or Future Non-ND Partner Compound, until […***…] has elapsed since its Compound Registration Date, or (b) any Compound which is a MethylGene Program Compound until such time as EVP has identified […***…] EVP Evaluation Compounds pursuant to Section 6.2.2(a), any EVP Evaluation Compound, a Taiho Program Compound, a Taiho Hit Compound, a Selected Compound, a Protected Compound, a Non-ND Partner Selected Compound or an Opt-Out Non-ND Partner Selected Compound. Notwithstanding the preceding sentence, if EVP permits any Non-ND Partner to select as a Non-ND Partner Selected Compound one or more Future EVP Compound(s) prior to expiration of the […***…][…***…] period referenced in clause (iii)(a) above, then EVP shall also permit MethylGene to designate, as a MethylGene Non-ND Selected Compound, an equal number of Future EVP Compound(s) prior to expiration of such […***…] period,
provided
, that MethylGene must make any such designation within twenty (20) days of the date EVP notifies MethylGene in writing that is has permitted such designations by a Non-ND Partner. Within a reasonable period of time after the date of designation of any Compound as a MethylGene Non-ND Selected Compound, such Compound shall be determined to be useful in the field of a Bona Fide Internal Research and Development Program.
(ii)
As used in this section 6.2.3(f), the term “
Bona Fide Internal Research and Development Program
” means, with respect to MethylGene’s right to conduct internal research with HDAC Inhibitors outside the Field in accordance with this Section 6.2.3(f), a research program directed to the discovery and/or characterization of HDAC Inhibitors having therapeutic utility outside the Field in a particular disease area (but specifically excluding oncology) and with respect to which MethylGene is devoting internal resources and/or engaging Third Parties to devote resources (e.g. universities under sponsored research arrangements but excluding Non-ND Partners under a Non-ND Partner Agreement) amounting to at least 2 FTEs of qualified scientists in the aggregate at all times, measured on a calendar quarterly basis. The foregoing notwithstanding, MethylGene’s said commitment for a particular research program in a particular calendar quarter may fall below the 2 FTE requirement if, in the subsequent calendar quarter, sufficient FTEs are devoted to such research so that the average number of FTEs over the said two quarters equals 2 FTEs or more. MethylGene shall be in breach of the requirement contained in this Section 6.2.3(f), with the effect that such research
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and development activities shall not be deemed to be pursuant to a Bona Fide Internal Research and Development Program, if the average number of FTEs engaged over any two consecutive quarters is less than 2 FTEs, and in such case EVP shall have the right, upon written notice, to terminate MethylGene’s right to conduct such research, subject to the orderly completion of any third-party research agreements. Upon request by EVP, MethylGene shall provide to EVP written reports certifying the number of FTEs, both internally and externally, devoted to each such research program within thirty (30) days after the close of each calendar quarter.
(g)
Notice of MethylGene Non-ND Selected Compounds.
Upon the designation of any Compound as a MethylGene Non-ND Selected Compound pursuant to Section 6.2.3(f) above, MethylGene shall provide notice of such selection to a Third Party patent attorney retained by MethylGene and reasonably acceptable to EVP (hereinafter “Patent Counsel”). The Patent Counsel shall maintain a current list of all MethylGene Non-ND Selected Compounds and shall be authorized by MethylGene to respond directly to inquiries made by EVP and/or the JSC regarding whether a particular Compound is or is not a MethylGene Non-ND Selected Compound, where such inquiry is made by EVP and/or the JSC, as the case may be, for the purpose of determining whether a particular Compound is available to be designated as a Reserved Compound, a Selected Compound or a Protected Compound.
6.2.4
Coordination
.
(a)
Designation by Non-ND Partner
. A Non-ND Partner’s designation, or removal, of a Compound as a Non-ND Partner Selected Compound or Non-ND Partner Reserved Compound shall be effective only upon notice to MethylGene of such designation or removal.
(b)
Designation by MethylGene
. MethylGene’s designation or removal of a Compound as a MethylGene Non-ND Reserved Compound or a MethylGene Non-ND Selected Compound shall be effective only upon notice to Patent Counsel, in accordance with Section 6.2.3(f) above, of such designation or removal.
(c)
Designation by EVP
. MethylGene shall have a period of ten (10) Business Days, after EVP’s written notice of designation of Reserved Compound(s) under Section 6.2.1(a) above, to inform EVP of any reasons under this Agreement why such Compound cannot be a Reserved Compound, including if such Compound is already a Non-ND Partner Selected Compound or a MethylGene Non-ND Selected Compound prior to such notice (a “
Rejection
”). In the event MethylGene does not notify EVP in writing of a Rejection within such ten (10) Business Day period, or notifies EVP during such ten (10) Business Day period that such Compound has been accepted as an EVP Reserved Compound, then EVP’s designation of such Compound as a Reserved Compound shall conclusively be deemed effective under Section 6.2.1(a) above. In the event a Compound is Rejected as a Reserved Compound, and such Compound is thereafter removed from any list of Non-ND Partner Selected Compounds or MethylGene Non-ND Selected Compounds, then MethylGene shall simultaneously notify EVP and any other Non-ND Partner(s) (or other Third Party/ies) of such removal, if it decides to notify any such Person. MethylGene shall be deemed to have notified such Persons simultaneously if it initiates all notices, if by mail or overnight courier, on the same calendar day as measured in Montreal and, if by electronic mail or fax, within one hour of each other.
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(d)
Disclosure
.
(i)
To EVP
. MethylGene shall disclose to EVP the structures of all MethylGene Non-ND Selected Compounds and all Non-ND Partner Selected Compounds, when and as provided for herein. MethylGene may disclose to Non-ND Partners the structures of all Selected Compounds when and as provided for herein. Notwithstanding the foregoing, to the extent any Non-ND Partner at any time refuses to permit MethylGene to disclose structures of such Non-ND Partner Selected Compounds to EVP, MethylGene shall not disclose to such Non-ND Partner the structures of the Selected Compounds hereunder.
(ii)
To Non-ND Partners
. Without limiting clause (i) of this Section 6.2.4(d), MethylGene shall in all respects comply with any notice provisions, or other procedural provision, in any Non-ND Partner Agreement to the extent necessary to ensure the successful selection and protection of all Compounds intended to be selected by EVP as Selected Compounds in accordance with the terms hereof.
(iii)
After Commencement of Clinical Trials
. Any provisions of this Agreement to the contrary notwithstanding, EVP, a Non-ND Partner or MethylGene shall have the right, upon written request to MethylGene, to remove the chemical structure of any Selected Compound, Non-ND Partner Selected Compound or MethylGene Non-ND Selected Compound, respectively, from the MethylGene Compound Registry from and after the date of elevation of such Compound pursuant to Section 6.2.1(b) in the case of a Reserved Compound, pursuant to Section 6.2.3(c) in the case of a Non-ND Partner Reserved Compound and pursuant to Section 6.2.3(f)(i) in the case of a MethylGene Non-ND Reserved Compound;
provided
, that, if such Compound is no longer being pursued in any clinical study thereafter, the chemical structure of such Compound shall be promptly added to the MethylGene Compound Registry.
(e)
Designation by an Opt-Out Non-ND Partner; Disclosure
. An Opt-Out Non-ND Partner’s designation, or removal, of a compound as an Opt-Out Non-ND Partner Selected HDAC Inhibitor or Opt-Out Non-ND Partner Reserved HDAC Inhibitor shall be effective only upon notice to MethylGene of such designation or removal. Except to the extent necessary to prevent a prohibited selection pursuant to the selection procedures set forth in Section 6.2.7(b) hereof, MethylGene shall not (i) disclose the identities of any Opt-Out Non-ND Partner Selected HDAC Inhibitor to EVP or Non-ND Partners, nor (ii) disclose the identities of any Selected Compounds, Non-ND Partner Selected Compounds or MethylGene Non-ND Selected Compounds to Opt-Out Non-ND Partners.
6.2.5
Allocation of Selected Compounds and Protected Compounds
.
(a)
Exclusive Use
. Unless otherwise approved by the JSC and, to the extent there is more than one JSC, by each JSC, no Selected Compound or Protected Compound (as defined below) that is allocated for development under a particular Research and Development Program may be developed under any other Research and Development Program. Similarly, unless otherwise approved by the JSC and, to the extent there is more than one JSC, by each JSC, no Collaboration Product that results from a particular Research and Development Program (the “
Originating R&D Program
”) may be made, used, sold or imported under any Commercialization Program other than that which corresponds to the Originating R&D Program.
49
(b)
Allocation of Selected Compounds
. Prior to January 1, 2006, the Selected Compounds (including the Compound selected by the JSC under Section 6.2.1(c)) shall be allocated to the HD R&D Program, unless otherwise approved by the JSC, and if there is more than one JSC, by the JSC for the HD R&D Program. From and after January 1, 2006, the Parties agree that the Selected Compounds shall be allocated for exclusive use under and pursuant to each of the Research and Development Programs as follows, unless otherwise approved by the JSC and, if there is more than one JSC, by each JSC: (i) […***…] of the Reserved Compounds shall be allocated to the HD R&D Program, (ii) […***…] of the Reserved Compounds shall be allocated to the AD R&D Program, (iii) […***…] of the Reserved Compounds shall be allocated to the PD R&D Program, and (iv) […***…] shall be allocated to the HD R&D Program. In making determinations as to which Selected Compound(s) will be allocated to each of the HD R&D Program, the AD R&D Program and the PD R&D Program, as the case may be, the JSC shall consider, among other relevant factors, the then-available scientific data regarding each such Selected Compound, and shall direct the applicable Selected Compound to the R&D Program where it has the most disease relevance. In the event of a Back-Out as to any R&D Program, the same number of Compounds shall continue to be allocated to the R&D Program that is the subject of the Back-Out.
(c)
Protected Compounds
. In addition to the allocation of Selected Compounds set forth in paragraph (b) of this Section 6.2.5, the JSC and, to the extent there is more than one JSC, each JSC, may designate a total of […***…] additional Compounds that are not Selected Compounds (each such Compound, a “
Protected Compound
”), of which […***…] shall be allocated for development only under the HD R&D Program, […***…] shall be allocated for development only under the AD R&D Program, and […***…] shall be allocated for development only under the PD R&D Program;
provided
, that such Compounds are not then a Taiho Hit Compound, a Taiho Program Compound, a Non-ND Partner Selected Compound, an Opt-Out Non-ND Partner Selected HDAC Inhibitor or a MethylGene Non-ND Selected Compound; and
provided, further
, with respect to any EVP Evaluation Compound which has not been designated as a Selected Compound as of the expiration of the Evaluation Period, MethylGene shall have the exclusive right, for […***…] Business Days following the expiration of the Evaluation Period, to designate any such Compound as a MethylGene Non-ND Selected Compound (subject to the terms and conditions of this Agreement), and during such […***…] Business Day period such Compound may not be designated as a Protected Compound hereunder. For clarity, no more then […***…] Compounds may be designated as Protected Compounds pursuant to this Section 6.2.5(c). The Parties acknowledge that such Protected Compounds shall not be deemed Selected Compounds unless and until so designated in accordance with Section 6.2.1;
provided, that,
the compounds identified pursuant to this Section 6.2.5(c) and directed to each of the HD R&D Program, the AD R&D Program and the PD R&D Program, respectively, shall not be made available for selection by MethylGene as MethylGene Non-ND Selected Compounds for purposes of its Bona Fide Internal Research Programs pursuant to Section 6.2.3(f). The period of exclusive selection rights for the Protected Compounds allocated to the Research and Development Programs pursuant to this Section 6.2.5(c) shall commence on the later of (A) the date […***…], and (B) the date […***…] but in no event later
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than […***…] from the date in (A), and shall expire […***…] thereafter. A Protected Compound may be reserved for exclusive selection by a Research and Development Program as provided herein for […***…] or more […***…] periods,
provided, that,
unless otherwise agreed by the Parties, no such Protected Compound may be reserved for exclusive selection by the applicable Research and Development Program for […***…] or more consecutive […***…] periods. The foregoing notwithstanding, in the event one Party is a Back-Out Party with respect to all of the AD R&D Program, the HD R&D Program and the PD R&D Program, then the provisions of this Section 6.2.5(c) shall no longer apply.
6.2.6
No Obligation to Develop Reserved Compounds
. It is understood that neither EVP, the Non-ND Partners nor MethylGene shall have any obligation to advance any Reserved Compounds, Non-ND Partner Reserved Compounds or MethylGene Non-ND Selected Compounds, respectively, into preclinical development or clinical development, but each may do so in its discretion in accordance with its respective licenses and rights.
6.2.7
Rights of Opt-Out Non-ND Partners; Designation of Opt-Out Non-ND Partners
.
(a)
Rights Granted to Opt-Out Non-ND Partners
.
(i)
It is understood that the designation mechanism described in this Section 6.2.7 (and the sublicense rights granted under Section 4.3.4(b)) are contemplated by the Parties only for the specific situation in which an Opt-Out Non-ND Partner, or MethylGene collaborating with an Opt-Out Non-ND Partner, independently discovers a Small Molecule compound, which directly inhibits the activity of HDAC enzymes or has therapeutic effect through the inhibition of HDAC enzymes, that falls within the definition of “Compound” hereunder. In such case, none of the Opt-Out Non-ND Partners, EVP, MethylGene or the Non-ND Partners, desires to block the others via Opt-Out Non-ND Partner Blocking Patents
,
Taiho Blocking Patents, Non-ND Partner Blocking Patents, MethylGene Blocking Patents or EVP Blocking Patents, as the case may be, in the other’s development and/or commercialization of such Compounds in their respective fields consistent with this Agreement. For the avoidance of doubt, this Section 6.2.7, and the designation of Opt-Out Non-ND Partner Selected HDAC Inhibitors by the Opt-Out Non-ND Partners, is not intended to limit the effect of clause (c) of the definition Opt-Out Non-ND Partner, nor to grant or permit MethylGene to grant Opt-Out Non-ND Partners rights or licenses with respect to Compounds beyond those described in Section 4.3.4(b) above and Section 6.2.7(a)(ii) below.
(ii)
MethylGene may grant each Opt-Out Non-ND Partner rights with respect to Compounds limited to: a non-exclusive, royalty-free license under MethylGene Blocking Patents, and a non-exclusive, royalty-free sublicense under Non-ND Partner Blocking Patents, to research, develop, market and/or commercialize outside the Field any Opt-Out Non-ND Partner Selected HDAC Inhibitor which is also a Compound. MethylGene shall otherwise not grant any rights, nor provide any Data or MethylGene Licensed Technology, to such Opt-Out Non-ND Partners to research, develop, market and/or commercialize outside the Field any Compounds.
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(b)
Opt-Out Non-ND Partner’s Designation of Reserved HDAC Inhibitor
. An Opt-Out Non-ND Partner may designate a Small Molecule compound, which directly inhibits the activity of HDAC enzymes or has therapeutic effect through the inhibition of HDAC enzymes, as an Opt-Out Non-ND Partner Reserved HDAC Inhibitor at any time after the Effective Date upon notice to MethylGene, provided at the time of such notice (i) as to any Future Compound, […***…] has elapsed since its Compound Registration Date, (ii) such compound is not then a Selected Compound, a Non-ND Partner Selected Compound, a MethylGene Non-ND Selected Compound, an EVP Evaluation Compound, a Taiho Program Compound or a Taiho Hit Compound, and (iii) there are not then more than […***…] Opt-Out Non-ND Partner Reserved HDAC Inhibitors for such Opt-Out Non-ND Partner. In the event the Opt-Out Non-ND Partner then-currently has […***…] Opt-Out Non-ND Partner Reserved HDAC Inhibitors, then such Opt-Out Non-ND Partner shall not have the right to include any additional compound(s) as Opt-Out Non-ND Partner Reserved HDAC Inhibitors, until such Opt-Out Non-ND Partner has removed an equal number of compounds from its list of Opt-Out Non-ND Partner Reserved HDAC Inhibitors, chosen at such Opt-Out Non-ND Partner’s sole discretion. For the foregoing purpose, it is understood and agreed that an Opt-Out Non-ND Partner shall have the right to remove any compound from its list of Opt-Out Non-ND Partner Reserved HDAC Inhibitors at any time upon written notice to MethylGene. In the event a compound is so removed from the list of Opt-Out Non-ND Partner Reserved HDAC Inhibitors, then such compound shall thereafter cease to be a Opt-Out Non-ND Partner Selected HDAC Inhibitor (unless re-designated in accordance with this Section 6.2.7(b)), and if such compound is also a “Compound” hereunder, the Opt-Out Non-ND Partner shall have no further rights to develop, market and/or commercialize such Compound outside the Field.
(c)
Elevation of Opt-Out Non-ND Partner Reserved HDAC Inhibitors
. Upon commencement of (i) Phase I clinical studies outside the Field by or under authority of an Opt-Out Non-ND Partner with respect to a Small Molecule compound(s) that directly inhibits the activity of HDAC enzymes or has therapeutic effect through the inhibition of HDAC enzymes, and provided that (ii) such compound(s) are Opt-Out Non-ND Partner Reserved HDAC Inhibitor(s) at the time of the Non-ND Partner’s notice to MethylGene of such commencement under this Section 6.2.7(c), such compound(s) shall cease to be an Opt-Out Non-ND Partner Reserved HDAC Inhibitor(s) but shall remain an Opt-Out Non-ND Partner Selected HDAC Inhibitor(s) hereunder (i.e., such compound will no longer count against the maximum number of […***…] Opt-Out Non-ND Partner Reserved HDAC Inhibitors for such Opt-Out Non-ND Partner).
6.2.8
EVP HDAC Inhibitors.
The EVP HDAC Inhibitors shall be treated similarly to Selected Compounds, but shall not be counted towards the number limitations thereof and shall not be made available to any Third Party for use outside of the Collaboration.
6.2.9
Benefit of More Favorable Terms
. Without limiting the applicability or survival of any other term of this Agreement, any term regarding Selected Compounds, access to data, and licensing of intellectual property rights in a Non-ND Partner Agreement, including the Taiho Agreement, as of the Effective Date, and/or entered into thereafter for a period of […***…] […***…], that is more favorable to Taiho or such other Non-ND Partner than the terms set forth in Article IV or in this Section 6.2 and Section 6.3 shall be extended to EVP hereunder. In addition to the foregoing, from and after the Effective Date, if MethylGene is able to obtain additional
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amendments to the Taiho Agreement for the benefit of any Non-ND Partner, then MethylGene shall provide prompt written notice thereof, and this Agreement shall be deemed amended in order to provide EVP with the same benefit.
6.3
Registration of Compounds; Access to Data; Transfer of Licensed MethylGene Technology.
6.3.1
Registration and Disclosure of Compounds.
(a)
Compounds First Synthesized or Acquired Prior to the Effective Date
. On or before the Effective Date, all Compounds first synthesized or acquired by or on behalf of (i) MethylGene or its Affiliates, or (ii) a Non-ND Partner or its Affiliates at least thirty (30) days prior to the Effective Date shall be Registered in the MethylGene Compound Registry together with their corresponding Compound Registration Dates. From and after the Effective Date, all Compounds first synthesized or acquired by or on behalf of (a) MethylGene or its Affiliates, or (b) a Non-ND Partner or its Affiliates less than thirty (30) days prior to the Effective Date shall be Registered in the MethylGene Compound Registry, together with their corresponding Compound Registration Date, within thirty (30) days of the date each such Compound was first synthesized or acquired.
(b)
Compounds First Synthesized or Acquired After the Effective Date
. With respect to any compound first identified, synthesized, discovered, designed or acquired after the Effective Date by or on behalf of (A) MethylGene or its Affiliates pursuant to a Bona Fide Internal Research and Development Program, (B) EVP or its Affiliates hereunder (including by MethylGene or its Affiliates hereunder), or (C) a Non-ND Partner or its Affiliates pursuant to a Non-ND Research Program (including by MethylGene thereunder), such compound shall be Registered in the MethylGene Compound Registry within thirty (30) days of the date such Compound is first synthesized or acquired (as the case may be). Within thirty (30) days of the Compound Registration Date, such compound shall be screened using the HDAC Assay to determine if such compound is an HDAC Inhibitor. Upon determination that any such compound is an HDAC Inhibitor, such compound shall be deemed a Compound hereunder, and shall be subject to the terms and conditions of this Agreement.
(c)
Disclosure of Compounds; Limited Access Prior to the Compound Disclosure Date.
Within […***…] Business Days after the Effective Date, MethylGene shall disclose to EVP the chemical structures and isoforms (to the extent that such isoforms are available as of the Effective Date and thereafter promptly after such isoforms become available) of all Compounds having a Compound Registration Date on or prior to the Effective Date. From and after the Effective Date, MethylGene shall provide EVP with regular reports, disclosing to EVP the chemical structures and isoforms (to the extent such isoforms are available) for all Compounds having a Compound Disclosure Date on or prior to the date of the applicable report. Such reports shall be provided by MethylGene at least once every thirty (30) days, or more often as reasonably requested by EVP. For clarity, neither MethylGene for purposes of its Bona Fide Research and Development Program pursuant to Section 6.2.3(f), nor a Non-ND Partner for purposes of a Non-ND Research Program, shall have access to any Future EVP Compounds until the Compound Disclosure Date for such Compound. Similarly, EVP shall not have access under
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any Research and Development Program to any Future Outside Compounds until the corresponding Compound Disclosure Date for such Compound.
6.3.2
Access to Data
.
General
. Each Party (the “
Providing Party
”) shall provide the other (the “
Receiving Party
”) with prompt and complete access and the right to use for any purposes relating to Compounds and/or Collaboration Products in the Field and to file and reference with Regulatory Authorities, all Data generated by or on behalf of the Providing Party (whether or not generated under a Research and Development Program) at no additional cost to the Receiving Party. Without limiting the foregoing, upon request by the Receiving Party from time to time, the Providing Party shall promptly provide to the Receiving Party copies of all Data in the Providing Party’s possession, and reasonable access to all originals of Data, such as original patient report forms, whether or not in the Providing Party’s possession. With respect to Data that is in the possession of a Third Party only, the Providing Party shall secure for the Receiving Party the right to obtain copies of such Data from such Third Party, and shall cooperate fully with and assist the Receiving Party in obtaining such copies. In addition, MethylGene shall not provide to any of its partners, contractors or others outside the Field any Data relating to Compounds and/or Products that is specific to the Field, and shall not provide to Non-ND Partners any Data generated by EVP or generated by MethylGene in connection with the Collaboration, except those items set forth on
Part B
of
Schedule 1-I
. The disclosures contemplated by this Section 6.3.2 may be made, in whole or in part, by inclusion of such information in the MethylGene Compound Registry and providing EVP with access thereto, or pursuant to such other mechanism as is mutually agreed to by the Parties;
provided,
that EVP obtains the information required by this Section 6.3.2 within any applicable time periods set forth herein and in a format suitable to reasonably enable EVP to use such information as contemplated by this Agreement.
6.3.3
Disclosure of Structures of Qualified Compounds; Transfer of Licensed MethylGene Technology
. Promptly after the Effective Date, and as a condition to receipt of the Up-Front License Fee, MethylGene shall disclose to EVP the chemical structures, and isoforms (to the extent that such isoforms are available as of the Effective Date and thereafter promptly after such isoforms become available) of the Qualified Compounds (as defined in the POC Agreement) and all patents and patent applications filed anywhere in the world of which MethylGene is aware, whether or not published, that claim and/or disclose any one or more of the Qualified Compounds, including any and all patents and patent applications that, in the reasonable opinion of MethylGene, would, if granted, dominate a patent directed to a Qualified Compound. Additionally, promptly after the Effective Date, MethylGene shall use Commercially Reasonable and Diligent Efforts to send to EVP copies of all MethylGene Licensed Technology that MethylGene reasonably believes to be existing as of the Effective Date, when and as such information becomes available. Thereafter during the term of this Agreement, upon request of EVP, MethylGene shall send to EVP copies of all previously undisclosed Licensed MethylGene Technology, if any, including those developed or acquired after the Effective Date; and shall provide such quantities of Compounds for further evaluation by the JSC and EVP as specified in the R&D Plan(s). It is understood that MethylGene’s efforts to provide EVP with quantities of Compounds as requested under this Section 6.3.3 may be counted against the […***…] MethylGene FTEs performing the Research and Development Program. The disclosures contemplated by this Section 6.3.3 may be made, in whole or in part, by inclusion of such information in the MethylGene Compound Registry and providing EVP
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with access thereto, or pursuant to such other mechanism as is mutually agreed to by the Parties;
provided,
that EVP obtains the information required by this Section 6.3.3 within the time periods set forth herein and in a format suitable to reasonably enable EVP to use such information as contemplated by this Agreement.
6.3.4
Coordination with Non-ND Partners
.
(a)
MethylGene’s Obligations
. MethylGene shall be responsible to obtain for EVP prompt access to, copies of and use and cross-reference rights with respect to Research Data (as described in
Part B
of
Schedule 1-I
) generated by or on behalf of Non-ND Partners, together with the same type of assistance by such Non-ND Partner that MethylGene would be obligated to provide under Section 6.3.7 with respect to such Research Data. MethylGene shall promptly notify EVP of any failure to obtain such access, copies or assistance. MethylGene shall not provide any Data to a Non-ND Partner that fails to provide any such Research Data to EVP; nor shall MethylGene provide EVP’s Data to any Non-ND Partner, directly or indirectly (including by way of cross-referencing for regulatory purposes), except for certain Research Data as permitted under Section 6.3.4(b) and 6.3.2.
(b)
EVP’s Obligations
. EVP shall provide to Non-ND Partners the same access to and copies of Research Data (as described in
Part B
of
Schedule 1-I
) generated by EVP, together with the same type of assistance as EVP would be obligated to provide under Section 6.3.7 with respect to such Research Data, but only to the extent such Non-ND Partner has provided EVP with access to and use of Research Data generated by or on behalf of such Non-ND Partner.
6.3.5
No Obligation to Translate
. It is understood and agreed that any Data to be provided by MethylGene, EVP or a Non-ND Partner may be provided in the language in which such Data exists, and neither MethylGene, EVP, nor the Non-ND Partner shall be obligated to provide translations of such Data (to the extent such translation has not already been prepared).
6.3.6
Data to Conform with ICH Guidelines
. All Preclinical and Clinical Data and Manufacturing Data required to be provided to either Party under this Article VI shall conform with ICH Guidelines, to the extent consistent with the laws, regulations and requirements of Regulatory Authorities of the country or jurisdiction for which such Data was generated by the supplying entity.
6.3.7
Assistance
. Subject to Section 6.3.5, each Party shall provide the other with such assistance as the other Party reasonably requests from time to time, to enable such other Party to fully understand and implement the Data and Licensed MethylGene Technology to be provided hereunder.
6.3.8
Reports and Information Exchange
. As between the Parties hereto, the Parties shall jointly own all clinical trial data accumulated in connection with any clinical trial for a Collaboration Product if such trial is conducted as part of a Research and Development Program, or is otherwise funded or partially funded by the Parties or a Party hereunder. Each of MethylGene and EVP shall use Commercially Reasonable and Diligent Efforts to disclose to the
55
other Party all material information relating to any Collaboration Product promptly after it is learned or its materiality is appreciated. The Party performing or supervising a clinical trial of a Collaboration Product in accordance with the R&D Plan shall, in its own name, maintain the database of clinical trial data accumulated from all clinical trials of Collaboration Products and of adverse reaction information for all such Collaboration Products. Each Party shall also keep the JSC informed as to its progress in the R&D Plan. All protocols for clinical trials to be conducted, and all product registration plans, for Collaboration Products for applications within the Field in the Territory shall be submitted to the JSC for review and comment by the JSC prior to filing of such protocols or registrations with any regulatory agency. Within sixty (60) days following the end of each calendar quarter during the Research and Development Program, each of MethylGene and EVP shall provide the other Party with a reasonably detailed written report describing the progress to date of all activities for which such Party was allocated responsibility during such quarter under the R&D Plan.
6.3.9
Adverse Reaction Reporting
. Each of MethylGene and EVP shall notify the other Parties of any Adverse Reaction Information relating to any Collaboration Product within twenty-four (24) hours of the receipt of such information and as necessary for compliance with regulatory requirements. “
Adverse Reaction Information
” includes information relating to any experience that (a) suggests a significant hazard, contraindication, side effect or precaution, (b) is fatal or life threatening, (c) is permanently disabling, (d) requires or prolongs inpatient hospitalization, (e) involves a congenital anomaly, cancer or overdose or (f) is one not identified in nature, specificity, severity or frequency in the current investigator brochure or the United States labeling for the Collaboration Product.
6.3.10
Clinical and Regulatory Audits
. Each of MethylGene and EVP shall, and shall ensure that any Qualified Service Provider with whom it has contracted hereunder shall agree to, permit the other Party to have access during regular business hours and upon reasonable advance notice, at the auditing Party’s own expense and no more than once in each calendar year during the term of this Agreement, to the non-auditing Party’s, or Qualified Service Provider’s, records and facilities relating to the Research and Development Program for the purpose of monitoring compliance with Good Clinical Practice and other applicable requirements of the Regulatory Scheme.
6.4
Regulatory Approval Filings
. Regulatory Approval filings in the Territory for the Collaboration Products and for the facilities used to manufacture such Collaboration Products shall be filed in the name of the Party conducting clinical trials for such Collaboration Product(s) in the case of INDs, and in the name of the applicable Marketing Party of such Collaboration Product(s), in the case of NDAs or, if required with respect to filings to be made with governmental authorities or deemed to be in the best interest of the Parties by the JSC, in the name of such other Third Party as may be agreed upon by the JSC (such as filings with European Regulatory Authorities). Prior to submission to the FDA, the Parties, through the JSC, shall consult, cooperate in preparing and mutually agree on the content and scope of the Regulatory Approval filings. In the event that Regulatory Approvals are required to be filed in the name of an entity other than a Party hereto, the JSC shall ensure that such entity (a) holds the licenses issued in respect of such Regulatory Approval filings, maintains control over the manufacturing facilities, equipment and personnel, and engages in pharmacovigilence to the extent required by the Regulatory Scheme, (b) maintains compliance with applicable Regulatory Schemes, (c)
56
provides manufacturing and supply services to the Marketing Party at the Fully Absorbed Cost of Goods of Collaboration Products so manufactured and supplied, (d) provides the Parties with an irrevocable right of access and reference to such Regulatory Approval filings, licenses and facilities, (e) assigns such Regulatory Approval filings to a Party, or the Parties, upon request, and (f) complies with the provisions of Article XV hereof with respect to the ownership and/or disposition of such Regulatory Approvals in the event this Agreement is terminated and provides the level of cooperation described in Section 15.6 hereof in connection therewith.
6.5
Preclinical and Clinical Data
. In all agreements with Third Parties or Affiliates involving the development of preclinical or clinical data for a Collaboration Product, EVP and MethylGene shall require that such Third Parties and Affiliates provide the other Party access to all such data, to the extent necessary to meet or comply with any regulations or other requirements of the FDA or other regulatory agency, in each case with respect to Regulatory Approvals or other regulatory purposes.
6.6
Facilities Visit
. Representatives of MethylGene and EVP may visit all manufacturing sites and the sites of any clinical trials or other experiments being conducted by the other Party in connection with the Research and Development Program. If requested by the other Party, MethylGene and EVP shall cause appropriate individuals working on the Research and Development Program to be available for meetings at the location of the facilities where such individuals are employed at times reasonably convenient to the Party responding to such request. Subject to the limitations set forth above as to access to Data of Non-ND Partners, (1) while at MethylGene, EVP employees shall have full access at MethylGene to Data and Licensed MethylGene Technology pertaining to the Compounds and/or Collaboration Products and (2) while at EVP, MethylGene employees shall have full access at EVP to Data and Licensed EVP Technology pertaining to the Compounds and/or Collaboration Products.
6.7
Material Contracts
. Each Party shall use commercially reasonable efforts to ensure that any material contract entered into by such Party with a Third Party (including with a Qualified Service Provider) for the performance of any activity or service for the benefit of the Collaboration, shall be assignable by such Party to the other Party hereto. As used in this Section 6.7, the term “material contract” means contracts with contract research organizations, contract manufacturers and with major clinical trial sites.
ARTICLE VII
COMMERCIALIZATION
7.1
Commercialization Plans
.
7.1.1
General
. The commercialization of each Collaboration Product shall be governed by a Commercialization Plan which shall describe the overall plan for commercializing such Collaboration Product, including (a) a comprehensive marketing, sales, pricing, manufacturing, distribution and licensing strategy for such Collaboration Product in all applicable countries, including the identification of any Third Parties engaged or to be engaged in connection with such activities and the arrangements with them that have been or are proposed to be agreed upon (including policies and procedures for adjustments, rebates, bundling and the
57
like), (b) estimated launch date, market and sales forecasts, in numbers of patients and local currency, and competitive analysis for such Collaboration Product for the overall Territory and for each Major Market Country, (c) a detailed budget for the Commercialization Costs to be incurred in connection with performing such Commercialization Plan, (d) reasonable due diligence obligations to be met by each of the Parties with respect to commercialization objectives to be achieved during the calendar year to which the Collaboration Plan relates (such as minimum annual sales objectives), (e) product positioning and promotional plans (including examples of planned Product Promotional Materials), (f) Phase IV Clinical Trial support if applicable, (g) managed care contracting strategy, (h) conduct of training programs for sales representatives and (i) a detailed manufacturing plan.
7.1.2
Initial and Updated Commercialization Plans
. No later than […***…] for a Collaboration Product in any given country, the applicable JSC shall develop, review and approve an initial Commercialization Plan for such a Product in accordance with customary standards for a product of comparable market potential, taking into consideration factors such as market conditions, regulatory factors, competition and the costs and profits of such Collaboration Product. Each Commercialization Plan shall be updated annually by the Marketing Party, in consultation with the other Party as herein provided, and shall be submitted to the JSC for approval not later than November 30th of each year for the following year. The JSC shall not unreasonably withhold, delay, or condition its approval of any Commercialization Plan or annual update thereto. In the event the JSC does not take any action with respect to the written approval or rejection of any Commercialization Plan or annual update thereto within thirty (30) days of its submission to the JSC, it shall be deemed to be approved. Each Commercialization Plan approved by the JSC shall be signed by an authorized representative of each of MethylGene and EVP, until such time as either Party has a Unilateral Right to Approve, in which case it shall be signed only by an authorized representative of the Majority Party. While minor adjustments to the Commercialization Plan may be proposed by the Marketing Party from time to time without JSC approval, significant changes in the scope or direction of the work and any changes in funding exceeding […***…] percent ([…***…]%) of the total amount budgeted in any calendar year for the Commercialization Plan, on a line item and Collaboration Product-by-Collaboration Product basis, must be approved by the JSC, and in the absence of such approval, the provisions of the most recently approved Commercialization Plan shall remain in effect. Within thirty (30) days following the end of each calendar quarter after the approval of the initial Commercialization Plan, each of MethylGene and EVP shall provide the other with a reasonably detailed written report describing the progress to date of all activities for which such Party was allocated responsibility during such quarter under the Commercialization Plan.
7.2
Designation of Marketing Party
. With respect to each Collaboration Product, the applicable JSC shall determine which of the Parties shall be the exclusive Marketing Party for each country in the Territory, and whether the other Party should Co-Promote such Collaboration Product in such country. If a Party is designated as the Marketing Party, and declines to accept responsibility therefor within its Assigned Territory, it shall notify the other Party in writing and the other Party will have the option to become the exclusive Marketing Party for such Collaboration Product in that geographic region. The other Party shall provide written notice to the JSC if it elects to assume such responsibility. If both MethylGene and EVP decline to assume responsibility as the Marketing Party for such Collaboration Product within an Assigned
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Territory, then the JSC will seek a qualified Third Party licensee to assume responsibility for commercializing such Collaboration Product within such region. Royalties and other proceeds from licensing a Collaboration Product to a Third Party will be considered Net Revenues to be shared by the Parties in accordance with their respective Shares of the Net Profits and Losses.
7.3
Marketing Party Responsibilities
. If the JSC designates a Party as the Marketing Party in a particular Assigned Territory, and such Party accepts such designation, then it shall undertake commercialization activities for each Collaboration Product in its Assigned Territory in accordance with the applicable Commercialization Plan, and shall use Commercially Reasonable and Diligent Efforts to do so. Subject to the Co-Promotion of Collaboration Products described in Section 7.4, the Marketing Party shall have the sole responsibility for the following activities (and other associated activities) with respect to Collaboration Products: (a) executing the product promotion and sales activities reflected in the Commercialization Plan; (b) booking sales; (c) handling all aspects of order intake and processing, invoicing and collection, distribution, warehousing, inventory and receivables, and collection of data of sales to hospitals and other end users (i.e., market research data); (d) handling the logistics of all recalls, subject to the provisions of Section 7.5 below; (e) handling all returns; (f) handling all other customer service related functions; and (g) filing Product Promotional Materials with the relevant Regulatory Authority as permitted or required under applicable law.
7.4
Co-Promotion
.
7.4.1
Co-Promotions Sales Efforts
. If the JSC determines that the Parties should Co-Promote the Collaboration Products within certain countries in the Territory, and the non-Marketing Party agrees to assume such responsibility, then, subject to the terms and conditions below, each Party shall have the right to deploy sales representatives in the region of co-promotion,
provided
that the Marketing Party shall always provide at least […***…] percent ([…***…]%) of the sales effort in the region of Co-Promotion, with such effort being measured as a function of the number of sales representatives and the percentage of such representatives’ time being spent promoting Collaboration Products. The Marketing Party shall establish its sales force deployment plans and high-level objectives and activity plans for the Co-Promoting Party’s sales representatives in the region of Co-Promotion. The Co-Promoting Party will establish a plan, subject to the approval of the Marketing Party, not to be unreasonably withheld, to augment the Marketing Party’s sales efforts with its own sales force in a manner consistent with the objectives set forth in the Marketing Party’s deployment plan and designed to: (a) maximize penetration of the Collaboration Products in the region; (b) eliminate redundancies in the sales and marketing efforts in the region; and (c) limit expenses to those customarily associated with promoting a product, including normal selling, general and administrative expenses.
7.4.2
Party Name on Labeling and Promotional Materials
. For Co-Promoted Collaboration Products, unless otherwise mutually agreed, the Parties will include on all package labels, labeling and inserts for such Products sold in the region of Co-Promotion the names and logos of both MethylGene and EVP with equal prominence, to the extent permitted by the applicable Regulatory Authorities. With respect to Product Promotional Materials for Co-Promoted Collaboration Products, to the extent such Product Promotional Materials identify or otherwise make reference to either of the Parties, MethylGene and EVP shall both be presented and described with equal prominence and emphasis as having joined and participated in the
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development and joint commercialization of the Collaboration Product, as permitted by the applicable laws and regulations of each country in which such Product Promotional Materials are to be presented.
7.4.3
Sales Representative Training
. Each Party Co-Promoting a Collaboration Product in any country in the Territory shall supervise and maintain such competent and qualified sales representatives as may be required to fulfill its Co-Promotion responsibilities. With respect to each country in the Territory in which both Parties have sales representatives, the Marketing Party shall share relevant training materials with the Co-Promoting Party. Each Party shall be solely responsible and liable for the activities of its own sales force when Co-Promoting a Collaboration Product.
7.4.4
Co-Promotion Compliance Responsibilities
. To the extent the Parties are Co-Promoting a Collaboration Product in the United States, each Party shall in all material respects conform its practices and procedures relating to such Co-Promotion to the Federal Food Drug and Cosmetic Act (the “
FD&C Act
”), the Public Health Services Act (“
PHS Act
”), and other applicable laws (including state laws) and, with respect to sales under Medicare, Medicaid and related government programs, the Social Security Act, as each may be amended from time to time. Further, in its interactions with customers, the Co-Promoting Party shall pay due regard to the guidelines set forth in the Pharmaceutical Research and Manufacturers of America (“
PhRMA
”) Code of Pharmaceutical Marketing Practices (the “
PhRMA Code
”) and the American Medical Association (“
AMA
”) Guidelines on Gifts to Physicians from Industry (the “AMA Guidelines”), as the same may be amended from time to time. Further, each Party shall promptly notify and provide the other Party with a copy of any material correspondence or other reports with respect to the Co-Promotion of a Collaboration Product submitted to or received from the FDA, PhRMA or the AMA relating to the FD&C Act, the PHS Act, the PhRMA Code, or the AMA Guidelines. Outside of the United States, the Parties shall in all material respects conform their practices and procedures relating to such Co-Promotion to the applicable laws, rules and regulations of the applicable country in the Territory, and similarly provide the other Party with a copy of comparable correspondence or other reports as applicable in such country.
7.4.5
Sales Force Deployment
. As part of each annual update to the Commercialization Plan, each Party shall submit to the other Party its respective sales force deployment plan for Co-Promoted Collaboration Products, including estimated number of individual sales representatives to be engaged (at least in part) in Co-Promotion pursuant to this Section 7.4, and expected number of FTEs to be devoted to such efforts.
7.5
Recalls
. The Parties shall use good faith and Commercially Reasonable and Diligent Efforts to coordinate any decision making with respect to issuing a recall, market withdrawal or correction of any Collaboration Product in the Territory. Each Party shall notify the other Party promptly if it has reason to believe that any Collaboration Product might become the subject of a recall, market withdrawal or correction in any country in the Territory, and in no event more than […***…] days after receipt of any written notice regarding such a recall, market withdrawal or correction. Subject to Section 7.3 above, the Parties shall cooperate in the handling and disposition of such recall, market withdrawal or correction with respect to a Collaboration Product in the Territory,
provided
that the Marketing Party shall have responsibility for managing any recalls in its Assigned Territory.
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ARTICLE VIII
MANUFACTURE AND SUPPLY
Subject to the terms and conditions of this Agreement, Collaboration Products shall be manufactured and supplied for preclinical and clinical testing and for commercial sale upon the following terms and conditions:
8.1
Process Development
. The Parties will use Commercially Reasonable and Diligent Efforts to develop a process for the manufacture of each Collaboration Product and to scale up that process to a scale sufficient to synthesize, manufacture and supply (a) the anticipated demand for research requiring greater than […***…]/Compound, preclinical studies, including large animal studies, and clinical trials of such Collaboration Product in accordance with the projections set forth in the R&D Plan and (b) the anticipated market demand for such Collaboration Product for the Territory at the time Regulatory Approval is obtained for such Collaboration Product in accordance with the projections set forth in the Commercialization Plan for such Collaboration Product. The development of the process for the manufacture of Collaboration Products as well as the scale up of such process and all material issues incident to the development of the ability to produce Collaboration Products for commercial purposes in sufficient quantity and in a timely manner will be within the purview of the JSC, and all changes to the manufacturing process shall be subject to the approval of the JSC.
8.2
Manufacture and Supply of Collaboration Product
. The JSC shall designate one of the Parties, or a Third Party (the “
Manufacturing Party
”), to manufacture and supply, or cause to be manufactured and supplied, Collaboration Products for preclinical and clinical activities and commercial sale in the following terms and conditions (and such other terms and conditions established by the JSC consistent with the provisions of this Agreement).
8.2.1
General
. All decisions relating to the synthesis and manufacture of Collaboration Products shall be subject to the approval of, or modification by, the JSC. Without limiting the foregoing, (a) MethylGene shall initially synthesize, manufacture and supply Collaboration Products for research needs of less than […***…]/Compound, preclinical studies, including small animals studies (but excluding large animal studies), in quantities and within a time period sufficient to conduct the activities set forth in the Development Plan, and (b) the JSC shall subsequently determine which of the Parties shall manufacture and supply Collaboration Products to meet market demand for Collaboration Products ordered in accordance with the terms hereof, and such Manufacturing Party would so exclusively manufacture and supply Collaboration Products until such time as the JSC otherwise deems appropriate;
provided, that
a Party may designate a Third Party to manufacture the Collaboration Product on its behalf, subject to the advance written consent of the JSC, such consent not to be unreasonably withheld or delayed. At such time, the JSC may designate MethylGene, EVP and/or Third Parties for the manufacture, packaging or other finishing processes of Collaboration Products, as determined by the JSC. To the extent the JSC determines that the quantity of Collaboration Product required by the Development Program or the Commercialization Plan is greater than the quantity which may reasonably be manufactured by the then designated Manufacturing Party, or if the cost per unit of Collaboration Product exceeds commercially reasonable levels, prior to engaging a Third Party to manufacture Collaboration Products, JSC will offer the other Party the opportunity to
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manufacture and supply Collaboration Products, on terms and conditions determined by the JSC. Without limiting the foregoing, the Manufacturing Party shall agree to use Commercially Reasonable and Diligent Efforts to manufacture and supply Collaboration Products hereunder. If the Manufacturing Party is a Party hereto, it shall include its Fully Absorbed Cost of Goods for the Collaboration Products in its Research and Development Costs, or Commercialization Costs, as applicable.
8.2.2
Forecasts
. The Parties shall establish a procedure for providing forecasts of customer orders for Collaboration Products, updating such forecasts and ordering Collaboration Product, in each case within time periods sufficient to enable the Manufacturing Party to manufacture such Collaboration Products to meet such forecasts in a commercially reasonable and diligent manner.
8.2.3
Facilities
. Notwithstanding any provision of this Agreement to the contrary, the Parties acknowledge and agree that neither Party shall bear any costs relating to the construction of manufacturing facilities for a Collaboration Product (other than through normal depreciation and amortization included in Fully Absorbed Cost of Goods).
8.3
Certificates of Analysis
. The Manufacturing Party shall perform, or cause its contract manufacturer(s) to perform, quality assurance and control tests on each lot of Collaboration Products before delivery and shall prepare, or cause its contract manufacturer(s) to prepare and deliver, a written report of the results of such tests (for purposes of Sections 8.3, 8.4 and 8.5, such contract manufacturer(s) shall be included in the definition of the term “
Manufacturing Party
”). Each test report shall set forth for each lot delivered the items tested, specifications and results, including methods references, in a certificate of analysis containing the types of information which shall have been approved by the JSC or required by the FDA or other applicable Regulatory Authority. The Manufacturing Party shall maintain such certificates for a period of not less than […***…] from the date of manufacture or for such longer period as required under applicable requirements of the FDA or other applicable Regulatory Authority.
8.4
Manufacturing Compliance
. The Manufacturing Party shall prepare, or cause to be prepared and delivered, and maintain for a period of not less than […***…] or for such longer period as required under applicable requirements of the FDA or other applicable Regulatory Authority for each lot of Collaboration Products manufactured a certificate of manufacturing compliance containing the types of information which shall have been approved by the JSC or required by the FDA or other applicable Regulatory Authority, which certificate will certify that the lot of Collaboration Products was manufactured in accordance with the Specifications and the Good Manufacturing Practices of the FDA or other applicable Regulatory Authority as the same may be amended from time to time. The Manufacturing Party shall advise the other Party immediately if an authorized agent of the FDA or other Regulatory Authority visits, or notifies it of an impending visit of, any of the Manufacturing Party’s manufacturing facilities, or the facilities where the Collaboration Products are being manufactured, for an inspection with respect to the Collaboration Products, and shall permit the other Party to participate in such inspection in a manner and to the extent practicable, as agreed to by the Parties. The Manufacturing Party shall furnish to the other Party the report by such agency of such visit, to the extent that such report relates (either directly or indirectly) to Collaboration Products, within […***…] Business Days of the Manufacturing Party’s receipt of such report, and
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the other Party shall have the right to comment prior to submission of any response by the Manufacturing Party to such inspecting agency.
8.5
Access to Facilities
. Each Party, or its agents, shall have the right to inspect those portions of the manufacturing, finish processing or storage facilities of the Manufacturing Party where Collaboration Products are being manufactured, finished or stored, or any subcontractor who is manufacturing, finishing or storing Collaboration Products for the Manufacturing Party, at any time during regular business hours and upon reasonable advance notice to ascertain compliance with the Good Manufacturing Practices of the FDA or other applicable Regulatory Authority, as the same may be amended from time to time. Subject to the terms and conditions of Section 11.2 below, confidential information disclosed to or otherwise gathered by the Party or its agent conducting such inspection during any such inspection shall be maintained as confidential.
ARTICLE IX
RIGHTS TO DEVELOP AND COMMERCIALIZE COMPOUNDS OUTSIDE THE COLLABORATION
9.1
Unilateral Development and Commercialization
.
9.1.1
Back-Out by a Party
. At anytime on or after […***…], but not before, each Party shall have the right, on […***…] written notice to the other (a “
Back-Out Notice
”), to elect not to proceed with the research, development and commercialization (“
Back-Out
”) of all Compounds and resulting Collaboration Products subject to development under a particular Research and Development Program in the Field (as to such Compounds and Collaboration Products, the “
Back-Out Party
”),
provided
that such Party shall be responsible for all budgeted Research and Development Costs that such Party has committed to in the applicable R&D Plan for the longer of (a) a period of […***…] from the date of the Back-Out Notice, and (b) as necessary to complete those activities covered by the particular annual R&D Plan in effect as of the date of the Back-Out Notice; and
provided further
that such Party shall, at its own expense, continue to make its personnel, relevant data and other resources available to the other Party as the JSC deems necessary to effect an orderly transition of the research, development and/or commercialization responsibilities. The foregoing notwithstanding, MethylGene shall not have the right to Back-Out, and any Back-Out Notice provided by MethylGene shall not be effective, unless, as of the date which is […***…] after the date of MethylGene’s Back-Out Notice, MethylGene has delivered to EVP all of the Delayed Compounds (as defined in the R&D Plan). By way of clarification, if a Party Backs-Out of any Compounds or Collaboration Products allocated to a particular Research and Development Program, such Party will be deemed to have Backed-Out with respect to all Compounds or Collaboration Products then allocated, or to be allocated in the future, to such Research and Development Program and corresponding Commercialization Program.
9.1.2
Unilateral Development and Commercialization by the Pursuing Party
. Upon receipt by a Party of a Back-Out Notice, the receiving Party shall have the right, immediately upon written notice (an “
Election Notice
”) sent to the Back-Out Party within […***…] following receipt of the Back-Out Notice, or as set forth below in Sections 9.1.3(b) and
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9.2(c), to proceed unilaterally with the research, development and commercialization of all Compounds and Collaboration Products then allocated, or to be allocated in the future, to such Research and Development Program in the Field and corresponding Commercialization Program (each such Compound and/or Collaboration Product, a “
Unilateral Product
”) in the Applicable Field, in which case (i) the rights and obligations of the Parties with respect to Unilateral Products shall be governed by Section 4.5,
Appendix A
, Section 6.2 and Section 6.3 without any further actions on behalf of the Parties, (ii) the Collaboration shall cease as to such Unilateral Products except to the extent specifically provided in this Agreement, and (iii) any licenses granted pursuant to Sections 4.1 and 4.2 as to such Unilateral Products shall be converted into the licenses in Section 4.5, and shall otherwise terminate. The Parties shall work together to ensure a smooth and orderly transition of the Unilateral Products to the non-Back-Out Party (as to such Unilateral Products, the “
Pursuing Party
”), including the assignment by the Back-Out Party to the Pursuing Party of any Regulatory Approvals, Data, contracts and transfer of samples of Compounds with respect to the research, development or commercialization of such Unilateral Products to the Pursuing Party, and the assumption by the Pursuing Party of any obligations thereunder. Except for the obligations provided for in Section 9.1.1 and this Section 9.1.2, the Back-Out Party (a) shall have no further financial obligation to support or otherwise fund any additional efforts in respect of such Unilateral Products, (b) shall have no obligation, responsibility, or authority regarding such additional efforts in respect of such Unilateral Products, and (c) shall continue to be bound by the provisions of Section 2.2 for as long as the Pursuing Party is proceeding with such Unilateral Product(s) or the Collaboration is otherwise in effect. In the event the Party which receives a Back-Out Notice from the Back-Out Party does not elect to either (1) proceed unilaterally with the research, development or commercialization of any Unilateral Product, or (2) fund all future Research and Development Costs of such Unilateral Product(s) hereunder in accordance with Section 5.4.4(b), then the rights and obligations of the Parties with respect to such Unilateral Products shall be governed by Section 9.2.
9.1.3
Subsequent Back-Out by Pursuing Party
. A Pursuing Party shall have the right, on […***…] prior written notice (a “
Second Back-Out Notice
”) to elect to Back-Out of all Unilateral Products as to which it was a Pursuing Party (thereafter, as to such Unilateral Products, the “
Former Pursuing Party
”). The Former Pursuing Party shall, during such […***…] period, furnish the other Party with such information and materials as the other Party may reasonably request so as to determine whether it wishes to proceed with the unilateral development and commercialization of such Unilateral Products, including a statement detailing all reasonable and verifiable costs and expenses actually incurred by or on behalf of the Former Pursuing Party in connection with the research, development and commercialization of such Unilateral Products.
(a)
Second Pursuing Party Proceeds Unilaterally
. Upon receipt of a Second Back-Out Notice, the receiving Party shall have the right, immediately upon written notice (a “
Second Election Notice
”) sent to the Former Pursuing Party within […***…] following receipt of the information and materials described above, to proceed unilaterally with the research, development and commercialization of all relevant Unilateral Products (thereafter, the “
Second Pursuing Party
”), in which case the rights and obligations of the Parties with respect to Unilateral Products shall be governed by Section 4.5,
Appendix A
, Section 6.2 and Section 6.3 without any further actions on behalf of the Parties,
provided
that the royalty rate to be paid by
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the Second Pursuing Party to the Former Pursuing Party shall be recalculated in accordance with
Appendix A
based on the stage of development of the applicable Unilateral Product(s) at the time of such Second Election Notice. The Parties shall work together to ensure a smooth and orderly transition of the Unilateral Products to the Second Pursuing Party, including the assignment by the Former Pursuing Party to the Second Pursuing Party of any Regulatory Approvals, Data, contracts and transfer of samples of Compounds with respect to the research, development or commercialization of such Unilateral Products to the Second Pursuing Party, and the assumption by the Second Pursuing Party of any obligations thereunder. Except for the obligations provided for in Section 9.1.1 and this Section 9.1.3, the Former Pursuing Party (a) shall have no further financial obligation to support or otherwise fund any additional efforts in respect of such Unilateral Products, (b) shall have no obligation, responsibility, or authority regarding such additional efforts in respect of such Unilateral Products, and (c) shall continue to be bound by the provisions of Section 2.2 for as long as the Second Pursuing Party is proceeding with such Unilateral Product(s) or the Collaboration is otherwise in effect.
(b)
Neither Party Proceeds
. If the receiving Party does not elect to proceed unilaterally with the research, development and commercialization of such Unilateral Products, then the Parties shall, subject to Section 9.2, terminate this Agreement as it pertains to such Unilateral Products in accordance with Section 15.2.3;
provided
, that if the Parties are unable to agree regarding the terms and conditions of such termination, then such dispute regarding the terms and conditions thereof, but not the fact of termination itself, shall be resolved pursuant to Article XVI hereof; and
provided
,
further
, that up until the date the consummation of the agreement on the terms and conditions of any such termination, either Party shall have the right to elect to proceed unilaterally with the research, development or commercialization of such Collaboration Product in accordance with Section 9.1.2.
(c)
Parties Proceed Jointly
. Upon receipt of the Second Back-Out Notice by the receiving party, the receiving party and Former Pursuing Party may elect to proceed jointly with the research, development and commercialization of such Unilateral Products, in which case (i) any such Unilateral Products shall once again be deemed Collaboration Products, (ii) both Parties shall pursue the research, development and commercialization of Collaboration Products under the terms of this Agreement, and (iii) the receiving party shall provide a payment to the Former Pursuing Party, within […***…] after receipt of the Second Back-Out Notice, equal to […***…] percent ([…***…]%) of all reasonable and verifiable costs and expenses actually incurred by or on behalf of the Former Pursuing Party (to the extent not previously reimbursed) in connection with the research, development and commercialization of such Unilateral Products from and after the date of its Election Notice.
9.1.4
Return of Information and Materials
. Except in the case of Section 9.1.3(c), upon the receipt by the Back-Out Party or Former Pursuing Party of an Election Notice with respect to Collaboration Products or a Second Election Notice with respect to Unilateral Products, respectively, the Back-Out Party or Former Pursuing Party, at the request of the Pursuing Party or Second Pursuing Party, shall return, or at the election of the Pursuing Party or Second Pursuing Party, destroy, and thereafter provide the Pursuing Party or Second Pursuing Party written certification evidencing such destruction, any Information of the Pursuing Party or Second Pursuing Party in the Back-Out Party’s or Former Pursuing Party’s possession or control relating to such Collaboration Products or Unilateral Products, as applicable, in each case, to
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which such Back-Out Party or Former Pursuing Party does not retain rights hereunder (except one copy of which may be retained solely for archival purposes). No personnel other than legal counsel shall have access to the archival copy. For the avoidance of doubt, no Data shall be subject to destruction hereunder, but only to return to the applicable Party.
9.1.5
Survival
.
(a)
If EVP the Pursuing Party
. Subject to paragraph (c) of this Section 9.1.5, in the event that EVP is a Pursuing Party as to any Unilateral Products, then the following provisions of this Agreement shall survive and be binding and for the benefit of each of the Parties in accordance with their terms with respect to such Unilateral Products and corresponding Compounds: Article I, Sections 2.2, 2.3, 4.3.1, 4.3.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.6.1, 5.6.2, 6.2 (provided that EVP, as a Pursuing Party, shall assume the rights of the JSC to designate Selected Compounds and Protected Compounds under Sections 6.2.1 and 6.2.5), 6.3, Article IX, Article XI, Article XII (as modified by
Appendix A
), Article XIII, Article XIV, Article XV, Article XVI and Article XVII.
(b)
If MethylGene the Pursuing Party
Subject to paragraph (c) of this Section 9.1.5, in the event that MethylGene is a Pursuing Party as to any Unilateral Products, then the following provisions of this Agreement shall survive and be binding and for the benefit of each of the Parties in accordance with their terms with respect to such Unilateral Products and corresponding Compounds: Article I, Sections 2.2, 2.3, 4.3.1, the first sentence of 4.3.3 (and the rest of Section 4.3.3 for so long as EVP has not Backed-Out as to all Research and Development Programs), 4.4, 4.5, 4.6, 5.1, 5.2, 5.6.1, 5.6.2, 6.2 (for so long as EVP has not Backed-Out as to all Research and Development Programs, and provided that MethylGene, as a Pursuing Party, shall assume the rights of the JSC to designate Selected Compounds and Protected Compounds under Sections 6.2.1 and 6.2.5), 6.3 (for so long as EVP has not Backed-Out as to all Research and Development Programs), Article IX, Article XI, Article XII (as modified by
Appendix A)
, Article XIII, Article XIV, Article XV, Article XVI and Article XVII.
(c)
Partial Back-Out
. In addition to the foregoing, unless one Party, or both Parties collectively, Back-Out as to all Compounds and/or Collaboration Products then subject to this Collaboration Agreement, each of the provisions hereof shall survive and be binding and for the benefit of each of the Parties in accordance with their terms with respect to all remaining Compound(s) and/or Collaboration Product(s), and the Research and Development Program(s) and/or Commercialization Program(s) to which they are allocated.
9.2
Third Party Development and Commercialization of Collaboration Products
. In the event that (i) the Parties do not elect to proceed with the development and commercialization of any Collaboration Product or Compound in one or more countries in the Territory at any time, or (ii) the Party that receives a Back-Out Notice from the Back-Out Party does not elect to proceed unilaterally with the research, development or commercialization of any Collaboration Product or Compound pursuant to Section 9.1.2, or (iii) the Parties determine that a Third Party is better able to develop and commercialize such Collaboration Product or Compound at any time, the Parties shall have the right to license and sublicense such rights to Third Parties in one or more such countries on such terms and conditions as the Parties may mutually agree;
provided that
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(a)
such terms and conditions shall provide for the sharing by MethylGene and EVP of all revenue received from any such Third Party in accordance with their respective Shares of Net Profits and Losses of a particular Collaboration Product or Compound, except that such sharing shall be modified, as follows: In the event that prior to the license to such Third Party, one Party had performed research, development or commercialization activities as a Pursuing Party or Second Pursuing Party with respect to such Collaboration Product or Compound, then all reasonable and verifiable costs and expenses actually incurred by or on behalf of such performing Party (to the extent not previously reimbursed) in connection with the research, development and commercialization of such Collaboration Product or Compound as a Unilateral Product from and after the date of its Election Notice or Second Election Notice, as the case may be, shall be considered Research and Development Costs of such performing Party for purposes of determining each Party’s respective Share of Net Profits and Losses;
(b)
any such license or sublicense with respect to the Licensed EVP Technology or the Licensed MethylGene Technology shall be governed by the procedures set forth in Section 4.3.2; and
(c)
if there is any dispute between the Parties as to whether or not to grant such a license or sublicense, no such license or sublicense shall be granted, such dispute shall not be subject to litigation or any other Third Party dispute resolution mechanism and the Parties shall terminate this Agreement as it pertains to such Collaboration Products or Compounds in accordance with Section 15.2.3;
provided
, that if the Parties are unable to agree regarding the terms and conditions of such termination, then such dispute regarding the terms and conditions thereof, but not the fact of termination itself, shall be resolved pursuant to Article XVI hereof; and
provided
,
further
, up until the date of the consummation of the agreement on the terms and conditions of any such termination, either Party shall have the right to elect to proceed unilaterally with the research, development or commercialization of such Collaboration Product or Compound in accordance with Section 9.1.2.
ARTICLE X
[Reserved.]
ARTICLE XI
CONFIDENTIALITY
11.1
Confidential Terms
. Each Party agrees not to disclose any terms of this Agreement to any Third Party without the consent of the other Party, except (i) as required by securities or other applicable laws or (ii) to prospective and actual investors, sublicensees, acquisition partners and such Party’s accountants, attorneys and other professional advisors, or (iii) to others under reasonable conditions of confidentiality. Notwithstanding the foregoing, the Parties will agree on a press release that can be used to describe this transaction and the terms and conditions of this Agreement, and each Party acknowledges and agrees that the other Party may disclose information from the mutually agreed press release at any time and from time to time without the consent of the other Party.
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11.2
Confidential Information
. During the term of this Agreement and for a period of five (5) years thereafter, the Parties shall maintain in confidence and use only for purposes specifically authorized under this Agreement (a) confidential information and data resulting from or related to the POC Research Activities or the Collaboration, (b) any information contained in the MethylGene Compound Registry, including the chemical structure and isoforms of any Compounds and any other compounds, and (c) all information and data not described in clause (a) or clause (b), but supplied by one Party to the other under this Agreement or in the course of the Parties’ due diligence investigation prior to the execution of this Agreement and marked or identified as “Confidential.” All confidential information described in clause (b) of the preceding sentence that is disclosed orally or visually shall be documented in a written notice prepared by the disclosing Party and delivered to the receiving Party within thirty (30) days after the date of disclosure, which notice shall summarize the confidential information disclosed to the receiving Party and reference the time, place and manner of disclosure.
Information and data described in clause (a) or (b) of the preceding paragraph shall be referred to as “
Information
.” Notwithstanding the provisions of this Section 11.2, each Party hereto may disclose Information to the extent such disclosure is reasonably necessary to exercise the rights granted to it, or reserved by it, under this Agreement (including entering into and/or performing business or scientific relationships with Third Parties with respect to Compounds and Collaboration Products for the Field in the Territory as permitted hereunder, provided such Third Parties are bound by similar obligations of confidentiality as those set forth hereunder), in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations, submitting information to tax or other governmental authorities (including Regulatory Authorities), or conducting clinical trials hereunder with respect to Compounds and/or Collaboration Products,
provided
that if a Party is required by law to make any such disclosure of the other Party’s Information, to the extent it may legally do so, it will give reasonable advance notice to the latter Party of such disclosure and, except to the extent inappropriate in the case of patent applications or otherwise, will use its reasonable efforts to secure confidential treatment of such Information prior to its disclosure (whether through protective orders or otherwise). The foregoing notwithstanding, neither Party shall have the right to disclose to any Third Party, other than to a Non-ND Partner as contemplated herein, the chemical structure or isoforms of a Compound without the prior written consent of the other Party,
except, that
, such restriction shall not apply to any Pursuing Party with respect to any Compound or Collaboration Product that is being further developed or commercialized as a Unilateral Product by such Pursuing Party;
provided, that
(i) such Pursuing Party exercises the same level of effort with respect to the protection of such information that it exercises with respect to its other proprietary information of a similar nature, but in no event less than commercially reasonable efforts; and (ii) in addition thereto, such Pursuing Party exercises commercially reasonable efforts to execute, in advance of any such disclosure, a confidentiality agreement by and between such Pursuing Party and the specific individual and/or legal services provider to whom the chemical structure or isoforms are to be disclosed. The obligation not to disclose Information shall not apply to any part of such Information that: (i) is or becomes patented, published or otherwise becomes publicly known other than by acts of the Party obligated not to disclose such Information in contravention of this Agreement; (ii) can be shown by written documents to have been disclosed to the receiving Party by a Third Party,
provided, that
such Information was not obtained by such Third Party directly or indirectly from the other Party under this Agreement; (iii) prior to disclosure under this Agreement, was already in the
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possession of the receiving Party, as shown by written documents;
provided
, that such Information was not obtained directly or indirectly from the other Party under this Agreement; (iv) can be shown by written documents to have been independently developed by the receiving Party without use of the other Party’s Information or breach of any of the provisions of this Agreement; or (v) is disclosed by the receiving Party pursuant to a subpoena lawfully issued by a court or governmental agency, provided, that the receiving Party or its Affiliates, as the case may be, notifies the other Parties immediately upon receipt of any such subpoena.
11.3
Publications and Disclosure
. Prior to the submission to any outside person for publication or disclosure of scientific or technical data and research activities relating to Compounds, each Party shall disclose to the other Party a copy of the publication or disclosure, or a written summary of any oral public disclosure, to be made or submitted, and shall allow the other Party at least thirty (30) days to determine whether such publication or disclosure contains subject matter for which patent protection should be sought prior to publication or disclosure or which either Party believes should be modified to avoid disclosure of confidential information or regulatory or other issues. During such thirty (30) day review period, the Parties may discuss the merits of making the particular publication or disclosure at such time, and the Party proposing such publication or disclosure shall only publish or disclose with the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed.
ARTICLE XII
INTELLECTUAL PROPERTY RIGHTS
12.1
Ownership; Rights; Disclosure
.
12.1.1
Ownership of Technology and Patent Rights by EVP
.
(a)
As between the Parties, EVP is and shall remain the owner of the EVP HDAC Inhibitors and the EVP HDAC Patent Rights, and all Licensed EVP Rights existing as of the Effective Date.
(b)
Any Technology that is made, conceived, devised, invented, created, developed, written, or otherwise reduced to practice or tangible medium solely by employees of EVP or its Affiliates (or by others acting on behalf of EVP) as a result of EVP’s performance of its activities hereunder, and any Patent Rights that Cover any such Technology which is invented solely by EVP or its Affiliates (or by other acting on behalf of EVP), shall be owned solely by EVP. Inventorship shall be determined in accordance with United States patent laws.
12.1.2
Ownership of Technology and Patent Rights by MethylGene
.
(a)
As between the Parties, MethylGene is and shall remain the owner of all Licensed MethylGene Rights existing as of the Effective Date.
(b)
Any Technology that is made, conceived, devised, invented, created, developed, written, or otherwise reduced to practice or tangible medium solely by employees of MethylGene or its Affiliates (or by others acting on behalf of MethylGene) as a
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result of MethylGene’s performance of its activities hereunder, and any Patent Rights that Cover any such Technology which is invented solely by MethylGene or its Affiliates (or by others acting on behalf of MethylGene), shall be solely owned by MethylGene. Inventorship shall be determined in accordance with United States patent laws.
12.1.3
Joint Ownership of Technology and Patent Rights
. Any Technology that is jointly made, conceived, devised, invented, created, developed, written, or otherwise reduced to practice or tangible medium jointly by employees of EVP or its Affiliates and employees of MethylGene or its Affiliates (or by others acting on behalf of MethylGene and EVP jointly as to the same subject matter) as a result of their performance of their respective activities hereunder, and any Patent Rights that Cover any such Technology which is invented jointly by employees of EVP or its Affiliates and employees of MethylGene or its Affiliates (or by others acting on behalf of MethylGene and EVP jointly as to the same subject matter), shall be jointly owned by EVP and MethylGene. Inventorship shall be determined in accordance with United States patent laws.
12.1.4
Disclosure; License Grants; Exploitation Rights
. Each of EVP and MethylGene shall promptly disclose to the other Party the making, conception, invention, development, writing or reduction to practice or tangible medium of any Technology described in Sections 12.1.1, 12.1.2 or 12.1.3 that relates to or is useful for the research, development, manufacture, sale or use of a Compound or a Collaboration Product by employees or others acting on behalf of such Party. Such Collaboration Technology, and corresponding Collaboration Patent Rights, shall be automatically licensed from one Party to the other in accordance with Sections 4.1, 4.2, 4.5 and/or 4.6 hereof. As to any Technology described in Sections 12.1.1, 12.1.2 or 12.1.3 that is not Collaboration Technology, including any resulting Patent Rights (except for Technology related to the EVP Screening Platform, which shall be governed by Section 4.6), neither EVP nor MethylGene shall have any obligation to account to the other for profits with respect to its interests thereto, or to obtain any approval of the other for the license, assignment or exploitation of its interest thereto, and each of EVP and MethylGene waives any such right it may have under the applicable laws in any country, except, that, with respect to Technology which is not Collaboration Technology and which is jointly owned by EVP and MethylGene in accordance with Section 12.1.3, together with any corresponding Patent Rights covering such Technology, to the extent EVP and/or MethylGene determine to commence an action against any Third Party alleging that such Third Party is infringing or has misappropriated such Technology and/or Patent Rights, as the case may be, EVP and/or MethylGene agree to reasonably cooperate with the enforcing Party (including joining as a party plaintiff to the extent necessary and requested by the other Party).
12.2
Ownership of Data
. Except as set forth in Section 6.3.8, all Data generated in the performance of the Research and Development Program shall be owned by EVP and/or MethylGene in accordance with Section 12.1;
provided that
to the extent a Party acquires a Unilateral Right to Approve, or is a Pursuing Party, then all Data generated thereafter that relates to the applicable Compound(s), Collaboration Product(s), Research and Development Program and/or Commercialization Program shall be owned by the Majority Party or Pursuing Party. Each Party shall be provided a copy of, and shall have the right to use and disclose any such Data, subject to the limitations of Articles XI and Section 6.3.
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12.3
Prosecution
.
12.3.1
EVP Collaboration Patent Rights
. EVP shall, at its sole cost and expense, control, and agrees to use Commercially Reasonable and Diligent Efforts to undertake, the Prosecution of the EVP Collaboration Patent Rights and the EVP HDAC Patent Rights throughout the Territory, using counsel of its choice and in such countries as EVP and MethylGene deem mutually appropriate;
provided, that,
unless otherwise determined by the Parties, EVP shall seek patent protection for the Licensed EVP Patent Rights and the EVP HDAC Patent Rights in all of the Major Market Countries except for China and India. EVP shall keep MethylGene informed as to such Prosecution, including providing MethylGene drafts of patent applications, responses and other filings in advance of their submission to the respective patent offices, and providing MethylGene copies of any material correspondence with or notices from the patent offices. EVP shall duly consider, and use good faith efforts to follow, any reasonable comments provided by MethylGene with respect to Prosecution of the EVP Collaboration Patent Rights and/or the EVP HDAC Patent Rights in each of the Major Market Countries;
provided,
that (where applicable) MethylGene provides its comments as to any particular draft application, response or other filing, material correspondence or notice within thirty (30) days of receiving such information from EVP.
12.3.2
Licensed MethylGene Patent Rights
. MethylGene shall, at its sole cost and expense, control, and agrees to use Commercially Reasonable and Diligent Efforts to undertake, the Prosecution of the Licensed MethylGene Patent Rights (but excluding MethylGene’s interest in the Joint Collaboration Patent Rights) throughout the Territory, using counsel of its choice and in such countries as EVP and MethylGene deem mutually appropriate;
provided, that,
unless otherwise determined by the Parties, MethylGene shall seek patent protection for the Licensed MethylGene Patent Rights in all of the Major Market Countries except China and India. MethylGene shall keep EVP informed as to the Prosecution of the MethylGene Collaboration Patent Rights and any Licensed MethylGene Patent Right containing subject matter directed to the use of a Compound in the Field or directed to the composition, manufacture or use of a Selected Compound or a Protected Compound in the Field, including providing EVP with drafts of patent applications, responses and other filings in advance of their submission to the respective patent offices, and providing EVP copies of any material correspondence with or notices from the patent offices. MethylGene shall duly consider, and use good faith efforts to follow, any reasonable comments provided by EVP with respect to Prosecution of the Licensed MethylGene Patent Rights in each of the Major Market Countries;
provided,
that (where applicable) EVP provides its comments as to any particular draft application, response or other filing, material correspondence or notice within thirty (30) days of receiving such information from MethylGene.
12.3.3
Joint Collaboration Patent Rights
. MethylGene shall control, and agrees to use Commercially Reasonable and Diligent Efforts to undertake, the Prosecution of the Joint Collaboration Patent Rights throughout the Territory, using counsel mutually agreed to by MethylGene and EVP and in such countries as EVP and MethylGene deem mutually appropriate;
provided
, that, unless otherwise determined by the Parties, MethylGene shall seek patent protection for the Joint Collaboration Patent Rights in all of the Major Market Countries except for China and India. MethylGene shall keep EVP informed as to such Prosecution, including providing EVP drafts of patent applications, responses and other filings in advance of
71
their submission to the respective patent offices, and providing EVP copies of any material correspondence with or notices from the patent offices. For purposes of this Section 12.3.3, EVP acknowledges its agreement that MethylGene may retain Wayne Keown, Esq., and/or Michael S. Greenfield, Esq. of McDonnell, Boehnen, Hulbert & Berghoff LLP to conduct Prosecution of the Joint Collaboration Patent Rights. MethylGene shall duly consider, and use good faith efforts to follow, any reasonable comments provided by EVP with respect to Prosecution of the Joint Collaboration Patent Rights in each of the Major Market Countries;
provided,
that (where applicable) EVP provides its comments as to any particular draft application, response or other filing, material correspondence or notice within thirty (30) days of receiving such information from MethylGene. MethylGene shall be responsible for all costs and expenses associated with the Prosecution of the Joint Collaboration Patent Rights throughout the Territory;
provided, that,
to the extent such costs are not otherwise reimbursed by a Non-ND Partner or other Third Party, MethylGene shall have the right to include either as Research and Development Costs or as Commercialization Costs, as the case may be, the reasonable costs and expenses associated with the Prosecution of any Joint Collaboration Patent if, and only for so long as, any such Joint Collaboration Patent includes at least one claim directed to the use of a Compound in the Field (the “
Method of Use Joint Collaboration Patent Rights
”);
and provided, further
that if, at any time after the Effective Date MethylGene enters into a profit sharing collaboration with a Non-ND Partner and such Non-ND Partner is not obligated to bear a portion of the costs and expenses associated with the Prosecution of any Patent Rights jointly owned by MethylGene and such Non-ND Partner then, from and after the effective date of such profit sharing collaboration, MethylGene shall no longer have the right to include as Research and Development Costs or as Commercialization Costs, as the case may be, the costs and expenses associated with the Prosecution of the Joint Collaboration Patents hereunder.
12.3.4
Quarterly Meetings
. Each of EVP or MethylGene shall have the right to request, on a quarterly basis unless agreed otherwise by the Parties, a meeting for representatives of the Parties to review and discuss any issues or matters regarding intellectual property rights which are the subject of this Collaboration Agreement, including without limiting the generality of the foregoing, issues or matters regarding the Prosecution of Patent Rights Covering the EVP Screening Platform and the Prosecution of Patent Rights Covering the Selected Compounds and the Protected Compounds, their use or manufacture, as well as issues or matters that would otherwise fall under any provisions of Article XII. The Parties shall have the obligation to participate in good faith at such meetings, to be held in person or by telephone at a mutually convenient time and place.
12.3.5
No Abandonment without Consent
.
(a)
MethylGene shall not refuse to undertake, nor shall it abandon the Prosecution of any item of the Licensed MethylGene Patent Rights or Joint Collaboration Patent Rights anywhere in the Territory and relevant to the Field without the prior written consent of EVP. Such consent shall be deemed granted by EVP within thirty (30) days following MethylGene’s written request therefor, unless, prior to the expiration of such thirty (30) day period, EVP notifies MethylGene in writing of its decision to withhold such consent and agrees to assume responsibility for the payment of the costs of Prosecution of any such Patent Rights.
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(b)
EVP shall not refuse to undertake, nor shall it abandon the Prosecution of any item of the EVP Collaboration Patent Rights anywhere in the Territory and relevant to the Field without the prior written consent of MethylGene. Such consent shall be deemed granted by MethylGene within thirty (30) days following EVP’s written request therefor, unless, prior to the expiration of such thirty (30) day period, MethylGene notifies EVP in writing of its decision to withhold such consent and agrees to assume responsibility for the payment of the costs of Prosecution of any such Patent Rights.
12.3.6
Rights of Non-ND Partners
. In the event MethylGene obtains EVP’s consent not to undertake, or to abandon, Prosecution of the Patent Rights described in Section 12.3.5(a) above, and not otherwise, then MethylGene may be required to notify one or more of its Non-ND Partners prior to any required action (or such shorter period as is reasonably practicable for non-extendable deadlines), but only with respect to any such Patent Rights that are relevant to the field of use of such Non-ND Partners and to the geographical territory set forth in the applicable Non-ND Partner Agreement. In such event, a Non-ND Partner may have the right, but not the obligation, to control the Prosecution of such Patent Rights, and MethylGene may cooperate with such Non-ND Partner with respect thereto, provided that such Non-ND Partner shall keep MethylGene reasonably informed of such Prosecution as requested by MethylGene. In the event a Non-ND Partner takes over Prosecution of such a Patent Right in accordance with this Section 12.3.6, it may obtain the right to complete discretion with respect to any decisions regarding such Prosecution, and shall not owe any duties, express or implied, to MethylGene with respect to such decisions. Notwithstanding the foregoing, in the event such Non-ND Partner does not elect to undertake or continue the Prosecution of any item of the Patent Rights described herein within thirty (30) days after MethylGene has notified it of its rights hereunder, then MethylGene shall promptly notify EVP in writing, and EVP shall have the right, but not the obligations, to assume control of the Prosecution of such Patent Rights.
12.4
Defense of Third Party Infringement Claims
. If the research, development, manufacture, sale or use of any Collaboration Product within the Field results in a claim, suit or proceeding (collectively, “
Actions
”) alleging patent infringement against either Party (or its respective Affiliates or Sublicensees), such Party shall promptly notify the other Party hereto in writing. MethylGene (if the Action is brought in a MethylGene Assigned Territory against Collaboration Products for which it is the Marketing Party) and EVP (if the Action is brought in an EVP Assigned Territory against Collaboration Products for which it is the Marketing Party) shall have the exclusive right to defend and control the defense of any such Action using counsel of its own choice (the “
Controlling Party
”);
provided, however,
that the other Party shall be kept informed of all material developments in connection with any such Action. The Controlling Party shall not enter into any settlement relating to the Technology or Patent Rights licensed hereunder (for purposes of this Section 12.4 and Section 12.5, the “
Licensed Technology
” and “
Licensed Patents
”) that admits the invalidity, unenforceability or non-infringement of any Licensed Patent within the Field without the other Party’s approval, which shall not be withheld or delayed unreasonably. Any cost, liability or expense (including amounts paid in settlement) (together, “
Liabilities
”) shall be subject to the indemnification provisions of clause (iv) of Sections 14.1 or 14.2, as applicable.
12.5
Enforcement
. Subject to the provisions of this Section 12.5, in the event that EVP or MethylGene reasonably believes that any Licensed Technology or Licensed Patent Right is
73
infringed or misappropriated in the Territory by a Third Party within the Field, or with respect to a Selected Compound outside the Field or is subject to a declaratory judgment action arising from either of such type of infringement in the Territory (collectively, “
Subject Infringements
”), MethylGene or EVP (respectively) shall promptly notify the other Party. Promptly after such notice the Parties shall meet to discuss the course of action to be taken with respect to an Enforcement Action (as defined below) with respect to such infringement or misappropriation, including the control thereof and sharing of costs and expenses related thereto, for the purposes of entering into a litigation agreement setting forth the same (“
Litigation Agreement
”). If the Parties do not enter such Litigation Agreement, EVP shall have the initial right (but not the obligation) to enforce the Licensed Technology and Licensed Patents in the Territory with respect to the Subject Infringement, or defend any declaratory judgment action with respect thereto (for purposes of this Section 12.5, an “
Enforcement Action
”). In the event EVP does not notify MethylGene that it intends to enforce or defend the Licensed Technology or Licensed Patents against a Subject Infringement within one hundred and twenty (120) days after notice by either Party of an alleged Subject Infringement in the Territory, then MethylGene shall have the right (but not the obligation) to enforce or defend against such alleged Subject Infringement. Absent a Litigation Agreement, the Party controlling the enforcement shall keep the other Party reasonably informed of the progress of any Enforcement Action, and the other Party shall have the right to participate with counsel of its own choice at its own expense, and shall reasonably cooperate with the Party initiating the Enforcement Action (including joining as a party plaintiff to the extent necessary and requested by the other Party). For so long as neither EVP nor MethylGene is a Back-Out Party with respect to all of the Research and Development Programs hereunder, unless otherwise agreed, all amounts recovered in the Enforcement Action, after reimbursing the Party initiating such Enforcement Action for its costs and expenses incurred in such Enforcement Action, shall be shared between the Parties in accordance with their respective Shares of Net Profits and Losses aggregated across all of the Research and Development Programs and Commercialization Programs in the Collaboration. If either EVP or MethylGene is a Back-Out Party with respect to all of the Research and Development Programs hereunder, then any amounts recovered in any Enforcement Action shall be shared between the Parties in accordance with Section 15(1)(a) of
Appendix A
. Neither EVP nor MethylGene shall enter into any settlement relating to the Licensed Technology or the Licensed Patents (for purposes of this Section 12.5 each as defined in Section 12.4) that admits the invalidity, unenforceability or non-infringement of any Licensed Patent within the Field without the other Party’s approval, which shall not be withheld or delayed unreasonably.
ARTICLE XIII
REPRESENTATIONS, WARRANTIES AND COVENANTS
13.1
Authorization; Binding Effect; No Conflicts
.
13.1.1
MethylGene
. MethylGene represents and warrants to EVP as of the Effective Date that (a) it is a corporation duly organized, validly existing and in good standing under the laws of Quebec, Canada, (b) no consent, approval or agreement of any person, party, court, government or entity is required to be obtained by MethylGene or any of its Affiliates in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, which has not been obtained, (c) it has obtained all necessary
74
corporate approvals to enter into this Agreement, (d) it has the legal right and power to enter into this Agreement, to grant the rights and licenses granted or to be granted to EVP in this Agreement, and to fully perform its obligations hereunder and thereunder, (e) this Agreement has been duly executed and delivered and is a valid and binding agreement of MethylGene, enforceable in accordance with its terms, (f) it has not made nor will it make any commitments to others in conflict with or in derogation of this Agreement or such rights and licenses, (g) it is not aware of any legal obstacles or Third Party rights which could prevent it from carrying out its obligations under the provisions of this Agreement. Without limiting the generality of the foregoing, MethylGene hereby represents, warrants and covenants that (x) the terms of this Agreement do not conflict with or violate, and are not in derogation of, any of the terms or conditions of any Non-ND Partner Agreement, including the Taiho Agreement, and (y) the performance by the Parties of their obligations hereunder, and the exercise by the Parties of their rights hereunder, do not and will not conflict with or violate, or result in a breach by MethylGene of any of the term of, such Non-ND Partner Agreements.
13.1.2
EVP
. EVP represents and warrants to MethylGene as of the Effective Date that (a) it is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, USA, (b) no consent, approval or agreement of any person, party, court, government or entity is required to be obtained by EVP or any of its Affiliates in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, which has not been obtained, (c) it has obtained all necessary corporate approvals to enter into this Agreement, (d) it has the legal right and power to enter into this Agreement, to grant the rights and licenses granted or to be granted to MethylGene in this Agreement, and to fully perform its obligations hereunder and thereunder, (e) this Agreement has been duly executed and delivered and is a valid and binding agreement of EVP, enforceable in accordance with its terms, (f) it has not made nor will it make any commitments to others in conflict with or in derogation of this Agreement or such rights and licenses, (g) it is not aware of any legal obstacles or Third Party rights which could prevent it from carrying out its obligations under the provisions of this Agreement.
13.2
Cooperation of Employees
. Each of EVP and MethylGene represents to the other and agrees that all employees or others acting on its behalf in performing its obligations under this Agreement are obligated under a binding written agreement to assign to such Party, or as such Party shall direct, all Technology and Patent Rights invented, discovered or made by such employee or other person. In the case of non-employees working for other companies or institutions on behalf of EVP or MethylGene, EVP or MethylGene, as the case may be, shall have the right to obtain an assignment of, or, in the alternative, licenses to all Technology made by such non-employees on behalf of EVP or MethylGene, as applicable, in accordance with the policies of said company or institution. EVP and MethylGene agree to undertake to enforce such agreements (including, where appropriate, by legal action) considering, among other things, the commercial value of such Technology.
13.3
Intellectual Property Rights
.
13.3.1
MethylGene
. MethylGene hereby represents, warrants and covenants that (a) it owns all right, title and interest in, or is exclusively licensed or sublicensed to use, sublicense and exploit, or otherwise possesses legally enforceable exclusive rights in, the
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Licensed MethylGene Rights related to the Field, free and clear of all liens, claims or other encumbrances and of any licenses, restrictions or limitations of any nature whatsoever (including obligations to pay Third Party royalties in respect thereto) (collectively, “
Liens
”), other than as specifically described on
Schedule 13.3.1
, (b) to its knowledge, the claims of the issued patents of the Licensed MethylGene Patent Rights are valid and enforceable within the Field, and no Licensed MethylGene Patent Rights have been declared invalid or unenforceable by any court of competent jurisdiction, (c) all of the Licensed MethylGene Patent Rights in the Field are listed on
Schedule 1-C
(specifying which, if any, of such rights are in-licensed or in-sublicensed), and all applications are still pending and issued patents are in good standing and have not been abandoned, (d) it shall maintain in full force and effect during the full terms thereof any agreements with Third Parties governing the in-licensing of any of the Licensed MethylGene Rights, shall not terminate nor give such Third Party any cause to terminate such agreements, and shall notify EVP in the event of any dispute between it and any such Third Party, (e) there are no actions, suits, claims, disputes or proceedings or governmental investigations pending or, to its knowledge, threatened against MethylGene or any of its Affiliates or licensees with respect to the Licensed MethylGene Rights or the use thereof by MethylGene, either at law or in equity, before any court or administrative agency or before any governmental department, commission, board, bureau, agency or instrumentality, or before any arbitration board or panel whether located in the United States or a foreign country, (f) it has made all material statutorily required filings, if any, to record its interests and taken reasonable actions to protect its rights in the Licensed MethylGene Rights, (g) it has good and valid title to all of the Compounds to be provided hereunder, free and clear of any Liens, other than as disclosed on
Schedule 13.3.1
, (h) except as set forth on
Schedule 13.3.1
, there are no Non-ND Partner Selected Compounds as of the Effective Date, and none of the Non-ND Partner Selected Compounds or MethylGene Non-ND Selected Compounds has the same chemical structure as any Qualified Hit Compound, (i) to its knowledge, the performance of the Research and Development Program, and the manufacture, use or sale of the Collaboration Products, as contemplated hereunder as of the Effective Date will not result in or constitute the infringement or misappropriation of the intellectual property rights of Third Parties in existence as of the Effective Date, except as set forth on
Schedule 13.3.1
, (j) no Third Party has claimed to MethylGene that any performance of similar obligations does or would result in the infringement or misappropriation of the intellectual property rights of such Third Party; (k) to its knowledge, no person or entity nor such person’s or entity’s business or products has infringed or misappropriated, or is currently infringing or misappropriating, the Licensed MethylGene Rights within the Field in a manner that would materially interfere with the rights or obligations of the Parties hereunder, and (l) no Third Party will have a right to claim any ownership interests whatsoever in the Collaboration Technology or Collaboration Patent Rights hereunder, or, except to the extent specifically provided under Sections 4.3.1 and 6.2.3 hereof, any other rights with respect thereto, and, without limiting the generality of the foregoing, (1) neither the Collaboration Technology nor the Collaboration Patent Rights shall constitute Joint Intellectual Property as such terms are defined under the Taiho Agreement (or similar definitions under other agreements between MethylGene and its other licensees or sublicensees, including under any Non-ND Partner Agreements) and (2) none of the activities assigned to MethylGene under a Research and Development Program shall be conducted by MethylGene medicinal chemists who are involved in research under the Taiho Agreement or research that is otherwise directed to the use of HDAC Inhibitors for the treatment or prevention of cancer.
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13.3.2
EVP
. EVP hereby represents and warrants that (a) no Third Party royalties are due in respect of its EVP Screening Platform in the Field other than as disclosed in
Schedule 13.3.2
, (b) to its knowledge, the practice of the EVP Screening Platform by EVP as contemplated hereunder as of the Effective Date will not result in or constitute the infringement or misappropriation of the intellectual property rights of Third Parties in existence as of the Effective Date, except as set forth on
Schedule 13.3.2
, (c) to its knowledge, no person or entity nor such person’s or entity’s business or products has infringed or misappropriated, or is currently infringing or misappropriating, the EVP Screening Platform within the Field in a manner that would materially interfere with the rights or obligations of the Parties hereunder, and (d) no Third Party will have a right to claim any ownership interests whatsoever in the Collaboration Technology or Collaboration Patent Rights as a result of its practice of the EVP Screening Platform.
13.4
Disclosure
. MethylGene has not (a) omitted to furnish EVP any information requested by EVP, (b) intentionally concealed from EVP any material information in its possession concerning the Licensed MethylGene Rights, Compounds, or the transactions contemplated by this Agreement, or (c) failed to disclose to EVP any information which makes the information disclosed misleading. EVP has not (x) omitted to furnish MethylGene any information requested by MethylGene, (y) intentionally concealed from MethylGene any material information in its possession concerning the EVP Screening Platform or the transactions contemplated by this Agreement, or (z) failed to disclose to EVP any information which makes the information disclosed misleading.
13.5
Warranties
. Each of the Parties warrants that (i) the Collaboration Products delivered by such Party pursuant to Section 8.2 hereof, if any, will conform in all material respects to the Specifications, the conditions of any applicable Regulatory Approvals regarding the manufacturing process and any applicable requirements of the Regulatory Scheme regarding the manufacturing process and (ii) the Collaboration Products sold by such Party pursuant to Sections 7.2 or 7.4 hereof will be marketed and sold in all material respects in accordance with the conditions of any applicable Regulatory Approvals and any applicable labeling claims.
13.6
Disclaimer of Representations and Warranties
. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER EVP NOR METHYLGENE MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND THE NON-INFRINGEMENT OF ANY THIRD-PARTY PATENTS OR PROPRIETARY RIGHTS. ALL UNIFORM COMMERCIAL CODE WARRANTIES ARE EXPRESSLY DISCLAIMED BY THE PARTIES.
13.7
Limitation of Liability
. EXCEPT AS SET FORTH IN ARTICLE XIV, IT IS AGREED BY THE PARTIES THAT NO PARTY SHALL BE LIABLE TO ANY OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES (INCLUDING LOST OR ANTICIPATED REVENUES OR NET PROFITS RELATING TO THE SAME), ARISING FROM ANY CLAIM RELATING TO THIS AGREEMENT, WHETHER SUCH CLAIM IS BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, EVEN IF AN AUTHORIZED
77
REPRESENTATIVE OF SUCH PARTY IS ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SAME.
ARTICLE XIV
INDEMNIFICATION
14.1
Indemnification By MethylGene
. MethylGene shall indemnify and hold harmless EVP and its Affiliates and their respective directors, officers, employees and agents (collectively, the “
EVP Indemnified Parties
”), from, against and in respect of any and all actions, liabilities, losses, costs, damages, fines, penalties, government orders, taxes, expenses or amounts paid in settlement (in each case, including reasonable attorneys’ and experts’ fees and expenses), involving a claim or action of a Third Party or governmental authority (collectively, “
Losses
”), incurred or suffered by the EVP Indemnified Parties or any of them as a result of, arising out of or directly or indirectly relating to: (i) any breach of any material representation or warranty, or failure to perform a material obligation or respect a material covenant, made by MethylGene in this Agreement, (ii) the gross negligence, intentional misconduct or violation of law by or of MethylGene, its Affiliates and their respective directors, officers, employees and agents or any of them, (iii) product liability or personal injury claims relating to any Collaboration Products used, sold or otherwise distributed, or the conduct of clinical trials, by MethylGene, its Affiliates, licensees or sublicensees, or by the supply by MethylGene to EVP of Compounds or Collaboration Products that fail to comply with applicable Specifications, or (iv) any infringement or alleged infringement by EVP of any intellectual property rights of any Third Party that results from EVP’s use or practice of the Licensed MethylGene Rights in accordance with the terms hereof, except in each case to the extent such claim is caused by the gross negligence, willful misconduct or violation of Law of or by EVP or any of the other EVP Indemnified Parties.
14.2
Indemnification by EVP
. EVP shall indemnify and hold harmless MethylGene and its Affiliates and their respective directors, officers, employees and agents (collectively, the “
MethylGene Indemnified Parties
”), from, against and in respect of any and all Losses incurred or suffered by the MethylGene Indemnified Parties or any of them as a result of, arising out of or directly or indirectly relating to: (i) any breach of any material representation or warranty, or failure to perform a material obligation or respect a material covenant, made by EVP in this Agreement, (ii) the gross negligence, intentional misconduct or violation of law by or of EVP, its Affiliates and their respective directors, officers, employees and agents or any of them, (iii) product liability or personal injury claims relating to any Collaboration Products used, sold or otherwise distributed, or the conduct of clinical trials, by EVP, its Affiliates, licensees or sublicensees, or by the supply by EVP to MethylGene of Compounds or Collaboration Products that fail to comply with applicable Specifications, or (iv) any infringement or alleged infringement by MethylGene of any intellectual property rights of any Third Party that results from MethylGene’s use or practice of the Licensed EVP Rights in accordance with the terms hereof, except in each case to the extent such claim is caused by the gross negligence, willful misconduct or violation of Law of or by MethylGene or any of the other MethylGene Indemnified Parties.
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14.3
Contribution
.
14.3.1
(A) For so long as neither EVP nor MethylGene is a Back-Out Party with respect to all of the Research and Development Programs hereunder, if either EVP or MethylGene, or both EVP and MethylGene, would be liable, respectively, under (1) Section 14.1(i) or 14.2(i) but for the exceptions set forth on
Schedule 13.3.1(i)
or
Schedule 13.2.2(b)
, or (2) Section 14.1(iv) or 14.2(iv), in each case as indemnitors for the actual or alleged infringement of any claim issuing from the patent application identified in
Schedule 13.3.1(i)
and
Schedule 13.3.2(b)
where such claim covers the use of any HDAC inhibitor for the treatment of Alzheimer’s disease, Huntington’s disease, Parkinson’s disease or any Other Neurodegenerative Disease, then EVP and MethylGene shall share all Losses applicable thereto as Collaboration Costs (hereinafter “Section 14.3.1 Losses”) in accordance with their respective share of Net Profits and Losses aggregated across all Research and Development Programs and Commercialization Programs in the Collaboration. As used in this Section 14.3.1, the phrase “patent application identified in
Schedule 13.3.1(i)
and
Schedule 13.3.2(b)
” includes all divisions, continuations, continuations-in-part (but only as to subject matter existing as of the Effective Date), reissues, reexaminations, extensions, supplementary protection certificates, and foreign counterparts, and any patents issuing therefrom, of the patent application identified on such schedules. For clarity, the terms and conditions of this Section 14.3.1 shall not apply to, and the term “Section 14.3.1 Losses” shall not include Losses resulting from the actual or alleged infringement of, any claim issuing from the patent application identified in
Schedule 13.3.1(i)
and
Schedule 13.3.2(b)
that is limited to the use of one or more specific or generic HDAC inhibitor(s) for the treatment of Alzheimer’s disease, Huntington’s disease, Parkinson’s disease or any of the Other Neurodegenerative Diseases, the Losses for which MethylGene shall indemnify EVP pursuant to Section 14.1. (B) If either EVP or MethylGene Backs-Out of all three Research and Development Programs hereunder, and the other Party continues as a Pursuing Party as to all three Research and Development Programs, then such Pursuing Party shall indemnify and hold harmless the Back-Out Party and its Affiliates, and their respective directors, officers, employees and agents, from and against and in respect of any and all such Section 14.3.1 Losses that accrue from and after the date of the aforementioned Back-Out, subject to the credits provided for in Section 15(2) of
Appendix A
.
14.3.2
Except as otherwise provided in Section 14.3.1, in the event that both EVP and MethylGene would be liable, respectively, under Section 14.1 and 14.2 as indemnitors for an actual or alleged injury, damage, death or other consequence occurring to any Person, then each Party’s indemnification obligation shall be deemed to be a contribution obligation to the other Party equal to its proportional share of the total of the MethylGene Losses plus the EVP Losses, based on each Party’s relative liability therefor, and Sections 14.1 and 14.2 shall be superseded by this Section 14.3.
14.4
Claims for Indemnification
.
14.4.1
A person entitled to indemnification under this Article 14 (an “
Indemnified Party
”) shall give prompt written notification to the person from whom indemnification is sought (the “
Indemnifying Party
”) of the commencement of any action, suit or proceeding relating to a Third Party claim for which indemnification may be sought or, if earlier, upon the assertion of any such claim by a Third Party (it being understood and agreed, however, that the failure by an Indemnified Party to give notice of a Third Party claim as provided in this Section 14.4 shall not relieve the Indemnifying Party of its indemnification obligation under this
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Agreement except and only to the extent that such Indemnifying Party is actually prejudiced as a result of such failure to give notice).
14.4.2
Within 30 days after delivery of such notification, the Indemnifying Party may, upon written notice thereof to the Indemnified Party, assume control of the defense of such action, suit, proceeding or claim with counsel reasonably satisfactory to the Indemnified Party. If the Indemnifying Party does not assume control of such defense, the Indemnified Party shall control such defense.
14.4.3
The Party not controlling such defense may participate therein at its own expense;
provided
that if the Indemnifying Party assumes control of such defense and the Indemnified Party reasonably concludes, based on advice from counsel, that the Indemnifying Party and the Indemnified Party have conflicting interests with respect to such action, suit, proceeding or claim, the Indemnifying Party shall be responsible for the reasonable fees and expenses of counsel to the Indemnified Party solely in connection therewith;
provided further
,
however
, that in no event shall the Indemnifying Party be responsible for the fees and expenses of more than one counsel in any one jurisdiction for all Indemnified Parties.
14.4.4
The Party controlling such defense shall keep the other Party advised of the status of such action, suit, proceeding or claim and the defense thereof and shall consider recommendations made by the other Party with respect thereto.
14.4.5
The Indemnified Party shall not agree to any settlement of such action, suit, proceeding or claim without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld. The Indemnifying Party shall not agree to any settlement of such action, suit, proceeding or claim or consent to any judgment in respect thereof that does not include a complete and unconditional release of the Indemnified Party from all liability with respect thereto or that imposes any liability or obligation on the Indemnified Party without the prior written consent of the Indemnified Party.
14.5
Insurance
. EVP and MethylGene shall maintain insurance, including product liability insurance, with respect to its activities contemplated hereunder in amounts and subject to such deductibles as are customarily maintained by such Party for comparable activities; provided that MethylGene may, pursuant to its self-insurance program, elect to self-insure with respect to some or all of its activities contemplated hereunder.
ARTICLE XV
TERM AND TERMINATION
15.1
Term
. The term of this Agreement (the “
Term
”) shall continue until no Compounds or Collaboration Products are being developed or commercialized by either Party in accordance with the terms hereof, unless terminated pursuant to Section 15.2 below.
15.2
Termination
. This Agreement may be terminated in the following circumstances:
15.2.1
For Certain Material Breaches
. If either MethylGene or EVP (a) fails to perform any material duty imposed upon such Party under this Agreement, the R&D Plan, or
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Commercialization Plan, (b) fails to make any reconciliation payment to the other Party when due under Sections 5.4.6(b) or 5.5.2(e), subject to the terms thereof, (c) fails to fund any Research and Development Costs pursuant to an agreed upon R&D Plan pursuant to Sections 5.4.2 and 5.4.4, or (d) fails to pay MethylGene for costs incurred in the synthesis of EVP Evaluation Compounds pursuant to Section 5.4.3(c), and such failure to perform is not cured within thirty (30) days of written notice thereof from the non-breaching Party, or, in the case of a failure to make a payment, within fifteen (15) Business Days, the non-breaching Party may elect, in its sole discretion, to (i) in the case of clause (c) above, waive the terms of Sections 5.4.2 and 5.4.3 with respect to the required funding and cause the respective Share of Net Profits and Losses of the Parties to be adjusted in accordance with Section 5.4.5(b), or (ii) terminate this Agreement with the consequences set forth in Section 15.3.1 below and, in either case, seek any and all remedies available to it at law and in equity. Except in the case of a failure to make a payment, or cure a breach under Section 2.1, such thirty (30) day period shall be extended to ninety (90) days if the breaching Party has engaged in good faith efforts to remedy such default within such thirty (30) day period and indicated in writing to the non-breaching Party prior to the expiration of such thirty (30) day period that it believes that it will be able to remedy the default within such ninety (90) day period, but such extension shall apply only so long as the breaching Party is engaging in good faith efforts to remedy such default.
15.2.2
Upon Bankruptcy
. Either MethylGene or EVP may terminate this Agreement, with the consequences set forth in Section 15.3.2 below, if (A) the other Party fails to meet any material obligation hereunder and (i) applies for or consents to the appointment of a receiver, trustee, liquidator, sequestrator, custodian or similar official of itself or of all or a substantial part of its property, (ii) becomes unable, or admits in writing its inability, to pay its debts generally as they mature, (iii) makes a general assignment for the benefit of its or any of its creditors, (iv) is dissolved or liquidated in full or in part, (v) commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to or fails to contest in a timely and appropriate manner, any petition or proceeding seeking any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or files an answer admitting the material allegations of a petition filed against it in any such proceeding, or (vi) takes any action for the purpose of effecting any of the foregoing; or (B) proceedings for the appointment of a receiver, trustee, liquidator, sequestrator, or custodian or similar official of the other Party or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the other Party or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect are commenced and an order for relief entered, or such proceeding shall not be dismissed or discharged within sixty (60) days of commencement.
15.2.3
By Mutual Agreement
. EVP and MethylGene may, upon mutual written agreement, terminate this Agreement at any time with the consequences set forth in such mutual written agreement.
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15.3
Effects of Termination
.
15.3.1
For Certain Material Breaches; Failure to Fund the Research and Development Program; Failure to Make a Reconciliation Payment
. In addition to the rights and duties set forth in Section 15.4, EVP and MethylGene shall have the following rights and duties upon the termination of this Agreement pursuant to Section 15.2.1:
(a)
the non-breaching Party shall, immediately upon written notice, be deemed a Pursuing Party and the breaching Party shall be deemed a Back-Out Party, as to all Selected Compounds and Collaboration Products within the Field for purposes of the license and sublicense rights granted under Section 4.5, and the terms and conditions on
Appendix A
shall thereafter apply as modified hereby,
(b)
All Compounds shall become Unilateral Products,
(c)
Except as set forth in Section 15.5, any and all licenses or sublicenses from the non-breaching Party to the breaching Party hereunder shall terminate, and the breaching Party shall cease conducting, directly or indirectly, independently or in collaboration with others, all research, development, manufacturing (except as set forth in clause (d) below), use, sales, or other exploitation of the Compounds, and shall grant no rights to any Third Parties to do any of the foregoing,
(d)
If the breaching Party is the Manufacturing Party, the non-breaching Party shall have the right to (A) assume all rights and obligations of the Manufacturing Party, or (B) require that the breaching Party continue as the Manufacturing Party in accordance with the terms of Section 8.2 until the earlier of (i) such time as the breaching Party ceases to manufacture any Compounds for any Person or (ii) five (5) years following termination, and
(e)
The breaching Party shall assign or cause to be assigned to the Non-Breaching Party (or if not so assignable, shall take all reasonable actions to make available to the non-Breaching Party) all regulatory filings and registrations (including Regulatory Approvals and applications therefor) with respect to each Unilateral Product for which an IND has been filed in the Territory by or on behalf of the breaching Party prior to the termination of this Agreement. In each case such assignment (or availability) shall be made within thirty (30) days after such termination.
15.3.2
Upon Bankruptcy
. In addition to the rights and duties set forth in Section 15.4, EVP and MethylGene shall have the following rights and duties upon termination of this Agreement pursuant to Section 15.2.2:
(a)
the non-bankrupt Party shall, immediately upon written notice, be deemed a Pursuing Party and the breaching Party shall be deemed a Back-Out Party, as to all Selected Compounds and Collaboration Products within the Field for purposes of the license and sublicense rights granted under Section 4.5, and the terms and conditions on
Appendix A
shall thereafter apply as modified hereby
(b)
All Compounds shall become Unilateral Products,
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(c)
Except as set forth in Section 15.5, any and all licenses or sublicenses from the non-bankrupt Party to the bankrupt Party hereunder shall terminate, and the bankrupt Party shall cease conducting, directly or indirectly, independently or in collaboration with others, all research, development, manufacturing (except as set forth in clause (d) below), use, sales, or other exploitation of the Compounds, and shall grant no rights to any Third Parties to do any of the foregoing,
(d)
If the bankrupt Party is the Manufacturing Party, the non-bankrupt Party shall have the right to (A) assume all rights and obligations of the Manufacturing Party, or (B) require that the bankrupt Party continue as the Manufacturing Party in accordance with the terms of Section 8.2 until the earlier of (i) such time as the bankrupt Party ceases to manufacture any Compounds for any Person or (ii) five (5) years following termination, and
(e)
The bankrupt Party shall assign or cause to be assigned to the Non-bankrupt Party (or if not so assignable, shall take all reasonable actions to make available to the non-Breaching Party) all regulatory filings and registrations (including Regulatory Approvals and applications therefor) with respect to each Unilateral Product for which an IND has been filed in the Territory by or on behalf of the bankrupt Party prior to the termination of this Agreement. In each case such assignment (or availability) shall be made within thirty (30) days after such termination.
15.4
Survival of Rights and Duties
. No termination of this Agreement shall eliminate any rights or duties of the Parties accrued prior to such termination. Subject to Section 15.5, upon the early termination of this Agreement by EVP, the following provisions of this Agreement shall survive and be binding and for the benefit of each of the Parties in accordance with their terms with respect to such Unilateral Products and corresponding Compounds: Article I, Sections 2.2, 2.3, 4.3.1, 4.3.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.6.1, 5.6.2, 6.2 (provided that EVP, as a Pursuing Party, shall assume the rights of the JSC to designate Selected Compounds and Protected Compounds under Sections 6.2.1 and 6.2.5), 6.3, Article IX, Article XI, Article XII (as modified by
Appendix A
), Article XIII, Article XIV, Article XV, Article XVI and Article XVII.. Subject to Section 15.5, upon the early termination of this Agreement by MethylGene, the following provisions of this Agreement shall survive and be binding and for the benefit of each of the Parties in accordance with their terms with respect to such Unilateral Products and corresponding Compounds: Article I, Sections 2.2, 2.3, 4.3.1, the first sentence of 4.3.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.6.1, 5.6.2, Article IX, Article XI, Article XII (as modified by
Appendix A)
, Article XIII, Article XIV, Article XV, Article XVI and Article XVII. In addition, upon expiration (but not termination) of this Agreement, each of the Parties shall have a fully-paid up, royalty-free, perpetual, irrevocable license under Section 4.1 and 4.2, as applicable.
15.5
Survival of Licenses to and from Non-ND Partners
. In the event of termination of this Agreement by either Party under Section 15.2.1, 15.2.2 or 15.2.3, Section 4.2, 4.3.1 and 4.3.2 shall survive only with respect to those Non-ND Partners and/or others to whom MethylGene has granted sublicenses thereunder prior to such termination, and only to the extent of such sublicenses. Likewise, MethylGene shall ensure that in the event MethylGene’s agreement(s) with Non-ND Partners and/or others is terminated, any license or sublicense rights granted to EVP under Article 4 from such Non-ND Partners and others shall survive such termination. In the event the licenses from MethylGene to EVP under Article IV are terminated,
83
then any rights sublicensed to EVP thereunder from Non-ND Partners and others shall likewise terminate.
15.6
Cooperation
. If the Agreement is terminated as provided above, the non-terminating Party (the “
Defaulting Party
”) shall promptly provide to the Pursuing Party (or any Third Party or Affiliate designated by the Pursuing Party) all Technology, including manufacturing know-how, licensed hereunder by the Defaulting Party to the Pursuing Party and access to regulatory filings sufficient to allow the Pursuing Party to perform the duties assumed. The Defaulting Party shall further use its Commercially Reasonable and Diligent Efforts to provide all assistance required by the Pursuing Party with respect to such transfer so as to permit the Pursuing Party to begin to perform such duties as soon as possible to minimize any disruption in the continuity of supply or marketing of Collaboration Products.
ARTICLE XVI
DISPUTE RESOLUTION
16.1
Arbitration
. Any Dispute or Deadlock that has not been resolved in accordance with the provisions of Section 3.3 hereof (if applicable) shall be settled by binding arbitration administered by the American Arbitration Association (AAA) under its Commercial Arbitration Rules. Notwithstanding those rules, the following provisions shall apply to the arbitration hereunder:
16.1.1
Arbitrators
. The arbitration shall be conducted by a single arbitrator chosen by agreement of the Parties who satisfies the AAA requirements for impartiality and independence;
provided, that
, if the Parties are unable, within thirty (30) days of initiation of the arbitration to agree on the identity of a single arbitrator, the arbitration shall be conducted by a panel of three (3) arbitrators, with one (1) arbitrator chosen by each of EVP and MethylGene and the third appointed by the other two (2) arbitrators. The arbitrator or arbitrators selected in accordance with this Section 16.1.1 are referred to herein as the “
Panel
” and shall be comprised of arbitrators who are familiar with worldwide research and business development in the biotechnology industry, unless otherwise agreed by the Parties.
16.1.2
Proceedings
. Except as otherwise provided herein, the Parties and the arbitrators shall use their best efforts to complete the arbitration (i) within three (3) months for Deadlocks and (ii) within six (6) months for Disputes, in each case after the appointment of the Panel under Section 16.1.1 above, unless a Party can demonstrate to the Panel that the complexity of the issues or other reasons warrant the extension of one or more of the time tables. In such case, the Panel may extend such time table as reasonably required. The Panel shall, in rendering its decision, apply the substantive law of the Commonwealth of Massachusetts, without regard to its conflicts of laws provisions, except that the interpretation of and enforcement of this Article XVI shall be governed by the U.S. Federal Arbitration Act. The proceeding shall take place in New York, New York. The decision and/or award rendered by the arbitrator(s) shall be written, final and non-appealable, and judgment on such decision and/or award may be entered in any court of competent jurisdiction. The fees of the Panel shall be paid by the losing Party which Party shall be designated by the Panel. If the Panel is unable to designate a losing Party, it shall so state and the fees shall be split equally between the Parties.
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Each Party shall bear the costs of its own attorneys’ and experts’ fees; provided that the Panel may in its discretion award the prevailing Party all or part of the costs and expenses incurred by the prevailing Party in connection with the arbitration proceeding.
16.2
Interim Relief
. Notwithstanding anything in this Article XVI or Section 3.3 to the contrary, EVP and MethylGene shall each have the right to apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction, or other similar interim or conservatory relief, as necessary, pending resolution under the above described arbitration procedures. Nothing in the preceding sentence shall be interpreted as limiting the powers of the arbitrators with respect to any dispute subject to arbitration under this Agreement. The Panel may award injunctive relief.
ARTICLE XVII
MISCELLANEOUS
17.1
Interpretation
.
17.1.1
If an ambiguity or a question of intent or interpretation arises with respect to this Agreement, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.
17.1.2
Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (A) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (B) any reference to any laws herein shall be construed as referring to such laws as from time to time enacted, repealed or amended, (C) any reference herein to any Person shall be construed to include the Person’s successors and assigns, (D) the words “herein”, “hereof and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (E) any reference herein to the words “mutually agree” or “mutual written agreement” shall not impose any obligation on either Party to agree to any terms relating thereto or to engage in discussions relating to such terms except as such Party may determine in such Party’s sole discretion; (F) all references herein to Articles, Sections or Schedules shall be construed to refer to Articles, Sections and Schedules of this Agreement; and (g) all references to the “knowledge” of a Party shall refer to the actual knowledge of any of such Party’s officers or director level employees or members of its Board of Directors, or the knowledge which any such person would reasonably be expected to have assuming reasonable inquiry in light of such person’s position with such Party.
17.2
Exchange Controls
. All payments due hereunder shall be paid in United States dollars. If at any time legal restrictions prevent the prompt remittance of part or all payments
85
with respect to any country in which Collaboration Products are sold, payment shall be made through such lawful means or methods as the Parties may determine in good faith.
17.3
Withholding Taxes
. If applicable laws or regulations require that taxes be withheld from payments made hereunder, or from Net Profits, the Party making such payments or otherwise responsible for such withholding will (a) deduct such taxes from any payments to which they relate or in the case of taxes withheld on Net Profits account for such taxes as amounts actually distributed or paid in accordance with Section 5.5.2(d), (b) timely pay such taxes to the proper authority and (c) send written evidence of payment to the Party from whom such taxes were withheld within sixty (60) days after payment. Each Party will assist the other Party or Parties in claiming tax refunds, deductions or credits at such other Party’s request and will cooperate to minimize the withholding tax, if available, under various treaties applicable to any payment made hereunder.
17.4
Interest on Late Payments
. Any payments to be made hereunder that are not paid on or before the date such payments are due under this Agreement shall bear interest at a rate per annum equal to the lesser of […***…] percent ([…***…]%) per month or the highest rate permitted by applicable law, calculated on the number of days such payments are paid after the date such payments are due and compounded monthly.
17.5
Force Majeure
. Neither Party shall be held liable or responsible to the other Party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party, including fire, floods, embargoes, war, acts of war (whether war is declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other Party;
provided, however,
that the Party so affected shall use Commercially Reasonable and Diligent Efforts to avoid or remove such causes of non-performance, and shall continue performance hereunder with reasonable dispatch wherever such causes are removed. Each Party shall provide the other Parties with prompt written notice of any delay or failure to perform that occurs by reason of force majeure. The Parties shall mutually seek a resolution of the delay or the failure to perform in good faith.
17.6
Assignment
. This Agreement may not be assigned or otherwise transferred by any Party without the consent of the other Parties;
provided, however, that,
either MethylGene or EVP may, without such consent, assign all of its rights and obligations under this Agreement, together with all of its other business assets that are the subject of this Agreement, (a) to any Affiliate of such Party, or (b) in connection with a merger, consolidation or sale of substantially all of such Party’s assets to which this Agreement relates to an unrelated Third Party. In the event of any assignment permitted hereunder, such assignee or successor in interest shall assume all of the assignor’s rights and obligations under this Agreement; accordingly, all references herein to the assigning Party shall thereafter be deemed references to the assignee to whom the Agreement is so assigned. Any purported assignment in violation of this Section 17.6 shall be void.
17.7
Severability
. Each Party hereby agrees that it does not intend to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government
***Confidential Treatment Requested
86
agency or executive body thereof of any country or community or association of countries. Should one or more provisions of this Agreement be or become invalid, the Parties hereto shall substitute, by mutual consent, valid provisions for such invalid provisions which valid provisions in their economic effect are sufficiently similar to the invalid provisions that it can be reasonably assumed that the Parties would have entered into this Agreement with such valid provisions. In case such valid provisions cannot be agreed upon, the invalidity of one or several provisions of this Agreement shall not affect the validity of this Agreement as a whole, unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid provisions.
17.8
Notices
. Any consent, notice or report required or permitted to be given or made under this Agreement by one of the Parties hereto to the other shall be in writing, delivered personally or by facsimile (and promptly confirmed by personal delivery or courier), by a next day delivery service of a nationally recognized overnight courier service or by courier, postage prepaid (where applicable), addressed to such other Party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor in accordance with this Section 15.8 and shall be effective upon receipt by the addressee.
|
If to EVP:
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EnVivo Pharmaceuticals, Inc.
|
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480 Arsenal Street, Building 1
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Watertown, MA 02472
|
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Attention:
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Jason P. Rhodes,
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Chief Business Officer
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Telephone:
|
(617) 225-4212
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Facsimile:
|
(617) 225-4266
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and:
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with a copy to
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Palmer & Dodge LLP
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111 Huntington Ave.
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Boston, MA 02119
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|
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Attention:
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James T. Barrett
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|
Telephone:
|
(617) 239-0385
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Facsimile:
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(617) 227-4420
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If to MethylGene:
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MethylGene Inc.
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7220 Frederick-Banting, Suite 200
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Montreal, Quebec H4S 2A1
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Attention:
|
Donald F. Corcoran,
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President and CEO
|
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Telephone:
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(514) 337-3333
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Facsimile:
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(514) 337-4194
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AND:
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Attention:
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Klauss Kepper
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Chief Financial Officer
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Telephone:
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(514) 337-3333
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87
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Facsimile:
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(514) 337-4194
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with a copy to
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Davies Ward Phillips & Vineberg LLP
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1501 McGill College Avenue, 26th Floor
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Montreal, Quebec H3A 3N9
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|
Attention:
|
Elias Benhamou
|
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Telephone:
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(514) 841-6427
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Facsimile:
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(514) 841-6499
|
17.9
Applicable Law and Waiver of Jury
. This Agreement shall be governed by and construed in accordance with the substantive laws of the Commonwealth of Massachusetts notwithstanding the provisions governing conflict of laws under such Commonwealth of Massachusetts law to the contrary and without giving effect to the United Nations Convention on Contracts for the International Sale of Goods, the 1974 Convention on the Limitation Period in the International Sale of Goods (the “
1974 Convention
”) and the Protocol amending the 1974 Convention, done at Vienna April 11, 1980, except matters of intellectual property law which shall be determined in accordance with the national intellectual property laws relevant to the intellectual property in question. The Parties hereby (i) consent to service of process by mailing or delivering such service to the Party at its respective principal business address; and (ii) waive any right to a trial by jury in any action or proceeding to enforce or defend any rights under this Agreement or under any amendment, instrument, document or agreement delivered in connection herewith or hereafter and agree that any such action or proceeding shall be tried before a court and not before a jury.
17.10
Entire Agreement
. This Agreement contains the entire understanding of the Parties with respect to the subject matter hereof and supersedes all prior or contemporaneous oral or written agreements of the Parties with respect to the subject matter hereof, including, but not limited to the POC Agreement. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both Parties hereto.
17.11
Headings
. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof.
17.12
Independent Contractors
. It is expressly agreed that MethylGene and EVP shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership, joint venture or agency. Neither MethylGene nor EVP shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, without the prior consent of the other Party to do so.
17.13
Agreement Not to Solicit Employees
. During the term of this Agreement and for a period of […***…] following the termination of this Agreement, EVP and MethylGene each agree not to hire as an employee (or retain as a consultant or contractor) any Person who within the previous […***…] was employed by (or a contractor or consultant to) the other Company and involved in Collaboration activities.
***Confidential Treatment Requested
88
17.14
Waiver
. Except as expressly provided herein, the waiver by either Party hereto of any right hereunder or of any failure to perform or any breach by the other Party shall not be deemed a waiver of any other right hereunder or of any other failure to perform or breach by said other Party, whether of a similar nature or otherwise, nor shall any singular or partial exercise of such right preclude any further exercise thereof or the exercise of any other such right.
17.15
Counterparts
. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
17.16
Benefit
. Nothing in this Agreement or the agreements referred to herein, expressed or implied, shall confer on any person other than the Parties hereto or thereto, or their respective permitted successors or assigns, any rights remedies, obligations or liabilities under or by reason of this Agreement, the agreements referred to herein, or the transactions contemplated herein or therein.
17.17
Compliance
. Each Party shall provide information reasonably requested by another Party, and take such other action as is reasonably requested, to enable such other Party to comply, in connection with transactions contemplated herein, with regulatory requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the Securities Act of 1933, the Securities Exchange Act of 1934 (in each case including regulations promulgated thereunder and as amended from time to time) and similar laws and regulations of other applicable jurisdictions.
[Remainder of page intentionally left blank]
89
IN WITNESS WHEREOF, the Parties have executed this Collaboration Agreement as of the date first written above.
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MethylGene Inc.
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By:
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/s/ Donald F. Corcoran
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Donald F. Corcoran
|
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President and Chief Executive Officer
|
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EnVivo Pharmaceuticals, Inc.
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By:
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/s/ Stephen Knight
|
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Stephen Knight
|
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Chief Executive Officer
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90
Schedule 1-A
EVP HDAC Patent Rights
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P&D Ref. No.
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Title
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Serial No.
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[…***…]
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[…***…]
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***Confidential Treatment Requested
1-A-1
Schedule 1-B
EVP Screening Platform
Models
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Title
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Publication Number
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Inventors
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Assignee Ref. No.
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…]
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Screening Systems
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Title
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Publication Number
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Inventors
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Assignee Ref. No
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[…***…]
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[…***…][…***…][…***…]
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[…***…]
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[…***…]
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[…***…]
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[…***…][…***…]
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[…***…]
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***Confidential Treatment Requested
1-B-1
Other
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Title
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Publication Number
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Inventors
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Assignee Ref. No
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[…***…]
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[…***…][…***…][…***…][…***…][…***…][…***…][…***…]
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[…***…]
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[…***…]
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***Confidential Treatment Requested
1-B-2
Schedule 1-C
Licensed MethylGene Patent Rights
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Patent Application Title
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Serial No.
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Publication No.
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Patent No.
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[…***…]
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[…***…][…***…][…***…][…***…][…***…][…***…][…***…][…***…][…***…][…***…][…***…]
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***Confidential Treatment Requested
1-C-1
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Patent Application Title
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Serial No.
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Publication No.
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Patent No.
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[…***…]
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[…***…][…***…]
[…***…][…***…][…***…]
[…***…]
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[…***…]
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***Confidential Treatment Requested
1-C-2
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Patent Application Title
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Serial No.
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Publication No.
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Patent No.
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[…***…]
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***Confidential Treatment Requested
1-C-3
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Patent Application Title
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Serial No.
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Publication No.
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Patent No.
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[…***…]
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***Confidential Treatment Requested
1-C-4
Schedule 1-D
Manufacturing Data
The following, to the extent generated or available (certain data may only be available at site for access and/or review as set forth below)
.
1.
Manufacturing Data required for Drug Substance
(a)
Current drug substance manufacturing
(i)
Master formula and method
(ii)
Master production and control records
(iii)
Master records (raw data and original report)
(iv)
Report on the deviation in the drug substance manufacturing process.
(v)
All batch records (raw data and original report) and quality control record (raw data and original report) of drug substance used for preclinical and clinical tests and a process development report for the non-GMP preclinical material.
(vi)
Development report (raw data and original report) on the solvate, polymorphism, and crystal habit of drug substance.
(vii)
Development report (raw data and original report) on the particle size distribution of drug substance in the final purification step.
(b)
Process Development
(i)
Summary report (raw data and original report) describing the development history until today.
(ii)
The history of process scheme and report (raw data and original report) of the all reaction conditions tested.
(iii)
The development report (raw data and original report) for the managing method of impurities in the drug substance.
(iv)
Scale up development report (raw data and original report) including every manufacturing site.
(c)
Stability test of drug substance
(i)
Development report (raw data and original report) on the stability test of drug substance.
1-D-1
(ii)
List of the name of the each compound, storage conditions, storage container, shelf life, and the packed report (raw data and original report).
(iii)
All information as to packaging materials of drug substance including the name of manufacturing corporations, specification and test results.
(d)
The specification and test method, and the acceptance test method of raw materials
(i)
List of the name of raw materials, the name of manufacturer and Certificates of Analysis for raw materials.
(e)
In-process testing
(i)
Development report (raw data and original report) on the in-process testing.
(f)
Safety
(i)
Development report (raw data and original report) on the thermal instability data, such as DSC, of raw drug substance and drug substance manufacturing.
(ii)
Report (raw data and original report) on the toxicity data of every raw materials and intermediates in the drug substance manufacturing.
(iii)
Document on the assessment of the environmental control with regard to the drug substance manufacturing. The test results, and the list of the name of the each compounds, test items, date, results and its report.
(g)
Audit drug substance suppliers
(i)
List of audit reports (original report) which include the name of compound, the name of manufacture company, address, city name, State, Zip/Post Code, Country, date, and its report. (This may only be available for review at the manufacturing site.)
(h)
Manufacture of impurities
(i)
List of the compounds.
(ii)
Manufacturing report (raw data and original report) of each compound.
(i)
History of technical transfer
(i)
All technical transfer reports (raw data and original report) including the items such as drug manufacturing, specification and test method, the name of the compound, the name of the manufacturer, transfer date, and the final report.
1-D-2
(j)
Agreements
(i)
All agreements such as contract agreement, GMP agreement, quality agreement in order to implement proper manufacturing management and quality control in manufacturing the drug substance, intermediate and raw materials.
(k)
Price of raw material and intermediate
(i)
List of the name of every raw materials and intermediate used in the manufacturing of drug substance.
2.
Manufacturing Data required by Pharmaceutical Division
(a)
Drug Substance
(i)
Items
(1)
Solubility profiles
(2)
Chemical stability against heat, humidity, light and so on
(3)
Polymorphism (thermal analysis, powder X-ray diffraction, etc.)
(4)
IR and UV spectra
(5)
Melting point
(6)
Hygroscopic property
(7)
Impurity profile
(8)
Assay
(9)
Appearance (color, etc.)
(10)
Particle size
(11)
Test methods and specifications
(ii)
Reports and raw data
(1)
The raw data concerning the above items
(2)
The raw data concerning the development and validation of the test methods
(3)
The stability reports of the drug substance
1-D-3
(4)
The raw data concerning the stability of the drug substance
(b)
Formulation (Drug Product
)
(i)
Items
(1)
Composition and components (including their compound names, trade names, grade, lots and manufacturing companies)
(2)
Manufacturing method, scale and machines
(3)
Chemical and physical stability against heat, humidity, light, oxygen and so on
(4)
Hygroscopic property
(5)
Impurity profile
(6)
Assay
(7)
Appearance (color, etc.)
(8)
Particle size distribution of the granules for capsulating/tableting
(9)
Bulk density of the granules for capsulating/tableting
(10)
Hardness
(11)
Disintegration property
(12)
Drug dissolution property
(13)
Test methods and specifications
(ii)
Reports and raw data
(1)
The raw data concerning the above items
(2)
The raw data concerning the development of formulations
(3)
The development and validation reports of the test methods
(4)
The raw data concerning the development and validation of the test methods
(5)
The stability reports of the prototype and clinical formulations
1-D-4
(6)
The raw data concerning the stability of the prototype and clinical oral formulations
(7)
The dissolution comparison data and report of different strengths of clinical formulation
(c)
Safety in Handling
(i)
Handling instruction and Worker’s safety data (e.g., MSDS report)
1-D-5
Schedule 1-E
MethylGene Program Compounds
Attached.
1-E-1
Schedule 1-F
Other Neurodegenerative Diseases
In addition to Alzheimer’s disease, Huntington’s disease, and Parkinson’s disease, the following neurodegenerative diseases shall be included within the definition of Field:
Age-related memory impairment
Amyotrophic lateral sclerosis
Ataxia-telangiectasia
Biswanger’s disease
Cerebral amyloid angiopathies
Creutzfeldt-Jacob disease including variant form
Corticobasal degeneration
Dementia—multi infarct
Dementia—subcortical
Dementia with Lewy Bodies
Dementia of human immunodeficiency virus (HIV)
Friedreich ataxia
Fronto-temporal dementia and Parkinsonism linked to chromosome 17 (FTDP-17)
Frontotemporal lobar degeneration
Frontal lobe dementia
Kennedy disease
Korsakoff’s syndrome
Mild Cognitive Impairment
Neurological manifestations of Aids including Aids dementia
Neurological conditions arising from polyglutamine expansions
Pick’s disease
Prion diseases including Creutzfeldt-Jakob disease, kuru, fatal familial insomnia, and
Gerstmann-Straussler-Scheinker disease, prion protein cerebral amyloid angiopathy
Postencephalitic Parkinsonism
Progressive supernuclear palsy
Rett syndrome
Transmissable spongiform encephalopathies
Vascular dementia
1-F-1
Schedule 1-G
Preclinical and Clinical Data
1.
IND document (copy of draft and submitted version): original and all updates and amendments including annual reports.
2.
DMF document (copy of draft and submitted version)
3.
All documents (files) comprising Sponsor’s essential documents as set forth in the ICH E6 guideline
4.
All material reports and correspondence between a Party and a CRO, including without limitation;
(a)
Regulatory, Data Management, Patient Enrollment, Monitoring Log, CRF status, and other periodic reports.
(b)
Patient Enrollment, Safety and Efficacy, and other periodic reports.
(c)
Monitoring Report
(d)
SAE report
1-G-1
Schedule 1-H
Qualified Hit Compounds
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
[…***…]
***Confidential Treatment Requested
1-H-1
Schedule 1-I
Research Data
Part A:
Research Data from MethylGene Other than Pursuant to a Bona Fide Internal Research and Development Program
. The following to the extent generated or available:
1.
Chemistry and characterization of screening samples
(a)
Chemical structures of screening samples.
(b)
Methods of preparation of screening samples.
(c)
Analytical data of screening samples.
(d)
Physicochemical properties of screening samples (melting points, stability, solubility, etc.).
2.
In vitro
(cell level) results
(a)
Cytotoxicity
(b)
Effects on differentiation (if performed or determined)
(c)
Effects on apoptosis
(d)
Effects on cell cycle
(e)
Effects on level of histone acetylation
(f)
Effects on morphology (if performed or determined)
(g)
Effects on enzyme induction (if performed or determined)
(h)
Data on combination with other agents (if performed or determined)
3.
In vitro
(enzyme level) results
(a)
Enzyme inhibitory activity and selectivity (against any HDAC isotypes)
(b)
Other enzyme inhibitory activities (if performed or available)
4.
In vivo
results
(a)
Efficacy, toxicity and safety data (including side effect data; e.g. body weight change, bone marrow toxicity, effect to organs, behavioral observation)
1-I-1
(b)
ADMET properties (including results from any
in vitro
ADMET prediction models)
(c)
Non-GLP toxicological data
(d)
Data on combination with other agents (if performed or determined)
(e)
Proof of concept
(f)
Expression profiles of HDACs (
in vitro
,
in vivo
, clinical samples)
(g)
Level of histone acetylation (
in vitro
,
in vivo
, clinical samples)
(h)
Studies on biological markers for HDAC inhibitor/inhibition (
in vitro
,
in vivo
, clinical samples; e.g. induction or inhibition of specific cellular components such as p21)
Part B
Research Data from Non-ND Partners with respect to Compounds and from MethylGene with respect to Compounds first synthesized or acquired pursuant to a Bona-Fide Internal Research and Development Program.
1.
Chemical structures
2.
Enzyme inhibitory activity and selectivity (against isotypes of HDAC’s)
3.
PK properties and non-indication related ADMET to the extent determined or available
4.
Methods and procedures of synthesis.
1-I-2
Schedule 1-J
Taiho Hit Compounds
Attached.
1-J-1
Schedule 5.6.2
Taiho Program Compounds
Attached.
5.6.2-1
Schedule 13.3.1
Liens (MethylGene); Exceptions to Representations
Section 13.3.1(a).
Taiho Agreement.
Section 13.3.1(h)
.
Taiho Selected Compounds
1. […***…]
2. […***…]
3. […***…]
4. […***…]
5. […***…]
6. […***…]
7. […***…]
8. […***…]
9. […***…]
10. […***…]
11. […***…]
Section 13.3.1(i)
.
The patent application identified as […***…], having a priority date of […***…].
***Confidential Treatment Requested
13.3.1-1
Schedule 13.3.2
Liens (EnVivo); Exceptions to Representations
Section 13.3.2(a)
Pursuant to a First Amended and Restated License Agreement dated October 2, 2002 among EVP, Baylor College of Medicine (“
Baylor
”), and the Regents of the University of Minnesota, as amended on October 2, 2002, the Collaboration may owe Baylor (i) a […***…] percent ([…***…]%) royalty on the Net Sales (as defined in the First Amendment and Restated License Agreement) of certain Collaboration Products resulting from the use of the EVP Screening Platform, and (ii) the following milestone payments per any such Collaboration Product, and per indication up to a maximum of […***…] indications for such product:
|
[…***…]
|
US$
|
[…***…]
|
|
[…***…]
|
US$
|
[…***…]
|
|
[…***…]
|
US$
|
[…***…]
|
|
[…***…]
|
US$
|
[…***…]
|
Section 13.3.2(b)
.
The patent application identified as […***…], having a priority date of […***…].
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13.3.2-1
Appendix A
Terms and Conditions of License Grant for Unilateral Products
1.
Royalties
. The Pursuing Party shall pay the Back-Out Party royalties on the annual Net Sales by the Pursuing Party and its Affiliates of any Unilateral Products that are covered by at least one Valid Claim within the Licensed MethylGene Patent Rights, the Licensed EVP Patent Rights or the EVP HDAC Patent Rights (each, a “
Royalty Bearing Product
”) as set forth below and for the noted indication, and (where applicable) subject to the reductions provided for in Section 3 and Section 4:
A.
The Back-Out Date occurs prior to
[…***…].
|
Product Type
|
|
Rate:
|
|
|
HD Products
|
|
[…***…]
|
%
|
|
PD Products
|
|
[…***…]
|
%
|
|
Other ND Products
|
|
[…***…]
|
%
|
|
AD Products
|
|
[…***…]
|
%
|
B.
The Back-Out Date occurs after
[…***…]
and prior to
[…***…].
|
Annual Net Sales
|
|
HD & Other ND
Products
|
|
PD Products
|
|
AD Products
|
|
|
|
|
|
|
|
|
|
|
|
US$[…***…] - US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
|
greater than US$[…***…] million
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
C.
The Back-Out Date occurs after […***…] and prior to […***…]
.
|
Annual Net Sales
|
|
HD & Other ND
Products
|
|
PD Products
|
|
AD Products
|
|
|
|
|
|
|
|
|
|
|
|
US$[…***…] - US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
|
>US$[…***…] - US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
|
greater than US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
D.
The Back-Out Date occurs after […***…] and prior to commencement of […***…]
.
|
Annual Net Sales
|
|
HD & Other ND
Products
|
|
PD Products
|
|
AD Products
|
|
|
|
|
|
|
|
|
|
|
|
US$[…***…] - US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
|
>US$[…***…]- US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
|
greater than US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
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A-1
E.
The Back-Out Date occurs after
[…***…]
and prior to […***…]
.
|
Annual Net Sales
|
|
HD & Other ND
Products
|
|
PD Products
|
|
AD Products
|
|
|
|
|
|
|
|
|
|
|
|
US$[…***…] - US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
|
>US$[…***…] - US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
|
>US$[…***…] - US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
|
greater than US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
F.
The Back-Out Date occurs after […***…]
.
|
Annual Net Sales
|
|
HD & Other ND
Products
|
|
PD Products
|
|
AD Products
|
|
|
|
|
|
|
|
|
|
|
|
US$[…***…] - US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
|
>US$[…***…] - US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
|
>US$[…***…] - US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
|
>US$[…***…] - US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
|
greater than US$[…***…]
|
|
[…***…]
|
%
|
[…***…]
|
%
|
[…***…]
|
%
|
Royalties on Net Sales of each Royalty-Bearing Product in any calendar year shall be paid at the rate applicable to the portion of Net Sales within each of the Net Sales levels during such calendar year. For example, if Net Sales in a given calendar year for a Royalty-Bearing Product which is an HD Product are US$[…***…], and the applicable Back-Out Date occurred after […***…] and prior to […***…], then (assuming that no adjustments or other reductions apply) the royalty rate for the first US$[…***…] of such Net Sales would be […***…]% and the royalty rate for the portion of such Net Sales in excess of US$[…***…] […***…] would be […***…]%.
2.
Share of Sublicense Income
. The Pursuing Party shall pay the Back-Out Party the percentage(s) of Royalty Sublicense Income (as hereinafter defined in Section 18(3)(A) and Other Sublicense Income (as hereinafter defined in Section 18(3)(B)) as set forth below, and subject to Section 4, within […***…] after the Pursuing Party receives the relevant payment from the sublicensee:
A.
The Back-Out Date occurs prior to […***…]:
[…***…]%
Other Sublicense Income
[…***…]%
Royalty Sublicense Income
B.
The Back-Out Date occurs after
[…***…]
and prior to […***…].
[…***…]%
Other Sublicense Income
[…***…]%
Royalty Sublicense Income
***Confidential Treatment Requested
A-2
C.
The Back-Out Date occurs after
[…***…]
and prior to […***…].
[…***…]%
Other Sublicense Income
[…***…]%
Royalty Sublicense Income
D.
The Back-Out Date occurs after […***…] and prior […***…]
.
[…***…]%
Other Sublicense Income
[…***…]%
Royalty Sublicense Income
E.
The Back-Out Date occurs after […***…] and prior to […***…]
.
[…***…]%
Other Sublicense Income
[…***…]%
Royalty Sublicense Income
F.
The Back-Out Date occurs after […***…]
.
[…***…]%
Other Sublicense Income
[…***…]%
Royalty Sublicense Income
As used in this
Appendix A
, the term “Back-Out Date” means the last day of the period for which a Back-Out Party is responsible for, and actually incurs, a portion of Research and Development Costs in accordance with Section 9.1.1.
As used in Sections 1 and 2 above, the phrase “[…***…]” means prior to […***…].
As used in Sections 1 and 2 above, the phrase “[…***…]” with respect to a […***…] means […***…].
As used in Sections 1 and 2 above, the phrase “[…***…]” with respect to […***…] means […***…].
3.
Related Third Party Payments
. The Pursuing Party shall be entitled to deduct, from the royalty payments made by it pursuant to Section 1, in a country, […***…]% of Related Third Party Payments paid by the Pursuing Party with respect to such Royalty Bearing Products in such country;
provided
that in no event shall a deduction under this Section 3 reduce any royalty payment otherwise due to the Back-Out Party in respect of Royalty Bearing Products in a country to less than […***…]%, as adjusted in accordance with Section 4. Any deduction that is not usable pursuant to the final clause of the immediately preceding sentence may be carried forward for use in a future period. The foregoing notwithstanding, Related Third Party Payments shall exclude (i) payment obligations under the Baylor Agreement (which royalty payments shall be the responsibility of the Pursuing Party), (ii) royalty payments to a Non-ND Partner, in
***Confidential Treatment Requested
A-3
accordance with Section 5.6.2, of up to […***…]percent ([…***…]%) of Net Sales of such Royalty-Bearing Product (which royalty payments shall be the responsibility of the Pursuing Party); and (iii) Related Third Party Payments paid by a Pursuing Party which constitute a Section 14.3.1 Loss, it being understood that any such Third Party Payments shall be subject to the credits provided for in Section 15(2) of this
Appendix A
.
4.
Adjustments
. The royalties and share of Sublicense Income set forth above shall be adjusted in the event the Back-Out Party funded less than […***…]% of the Research and Development Costs of both Parties as of the Back-Out Date. The adjustment will be proportional to the ratio of the Research and Development Costs actually incurred by the Back-Out Party to […***…]% of the aggregate Research and Development Costs through the Back-Out Date, with respect to the Research and Development Program from which the applicable Royalty-Bearing Product originated. The foregoing notwithstanding, if a Back-Out Party breaches its commitment to fund its portion of Research and Development Costs for the period required under Section 9.1.1 (the “
Back-Out Funding Period
”), and during such period a clinical development milestone is achieved, the Back-Out Party shall not have the right to receive the benefit of the higher royalty rate associated with the achievement of the applicable clinical development milestone. Example calculations are set forth in
Exhibit 1
to this
Appendix A
.
5.
Length of Payments
. The royalties payable hereunder shall be paid on a country-by-country basis on each Royalty Bearing Product until the expiration of the last-to-expire Valid Claim within the Licensed MethylGene Patent Rights, the Licensed EVP Patent Rights or the EVP HDAC Patent Rights.
6.
Diligence
. The Pursuing Party agrees to diligently develop Compounds and the Unilateral Products for use in the Field and to use Commercially Reasonable and Diligent Efforts to file for and obtain Regulatory Approvals for and bring to market such Unilateral Products for use in the Field and in the Territory as soon as reasonably practicable. A Party shall be deemed to have met its obligation under this Section 6 for the entire Territory if such Party exercises Commercially Reasonable and Diligent Efforts with respect to the Major Market Countries. The Pursuing Party shall provide the Back-Out Party with an annual written summary of its development efforts pursuant to this Section 6.
7.
Reports
. Following the First Commercial Sale of any Royalty Bearing Product, the Pursuing Party shall within 60 days after each Calendar Quarter furnish to the Back-Out Party a written quarterly report showing on a country-by-country basis: (a) the quantity of Royalty Bearing Products sold and the Net Sales, (b) the withholding taxes, if any, required by law to be deducted in respect to such royalties; (c) the dates of the First Commercial Sale of Royalty Bearing Products in any country during the reporting period; and (d) the exchange rates used in determining amounts payable hereunder. If no royalties are due for any quarterly period hereunder, the Pursuing Party shall so report. The Pursuing Party shall keep complete and accurate records in sufficient detail to enable the royalties payable hereunder, and the credits claimed hereunder, to be determined. Royalties shown to have accrued in each royalty report shall be paid at the same time the report is provided. The foregoing obligation by the Pursuing Party to maintain records shall be limited to five years following the date of the quarterly report to which they relate.
***Confidential Treatment Requested
A-4
8.
Examinations
. Upon the written request of the Back-Out Party, the Pursuing Party shall permit an independent certified public accountant selected by the Back-Out Party (but excluding the Back-Out Party’s own accountant) and acceptable to the Pursuing Party, which acceptance shall not be unreasonably withheld, to have access during normal business hours to such records of the Pursuing Party as may be reasonably necessary to verify the accuracy of the royalty reports described herein. Any such certified public accountant shall first be required to enter into a confidentiality agreement in form reasonably acceptable to the Pursuing Party. Both Parties shall use commercially reasonable efforts to schedule all such verifications within 60 days after the Back-Out Party makes its written request. All such verifications shall be conducted not more than once in each calendar year. If the Back-Out Party’s independent certified public accountant concludes that additional fees were owed to the Back-Out Party during such period, the additional fees shall be paid by the Pursuing Party within 30 days after the date the Back-Out Party delivers to the Pursuing Party such independent certified public accountant’s written report so concluding. In the event the Back-Out Party’s independent certified public accountant concludes that there was an overpayment of fees to the Back-Out Party during such period, the overpayment shall be repaid by the Back-Out Party within 30 days of the date the Back-Out Party received such independent certified public accountant’s written report so concluding. The fees charged by such independent certified public accountant shall be paid by the Back-Out Party unless the audit discloses an underpayment of the fees payable by the Pursuing Party for the audited period of more than 5%, in which case the Pursuing Party shall pay the reasonable fees and expenses charged by such accountant.
9.
Sublicensees
. The Pursuing Party shall include in each agreement with each sublicensee a provision requiring the sublicensee to make reports to the Pursuing Party, to keep and maintain records of sales made pursuant to such agreement and to grant access to such records by the Back-Out Party’s independent certified public accountant, and to comply with the terms of the Collaboration Agreement that are intended to protect the Non-ND Partners, to the same extent required of the Pursuing Party under this Agreement.
10.
Confidentiality
. The Back-Out Party agrees that all information subject to review hereunder, including any agreement with a sublicensee of the Pursuing Party, is confidential and that the Back-Out Party shall cause its independent certified accountant to retain all such information in confidence pursuant to Section 11.2 of the Collaboration Agreement.
11.
Withholding Taxes
. The Pursuing Party shall deduct withholding taxes from payments made under this Agreement and pay them to the proper tax authorities only to the extent required by applicable laws. The Pursuing Party shall maintain official receipts of payment of any withholding taxes and forward these receipts to the Back-Out Party within 60 days. The Parties will exercise diligent efforts to ensure that any withholding taxes imposed are reduced as far as possible under the provisions of any treaties applicable to any payment made thereunder.
12.
Currency Exchange
. Net Sales shall be expressed in its United States dollar equivalent, calculated using the applicable conversion rate for buying United States dollars published by The Wall Street Journal on the last Business Day of the Calendar Quarter to which the royalty report relates.
A-5
13.
Manner of Payment
. Payments to be made by the Pursuing Party to the Back-Out Party under this Agreement shall be payable in United States dollars and shall be paid by bank wire transfer in immediately available funds to such bank account as is designated in writing by the Back-Out Party from time to time.
14.
Patent Prosecution and Maintenance
. The Parties’ rights to Prosecute any Patent Rights licensed hereunder shall continue to be subject to the terms and conditions of Section 12.3 of the Collaboration Agreement, subject to the following:
(1)
The Pursuing Party shall control, and agrees to use Commercially Reasonable and Diligent Efforts to undertake, the Prosecution of the Method of Use Joint Collaboration Patent Rights that include at least one claim covering the use of a Compound in the Applicable Field (the “
Subject Patent Rights
”) throughout the Territory, using counsel of its choice, in such countries as it deems appropriate,
provided
that unless otherwise expressly agreed by the Back-Out Party, the Pursing Party shall seek patent protection for the Subject Patent Rights in all of the Major Market Countries except China and India.
(2)
The Pursuing Party shall keep the Back-Out Party informed as to such Prosecution, including providing the Back-Out Party drafts of patent applications, responses and other filings in advance of their submission to the respective patent offices, and providing the Back-Out Party copies of any material correspondence with or notices from the patent offices. The Pursuing Party shall duly consider and follow any reasonable comments provided by the Back-Out Party with respect to Prosecution of any Subject Patent Rights with respect to any claims outside of the Field (if any);
provided,
that (where applicable) such comments are provided as to any particular draft application, response or other filing, material correspondence or notice within thirty (30) days of receiving such information from the Pursuing Party.
(3)
The Pursuing Party shall be responsible for all costs and expenses associated with the Prosecution of the Subject Patent Rights throughout the Territory and may credit up to […***…] percent ([…***…]%) of such costs and expenses against any royalties or Sublicense Income payments due under Sections 1 or 2,
provided
that such payments shall not be reduced by such credit to less than […***…] percent ([…***…]%) of what they would otherwise be in any one year; and
provided,
further, the Pursuing Party shall use commercially reasonable efforts to require the sublicensee to assume such Prosecution costs. Any amounts not able to be credited due to the foregoing proviso may be carried forward to succeeding reporting periods. Any Prosecution costs to be credited with respect to Prosecution of the Subject Patent Rights in a Major Market Country may be credited against royalties attributable to any Major Market Country and to any Sublicense Income payment not specifically attributable to a country other than a Major Market Country. Any Prosecution costs to be credited with respect to Prosecution of the Subject Patent Rights in a country other than a Major Market Country shall be credited against royalties attributable to the applicable non-Major Market Country and to any Sublicense Income payment not specifically attributable to any country other than such non-Major Market Country.
***Confidential Treatment Requested
A-6
15.
Actions for Infringement of Rights; Credits for Section 14.3.1 Losses
.
(1)
The Parties’ rights to defend any Third Party infringement claims shall continue to be subject to the terms and conditions of Section 12.4 of the Collaboration Agreement, except as follows:
(a)
If either EVP or MethylGene is a Pursuing Party as to all three Research and Development Programs, and such Pursuing Party is liable under Section 14.3.1(B) as an indemnitor for a Section 14.3.1 Loss, then such Pursuing Party shall have the right to credit up to […***…]percent ([…***…]%) of any payments made pursuant to Section 14.3.1(B), including any Related Third Party Payments made with respect to the settlement of a Section 14.3.1 Loss or to obtain a license to the patent application identified on
Schedule 13.3.1(i)
and
Schedule 13.3.2(b)
, against any royalties or Sublicense Income payments due to the other Party under Sections 1 or 2 of this
Appendix A;
provided,
that such payments shall not be reduced by more than […***…] percent ([…***…]%) of what they would otherwise be in any one year. Any amounts not able to be credited due to the foregoing proviso may be carried forward to succeeding reporting periods.
(b)
In no event shall the credits provided for in Sections 14(3) and 15(2) of this
Appendix A
reduce the amount of any royalties or Sublicense Income payments due to the other Party under Sections 1 or 2 of this
Appendix A
to less than […***…] percent ([…***…]%) of what they would otherwise be in any one year.
(2)
The Parties’ rights to defend and enforce any Patent Rights licensed hereunder shall continue to be subject to the terms and conditions of Sections 12.5 of the Collaboration Agreement, except as follows:
For so long as either EVP or MethylGene is a Pursuing Party as to all of the Research and Development Programs, such Pursuing Party shall have the right, but not the obligation, to bring an Enforcement Action (as defined in Section 12.5). All costs and expenses (including attorneys’ and experts’ fees ) incurred by the Pursuing Party with respect to such Enforcement Action shall be borne by the Pursuing Party. All recoveries and damages (if any) received as a result of such Enforcement Action shall first be used to reimburse the Pursuing Party for its costs and expenses (including attorneys’ and experts’ fees) resulting from the Enforcement Action, and any remaining recoveries shall be deemed to be Net Sales of a Royalty-Bearing Product hereunder, and shall be subject to the royalty rate applicable to the particular Royalty-Bearing Product the market share of which was being negatively effected by the Third Party infringer. In the event the Pursuing Party grants a license to an infringing Third Party in connection with the settlement of such Enforcement Action, the Pursuing Party shall have the right to credit […***…]% of the Pursuing Party’s unreimbursed costs and expenses (including attorneys’ fees and experts’ fees) from any applicable Sublicense Income payments received by such Pursuing Party in connection with such license agreement, prior to determining the portion of Sublicense Income owed to the Back-Out Party pursuant to this
Appendix A
.
16.
Term and Termination
.
16.1
Term
. The term shall be determined on a country-by-country and Unilateral Product-by-Unilateral Product basis. The term shall commence (i) with respect to a Pursuing
***Confidential Treatment Requested
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Party, on the date of an Election Notice provided pursuant to Section 9.1.2, or (ii) with respect to a Second Pursuing Party, on the date of a Second Election Notice provided pursuant to Section 9.1.2, and unless earlier terminated pursuant to Section 16.2 of this
Appendix A
, shall expire on the expiration of the last to expire Valid Claim of the Licensed EVP Patent Rights, the Licensed MethylGene Patent Rights or the EVP HDAC Patent Rights. Upon expiration (but not termination) of this Agreement, the Pursuing Party shall have a fully-paid up, royalty-free, perpetual, irrevocable license under Section 4.5 with respect to the applicable Unilateral Products;
provided, that
, from and after the effective date of expiration of this Agreement, the Pursuing Party shall no longer have the right to access or select Compounds which the Pursuing Party had not designated as Selected Compounds prior to the effective date of the expiration of this Agreement.
16.2
Termination
. The rights of the Pursuing Party contemplated hereby, and in Section 4.5, may be terminated in the following circumstances:
(a)
For Certain Material Breaches
. If the Pursuing Party fails to perform any material duty imposed upon such Pursuing Party under this
Appendix A
or the surviving provisions of the Collaboration Agreement under Section 9.1.5, and such failure to perform is not cured within thirty (30) days of written notice thereof from the non-breaching Party, or, in the case of a failure to make a payment, within fifteen (15) Business Days, the non-breaching Party may elect, in its sole discretion, to terminate the license under Section 4.5 to all applicable Unilateral Products with the consequences set forth in Section 16.3(a) below, and, in either case, seek any and all remedies available to it at law and in equity. Except in the case of a failure to make a payment, such thirty (30) day period shall be extended to ninety (90) days if the breaching Party has engaged in good faith efforts to remedy such default within such thirty (30) day period and indicated in writing to the non-breaching Party prior to the expiration of such thirty (30) day period that it believes that it will be able to remedy the default within such ninety (90) day period, but such extension shall apply only so long as the breaching Party is engaging in good faith efforts to remedy such default.
(b)
For Bankruptcy
. The Back-Out Party may terminate this Agreement, with the consequences set forth in Section 16.3(b) below, if (A) the Pursuing Party fails to meet any material obligation under this
Appendix A
and (i) applies for or consents to the appointment of a receiver, trustee, liquidator, sequestrator, custodian or similar official of itself or of all or a substantial part of its property, (ii) becomes unable, or admits in writing its inability, to pay its debts generally as they mature, (iii) makes a general assignment for the benefit of its or any of its creditors, (iv) is dissolved or liquidated in full or in part, (v) commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to or fails to contest in a timely and appropriate manner, any petition or proceeding seeking any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or files an answer admitting the material allegations of a petition filed against it in any such proceeding, or (vi) takes any action for the purpose of effecting any of the foregoing; or (B) proceedings for the appointment of a receiver, trustee, liquidator, sequestrator, or custodian or similar official of the Pursuing Party or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Pursuing
A-8
Party or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect are commenced and an order for relief entered, or such proceeding shall not be dismissed or discharged within sixty (60) days of commencement.
(c)
By Mutual Agreement
. The Pursuing Party and the Back-Out Party may, upon mutual written agreement, terminate this Agreement at any time with the consequences set forth in such mutual written agreement.
16.3
Consequences of Termination
.
(a)
Upon Material Breach.
In addition to the rights and duties set forth in Section 16.4 of this
Appendix A
, MethylGene and EVP shall have the following rights and duties upon the termination of a Pursuing Party’s rights to exploit a Unilateral Product in the Applicable Field pursuant to Section 16.2(a) of this
Appendix A
:
(i)
the non-breaching Party shall, immediately upon written notice, be deemed a Pursuing Party and the breaching Party a Back-Out Party as to all Unilateral Products within the relevant Applicable Field for purposes of the license and sublicense rights granted under Section 4.5 of the Agreement, and the terms and conditions of this
Appendix A
and the surviving obligations of Section 9.1.5 shall thereafter apply as modified hereby.
(ii)
Except as set forth in Section 16.5 of this
Appendix A,
any and all licenses or sublicenses from the Back-Out Party to the breaching Party with respect to the relevant Unilateral Product(s) in the Applicable Field shall terminate, and the breaching Party shall cease conducting, directly or indirectly, independently or in collaboration with others, all research, development, manufacturing (except as set forth in clause (iii) below), use, sales, or other exploitation of the relevant Unilateral Product(s), and shall grant no rights to any Third Parties to do any of the foregoing,
(iii)
the diligence obligations set forth in Section 6 of this
Appendix A
shall not apply to the non-breaching Party with respect to such Unilateral Products;
(iv)
If the breaching Party is then responsible for the manufacture of the Unilateral Product(s), then the Back-Out Party shall have the right to (A) assume all rights and obligations of the breaching Party with respect to the Manufacture of the Unilateral Product, or (B) require that the breaching Party continue to manufacture the Unilateral Product until the earlier of (i) such time as the breaching Party ceases to manufacture any Compounds for any Person or (ii) five (5) years following termination,
(v)
The breaching Party shall assign or cause to be assigned to the non-breaching Party (or if not so assignable, shall take all reasonable actions to make available to the non-Breaching Party) all regulatory filings and registrations (including Regulatory Approvals and applications therefor) with respect to each such Unilateral Product(s) for which an IND has been filed in the Territory by or on behalf of the breaching Party prior to the termination of the rights of the Pursuing Party pursuant to this
Appendix A
. In each case such assignment (or availability) shall be made within thirty (30) days after such termination, and
A-9
(vi)
The royalty rate to be paid by the non-breaching Party shall be recalculated in accordance with this
Appendix A
based on the stage of development of the applicable Unilateral Product(s) as of the date of the non-breaching Party’s election to terminate the rights of the Pursuing Party pursuant to Section 16.2(a) of this
Appendix A
.
(b)
Upon Bankruptcy
. In addition to the rights and duties set forth in Section 16.4 of this
Appendix A
, MethylGene and EVP shall have the following rights and duties upon termination of the rights of the Pursuing Party pursuant to Section 16.2(b) of this
Appendix A
:
(i)
the non-bankrupt Party shall, immediately upon written notice, be deemed a Pursuing Party and the breaching Party shall be deemed a Back-Out Party as to the Unilateral Product(s) within the Applicable Field for purposes of the license and sublicense rights granted under Section 4.5 of the Agreement, and the terms and conditions on
Appendix A
shall thereafter apply as modified hereby.
(ii)
Except as set forth in Section 16.5 of this
Appendix A
, any and all licenses or sublicenses from the non-bankrupt Party to the bankrupt Party hereunder shall terminate, and the bankrupt Party shall cease conducting, directly or indirectly, independently or in collaboration with others, all research, development, manufacturing (except as set forth in clause (iii) below), use, sales, or other exploitation of the Unilateral Product(s), and shall grant no rights to any Third Parties to do any of the foregoing,
(iii)
the diligence obligations set forth in Section 6 of this
Appendix A
shall not apply to the non-bankrupt Party with respect to such Unilateral Products;
(iv)
If the bankrupt Party is then responsible for the manufacture of the Unilateral Product(s), then the non-bankrupt Party shall have the right to (A) assume all rights and obligations of the bankrupt Party with respect to the manufacture of the Unilateral Product(s), or (B) require that the bankrupt Party continue to manufacture the Unilateral Product(s) until the earlier of (i) such time as the bankrupt Party ceases to manufacture any Compounds for any Person or (ii) five (5) years following termination,
(v)
The bankrupt Party shall assign or cause to be assigned to the non-bankrupt Party (or if not so assignable, shall take all reasonable actions to make available to the non-Breaching Party) all regulatory filings and registrations (including Regulatory Approvals and applications therefor) with respect to the applicable Unilateral Product(s) if an IND therefore has been filed in the Territory by or on behalf of the bankrupt Party prior to the termination of the rights of the Pursuing Party hereunder. In each case such assignment (or availability) shall be made within thirty (30) days after the effective date of the termination of such rights, and
(vi)
The royalty rate to be paid by the non-bankrupt Party shall be recalculated in accordance with this
Appendix A
based on the stage of development of the applicable Unilateral Product(s) as of the date of the non-breaching Party’s election to terminate this Agreement pursuant to Section 16.2(b) of this
Appendix A
.
16.4
Survival of Rights and Duties
. No termination of the rights granted to the Pursuing Party as set forth above shall eliminate any rights or duties of the Parties accrued prior to such termination. Subject to Section 16.5, upon the early termination of the foregoing rights
A-10
of the Pursuing Party by EVP, the following provisions of this Agreement shall survive and be binding and for the benefit of each of the Parties in accordance with their terms with respect to such Unilateral Products and corresponding Compounds: Article I, Sections 2.2, 2.3, 4.3.1, 4.3.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.6.1, 5.6.2, 6.2 (provided that EVP, as a Pursuing Party, shall assume the rights of the JSC to designate Selected Compounds and Protected Compounds under Sections 6.2.1 and 6.2.5), 6.3, Article IX, Article XI, Article XII (as modified by
Appendix A
), Article XIII, Article XIV, Article XV, Article XVI and Article XVII.. Subject to Section 16.5, upon the early termination of the foregoing rights of the Pursuing Party by MethylGene, the following provisions of this Agreement shall survive and be binding and for the benefit of each of the Parties in accordance with their terms with respect to such Unilateral Products and corresponding Compounds: Article I, Sections 2.2, 2.3, 4.3.1, the first sentence of 4.3.3 (and the rest of Section 4.3.3 for so long as EVP has not Backed-Out as to all Research and Development Programs), 4.4, 4.5, 4.6, 5.1, 5.2, 5.6.1, 5.6.2, 6.2 (for so long as EVP has not Backed-Out as to all Research and Development Programs, and provided that MethylGene, as a Pursuing Party, shall assume the rights of the JSC to designate Selected Compounds and Protected Compounds under Sections 6.2.1 and 6.2.5), 6.3 (for so long as EVP has not Backed-Out as to all Research and Development Programs), Article IX, Article XI, Article XII (as modified by
Appendix A
), Article XIII, Article XIV, Article XV, Article XVI and Article XVII. In addition, upon expiration (but not termination) of this Agreement, each of the Parties shall have a fully-paid up, royalty-free, perpetual, irrevocable license under Section 4.1 and 4.2, as applicable.
16.5
Survival of Licenses to and from Non-ND Partners
. In the event of termination of the rights of a Pursuing Party pursuant to Section 16.2(a), 16.2(b) or 16.2(c) of this
Appendix A
, Sections 4.2 and 4.3.1 of the Agreement shall survive only with respect to those Non-ND Partners and/or others to whom MethylGene has granted sublicenses thereunder prior to such termination, and only to the extent of such sublicenses. Likewise, MethylGene shall ensure that in the event MethylGene’s agreement(s) with Non-ND Partners and/or others is terminated, any license or sublicense rights granted to EVP under Article 4 of the Agreement from such Non-ND Partners and others shall survive such termination. In the event the licenses from MethylGene to EVP under Article IV of the Agreement are terminated, then any rights sublicensed to EVP thereunder from Non-ND Partners and others shall likewise terminate.
16.6
Cooperation
. If the rights of a Pursuing Party are terminated pursuant to Section 16.2(a), 16.2(b), or 16.2(c) of this
Appendix A
(the “
Defaulting Party
”), the Defaulting Party shall promptly return to the other Party (or any Third Party or Affiliate designated by the other Party) all Technology, including manufacturing know-how, licensed hereunder by the Defaulting Party to the other Party and access to regulatory filings sufficient to allow the other Party to perform the duties assumed. The Defaulting Party shall further use its Commercially Reasonable and Diligent Efforts to provide all assistance required by the other Party with respect to such transfer so as to permit the other Party to begin to perform such duties as soon as possible to minimize any disruption in the continuity of supply or marketing of the applicable Unilateral Products.
17.
Equitable Adjustments
.
(1)
If an inequitable hardship having a material influence on a Pursuing Party’s activities and payment and other obligations hereunder arises for such Pursuing Party as a result
A-11
of developments in the legal, regulatory or commercial environment, the Pursuing Party shall provide the Back-Out Party with written notice specifying in reasonable detail such events or developments, and the material implications they have on the Pursuing Party’s activities and payment and other obligations hereunder. The Pursuing Party shall demonstrate such events or developments, including by submitting to the Back-Out Party copies of any relevant portions of license or sublicense agreements (or term sheets or letters of intent therefor) or other relevant documentation. The Parties shall then engage in good faith discussions regarding a reasonable and equitable way to provide the Pursuing Party with relief with respect to the royalty and Sublicense Income payments and other terms and conditions set forth in this
Appendix A
, it being understood that no modifications to the obligations set forth in this
Appendix A
shall be made unless agreed to in writing by both Parties.
(2)
In the event the provisions of this Agreement would contradict or violate the provisions of the Taiho Agreement, the Parties shall engage in good faith discussions regarding a reasonable and equitable way to address such contradiction or violation, it being understood that no modifications to the provisions of this Agreement shall be made unless agreed to in writing by both Parties and that no such discussions or modifications shall in any way prejudice any of the rights and recourses which the Parties would otherwise have under this Agreement, or release either Party from any of its representations, covenants or agreements hereunder.
18.
Defined Terms
. The following terms used herein shall have the following meanings:
(1)
“
Net Sales
” means the […***…] less […***…] (i) […***…]; (ii) […***…]; (iii) […***…] (including […***…], including, without limitation, […***…]) […***…]; (iv) […***…]; (v) […***…];
provided
that a[…***…] and (vi) […***…], which amount shall not exceed […***…]. Such amounts shall be determined from the books and records of the Pursuing Party and its Affiliates maintained in accordance with GAAP consistently applied, and such amounts shall be calculated using the same accounting principles used for other products of the Pursuing Party. Sales between or among the Pursuing Party and its Affiliates shall be excluded from the computation of Net Sales if such Affiliates are not end-users, but Net Sales shall include the subsequent final sales to non-Affiliate Third Parties by any such Affiliates. Where (a) Royalty Bearing Products are sold by the
***Confidential Treatment Requested
A-12
Pursuing Party or its Affiliates other than in an arms-length sale or as one of a number of items without a separate invoiced price; or (b) consideration for Royalty Bearing Products shall include any non-cash element, the Net Sales applicable to any such transaction shall be deemed to be the Pursuing Party’s average Net Sales for the applicable quantity of the Royalty Bearing Product at that time.
For purposes of this Agreement, “sale” means any transfer or other distribution or disposition, but shall not include transfers or other distributions or dispositions of reasonable quantities of Royalty Bearing Products, at no charge, for pre-clinical, clinical or regulatory purposes or in connection with patient assistance programs or other charitable purposes, but not in connection with price volume discounts.
In the event that a Royalty Bearing Product is sold in the form of a product which includes one or more active ingredients or active components in combination with a Royalty Bearing Product (a “Combination Product”), then Net Sales for the Combination Product shall be determined by multiplying […***…] by the fraction […***…] where […***…] is […***…] and […***…] is […***…] […***…]d. Where the other active ingredients and components of the Combination Product are sold separately in finished form but the Royalty Bearing Product is not, Net Sales for the Combination Product shall be determined by multiplying […***…] by […***…].
(2)
“
Related Third Party Payments
” means payments to a Third Party to license or sublicense patents or patent applications required to make, have made, use, sell or import the Royalty Bearing Products if, in the absence of such license, the manufacture, use, sale or importation of such Royalty Bearing Product would, in the reasonable judgment of the Pursuing Party, infringe such patents (including patents that would issue from any such patent applications).
(3)
“
Sublicense Income
” means any payments that the Pursuing Party receives from a Third Party sublicensee or any of such sublicensee’s Affiliates directly or indirectly in consideration for the sublicense of the rights granted to the Pursuing Party under Section 4.5 (whether paid in cash, equity, debt securities or otherwise) including but not limited to: (A) royalties received by the Pursuing Party on the Net Sales of Royalty-Bearing Products by a Third Party sublicensee (“
Royalty Sublicense Income
”), and (B) license
***Confidential Treatment Requested
A-13
fees, milestone payments, commercialization payments, technology access fees, tech transfer fees, reimbursement for past expenditures (including costs and expenses of patent Prosecution), profit sharing payments, co-promotion fees except to the extent such fees represent reimbursement of the Pursuing Party’s reasonable costs at fair market value, the net fair market value of product swaps; but excluding: (1) payments at fair market value for future research and development by Pursuing Party for Compounds or Royalty Bearing Products or for other services to be provided by the Pursuing Party; (2) payments or reimbursements of manufacturing costs, at fair market value, for Compounds or Royalty Bearing Products; and (3) […***…]percent ([…***…]%) of the fair market value of equity investments in the Pursuing Party (“
Other Sublicense Income
”).] For the avoidance of doubt, no Sublicense Income shall be deemed received by the Pursuing Party in connection with the sublicensing of the rights under Section 4.5 to a Third Party in exchange for a license under such Third Party’s technology which is necessary for the manufacture or sale of Unilateral Products of equivalent value, provided that no additional consideration (other than the license under such Third Party’s technology) is paid by such Third Party for such sublicense.
(4)
Valid Claim
shall mean either (a) a claim of a pending patent application which claim was filed in good faith and has not been abandoned or finally disallowed without the possibility of appeal or refiling of said patent application or (b) a claim of an issued and unexpired patent which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal. Notwithstanding the foregoing, if a claim of a patent application has not issued as a claim of an issued patent within seven years after the filing date from which such claim takes priority, such pending claim shall cease to be a valid claim for purposes of this Agreement unless and until such claim becomes an issued claim of an issued patent.
***Confidential Treatment Requested
A-14
Exhibit 1 to Appendix A
Sample Calculation #1
In accordance with Section 9.1.1, on […***…] Party B provides notice to Party A, exercising its right to Back-Out of the PD Research and Development Program.
As of […***…], Party B is committed to fund[…***…]of the Research and Development Costs of the PD Research and Development Program through[…***…], and Party B actually incurs such costs.
A calculation as of […***…] demonstrates that effective as of […***…], Party B has incurred […***…] of the aggregate Research and Development Costs of the PD Research and Development Program during the period commencing on the Effective Date and expiring […***…][…***…]At such time as Party A commercializes a PD Product, assuming the annual sales of such Product are […***…], Party B will receive a royalty equal to[…***…] of the Net Sales of the PD Product.
If Party A also receives both Royalty Sublicense Income and Other Sublicense Income, Party B will have the right to receive […***…] of Other Sublicense Income and […***…]of Royalty Sublicense Income.
Sample Calculation #2.
In accordance with Section 9.1.1, on […***…] Party B provides notice to Party A, exercising its right to Back-Out of the PD Research and Development Program.
As of […***…], Party B is committed to fund […***…] of the Research and Development Costs of the PD Research and Development Program through […***…], but Party B fails to keep this commitment and does not incur such costs.
A calculation as of […***…] demonstrates that as of […***…] Party B has incurred […***…] of the aggregate Research and Development Costs of the PD Research and Development Program during the period commencing on the Effective Date and expiring […***…]
[…***…]
At such time as Party A commercializes a PD Product, Party B will receive a royalty equal to […***…] of the Net Sales of the PD Product.
If Party A also receives both Royalty Sublicense Income and Other Sublicense Income, Party B will receive […***…] of Other Sublicense Income and […***…] of Royalty Sublicense Income.
***Confidential Treatment Requested
A-15
Appendix B
AD R&D Plan, HD R&D Plan and PD R&D Plan
Please see attached excel spreadsheet.
B-1
Appendix C
Taiho Agreement and First Amendment to Taiho Agreement
D-1
Exhibit 10.25
AGREEMENT OF LEASE
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LANDLORD:
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GE Q-TECH REAL ESTATE HOLDINGS INC.
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TENANT:
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METHYLGENE INC.
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PROPERTY:
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7150 Frederick-Banting, Saint-Laurent, Quebec, H4S 2A1
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LEASED PREMISES:
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Suite 200
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DATE:
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, 2012.
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BASIC LEASE INFORMATION (“BLI”)
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DATE OF LEASE
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PARTIES: LANDLORD:
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GE Q-TECH REAL ESTATE HOLDINGS INC.
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LANDLORD NOTICE ADDRESS:
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TENANT:
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METHYLGENE INC.
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TENANT NOTICE ADDRESS:
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7150 Frederick-Banting, Suite 200
Saint-Laurent, Quebec, H4S 2A1
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GUARANTOR:
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GUARANTOR NOTICE ADDRESS:
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N/A
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BROKERS:
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LANDLORD’S BROKER:
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N/A
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TENANT’S BROKER:
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NONE
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BUILDING AND PREMISES:
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BUILDING ADDRESS:
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7150 Frederick-Banting, Saint-Laurent, Quebec, H4S 2A1
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LEASED PREMISES:
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Suite 200
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RENTABLE AREA OF LEASED PREMISES:
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10,127 sq. ft.
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OTHER LEASED AREAS:
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IMPORTANT DATES:
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TERM:
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THREE (3) years
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RENTAL COMMENCEMENT DATE:
|
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September 1, 2011
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FIXTURING PERIOD:
|
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One (1) month
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BASIC MINIMUM RENT
LEASE YEAR:
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(i) Per square foot of
Rentable Area
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(ii) Annual
Installment(1)
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(iii) Monthly
Installment
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09-01-11 TO 08-31-14
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$15.00 / sq. ft.
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$151,905.00
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$12,658.75
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PROPORTIONATE SHARE:
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51.61%
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GUARANTEES: SECURITY DEPOSIT:
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$25,000.00
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MOVABLE HYPOTHEC:
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$150,000.00
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LETTER OF CREDIT
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None
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MISCELLANEOUS:
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SPECIAL PROVISIONS:
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Early Occupancy : (Aug. 1, 2011) — Free Basic Minimum Rents : Sixteen (16) months : (Sept. to Dec. 2011 & Jan. to Dec. 2012) — Option to Renew : Five (5) years @ MV, no Free Basic Minimum Rents.
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The terms set out above are intended to be only a summary of certain basic terms of this Lease. In the event of any inconsistency between such terms and the terms hereinafter set out the latter shall govern.
(1) Subject to all adjustments made in accordance with Section 8 of the Lease.
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INITIALS
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TENANT
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LANDLORD
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/s/ KK
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/s/ TM
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AGREEMENT OF LEASE
TECHNOPARK - Multi-Tenant Building
BETWEEN:
GE Q-TECH REAL ESTATE HOLDINGS INC.,
(hereinafter called the “Landlord”), a duly constituted company, represented by Joe ladeluca, Regional Director - Quebec and Tony Maduri, Senior Director - Equity Operations, duly authorized for the purposes hereof as they so declare;
PARTY OF THE FIRST PART;
AND:
METHYLGENE INC
., (hereinafter called the “Tenant”), a duly constituted company represented by Klaus Kepper, duly authorized for the purposes hereof as he so declares and pursuant to the resolution annexed hereto in Schedule “E”;
PARTY OF THE SECOND PART.
WHEREAS
the Landlord has agreed to lease to the Tenant and the Tenant has agreed to lease from the Landlord upon the terms and conditions herein contained, certain premises forming part of a building located in the Technopark Saint-Laurent, having civic address 7150 Frederick-Banting, Suite 200, Saint Laurent, Quebec, H4S 2A1.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH THAT, IN CONSIDERATION OF THE RENTS, COVENANTS AND AGREEMENTS HEREINAFTER CONTAINED THE PARTIES HEREBY AGREE AS FOLLOWS:
1.
DEFINITIONS, INTENT AND INTERPRETATIONS
1.1
Definitions
- When used in this Lease or in any Schedule attached to this Lease, the following words or expressions shall have the meanings hereinafter respectively set forth:
1.1.1
Access to Information and Inspection:
The Tenant hereby authorizes the Landlord to make enquiries from time to time of any governmental authority having jurisdiction with respect to the Tenant’s compliance with Environmental Law, and the Tenant agrees from time to time to provide such written authorization as the Landlord may reasonably require in order to facilitate the obtaining of such information. The Landlord and its creditors and agents shall have the right, but not the duty or obligation, to conduct inspections and appraisals from time to time of the Tenant’s records, business and assets respecting compliance with Environmental Law and all matters pertaining to Noxious substances.
1.1.2
Additional Rent:
Means any and all sums of money or charges required to be paid by the Tenant under this Lease except Basic Minimum Rent, whether or not the same are designated “Additional Rent” and unless otherwise specifically provided, Additional Rent is due and payable with and in addition to each monthly installment of Basic Minimum Rent.
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INITIALS
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TENANT
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LANDLORD
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/s/ KK
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/s/ TM
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1
1.1.3
Annual Officer Certificate:
The Tenant shall provide to the Landlord, upon each anniversary of this Lease, o certificate signed by an officer of the Tenant in the form annexed hereto as Schedule “G”.
1.1.4
Applicable Law:
means any applicable domestic or foreign law including any statutes, subordinate legislation, civil law or treaty and any applicable guidelines, directives, rule, standards, requirement, policy, order, judgment, Permit, injunction, award or decree of governmental authority, including Environmental Law.
1.1.5
Architect:
the architect from time to time named by the Landlord whose decision or certificate, whenever required hereunder, shall be final and binding on the parties hereto;
1.1.6
Basic Minimum Rent:
the rent specified in Section 7.1 hereof;
1.1.7
Building:
the building having a civic address at
7150 Frederick-Banting, Saint-Laurent, Quebec
, erected on the Lands and all structures, additions, improvements, facilities and amenities forming a part thereof from time to time and forming part of the Property;
1.1.8
Building Share:
the share apportioned by the Landlord to the Building, of all charges impositions, costs and expenses of every nature and kind (including Taxes) relating to the Common Areas and Facilities (including the parking) of the Property;
1.1.9
Business Day:
any day which is not a Saturday, Sunday or a holiday, as defined in the Interpretation Act (Quebec), as the same may be amended, re-enacted or replaced;
1.1.10
Commencement Date:
the commencement date specified in Section 5.2 hereof;
1.1.11
Common Areas and Facilities:
those areas, facilities, improvements, equipment and installations in on or about the Building, the Lands or the Property which serve or are for the benefit of the Building, the Lands or the Property whether or not located within adjoining to or near the Building, the Lands or the Property, and from time to time are intended or designated by the Landlord as common areas and facilities for the common use and benefit of tenants, their employees, customers and others. Common Areas and Facilities include, without limitation, the roof, exterior curtain walls, exterior and interior structural elements and bearing walls, electrical, plumbing, drainage and mechanical installations, heating, ventilation and air-conditioning installations, janitor rooms, signage and fire safety and security systems of the Building, public passageways, elevators, public parking areas and common public areas, roadways, side walks, curbs, driveways, common loading areas, truck courts, landscaped areas, fencing and other enclosures. The Landlord reserves the right to remove, replace or rearrange any or all of the said common areas and facilities without any claim or recourse by the Tenant against the Landlord by reason of such removal, replacement or rearrangement including, without limitation, any abatement of Rent;
1.1.12
Environmental Law:
means any Applicable Law relating to the environment including those pertaining to (1) reporting, licensing, permitting, investigating, remediating and cleaning up in connection with any presence or Release, or the threat of same, of Hazardous Substances; and (2) the manufacture, processing, distribution, use, treatment, storage, disposal, transport, handling and the like of Noxious Substances, including those pertaining to occupational health and safety.
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INITIALS
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TENANT
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LANDLORD
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/s/ KK
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/s/ TM
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2
1.1.13
Environmental Responsibility:
In the event of a violation of any Environmental Law, or of a Release of a Noxious Substance on the Leased Premises, or of the discovery of environmental contamination requiring remediation, which violation, Release or environmental contamination is attributable to the acts, omission or negligence of the Tenant, its agents, employees, shareholders, directors, officers or invitees, the Tenant shall assume all. Losses in respect thereof, including, without limitations, all costs related to characterization and rehabilitation of the Premises and any neighbouring land as well as the decontamination of any equipment or part of the building and provide all bonds and other security required by governmental authorities having jurisdiction. The Landlord shall have the right but shall not be obliged to enter the Leased Premises and to supervise and approve any actions taken by the Tenant in application of this paragraph. If the Tenant fails to promptly address the violation, Release or environmental contamination, then the Landlord shall have the right but shall not be obliged to perform, at the Tenant’s sole cost and expense, any actions necessary or appropriate to address such violation, Release or environmental contamination.
1.1.14
Event of Default:
has the meaning ascribed to it in Section 16.1 hereof.
1.1.15
Fiscal Period:
means a period commencing on the FIRST (1
st
) day of January of the year and ending on the THIRTY-FIRST (31
st
) day of December next following, with the exception of the first Fiscal Period, which shall begin at the same time as this Lease and terminate on the THIRTY-FIRST (31
st
) day of December next following, and with the exception of the last Fiscal Period, which shall terminate at the same time as this Lease; however, the Landlord expressly reserves the right to change the Fiscal Period and its duration.
1.1.16
Hypothecary Creditor:
means any hypothecary creditor or mortgagee, including any trustee for bondholders, from time to time of the Property or any part thereof;
1.1.17
Indemnification:
the Tenant hereby indemnifies, protects and holds harmless the Landlord, its employees, agents, shareholders, directors, officers and those for whom it is in law responsible from and against all Losses arising from any violation of any Environmental Law caused by the acts, omissions or negligence of the Tenant, its agents, employees, shareholders, directors, officers or invitees or any breach of any covenants or representations provided under this Article.
1.1.18
Landlord:
means the Party of the First Part and its successors and assigns;
1.1.19
Landlord’s Sales Taxes:
means any and all taxes imposed on the Landlord with respect to Operating Costs whether characterized as a goods and services tax, sales tax or other similar tax;
1.1.20
Landlord’s Work:
N/A
1.1.21
Lands:
means the lands, on a portion of which the Building has been constructed and which are more fully described in Schedule “B” annexed hereto;
1.1.22
Lease:
means the present lease agreement together with its Schedules and any written modification or amendment thereto made in accordance with Section 31.3 hereof;
1.1.23
Leasable Area of the Building:
means the total area of the premises leased or intended for lease in the Building.
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1.1.24
Leased Premises:
means the premises leased to the Tenant pursuant to this Lease forming part of the Building, the whole as described in Section 2.1 hereof;
1.1.25
Losses:
means all damages, fines, penalties, deficiencies, losses, liabilities (whether accrued, actual, contingent, latent or otherwise), costs, fees and expenses (including interest, court costs and reasonable fees and expenses of lawyers, accountants and other experts and professionals).
1.1.26
Operating Costs:
means the aggregate of any and all costs and expenses incurred by or on behalf of the Landlord of whatsoever nature or kind in connection with the operation, maintenance, repair including replacement, management, administration, insurance, heating, air-conditioning and ventilating of the Leased Premises, the Building, the Lands, the Property and the Common Areas and Facilities of the Building, of the Lands and of the Property, or any part thereof, the whole subject to the other provisions of this Lease. For greater certainty and without limitation, Operating Casts shall also include an administration fee of all of the aforesaid costs and expenses, as provided in Section 8.6 hereof.
Notwithstanding the above, Operating Costs shall exclude or have deducted from them, as the case may be:
(i)
expenditures necessary to complete the original construction of the Building and the expenditures of remedying construction inadequacies pertaining to the base Building;
(ii)
all amounts that otherwise would be included in Operating Costs which are the responsibility of other tenants of the Building or which are recovered or are recoverable by the Landlord from other tenants in the Building as a result of any act, omission, default or negligence of such tenants;
(iii)
such of the Operating Costs, as are recovered from insurance proceeds or which would be recoverable assuming compliance by the Landlord with its insurance obligations under the Lease, to the extent such recovery represents reimbursement for costs previously included in Operating Costs (whether or not the proceeds are paid to the Landlord or its Mortgagee) or if the Landlord self insures or is deemed to self-insure, to the extent of a corresponding application of reserves but in any event excluding any item for which the Landlord has not made a claim for compensation if the decision not to claim is for the benefit of the Tenant and/or all tenants of the Building;
(iv)
emphyteutic rent payable by the Landlord to the owner of the Building or lands upon which the Building is situated under any emphyteutic lease of the Building or such lands;
(v)
the cost of advertising in respect of the Building;
(vi)
repairs to the footings, foundations, structural column and beams, structural sub-floors, bearing walls, and other parts of the structure of the Building; repairs to exterior walls, windows or the roof of the Building are not considered structural and will be included in Operating Costs;
(vii)
net recoveries by the Landlord in respect of warranties or guarantees relating to the construction of the Building to the extent that such repair costs in respect of the work covered by such warranties or guarantees have been charged in Operating Costs;
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(viii)
expenses incurred for work or services performed solely for a particular tenant in excess of those services normally performed on behalf of tenants of the Building;
(ix)
leasing commissions incurred with respect to the leasing of space in the Building;
(x)
any amounts paid by the Landlord as a fine or penalty as a result of a breach of law by the Landlord with respect to the Building (provided such breach was not caused by or contributed to by the Tenant);
(xi)
tenant inducement payments and rent-free period payable to any Party;
(xii)
any depreciation of the original capital cost of the Building and its original components or of any original structures located on the Lands; the costs of renovations, improvements or betterments to the Building which have a useful life in the Landlord’s opinion of longer than one fiscal year, shall be amortized over the useful life of the related asset or such other period as is reasonably determined by the Landlord in accordance with generally accepted accounting principles and such amortized amount shall form part of Operating Costs. Operating Costs shall also include depreciation of capital (with interest on the undepreciated capital of prime rate) of the costs of all repairs, replacements, modifications and improvements relating to the Property which by their nature require repair or replacement from time to time and of other items designated by the Landlord, acting reasonably, as capital expenditures;
(xiii)
costs incurred in leasing premises in the Building to other tenants and the Tenant and the cost incurred in enforcing the leases of other tenants and the Tenant;
(xiv)
interest on debt and capital retirement of debt; and
(xv)
the Landlord’s fees and expenses with respect to any arbitration proceedings.
1.1.27
Notification of Alleged Violation:
The Tenant shall forthwith notify the Landlord in writing, upon being advised of any alleged violation or infringement of Environmental Law or any intended enforcement action pertaining thereto.
1.1.28
Noxious Substances:
means any substance or material that is defined, prohibited, controlled or regulated pursuant to Environmental and Health Laws including toxic or dangerous or hazardous waste, substance or material, asbestos, polychlorinated biphenals, special nuclear or by-product material, heavy metals, radioactive materials, substances declared to be hazardous or toxic or dangerous under any law or regulation now or hereafter enacted or promulgated by any governmental authority having jurisdiction, pollutant, contaminant or petroleum and any material which, because of its properties, presents a real or potential hazard to the environment or the health of users of the Building or of the Leased Premises.
1.1.29
Obligations upon cessation of activity:
Upon permanent cessation of the activities carried by the Tenant on the Leased Premises, the Tenant undertakes, at his sole cost and expense, to comply with any obligations pursuant to Environmental Law including the obligation to notify any governmental authority, to remove and clean any equipment and characterize and rehabilitate the Leased Premises as required.
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1.1.30
Prime Rate:
means the rate of interest, expressed as an annual rate, in effect from time to time, quoted by the Royal Bank of Canada as its prime rate with respect to commercial loans in Canadian Dollars to its commercial borrowers in Canada, plus FIVE (5) percentage points;
1.1.31
Property:
means the Building and the Lands;
1.1.32
Proportionate Share:
means the ratio which the Rentable Area of the Leased Premises bears to the Rentable Area of the Building expressed as a
·
percentage. Should the Rentable Area of the Building increase or decrease, the Tenant’s proportionate share will be adjusted accordingly as of the date (as determined by the Landlord) of said change in the Rentable Area of the Building;
1.1.33
Rent:
shall mean„ Basis Minimum Rent and Additional Rent;
1.1.34
Rentable Area of the Building:
means the aggregate rentable area of all leasable premises in the Building, expressed in square feet, as certified by the Architect whose certificate shall be final and binding) and measured in accordance with BOMA (ANSI Z65.1.1996) standards of the Building;
1.1.35
Rentable Area of the Leased Premises:
means the aggregate of the rentable area of the Leased Premises, expressed in square feet, as certified by the Architect (whose certificate shall be final and binding) and measured in accordance with BOMA (ANSI Z65.1.1996) standards of measurement, and the Tenant’s Proportionate Share of interior Common Areas and Facilities of the Building.
1.1.36
Rental Year:
means a period of time the first (1
st
) Rental Year commencing on the FIRST (1
st
) day of the Term and ending on the THIRTY-FIRST (31
st
) day of December next following: thereafter each Rental Year shall consist of consecutive periods of TWELVE (12) calendar months commencing on the FIRST (1
st
) day of January and ending on the THIRTY-FIRST (31
st
) day of December, provided, however, that the last Rental Year shall terminate upon the expiration of the Term or earlier termination of this Lease, as the case may be. Notwithstanding the foregoing, the Landlord may, at any time and from time to time during the Term, change the Rental Year in which case the then current Rental Year shall terminate on the date preceding the commencement of such new Rental Year;
1.1.37
Rules and Regulations:
means the rules and regulations adopted and promulgated by the Landlord from time to time, which rules and regulations are presently those annexed hereto as Schedule “D”;
1.1.38
Stipulated Rate of Interest:
means the Prime Rate as on annual rate compounded monthly;
1.1.39
Surtax:
means the surtax imposed by any competent authority on non-residential immovables by virtue of the Municipal Taxation Act, as the some may be amended, replaced or modified from time to time and/or by any other law or legislation;
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1.1.40
Taxes:
means all real estate taxes and other taxes, rates, duties, levies, fees, charges and assessments of whatsoever nature and kind (including, without limitation, local improvement rates, water rote and service tax, water taxes, school taxes, Surtax, the tax on non-residential immovables and any other tax on non-residential immovables), whether general or special, and whether in existence at the date hereof or hereafter, imposed, assessed, levied or charged by any federal, provincial, municipal, school or other applicable or relevant taxing authority or body, upon or against the Lands, the Building or the Property or any port thereof or upon the Landlord in respect thereof, or from time to time levied or imposed in the future in lieu of or in substitution thereof, or for which the Landlord is liable in respect of the Lands, the Building or the Property and all tax on capital or paid up capital (including the Large Corporations Tax) assessed against the Landlord and reasonably imputed by the Landlord to be attributable to the Lands, the Building or the Property and any tax on rental income that may be levied by any government or applicable taxing authority except for income taxes, profits taxes, excess profits taxes and capital gains taxes. If the system of taxation is altered or varied from that in force on the Commencement Date and any new, additional or replacement tax, rate, duty, levy, fee, charge or assessment shall be levied or imposed on all or any portion of the Lands, the Building or the Property or the revenues therefrom or on the Landlord in substitution for or in addition to Taxes levied or imposed on the Commencement Dote then any such new tax or levy shall be deemed to be or to be included in “Taxes”;
1.1.41
Tenant:
means the Party of the Second Part and its permitted successors and assigns.
1.1.42
Tenant’s Fit-Up: N/A
1.1.43
Tenant’s Leasehold Improvements:
means all leasehold improvements: made to the Leased Premises which are other than the Landlord’s Work and includes the Tenant’s Fit-Up and the Work.
1.1.44
Term:
means the term of this Lease as specified in Section 5.1 hereof.
1.1.45
Unavoidable Delay:
means any delay by either the Landlord or the Tenant in the performance of their obligations under this Lease caused or whole or in part by any force majeure, act of God, fire, flood, strikes, lockouts or other disturbances, sabotage, war, blockades, insurrections, riots, civil disturbances, inability to obtain materials or equipment, breakage of or accident to machinery, inability of the Landlord to obtain necessary permits, any act, omission or event whether of the kind herein enumerated or otherwise not within the reasonable control of the Landlord or the Tenant, as the case may be, and, which by the exercise of due diligence the Landlord or the Tenant, as the case may be, could not have prevented, but lack of funds on the part of the Landlord or the Tenant, as the case may be, shall not constitute an Unavoidable Delay; and
1.1.46
Work:
has the meaning ascribed to it in Section 13 hereof.
1.2
Schedules -
The Schedules of this Lease are part of it and consist of:
Schedule “A” -
Environmental Questionnaire;
Schedule “B” -
Legal Description of the Lands and the Building & Plan showing the Leased Premises
Schedule “C” -
Rules and Regulations;
Schedule “D” -
Additional Clauses;
Schedule “E” -
Certified copy of Tenant’s Resolution;
Schedule “F” -
Form of an Irrevocable Transferable Letter of Credit;
Schedule “G” -
Form of Annual Officer’s Certificate;
Affidavit
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1.3
Headings
- The headings, captions, section numbers, article numbers and table of contents appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of such sections or articles of this Lease nor in any way affect this Lease.
1.4
Interpretation -
Interpretation of the words “hereof”, “herein”, “hereunder” and similar expressions used in any section or subsection of this Lease relate to the whole of this Lease and not to that section or subsection only, unless otherwise expressly provided. Where required by the context hereof, words importing the singular number only shall include the plural and vice versa, and words importing the neuter gender shall include the feminine or masculine gender and vice versa, and words importing persons shall include firms and corporations. All units of currency are expressed herein in Canadian Dollars.
1.5
Net Lease -
It is the intent of the parties hereto that this Lease shall be absolutely net to the Landlord and, except as expressly set out herein, the Landlord shall not be responsible during the Term for :any costs, charges, taxes (other than Landlord’s income taxes which relate to the Landlord’s business except to the extent included in Taxes), expenses and outlay’s of any nature whatsoever arising from or relating to the Leased Premises, or the use and occupancy thereof, or the contents thereof or the business carried on therein, and the Tenant shall alone, to the complete exoneration of the Landlord, be responsible for any such costs, charges, taxes, expenses and outlays. Any amount and any obligation that is not expressly declared herein to be that of the Landlord at its expense shall be deemed to be the obligation of the Tenant to be performed by and at the expense of the Tenant.
2.
LEASED PREMISES
2.1
Description of the Leased Premises
— The Landlord hereby leases to the Tenant and the Tenant hereby leases from the Landlord, upon the terms and conditions herein contained, the Leased Premises situated in the Building, substantially as shown on Schedule “B” attached hereto and outlined in red thereon. The approximate location of the Building on the Property is shown outlined in red on the plan attached hereto as Schedule “B”. The Tenant acknowledges that Schedule “B” are for the sole purpose of indicating the approximate location and form of the Leased Premises and the Building and that notwithstanding anything to the contrary contained in this Lease or the provisions of the
Civil Code of Quebec
, the Landlord may make minor variations to the form and siting of the Leased Premises or any part thereof. The Leased Premises are located on the
second (2
nd
) floor of the Building having a civic address of 7150 Frederick Banting, in the City of Saint-Laurent, Province of Quebec, H4S 2A1.
2.2
Rentable Area of the Leased Premises
- The Rentable Area of the Leased Premises has been determined by the Architect in accordance with Subsection 1.1.24. to be approximately
ten thousand one hundred and twenty-seven square feet (10,127 sq. ft.)
which area includes the Tenant’s share of the common and service areas. The Architect’s certificate is final and binding on the parties. Any change in the final determination of the Rentable Area of the Leased Premises shall be reflected by a corresponding increase or decrease in the calculation of all amounts due under this Lease, whose calculation is determined in accordance with the rentable Area of the Leased Premises, including, without limitation, Basic Minimum Rent and Additional Rent. It is understood that the annual basic minimum rental rates per square foot enumerated in Article 7 hereof shall remain unchanged.
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3.
LANDLORD’S WORK AND TENANTS FIT-VP
3.1
Landlord’s Work
- The Tenant accepts the Leased Premises on an “as-is” basis, the Tenant hereby representing that it is entirely satisfied with the condition of the Leased Premises.
All other leasehold improvements required by the Tenant or to be made to the Leased Premises shall be supplied and installed at the Tenant’s expense, shall be subject to the provisions of Article 13 hereof (except for the Tenant’s Fit-Up), and shall be considered Tenant’s Leasehold Improvements.
3.2
Tenant’s Fit-Up
-
N/A
4.
OCCUPANCY AND DELIVERY DATE
4.1
Occupancy Prior to Commencement Date
- In the event that Tenant occupies the Leased Premises prior to the Commencement Date as specified in Section 5.2 of the Lease, all the term and conditions of the Lease shall apply
mutatis mutandis.
4.2
Delivery of Lease Premises
- Subject to Unavoidable Delay (as hereinafter defined in Section 4.4 hereof) and any reasons attributable to the Tenant, the Landlord shall deliver possession of the Leased Premises to the Tenant substantially completed with the Tenant’s Fit-Up, on or before the
first (1
st
) day of August 2011
(the “Delivery Date”).
4.3
Delay in Delivery of Leased Premises
- If due to reasons attributable to the Landlord or to Unavoidable Delay due to reasons attributable to the Tenant (including any even of Unavoidable Delay attributable to the Tenant), the Leased Premises are not substantially completed as provided in Section 4.2 of the Lease by the Delivery Date and as a result possession of the Leased Premises is given to the Tenant later than the Delivery Date, the Commencement Date of the Lease and termination date, and all other dates and delays stipulated herein will be moved forward by the same number of days as the delay in giving possession.
The Tenant shall not be entitled to any damages or indemnity whatsoever resulting from such delay and agrees to accept any such extension as full and final settlement of any and all claims which the Tenant may otherwise have by reason of any delay in delivering possession of the Lease Premises. Any delay in delivering possession of the Leased Premises due to reasons attributable to the Tenant (including any event of Unavoidable Delay attributable to the Tenant), shall not entail extension of the Commencement Date or termination date of the Lease nor entitle the Tenant to any compensation whatsoever.
4.4
Unavoidable Delay
— For the purposes of this Article 4 only, Unavoidable Delay shall mean any delay of the Landlord in the performance of its obligations under this Lease caused in whole or in part by any force majeure, act of God, flood, strikes, lock-outs or other disturbances, sabotage, war, blockades, insurrections, riots, civil disturbances, breakage of or accident to machinery, inability to obtain materials or equipment, inability of the Landlord to obtain necessary permits, any act, omission or event whether of the kind herein enumerated or otherwise not within the reasonable control of the Landlord and which by the exercise of due diligence the Landlord could not have prevented, but lack of funds or increased cost of funding on the part of the Landlord shall not constitute a cause for an Unavoidable Delay. For greater certainty, if the failure of the Landlord to deriver possession of the Leased Premises to the Tenant on or by the Delivery Date is attributable to the Tenant, the Landlord shall not be in default hereunder and the time for delivery of possession shall be extended by the number of days in the delay so caused by the Tenant (such extension to be determined by the Landlord and its professionals, acting reasonably) and there shall be no extension of the Commencement Date of the Lease.
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5.
TERM OF LEASE
5.1
Term of the Lease
- The Term of the Lease, unless sooner terminated pursuant to the provisions hereof, shall be
THREE (3) years
commencing, subject to the provisions of this Lease, on the
first (1
st
) day of September 2011
and terminating on the
thirty-first (31
st
) day of August 2014
.
5.2
Commencement Date
- The Commencement Date shall be the
first (1
st
) day of September 2011
.
5.3
Landlord’s Access to the Leased Premises
- Notwithstanding the occupancy of the Leased Premises by the Tenant on or before the commencement of the Term, the Tenant agrees that the Landlord and its authorized representatives, workmen and subcontractors shall have access to the Leased Premises in order to complete the Tenant’s Fit-Up (if any) to the Leased Premises.
6.
USE OF LEASED PREMISES
6.1
Use of the Leased Premises
— The Leased Premises shall be used and occupied by the Tenant throughout the Term sole for
general office purposes, research and development laboratories
and shall not be used for any other purpose whatsoever and in compliance with all zoning and other laws, bylaws, regulations and other legislation applicable to the property. No outside storage is permitted on any part of the Property. The Tenant specifically acknowledges that the Leased Premises and the Building shall form part of a technological research and development park and consequently are subject to special use and building restrictions and a master plan and other regulations and by-laws adopted by the municipality of Saint-Laurent from time to time and that such restrictions include without limitation the obligation of the Tenant to carry out research and development activities in the Leased Premises. The Tenant agrees to comply with the requirements of the master plan and all other regulations and bylaws as adopted from time to time by applicable government authorities, including, without limitation, the City of Saint-Laurent. The Tenant shall be solely responsible for ensuring that the use it intends to make of the Leased Premises and the activities to be conducted therein, comply with all laws, by laws, regulations and other legislation applicable to the Technopark Saint-Laurent.
6.2
Prohibited Use
— Notwithstanding the provisions of Section 6.1 hereof, the Tenant shall not carry on any business nor use, permit or suffer the use of the Leased Premises, or any part thereof, for any activity which because of its quality or operation, would in the Landlord’s opinion, tend to lower the character of the Building or the Property, any illegal, unethical or fraudulent practice nor carry on any business which shall be a nuisance in the Lease Premises or anything which may constitute a disturbance of enjoyment of other tenants or occupants of the Building or cause noise, disturbance or noxious odours to the discomfort of other tenants or neighbours nor do or suffer any waste or damage, disfiguration or injury to the Leased Premises, the Building or the Property, nor permit any overloading of the floors which would endanger the structure of the Building. The Tenant may not hold the Landlord in any way responsible for any damages or annoyance which the Tenant may sustain through the fault or actions of any other tenant or occupant of the Building and the Tenant specifically renounces to any claims and recourses it may have or acquire against the Landlord under Articles 1859 and 1861 of the
Civil Code of Quebec
.
6.3
First Class Technology Park
- The Landlord agrees that it will maintain the Building as part of a first class technology park in the Borough of Saint-Laurent and the Tenant agrees to use the Leased Premises and to carry out all of its activities in such a manner as is consistent with and in order to permit the Landlord to maintain such a first class technology park.
6.4
Window Coverings
- The Tenant shall not install drapes or curtains on any window in the Leased Premises. Any other window covering shall only be permitted if the same complies with the Landlord’s scheme of building standard window coverings for the windows of the Building and is consistent with the architects’ general design criteria for the Technopark Saint-Laurent.
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6.5
Dangerous Materials
- The Tenant shall not bring into, or store in the Leased Premises any inflammable liquid or dangerous or explosive materials, solvents or other chemicals, other than those chemicals which are normally used in association with office photocopy and equipment or office computer printing equipment and are required by the Tenant for such purpose or those which are necessary for the Tenant’s activities in the Leased Premises, provided that such inflammable liquid or dangerous or explosive materials, solvents or other chemicals are described and disclosed in the Environmental Questionnaire to be completed in accordance with Section 18.2 hereof and provided further that the Tenant complies with all applicable laws, bylaws, regulations and other legislation applicable thereto. In addition, the Tenant shall not bring into, or store in the Leased Premises any other matter, which may be considered as a pollutant or contaminant or hazardous product or waste under any applicable environmental protection legislation, unless the Tenant complies with the provisions of Section 18.2 hereof. The Tenant shall indemnify and hold the Landlord harmless from all losses, liabilities, damages, costs, expenses and claims of any kind whatsoever resulting from any breach of the foregoing obligation, including, without limitation, any seepage, spillage, discharge and misuse of any cleaner, solvents, chemical, pollutant, contaminant or hazardous product and waste, and hereby undertakes to immediately repair any such damage at its expense and to restore the Lease Premises, the Building and/or the Lands or any portion thereof, damaged by such seepage, spillage, discharge, misuse, storage or other cause, to their original condition, lessen ordinary wear and tear.
6.6
Continuous Operation
— The Tenant shall occupy the Leased Premises throughout the Term and shall conduct continuously and actively in the whole of the Leased Premises, its business as permitted by Section 6.1 hereof. The Tenant acknowledges that its continued occupancy of the Leased Premises and the continuous and active conduct of its business in the Leased Premises are of the up most importance to the Landlord in avoiding the appearance and impression generally created by vacant space and in facilitating the leasing of vacant space in the Building and in the Technopark Saint-Laurent and maintaining the quality and character of the Building and the Technopark Saint-Laurent. The: Tenant also acknowledges that the Landlord will suffer substantial damage and serious irreparable injury if the Leased Premises are left vacant or are abandoned during the Term even in the event the Tenant pays all rent required hereunder.
7.
BASIC MINIMUM RENT AND PAYMENT OF RENT
7.1
Basic Minimum Rent
— The Tenant shall pay Basic Minimum Rent comprised as follows:
7.1.1
for the period commencing on the
first (1
st
) day of September 2011
and terminating on the
thirty-first (31
st
) day of August 2014
a sum equivalent to
FIFTEEN DOLLARS ($15.00)
per annum per square foot of Rentable Area of the Leased Premises, being an annual Basic Minimum Rent of
ONE HUNDRED FIFTY-ONE THOUSAND, NINE HUNDRED AND FIVE DOLLARS ($151,905.00)
, payable in advance, on the first day of each month during such period in equal consecutive monthly installments of
TWELVE THOUSAND, SIX HUNDRED AND FIFTY-EIGHT DOLLARS AND SEVENTY-FIVE CENTS $ 12,658.75)
.
7.2
Calculation of Basic Minimum Rent
- The Basic Minimum Rent specified in Section 7.1 has been calculated upon the Rentable Area of the Leased Premises mentioned in Section 2.2 of this Lease. If the Rentable Area of the Leased Premises, as determined by the Architect, is other than as mentioned in Section 2.2 of this Lease, Basic Minimum Rent shall be adjusted accordingly.
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7.3
Payment of Rent
- All Rent shall be payable in equal consecutive monthly installments on the FIRST (1
st
) day of each and every month during the Term, in lawful money of Canada, without any prior demand therefore and without any set-off, deduction, abatement or compensation and shall be paid to the Landlord or, as it may in writing direct, to its nominee at the office of the Landlord, located at
440 Armand Frappier, Suite 300, Laval (Quebec), H7V 4B4
, or such other place in Canada as the Landlord may from time to time designate in writing to the Tenant. If the Commencement Date is on a day other than the first day of calendar month, the Tenant shall pay, on the Commencement Date, the Rent prorated on a per diem bases from and including the Commencement Date to and including the last day of the month in which the Commencement Date occurs, based upon a period of THREE HUNDRED AND SIXTY-FIVE (365) days.
7.4
Postdated Cheques or Pre-authorized Payments
- Upon the Landlord’s request, the Tenant hereby agrees to present to the Landlord at the beginning of each Rental Year throughout the Term a series of monthly post-dated cheques or pre-authorized payment forms authorizing the Landlord to make automatic withdrawals from the Tenant’s bank account for the following Rental Year in amounts conforming with the monthly Basic Minimum Rent payments plus monthly Additional Rent payments in respect of which the Landlord has provided estimates to the Tenant.
8.
ADDITIONAL RENT
8.1
Taxes
8.1.1
As Additional Rent in each and every Rental Year during the Term, the Tenant shall pay, within THIRTY (30) days of receipt from the Landlord of a written statement and invoice of Taxes, all Taxes imposed upon or allocated to the Building and the Lands and its Proportionate Share of Taxes imposed upon or allocated to the Building and the Lands and its Proportionate Share of the Building Share of Taxes imposed upon or allocated to the Property. Without limiting the foregoing, the Tenant specifically acknowledges that its Proportionate Share of the Surtax or the tax on non-residential immovables shall be payable within THIRTY (30) days of receipt from the Landlord of an invoice for such amount. The Tenant’s Proportionate Share of Taxes in respect of the first and last Rental Years of the Term shall be adjusted between the Landlord and the Tenant on the basis set forth in Section 8.9 hereof.
It is understood that the Tenant shall not be obligated to pay tax on capital nor Large Corporations Tax as part of Operating Costs Taxes, for so long as the Landlord is not required to pay tax on capital Large Corporations Tax. However, if at any time the Landlord becomes subject to such tax on capital or Large Corporations Tax, the Tenant shall be obliged to pay for same as part of Operating Costs or Taxes.
8.1.2
The Landlord shall have the right, but not the obligation, to object to, appeal, or contest the levying or imposition of Taxes at any time or any valuation imposed with respect thereto and the Landlord may settle, compromise, consent to, waive or otherwise determine, in its sole discretion, all matters and things relating thereto without notice to, consent or approval of the Tenant. The Tenant shall pay to the Landlord, within THIRTY (30) days after demand therefore by the Landlord, as Additional Rent, its Proportionate Shore of any expenses, including legal, appraisal, administration and overhead expenses incurred by the Landlord in obtaining or attempting to obtain a reduction of any Taxes. lf, as a result of such proceedings taken by the Landlord in respect of Taxes, Taxes are increased, the Tenant shall be responsible for its Proportionate Share of any such increase. lf, as a result of such proceedings taken by the Landlord in respect of Taxes, Taxes are decreased, the Tenant shall be entitled to shore proportionately in the benefit of such decrease. Subject to the foregoing, nothing set forth in this Subsection 8.1.2 shall relieve the Tenant from its obligation to pay its Proportionate Share of Taxes and all expenses and costs incurred in connection with the contestation thereof.
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8.1.3
The Tenant shall not be entitled to contest, appeal, object to or litigate the levying or imposition of Taxes.
8.2
Water and Business Taxes and Licence Fees
- As Additional Rent and to the complete exoneration of the Landlord, the Tenant shall be liable for, and pay to the competent authority having jurisdiction within the time period provided for such payment by such authority, all water taxes and business taxes, garbage taxes and all taxes, rates, duties, levies, assessments and other charges of whatsoever nature and kind, whether in existence at the date hereof or hereafter, imposed or levied by any federal, provincial, municipal, school or other applicable or relevant taxing authority or body, in respect of the Leased Premises or the movable property, trade fixtures and other property placed by the Tenant in, on or about the Leased Premises or in respect of the use and occupancy of the Leased Premises or the business carried on therein. If any such taxes, rates, duties, levies, assessments or other charges are imposed or levied against the Landlord or the Landlord’s property and the Landlord pays the same (which the Landlord shall hove the right to do regardless of the validity of such levy), then the Tenant shall forthwith reimburse the Landlord, as Additional Rent, the amount of such payment by the Landlord. In addition, the tenant shall pay and discharge all licence fees and other like fees that may be levied, charged, rated or assessed against the Lease Premises or any equipment located therein or the business carried on by the Tenant therein. The Tenant will indemnify and keep the Landlord indemnified from and against payment of all losses, cost, charges and expenses which may be imposed or levied against the Landlord or its property or incurred by the Landlord in respect of such taxes, rates, duties, levies, assessments, charges or licence fees became due and payable, receipts or appropriate evidence of payment of the same.
8.3
Utilities, Heating, Air-Conditioning and Ventilation
- The Leased Premises shall be provided with heating ventilating and air conditioning equipment. It shall be the Tenant’s responsibility to cause the Leased Premises to be kept reasonably heated, ventilated and air-conditioned, through the Term. The Tenant shall be solely responsible to pay as Additional Rent all heating, ventilating and air-conditioning costs of the Lease Premises. The Tenant shall promptly advise the Landlord of any repair or maintenance required to be made to the heating, ventilation and air-conditioning equipment servicing the Leases Premises and the Landlord shall carry out such repairs and maintenance services, the costs of which shall form part of Operating Costs. The Landlord reserves the right to inspect from time to time such heating, ventilation and air-conditioning equipment and should such inspection reveal, in the Landlord’s opinion, that repair or maintenance is required, the Landlord shall be entitled to carry out the same without prior notice to the Tenant. The costs of which shall from part of Operating Costs. If such equipment is destroyed or damaged due to the fault or negligence of the Tenant, the cost of repairing or replacing the same shall be at the sole cost of the Tenant and shall not form part of the Operating Costs.
The Landlord, at the commencement of the Term, shall provide at its expense metering devices for purposes of monitoring the use of electricity, gas and, if appropriate, water in respect of the Leased Premises. The Landlord on a monthly basis will allocate, acting reasonably and based upon advice of its engineers, the cost of the electricity, gas and water Of applicable) to the Leased Premises and the Tenant shall pay promptly to the Landlord, or as it may direct in any event within TEN (10) days of invoice all charges for electricity, gas and water, as the case may be. The Tenant shall pay promptly, and in any event on or before their due date, to the relevant public utility authorities or if invoiced by the Landlord, to the Landlord or as it may direct, all other charges for heat, fuel, water, gas, electricity, light, sewer charges and other utilities used by the Tenant in respect of the Leased Premises. The Tenant shall execute with the relevant public utility authorities contracts for the supply of such services to the Leased Premises and, as indicated above, shall be solely responsible for the payment of such services and utilities. In the event there is no separate meter for water, the Tenant shall pay its Proportionate Share of the cost of water supplied to the Building.
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The Landlord shall supply initial (but not replacement) fluorescent tubes at its costs.
8.4
Operating Costs
- The Tenant shall pay to the Landlord, or as the Landlord may direct, as Additional Rent in each and every Rental Year during the Term of this Lease, all Operating Costs relating to or allocated to the Building, the Lands, the Property and the Common Areas and Facilities or any part thereof, in equal monthly installments in advance in accordance with the estimates prepared pursuant to Section 8.6 hereof,
For the calendar year 2011, the Landlord estimates that the Tenant’s Proportionate Share of Operating Costs will be
SEVEN DOLLARS AND EIGHTY-NINE CENTS ($7.89)
per square foot of Rentable Area of the Leased Premises. The Tenant acknowledges that the foregoing amount is an estimate only and in no way binding upon the Landlord.
8.5
Administrative Fees
- Operating Costs and Taxes shall include an administration fee payable to the Landlord equal to FIFTEEN PERCENT (15%) of the Operating Costs and Taxes per square foot of the Rentable Area of the Leased Premises.
8.6
Landlord’s Right to Estimate Taxes, Operating Costs and Other Costs and Expenses
- Notwithstanding the provisions of Section 8.1 hereof, the Landlord may estimate Taxes and as provided in Section 8.4 hereof, Operating Costs and the Tenant’s share thereof and of any other costs and expenses payable by the Tenant pursuant to this Article 8 for such periods as the Landlord may determine from time to time and the Tenant agrees to pay to the Landlord such amounts as so estimated in monthly installments in advance during such period, as Additional Rent, on the FIRST (1
st
) day of each calendar month of such periods. Such estimates shall in every case be a reasonable estimate and based wherever possible upon previous operating experience. From time to time, the Landlord may re-estimate, on a reasonable basis, the amount of Taxes and Operating Cots for any period, in which case the Landlord shall advise the Tenant in writing of such re-estimate and fix new equal monthly installments for the remaining balance of such period such that, after giving credit for the installments paid by the Tenant on the basis of the previous estimate, the Tenant’s share of Taxes and Operating Costs will have been paid during such period. Notwithstanding anything herein contained to the contrary, as soon as bills for all or any portion of the said Taxes, Operating Costs and expenses so estimated are received, the Landlord may bill the Tenant for the Tenant’s share thereof as determined pursuant to this Lease, and the Tenant shall pay the Landlord such amounts so billed (less all amounts previously paid by the Tenant on the basis of the Landlord’s estimate thereof), as Additional Rent, within THIRTY (30) days after demand. Within a reasonable period of time after the end of the period for which such estimated payments have been made, the Landlord shall send to the Tenant a statement setting forth reasonable detail the Tenant’s share of the amounts and costs payable by the Tenant under the provisions of this Section 8.6. If the amount the Tenant has paid is less than the amount due, the Tenant shall pay such additional amounts forthwith upon receipt of such statement and if the Tenant has paid in excess of the amount due, the excess shall, at the Landlord’s sole discretion, either be refunded by the Landlord without interest within a reasonable period of time after delivery of the said statement or credited to future or outstanding Additional Rent due by the Tenant to the Landlord.
8.7
Evidence of Payment of Additional Rent
- The Tenant shall from time to time, at the request of the Landlord, deliver to the Landlord satisfactory evidence of the due payment by the Tenant of all payments required to be mode by the Tenant under this Lease.
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8.8
Failure to Pay Additional Rent
- If the Tenant fails to pay its taxes, any insurance premium, utility or service charge, its Proportionate Share or share of Operating Costs or its Proportionate Shore or share of Taxes or other charges or debts which it owes and has herein covenanted to pay, as Additional Rent or otherwise, the Landlord may pay the same and the Landlord, in addition to any other rights or remedies it may have hereunder or at law, is entitled to the same remedies and may take the same steps for the recovery of all such sums as it might have and take for the recovery of Rent in arrears under the terms of this Lease. All arrears of Rent and any moneys paid by the Landlord hereunder shall bear interest at the Stipulated Rate of Interest from the time such arrears become due until paid to the Landlord.
8.9
Proportionate Share of Taxes and Operating Costs in Respect of the First and Last Rental Years of the Term
- The Tenant’s Proportionate Share of Taxes and Operating Costs in respect of the first and last Rental Years of the Term of this Lease shall be adjusted between the Landlord and the Tenant on the basis of the number of days in such first and last Rental Years based upon a period of THREE HUNDRED AND SIXTY-FIVE (365) days.
8.10
Tenant’s Proportionate Share of Building Share
— For purposes of calculation of the Tenant’s Proportionate Share of Operating Costs and Taxes and any other cost, expense, imposition or charge provided for herein, in respect of which the Tenant is required to pay its Proportionate Share, such calculation shall include the Tenant’s Proportionate Share of the Building Share of such Operating Costs, Taxes and other costs, expenses, impositions or charges.
9.
SALES TAXES
9.1
Tenant’s Sales Taxes
- Notwithstanding any other provisions of this Lease, the Tenant shall pay to the Landlord an amount equal to any and all taxes imposed on the Tenant and required to be remitted by the Landlord with respect to Basic Minimum Rend, Additional Rent or any other amount payable by the Tenant to the Landlord under this Lease, whether characterized as a goods and services tax or whether known by any other name (herein in this Section 9.1 called “Tenant’s Sales Taxes”), it being the intention of the parties that the Landlord shall be fully reimbursed by the Tenant with respect to any and all Tenant’s Sales Taxes and Landlord’s Sales Taxes. The amount of Tenant’s Sales Taxes payable by the Tenant shall be calculated by the Landlord and imposed against the amounts due by the Tenant to the Landlord under the terms of this Lease and shall be paid to the Landlord at the same time as the amounts to which the Tenant’s Sales Taxes so apply are payable to the Landlord under the terms of this Lease, and the Landlord may make any estimates necessary for the purposes of such calculations in the same manner as provided in this Lease for payment of Operating Costs. Notwithstanding any other provision in this Lease to the contrary, the amounts payable by the Tenant under this Section 9.1 shall be deemed not to be Basic Minimum Rent or Additional Rent, but the Landlord shall have all of the same remedies for and rights of recovery of such amounts as it has for recovery of the Rent under this Lease.
10.
INSURANCE
10.1
Landlord’s Insurance
- During the Term, the Tenant shall pay its Proportionate Share of the cost of insurance placed by the Landlord in respect of the Building, the Lands and the Property. The Landlord shall obtain and maintain in full force and effect during the Term such insurance for such occurrences and in such amounts and on such terms and conditions and with such deductibles as the Landlord may determine from time to time. Unless and until otherwise determined by the Landlord, said insurance shall include:
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10.1.1
insurance on the Building, the Landlord’s Work, the Tenant’s Fit-Up and equipment contained in the Building owned or leased by the Landlord or which the Landlord desires to insure in an amount not less than the full replacement cost thereof against loss or damage by fire and other risks contained in fire insurance policies with endorsements generally known as extended coverage (including, without limitation, flood and earthquake coverage) and riot, vandalism and malicious acts endorsement or, at the Landlord’s option, “all risks” insurance;
10.1.2
broad form boiler, machinery and unfired pressure vessel insurance, including repair or replacement coverage in on amount as the Landlord may from time to time determine;
10.1.3
public liability insurance for bodily injury and property damage in such amount as the Landlord may from time to time determine;
10.1.4
rental income insurance covering such occurrences, in such form and with such period of indemnity as the Landlord may determine;
10.1.5
such other insurance in amounts and on terms as the Landlord, in its discretion, may determine or a Hypothecary Creditor may require.
The Tenant acknowledges that the cost of maintaining the above-mentioned insurance will be included in Operating Costs. The Tenant’s responsibility for the payment of the costs and expenses of the insurance policies required to be maintained by the Landlord pursuant hereto shall include, without limitation, the cost of all deductible amounts. Notwithstanding that the Tenant shall be contributing to the Landlords costs and premiums respecting such insurance pursuant to the terms of this Lease, the Tenant shall not have any insurable or other interest in any of the Landlord’s insurance other than the rights, if any, expressly set forth in this Lease or in any policy of insurance obtained by the Landlord, and, in any event, the Tenant shall not have any interest in or any right to recover any proceeds under any of the Landlord’s insurance policies. The proceeds of all insurance policies provided or maintained by the Landlord pursuant to this Section 10.1 shall be payable to the Landlord and to any loss payee named in any mortgage endorsement as their respective interest may appear. The Tenant shall not do and shall not cause, suffer or permit to be done or omitted to be done by any of its servants, agents, contractors or persons for whom the Tenant is in law responsible anywhere on the Property, the Lands, the Leased Premises or elsewhere in the Building or by any person in, on or about the Leased Premises, the Lands, the Property or the Building and shall not permit there to be on the Leased Premises, the Lands, the Property or the Building anything which might: (i) result in any increase in the cost of any insurance policies of the Landlord or any others on or related to the Building, the Lands, the pry or any part thereof or contents thereof; (ii) result in an actual or threatened cancellation of or adverse change in any policy of insurance of the Landlord or others on or related to the Building, the Lands, the Pry or any part or contents thereof; or (iii) be prohibited by any policy of insurance of the Landlord or any others in force from time to time in respect of the Building, the Lands, the Property or any part or contents thereof. If the cost of any insurance policies of the Landlord or any others on or related to the Building, the Lands, the Property or any part or contents thereof shall be increased as a result of (i) the use or occupancy of the Lease Premises by the Tenant or any other person on the Leased Premise; or (ii) anything kept or permitted to be kept by the Tenant or by any person anywhere on the Leased Premises or by the Tenant or any of its employees, customers, contractors, suppliers or persons for whom the Tenant is in law responsible on any part of the Building, the Lands and the Property; or (iii) any act or omission of the Tenant or any person on the Leased Premises, or of the Tenant or any of its employees, customers, contractors, suppliers or persons for whom the Tenant is in law responsible on any port of the Building, the Lands and the Property, the Tenant shall pay the full amount of such increase in cost to the Landlord forthwith upon demand, whether the increase is on increase in insurance costs payable by the Landlord or by any other tenant or occupant of the Building, the Lands, the Property or any part thereof. In determining the Tenant’s responsibility for any increased cost of insurance as aforesaid, a statement issued by the organization, company or insurer establishing the insurance premiums or rates for the relevant policy shall be conclusive evidence of the various components of such premiums or rates and the factors giving rise to any increase therein.
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10.2
Tenant’s Insurance
- During the Term, the Tenant shall, at its sole cost and expense, take out and keep in full force and effect the following insurance:
10.2.1
comprehensive general liability insurance, including, but not limited to, property damage, public liability, personal injury liability, contractual liability, non-owned automobile liability and owners’ and contractors’ protective insurance coverage, all on an occurrence basis, with respect to any use, occupancy, activities or things on the Leased Premises and with respect to the use and occupancy of any other port of the Property by the Tenant or any of its servants, agents, contractors or persons for whom the Tenant is in law responsible, with coverage for any one occurrence or claim of not less than FIVE MILLION DOLLARS ( $5,000,000.) or such other amount as the Landlord or the Hypothecary Creditor may reasonably require upon not less than ONE (1) month’s notice at any time;
10.2.2
insurance in respect of such perils as are from time to time covered in an “all risks” policy not less broad than the standard commercial property floater policy with the exclusions relating to earthquake and flood removed therefrom, covering Tenant’s Leasehold Improvements, trade fixtures, furnishings, equipment, stock-in-trade and inventory on or about the Leased Premises for not less than the full replacement cost thereof and with a replacement cost endorsement; if there is a dispute as to the amount which comprises full replacement cost, the decision of the Landlord or Hypothecary Creditor shall be conclusive;
10.2.3
broad form comprehensive boiler and machinery insurance on the Tenant’s Leasehold Improvements and on all insurable objects located on the Leased Premises which are the property or responsibility of the Tenant (which shall not include for greater certainty property owned or leased by the Landlord) on a blanket repair or replacement bases with a replacement cost endorsement and with limits for each accident in an amount not less than the full replacement cost of all Tenant’s Leasehold Improvements, trade fixtures, furnishings, equipment, stock-in-trade in, on or about the Leased Premises.
10.2.4
business interruption insurance either as an extension to or in the same form as the insurance referred to in Subsection 10.2.2 and 10.2.3 above, providing coverage for a period of not less than TWELVE (12) month, with a deductible of no more than SEVEN (7) days and in such amount from time to time as is necessary to fully compensate the Tenant for direct or indirect loss of sales of earnings resulting from or attributable to any of the perils required to be insured against under the policies referred to in Subsections 10.2.2 and 10.2.3 above and all circumstances usually insured against by cautious tenants including losses resulting from interference with or prevention of access to the Leased Premises or the property as a result of such perils or for any other reason;
10.2.5
Tenant’s legal liability insurance for the full replacement cost of the Lease Premises and the loss of use thereof; and
10.2.6
Insurance against such risks and in such amounts as the Landlord or any Hypothecary Creditor may, from time to time, reasonably require upon not . less than THIRTY (30) days’ written notice.
Concurrently with the execution of this Lease, the Tenant, shall provide the Landlord with certificates of insurance acceptable to the landlord and if required by the Landlord in its form certifying the insurance coverage required to be placed by the Tenant pursuant hereto and thereafter with renewals thereof at least THIRTY (30) days prior to any expiry thereof. In addition, within a reasonable period from the date of execution hereof, the Tenant shall provide the Landlord with a certified copy of said
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insurance policies and thereafter with certified copies of renewals or amendments thereto. In addition, if required by a Hypothecary Creditor, the Tenant shall furnish to the Landlord, within FIFTEEN (15) days after demand therefore by the Landlord, additional certificates of insurance of the same. Furthermore, the Tenant specifically acknowledges that if the Landlord requires a certificate or other document from the Tenant from time to time certifying that the Tenant has complied with the insurance requirements of this Lease, the Tenant will provide such certificate within TEN (10) days of being asked therefore. In the event the Tenant fails to obtain any insurance referred to in this Section 10.2, the Landlord may, without prior written notice or demand to the Tenant and without prejudice to any rights or remedies it may have, place such insurance with insurance companies and through brokers of its choice and the cost thereof together with interest on such payment at a rate equal to the Stipulated Rate of Interest from the date such payments are made by the Landlord until reimbursed by the Tenant shall forthwith be payable by the Tenant to the Landlord. The Tenant hereby agrees and acknowledges that the placing of any of the above-mentioned insurance shall in no way relieve the Tenant from any obligation assumed under this Lease.
The insurance policies required to be maintained by the Tenant pursuant to this Section 10.2 shall name the Landlord and any persons, firms or corporations designated in writing by the Landlord as named insureds as their interest may appear with loss payable to the Landlord and such additional named insureds under the policies referred to in Subsections 10.2.2 and 10.2.3 and, where applicable, referred to in Subsection 10.2.6. In the event the Tenant is obliged to repair the Tenant’s Leasehold Improvements pursuant to the provisions of this Lease after any damage or destruction and provided that the Tenant is not otherwise in default under the terms of this Lease, the Landlord covenants, on its behalf but not on the behalf of any additional named insured, to cause any proceeds payable to it pursuant to the insurance policies referred to in Subsections 10.2.2 and 10.2.3 to be made available for the purposes of repairing such Tenant’s Leasehold Improvements or replacing any damaged fixtures’, furnishings or other property of the Tenant in respect of which such insurance proceeds are payable. All insurance policies shall be in form and substance satisfactory to the Landlord shall provide for a waiver by the insurer of its rights under Article 2494 of the
Civil Code of Quebec,
shall contain the standard mortgage clause as reasonably required by any Hypothecary Creditor and shall be considered as primary insurance and shall not call into contribution any insurance of the Landlord. The insurance required to be maintained by the Tenant shall contain a waiver of subrogation in favour of the Landlord, its agents and employees and in favour of those for whom the Landlord is in law responsible and the general liability policy shall in addition contain a provision for cross-liability and severability of interest. All policies shall contain an endorsement requiring the insurers under such policies to notify the Landlord and any Hypothecary Creditor in writing at least THIRTY (30) days prior to any material change or cancellation thereof and shall contain a waiver in favour of the Landlord and any Hypothecary Creditor of any breach of warranty clause such that the insurance policies in question shall not be invalidated with respect to their interest by reason of any breach or violation of any warranties, representations, declarations or conditions contained in the policies; all policies shall be taken out with insurers acceptable to the Landlord and shall be in a form satisfactory from time to time to the Landlord. The Tenant covenants that nothing will be done or omitted to be done whereby any insurance policy referred to in Section 10.1 or this Section 10.2 will be cancelled and not immediately replaced or whereby the Leased Premises shall be rendered uninsurable or whereby the insurance proceeds under any such insurance policy which would be payable to the Landlord might be assigned to or hypothecated in favour of others.
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11.
COMMON AREAS AND FACILITIES AND RULES AND REGULATIONS
11.1
Landlord’s Control of the Common Areas and Facilities
- All Commons Areas and Facilities shall at all times be subject to the exclusive control and management of the Landlord. The Landlord, acting reasonably, shall be entitled to construct, alter, maintain, eliminate, operate and police the same; to change the area, location and arrangement thereof: to employ personnel and to make rules and regulations pertaining to and necessary for the proper operation and maintenance thereof; and to do and perform such other acts therein and with respect thereto as the Landlord determines advisable,
11.2
Tenant’s Use of Common Areas and Facilities
- Subject to the Rules and Regulations promulgated by the Landlord from time to time, the Landlord covenants to allow the Tenant, in common with other tenants of the Building and the property and others entitled to use them, the use of the common outside parking areas, driveways, walkways and grounds forming part of the Common Areas and Facilities, as may be designated by the Landlord from time to time, during regular business hours of the Tenant on Business Days. It is agreed that the Tenant and all other persons hereby permitted to use such Common Areas and Facilities shall do so at their sole risk and under no circumstance shall the Landlord be liable for any damage or injury resulting to any persons or property while using such Common Areas and Facilities.
11.3
Maintenance of Common Areas and Facilities
-The Landlord shall see that (subject to Unavoidable Delay) the Common Areas and Facilities of the Building and the Property are kept in good and substantial state of repair, including the keeping of the driveways, walkways and parking lot, curbs, lawns and grounds in and about the Building and the Property in good condition: Notwithstanding the foregoing the Tenant specifically acknowledges that the Landlord’s obligation in respect of snow and ice removal shall be limited to retaining a contractor to provide for snow and ice removal.
11.4
Elevators
- Any elevator servicing the Building shall be maintained and repaired by the Landlord and the cost thereof shall form part of Operating Costs. The Landlord shall not be liable for any loss, cost or damage caused to the Tenant, its employees, agents, servants, visitors, licensees or any other person as a result of the use of such elevator or resulting from any breakdown or disrepair or inability to use the same for whatsoever reason, nor shall there be, consequent upon foregoing, any abatement or reduction in Rent. Any permit required for the operation of such elevator shall be obtained by the Landlord and the cost of the some shall form part of Operating Costs.
11.5
Rules and Regulations
- The Tenant covenants to comply with the Rules and Regulations, a copy of which is annexed hereto as Schedule “C”, and to cause such Rules and Regulations to be observed and performed by everyone for whom the Tenant, is in law responsible or over whom the Tenant might reasonably be expected to have control. The Landlord shall have the right, from time to time and at any time during the Term, to make any and all reasonable amendments, deletions and additions to such Rules and Regulations including rules and regulations relating to the use of the Common Areas and Facilities. Such Rules and Regulations, together with all reasonable amendments, deletions and additions mode thereto by the Landlord and notice of which shall have been given to the Tenant, shall be read as part of this Lease and shall be observed, performed and complied with throughout the Term in the some manner as all of the other conditions, provisions, agreements and obligations herein contained and set forth.
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11.6
Control of the Building, Lands and Property
- The Building, Lands and Property, shall at all times be subject to the exclusive control and management of the Landlord. Notwithstanding any provision of this Lease or any Schedule annexed hereto to the contrary, the Landlord reserves the right at any time and from time to time to change, alter, modify; reduce or expand, the Common Areas and Facilities, the Building, the Property or any portion thereof, as the Landlord, in its sole and entire discretion, deems expedient, the same to include, without limitation, the right of the Landlord to:
11.6.1
change the area, level, location, arrangement or use of the Property or any part thereof;
11.6.2
construct other buildings, structures or improvements on the Property and make alterations and additions thereto, subtraction therefrom or rearrangement thereof;
11.6.3
build additional storeys on the Building, expand the width or length of the Building and construct additional buildings or facilities adjoining or approximate to the Building;
11.6.4
change, alter and amend the location, dimensions or specifications of the pipes, wires, ducts, conduits, utilities, mechanical systems, common areas and other building services (including such as may be contained in the Leased Premises;
11.6.5
construct underground parking facilities and expand, reduce or modify the same in any manner whatsoever;
11.6.6
close all or any portion of the Property to the extent required in the opinion of the Landlord’s counsel to prevent any person from acquiring rights therein;
11.6.7
grant, modify or terminate servitudes and other agreements pertaining to the use and maintenance of all or any part of the Property;
11.6.8
obstruct or close off all or any part of the Property, for the purposes of maintenance, repair, alteration or construction;
11.6.9
use any part of the Property for displays or decorations for special activities;
11.6.10
provide supervision, policing or security services for the Property;
11.6.11
control, supervise and regulate the delivering and shipping of goods, merchandise, supplies and fixtures to and from the general shipping and receiving areas in the Building;
11.6.12
designate and specify the kind of container to be used for garbage and refuge as well as the manner and the times and places at which such is to be placed for collection;
11.6.13
designate a commercial service for the pick-up and disposal of garbage and refuse instead of or in addition to the service provided by the City of Saint-Laurent, at Tenant’s cost;
11.6.14
eliminate, substitute or rearrange any or all of the Common Areas and Facilities; and
11.6.15
do and perform such other acts in and to the Property, as the Landlord determines to be advisable for the more efficient and proper operation of the Property.
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Notwithstanding anything contained in this Lease, no action on the part of the Landlord in exercising any of its aforesaid rights, shall constitute an eviction hereunder or change in the form or destination of the Leased Premises or any diminution of peaceful enjoyment of the Tenant nor shall the Tenant be entitled to any compensation or diminution or abatement of Basic Minimum Rent or Additional Rent, the Tenant hereby waiving and renouncing to any and all claims as consequence of the foregoing including without limitation the benefit of its rights and recourses resulting from Article 1856 of the Civil Code of Quebec. If pursuant to the exercise by the Landlord of its rights described herein, additional land is used for serving the Building, such additional land shall be presumed to be included in the definition of “Lands” contained herein. Furthermore, if following the exercise by the Landlord of any of its rights described above, the Rentable Area of the Building is increased or decreased, Tenant’s Proportionate Share shall be modified accordingly.
12.
REPAIRS AND MAINTENANCE
12.1
Tenant’s Repairs
— Notwithstanding the provisions of Articles 1854 and 1864 of the
Civil Code of Quebec
, but except as may be otherwise provided in Section 12.2, the Tenant shall, at its sole cost and expense, operate, maintain and keep or cause to be kept the Leased Premises and every part thereof in good repair, good order and good condition as they would be kept by a careful owner and to use the same as a prudent administrator and shall, subject to the provisions of Sections 8.3, 14.1 and 14,2 hereof, promptly make all needed repairs and replacements to the Leased Premises including, without limitation, those necessary in order to keep and maintain the Leased Premises in a state of good repair, good order and good condition. At the expiration of the Term, the Tenant shall surrender the Leased Premises in the aforesaid condition, reasonable wear and tear only excepted.
12.2
Landlord’s Repairs
- Notwithstanding the provisions of Section 12.1 hereof the Landlord shall throughout the Term, subject to the provisions of Article 14 hereof and Unavoidable Delay, be responsible to effect all structural repairs and the Landlord shall be responsible for the same, unless any such repairs are the consequence of the negligent acts or omissions of the Tenant or those for whom the Tenant is at law responsible in which case the cost of such repairs (together with an administration fee of FIFTEEN PERCENT (15%) of such costs) shall be paid by the Tenant forthwith upon demand as Additional Rent. The word “structural” shall only include the foundations, footings and structural frame of the Building.
Landlord shall carry out maintenance and repair of exterior walls, windows and roof of the Building and, as provided in Section 8.3 hereof, carry out the maintenance and repair of the heating ventilating and air-conditioning system servicing the Leased Premises and shall see that the Building (other than the Leased Premises and premises of other tenants) is in a good state of repair. All costs incurred by the Landlord in respect of the foregoing maintenance and repair of the Building shall form port of Operating Costs save if same are stated hereunder to be at the sole cost and expense of the Tenant. If any equipment or system is destroyed or damaged due to the fault or negligence of the Tenant, the cost of repairing or replacing the same, shall be at the sole cost of the Tenant and shall not form part of Operating Costs.
The maintenance, repair and replacement of any and all equipment located in the Leased Premises which is the property of the Tenant, including that located in the . laboratory portion of the Leased Premises, shall remain the sole responsibility of the Tenant, the whole at its sole cost and expense (and shall not form part of Operating Costs) and the maintenance, repair and replacement of any equipment located in the laboratory portion of the Leased Premises which is the property of the Landlord, shall be the sole responsibility of the Landlord and shall be carried out in accordance with the relevant manufacturer’s specifications (if any) and otherwise in accordance with industry standards and the cost thereof shall form part of Operating Costs, unless such equipment is solely for the benefit of the Tenant, in which case, the Tenant shall be solely responsible for the cost thereof If such equipment is destroyed or damaged due to the fault or negligence of the Tenant, the cost of repairing or replacing the some shall be at the sole cost of the Tenant and shall not form part of Operating Costs.
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12.3
Cleaning of Leased Premises
- The Landlord shall provide daily cleaning service to the office portion of the Leased Premises, as well as periodic window cleaning service, such expenses to be included in Operating Costs of the Leased Premises. Cleaning costs of the Common Areas and Facilities of the Building shall also be provided by the Landlord and shall form part of Operating Costs for the building.
The Tenant acknowledges and agrees that the cleaning of the laboratory portion of the Leased Premises, including the laboratory equipment, of the laboratory portion of the Leased Premises, including the laboratory equipment, shall require special cleaning and maintenance services. Such special cleaning and maintenance services shall be provided at the sole cost and expense of the Tenant, by the Landlord through designated contractors which have recognized expertise in providing such specialized services and the Landlord shall also be entitled to a FIFTEEN PERCENT (15%) administration fee of the cost of providing such services. Any such designated contractors chosen by the Landlord will be at competitive rates.
12.4
Security Service
- The Landlord shall provide a security service for the Building and if the Landlord deem it appropriate for the property and the costs of providing such security service shall form part of the Operating Costs.
12.5
Additional Services
- The Landlord may, at its sole discretion, provide any special or additional services to the Leased Premises required by the Tenant, in which case, the Tenant shall be obliged to use the services of the Landlord or its designated contractor for any such service requested by the Tenant and the Tenant agrees to pay to the Landlord, the costs of such additional services, which shall include an administration fee equal to fifteen percent (15%) of such cost, within five (5) days of receipt of an account to this effect. These additional services include, without limitation replacement of ceiling tiles, carpet cleaning, cleaning of window coverings, Iocksmith services, refuse removal and special security arrangements. In the event that the Landlord elects not to provide any such additional services, only persons having received prior written approval from the Landlord to provide such services and such persons shall be subject to the rules and regulations establisher by the Landlord.
12.6
Services Not Supplied
— In no event shall the Landlord be responsible nor liable in any way for any loss, costs, damages or expenses, whether direct or indirect or consequential, as a result of any interruption in the furnishing of any service or additional service whatsoever, nor shall there be any compensation, diminution or abatement of Rent as a result thereof. The Landlord reserves the right to stop the use or supply of any services when made necessary by reason of accident or malfunction or compliance with any laws or by-laws or orders or during any repairs, improvements or alterations thereto, which the Landlord shall deem necessary or desirable.
12.7
Landlord’s Access to the Leased Premises
— The Landlord and its agents shall have the right, at all reasonable times during the Term and upon reasonable notice to the Tenant, to enter the Leased Premises in order to examine the condition and repair thereof and to ascertain whether the Tenant is adequately fulfilling its obligations under the terms hereof. If as a result of such examination the Landlord deems it necessary that repairs be made to the Leased Premises, the Landlord shall (save as otherwise provided in Section 8.3 and 12.2 hereof) give written notice thereof to the Tenant in accordance with Subsection 16.1.8 hereof and thereupon the Tenant shall, within THIRTY (30) days from the date of delivery of the notice, commence and thereafter diligently complete the necessary repairs in a good and workmanlike manner. If the Tenant fails to make any such repairs in the manner as aforesaid after having received such written notice from the Landlord requesting the Tenant to do so, the Landlord may, without prejudice to any other rights or remedies it may have; make such repairs and charge the cost thereof to the Tenant (together with an administration fee of fifteen percent (15%) of such costs and interest thereon at the Stipulated Rate of Interest until paid in full by the Tenant to the Landlord). The Landlord shall have the right at any time to make, without prior notice to the Tenant, emergency repairs and to charge the cost thereof to the Tenant. Any costs chargeable to the Tenant hereunder shall be payable forthwith on demand as Additional Rent.
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12.8
Notice of Damage or Required Repairs to the Leased Premises
- The Tenant shall forthwith give written notice to the Landlord of any material damage or deterioration to the Leased Premises by any cause. In addition, the Tenant shall forthwith give written notice to the Landlord of any repairs to the Leased Premises which are required to be made by the Landlord pursuant to the provisions of Section 12.2 hereof.
12.9
Ownership of Leasehold Improvements
- Subject to Section 12.11 hereof, all additions, alterations, modifications, improvements, Landlord’s Work, Tenant’s Fit-Up and Tenant’s Leasehold Improvements, whether Work (as defined in Article 13 hereof) or not become, upon their installation, the property of the Landlord absolutely without compensation therefore, to the Tenant or to any other person and form part of the Leased Premises and are subject to all of the provisions of this Lease and shall, at the expiration or sooner termination of the Term, be surrendered in good repair and condition and the Tenant or any other person shall not have any right to claim compensation therefore of whatsoever nature or kind.
12.10
Surrender of the Leased Premises
- The Tenant will, at the expiration or earlier termination of the Term, deliver vacant possession of the Leased Premises to the Landlord and shall peacefully surrender and yield up unto the Landlord the Leased Premises, with its appurtenances together with all leasehold improvements including Landlord’s Work, Tenant’s Fit-Up and Tenant’s Leasehold Improvements), additions, alteration, changes or erections which at any time during the Term shall be made therein or thereon, in good repair and condition, save and except for reasonable wear and tear repairs for which the Landlord is responsible under Section 12.2 hereof, the whole without any compensation whatsoever being allowed to the Tenant or any other person.
12.11
Removal of Tenant’s Machinery, Equipment and Furnishings and Improvements
the Tenant may during the Term in its normal course of business remove its machinery, equipment and furnishings, provided such machinery, equipment and furnishings have become unnecessary for the Tenant’s purposes, or the Tenant is substituting new and similar machinery, equipment and furnishings therefore, and provided in each case the Tenant is not in default under this Lease and such removal would not result in any violation of the provisions hereof. For greater certainty, the Tenant’s machinery, equipment and furnishing shall not include any of the following: heating, ventilation or air-conditioning systems, facilities and equipment in or serving the Lease Premises as part of the leasehold improvements, floor coverings, light fixtures and doors, all of which shall be deemed to be leasehold improvements and the property of the Landlord. The Tenant shall, at the expiration of earlier termination of the Term hereof, return the Leased Premises in a “broom clean” condition and remove its machinery, equipment and furnishings and at the request of the Landlord, all alterations or improvements made by the Tenant or the Landlord on the Tenant’s behalf, and shall repair any damage caused by such installation or removal. Any machinery, equipment, furnishing, alterations or improvements or other property left by the Tenant on the Leased Premises at the termination or expiration of the Lease shall become, at the Landlord’s option, the property of the Landlord absolutely without compensation whatsoever being allowed to the Tenant or any other person for the same and may be removed from the Leased Premises and sold or disposed of by the Landlord in such manner as it deems advisable. The Tenant’s obligations hereunder shall survive the expiration of the Term or earlier termination of the Lease.
13.
ALTERATIONS, MODIFICATIONS OR IMPROVEMENTS
13.1
Alterations, Modifications or Improvements by Tenant
- After completion of the initial build-out, the Tenant shall have the right to make alterations (which alterations shall include repairs for the purposes of this Article 13), modifications or improvements being hereinafter in this Article 13 referred to as the “Work”), throughout the Term, at its sole cost and expense provided the some are corned out in compliance with the
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requirements of all applicable statutes, laws, ordinances, regulations and orders and provided such Work shall not be commenced except with the prior written consent of the Landlord, not to be unreasonably withheld or delayed, and provided further such Work is made in compliance with the following terms and conditions:
13.1.1
the Tenant shall, at its cost, prepare and furnish to the Landlord a complete set of technical drawings and plans and specifications with respect to the Work (including, without limitation, architectural, mechanical and engineering (including sprinkler plans) showing in reasonably complete detail the Work proposed to be carried out, the quality and appearance of materials to be used and the estimated cost thereof. The Landlord shall approve or reject such plans and specifications within THIRTY (30) Business Days after receipt of the same. If such plans and specifications ore approved, all Work shall be carried out in compliance, with the same. If the Tenant requires changes to such plans after they have been approved by the Landlord, any such changes must be submitted to the Landlord and approved by it in writing;
13.1.2
the value of the Leased Premises shall not, as a result of any Work proposed to be carried out by the Tenant, be less than the value or the Leased Premises before the commencement of such Work;
13.1.3
all Work shall be carried out with reasonable dispatch and in a good and workmanlike manner and in compliance with all applicable permits, authorizations, building and zoning by-laws and all regulations and requirements of all competent authorities having jurisdiction over the Leased Premises;
13.1.4
the Landlord shall have the right, in conjunction with others, to tender a bid to carry out the Work if tenders are being asked for by the Tenant;
13.1.5
the Landlord shall have the right to supervise such Work and shall be reimbursed for all costs and expenses incurred with respect to the supervision of such Work; including professional fees and costs plus an administration fee equal to FIFTEEN PERCENT (15%) of such costs. The Landlord shall also have the right to be reimbursed for all other costs and expenses incurred with respect to the Work, including without limitation, the costs to update any plans relating to the Leased Premises, plus an when administration fee equal to FIFTEEN PERCENT (15%) of such costs;
13.1.6
when the Work is executed other than by the Landlord, the Tenant shall, or shall cause its general contractor to maintain workmen’s compensation insurance covering all persons employed in connection with the Work and shall produce evidence to the Landlord of such insurance, and shall also maintain adequate property damage and public liability insurance for the protection of the Landlord and the Tenant, as the Landlord may reasonably required;
13.1.7
the Tenant shall promptly pay all its contractors, professionals, suppliers and workmen and shall require that, prior to entering the Leased Premises or performing work therein, the Tenant’s contractors, subcontractors and professionals place in the hands of the Landlord, in a form satisfactory to the Landlord, a renunciation or, at the Landlord’s option, cession of priority with respect to any legal hypothec that may then or thereafter exist for work or labour performed or materials furnished. If the Tenant is unable to obtain such renunciation or cession of priority, as the case may be, after having used reasonable efforts to do so, it shall place with the Landlord security in an amount considered sufficient and satisfactory to the Landlord in order to guarantee completion of the Work and payment of the cost thereof; and
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13.1.8
all Work shall be at the sole cost and expense of the Tenant and when Work is executed other than by the Landlord, the Landlord may require the Tenant to furnish security reasonably satisfactory to it guaranteeing the completion of the Work and the payment of the entire cost thereof.
13.2
Restrictions on Alterations, Modifications or Improvements by Tenant
- Notwithstanding the provisions of Section 13.1 hereof, in no event shall the Tenant be allowed without the prior written approval of the Landlord to make alterations, modifications or improvements to the Leased Premises or to install any equipment which: (i) involve new or additional structures to the Building; (ii) could affect or alter in any manner the exterior appearance of the Building; (iii) could affect the mechanical, electrical, HVAC, sprinkler, plumbing systems or any other structural systems of the Leased Premises or the Building or could affect the status of any warranties on such systems or improvements; (iv) could in any manner be considered structural in nature or otherwise affect the structure of the building or any part of the Property; (v) could affect the roof of the Building; (vi) are installed outside of the Leased Premises or (vii) are not in conformity and harmony with the master plan of the City of Saint-Laurent for the Technopark Saint-Laurent, and the design criteria established for the Technopark Saint-Laurent he whole as determined by the Landlord and its professional, acting reasonably. In the event any alterations, modifications or improvements to be made by the Tenant would affect any of the foregoing and the prior written approval of the Landlord is given thereto, the Tenant shall be obliged to use the Landlord’s designated contractors, subcontractors and engineers to carry out the same.
13.3
Relationship between Tenant and Landlord
- Notwithstanding any provisions of this Lease including without limitation, the provisions of this Article 13, nothing in this Lease shall be construed as constituting the Tenant, the mandatory or the contractor of the Landlord in respect of the carrying out of alterations, modifications, installations, additions or improvements to the Leased Premises or as creating the relationship of principal and agent of a partnership or as creating any other relationship between the Landlord and the Tenant other than that of landlord and tenant.
13.4
Modifications by the Landlord
— Notwithstanding any provisions of this Lease or any Schedule appended hereto to the contrary, the Landlord reserves the right at any time and from time to time to change, alter, modify or expand the Building as the Landlord; in its sole and entire discretion, deems expedient, same to include, without limitation, the right of the Landlord to add additional floors to the Building, to expand the length or width of the Building, and/or to c change, alter and amend the location, dimensions or specifications of the pipes, wires, ducts, conduits, utilities, mechanical systems, common areas and other building services (including such as may be contained in the Leased Premises). The Tenant waives and renounces to any and all claims as a consequence of the foregoing providing the physical dimensions of the Leased Premises remain substantially as contemplated herein and specifically but without limitation, the Tenant waives the benefit of and its rights and recourses resulting from Article 1856 of the Civil Code of Quebec, provided that such modifications do not unreasonably interfere with the operation of the Tenant’s business in the Leased Premises. In the event any such change results in additional land being utilized to service the Building, such additional land shall be deemed included in the definition of “Lands” for all purposes of this Lease. In the event any such change results in a change in the Rentable Area of the Building, the Tenant’s Proportionate Share shall be modified accordingly.
14.
DESTRUCTION OF THE LEASED PREMISES
14.1
Damage or Destruction of the Leased Premises
- If the Building or a portion of the Building, shall be destroyed or damaged by fire or other casualty insured against by the Landlord, then in every such event the following provisions shall apply:
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14.1.1
if the damage or destruction is such that the Leased Premises are rendered wholly or partially unfit for occupancy or if it is impossible or unsafe to use and occupancy them and if, in either event, the damage, in the opinion of the Landlord, written notice of which is to be given to the Tenant within THIRTY (30) Business Days of the happening of such damage or destruction, cannot be repaired with reasonable speed and diligence within THREE HUNDRED AND SIXTY-FIVE (365) days from the happening of such damage or destruction, then either the Landlord or, subject to the provisions of Section 14.4 hereof, the Tenant may, within FIVE (5) Business Days next succeeding the giving of notice of the Landlord’s opinion as aforesaid, terminate this Lease by giving to the other notice in writing of such termination in which event this Lease and the Term hereby granted shall cease and be at an end as of the first day following the date of such destruction or damage and the Rent and all other payments for which the Tenant is liable under the terms of this Lease shall be apportioned and paid in full to the first day following the date of such damage or destruction or the Landlord may exercise its option as provided in Section 14.4 hereof, to relocate the Tenant subject to the terms set out in Section 14.4; in the event that neither the Landlord or the Tenant so terminates this Lease or the Landlord does not exercise its option as provided in Section 14.4 hereof, then after having received the proceeds of the applicable insurance policies affecting the damaged or destroyed property, the Landlord shall repair the Leased Premises (excluding the Tenant’s Leasehold Improvements) with reasonable speed and diligence and subject to Section 14.3 hereof, the Rent hereby reserved shall abate from the happening of the damage or destruction until the damage or destruction to the Leased Premises shall be made good to the extent of enabling the Tenant to use and occupy the Leased Premises;
14.1.2
if the damage or destruction is such that the Leased Premises are rendered wholly unfit for occupancy or if it is impossible or unsafe to use and occupy them and if, in either event, the damage, in the opinion of the Landlord, written notice of which is to be given to the Tenant within THIRTY (30) Business Days of the happening of such damage or destruction, can be repaired with reasonable speed and diligence with THREE HUNDRED AND SIXTY-FIVE 9365) days of the happening of such damage or destruction, then after having received the proceeds of the applicable insurance policies affecting the damaged or destroyed property, the Landlord shall repair the Leased Premises (excluding the Tenant’s Leasehold Improvements) with reasonable speed and diligence. Notwithstanding the foregoing, there shall be no obligation on the part of the Landlord to repair if there is less than TWO (2) years remaining in the Term at the time of such damage or destruction. In such event, the Landlord shall be entitled to, at its option, terminate this Lease, exercise its option as provided in Section 14.4 hereof or repair the damage and destruction in the manner as provided in this Subsection 14.1.2. In the event that the Landlord decides to terminate this Lease or exercise its option as provided in Section 14.4 hereof, it shall give written notice to the Tenant within FIVE (5) Business Days next succeeding the giving of notice of the Landlord’s opinion as aforesaid. If the Landlord decides to terminate this Lease, then this Lease and the Term hereby granted shall cease and be at an end as of the first day following the date of such destruction or damage and the Rent and all other payments for which the Tenant is liable under the terms of this Lease shall be apportioned and paid in full to the first day following the date of such damage or destruction. In the event that the Landlord does not so terminate this Lease or exercise its option as provided in Section 14.4 hereof, then subject to Section 14.3 hereof, the Rent hereby reserved shall abate from the happening of the damage or destruction until the damage or destruction to the Leased Premises shall be made good to the extent of enabling the Tenant to use and occupy the Leased Premises;
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14.1.3
if, in the opinion of the Landlord, the damage or destruction can be made good as aforesaid within THREE HUNDRED AND SIXTY-FIVE (3651 days of the happening of such damage or destruction and the damage is such that the Leased premises are capable of being partially used for the purposes for which they are leased, then after having received the proceeds of the applicable insurance policies affecting the damaged or destroyed property, the Landlord shall repair such damage or destruction to the balance of the Leased Premises (excluding the Tenant’s Leasehold Improvements) with reasonable speed and diligence and, subject to Section 14.3 hereof, the Rent hereby reserved shall abate in the proportion that the part of the Leased Premises which is rendered unfit for use or occupancy bears to the whole of the Leased Premises until the damage or destruction to the Leased Premises shall be made good to the extent of enabling the Tenant to use and occupy the Leased Premises;
14.1.4
in the event the Building is destroyed or damaged so as to affect FIFTY PERCE (50%) or more of the Rentable Area of the Building or, in the opinion’ of the Landlord, the Building is rendered unsafe or unfit for occupancy as a result of such damage or destruction, whether or not the Leased Premises are affected, and, in the opinion of the Landlord (which shall be given by written notice to Tenant within THIRTY (30) Business Days of the happening of such damage or destruction), such damage or destruction can or cannot be repaired with reasonable speed and diligence THREE HUNDRED SIXTY-FIVE (365) days of the happening of such destruction or damage, the Landlord may, within FIVE (5) Business Days next succeeding the giving of notice of the Landlord’s opinion as aforesaid, either terminate this Lease or exercise its option as provided in Section 14.4 hereof. if the Landlord terminates this Lease then this Lease and the Term hereby granted shall cease and be at end as of the first day following the date of such destruction or damage and the Rent and all Other payments for which the Tenant is liable under the terms of this Lease shall be apportioned and paid in full to the first day following the date of such destruction or damage.
14.2
Limitation of Landlord’s Obligation
— notwithstanding the provision of Section 14.1 hereof and the obligations of the Landlord to repair as provided for therein, should any Hypothecary Creditor, which may have an interest in any insurance proceeds payable as a result of any damage or destruction to the Building or the Leased Premises, refuse to permit the use of such proceeds for the repair, replacement, rebuilding or restoration as hereinabove provided for or for the payment of the amounts expended for any such purposes, or should the damage or destruction be caused by a peril for which the Landlord is not insured, and provided that written notice of any such refusal or lack of insurance be given by the Landlord to the Tenant within THIRTY (30) Business Days of the happening of any such damage or destruction, then the obligations of the Landlord to repair or to rebuild as provided for hereinabove shall cease and be of no further force and effect and this Lease shall be terminated with effect as of the first day following the date of the damage or destruction, unless the Landlord, at the Landlord’s sole option, concurrently with the giving of such notice of the Hypothecary Creditor’s decision or of such lack of insurance, advises the Tenant that, notwithstanding the Hypothecary Creditor’s decision or of Landlord’s lack of insurance, it chooses to repair and rebuild, in which event the provisions of Section 14.1 shall apply,
mutatis mutandis
, or unless the Landlord advises the Tenant within the same time period that it is exercising its option as provided in Section 14.4 hereof. In the event of any termination of this Lease as aforesaid, the Rent and all other payments for which the Tenant is liable hereunder shall be apportioned and paid in full to the date of such destruction or damage.
14.3
Repair of Tenant’s Leasehold Improvements and Property
- Nothing contained herein shall oblige the Landlord to repair, replace or reconstruct any alterations, additions, installations, modifications, the Tenant’s Leasehold Improvements, or any
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other improvements (except for Landlord’s Work and then only in the circumstances described in Sections 14.1 or 14.2 hereof) or any property of the Tenant. In the event the Landlord is obliged to repair the Leased Premises as provided herein and so repairs the some, the Tenant shall be obliged to repair, replace or reconstruct, in on expeditious and diligent manner, its alterations, additions, installations and improvements, the Tenant’s Leasehold Improvements and property which were located in the Leased Premises prior to such damage and destruction so as to enable the Tenant to use and occupy the Leased Premises and in any event, shall complete the same within THIRTY (30) days from the date that the Landlord has completed the Landlord’s Work and the Tenant’s Fit-Up in the Leased Premises. Notwithstanding the provisions of this Article 14, if the Tenant has not completed its repairs, replacements or reconstruction within the aforesaid THIRTY (301days, full Rent shall be payable and there will be no further abatement or apportionment of the same regardless of the ability of the Tenant to use or occupy the Leased Premises.
14.4
Replacement Premises
— In the that the Landlord has given notice as contemplated in any of Subsection 14.1.1, 14.1.2, 14.1.4 or Section 14.2 that it is exercising its option to relocate the Tenant as provided in this Section 14.4, then the Landlord shall be entitled to relocate the Tenant, within NINETY (90) days of the giving of such notice that it is so exercising this option, to replacement premises in any building owned by the Landlord and situated in the Technopark Saint-Laurent (the “Replacement Premises”) provided that such relocation shall be subject to and upon the following terms and conditions;
14.4.1
the Replacement Premises shall contain approximately the same area as the Leased Premises;
14.4.2
the Landlord shall provide, at its expense, leasehold improvements in the Replacement Premises substantially equal to the standards of the Landlord’s Work and the Tenant’s Fit-Up in the Leased Premises immediately prior to such damage or destruction;
14.4.3
the Landlord shall pay for the moving costs of the Tenant’s trade fixtures, equipment and furnishings from the Leased Premises to the Replacement Premises;
14.4.4
Basic Minimum Rent and Tenant’s Proportionate share of Operating Costs for the Replacement Premises shall be no greater than the Basic Minimum Rent and Tenant’s Proportionate Share of Operating Costs for the Leased Premises and payments in respect thereof shall commence upon the date the Landlord gives possession of the Replacement Premises to the Tenant; and
14.4.5
All the terms and conditions of this Lease, with appropriate amendments to reflect the nature of the building in which the Replacement Premises are located and except as are inconsistent with the terms and conditions of this Section 14.4, shall apply to the Replacement Premises.
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15.
SUBLET AND ASSIGNMENT
15.1
Tenant’s Right to Sublet and Assign
- Subject to the provisions hereinafter contained in this Article 15 and notwithstanding any law or statutory provision to the contrary, the Tenant shall have no right to assign its rights hereunder, in whole or in part, or to sublease the whole or any part of the Leased Premises, unless the Tenant shall have obtained the prior written consent of the Landlord to such assignment or sublease, which consent shall not be unreasonably withheld or delayed. Without limiting or restricting in any manner whatsoever the Landlord’s right to refuse its consent on other reasonable grounds, including without limitation, where such assignee or subTenant does not agree to such reasonable conditions as may be imposed by the Landlord, it is expressly understood and agreed that refusal by the Landlord to grant its consent shall be deemed reasonable :
15.1.1
where the occupant, transferee, assignee or subTenant proposed by the Tenant is then a tenant of premises in the Building or in another building owned by the Landlord and the Landlord has or will have during the next ensuing TWELVE (12) months suitable space for rent in the Building or in a comparable building owned by the Landlord:
15.1.2
where the occupant, transferee, assignee or subTenant is not satisfactory to the Landlord in regard to financial standing, reputation, business experience or type and quality of business to be carried on;
15.1.3
where the nature of the business to be conducted by the assignee or sub- tenant is not permitted use under the provisions of Section 6.1 hereof or does not comply with the master plan of the City of Saint-Laurent for the Technoparc Saint-Laurent;
15.1.4
where the proposed assignee or sub-tenant does not intend to,
bona fide,
physically occupy and carry on business from the Leased Premises;
15.1.5
where the proposed subletting or assignment relates to a part of the Leased Premises only and in the Landlord’s sole judgment is not a proper or rational division of the Leased Premises;
15.1.6
where the period of time for which the Leased Premises or part thereof is to be sublet or assigned is less than the remainder of the Term and in the Landlord’s sole judgment is not satisfactory;
15.1.7
where the Rent payable under the sublease or the assignment is at a lower rate than the Rent payable hereunder;
15.1.8
where the proposed assignment or sublease (a copy of which must be provided to the Landlord in accordance with Section 15.5) does not contain such provisions as the Landlord may reasonably require and is not in form and content to the Landlord and its legal counsel.
Notwithstanding any provision herein to the contrary, the Tenant acknowledges and agrees that it shall not be entitled to assign this Lease or sublet the whole or any part of the Leased Premises prior to occupancy thereof.
15.2
Assignment to a Creditor of Tenant
- In the case of any assignment (which term, for greater certainty, shall include any hypothec, encumbrance or charge) of the Tenant’s right, title or interest hereunder or in and to the Leased Premises or any part thereof to a creditor of the Tenant, the Landlord may refuse its consent, without in any manner whatsoever restricting the Landlord’s right to refuse its consent on other reasonable grounds, where such assignee/creditor of the Tenant does not agree to the following conditions and such other reasonable conditions as may be imposed by the Landlord and the Tenant does not agree to pay all legal expenses incurred by the Landlord in connection with the approval of such assignment :
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15.2.1
that such assignee/creditor shall not be entitled to further assign or sublet the Tenant’s interest without complying with the provisions of this Article 15;
15.2.2
that such assignee/creditor shall observe all the provisions of this Lease as if it was the Tenant including, without limitation, the payment of Rent and the restrictions on use of the Leased Premises;
15.2.3
that such assignee/creditor shall not be entitled to enforce its security without giving the Landlord at least TEN (10) days prior written notice;
15.2.4
that in the event that such assignee/creditor enforces its security, it shall be responsible to pay all arrears of Rent, if any, owing at the time by the Tenant; and
15.2.5
that such assignment contain such other provisions as the Landlord may reasonably require and its form and content be approved by the Landlord and its legal counsel.
15.3
Non-Waiver
— The consent of the Landlord to any assignment or sublet, shall not constitute a waiver of this Article 15 and shall not be deemed to permit any further assignment or sublet by another.
15.4
Solidarity Liability
— In the event that consent to any sublet or assignment is solicited by the Tenant and granted by the Landlord and the Tenant assigns all or part of its rights hereunder, or sublet all or part of the Leased Premises, the Tenant shall, notwithstanding such assignment or sublet, remain solidarity liable with the assignee or subTenant for the full performance of all of the obligations, terms and conditions of this Lease on the part of the tenant to be performed in the same manner and to the same extent as if the said assignment had not been made or the said sublet not granted, the Tenant hereby waiving benefits of division and discussion. The Tenant shall not be released in any manner whatsoever from performing any of the obligations, terms or conditions of this Lease.
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15.5
Request for Landlord’s Consent
- If the Tenant requests the Landlord’s consent to any assignment or subletting of the whole or any part of the Leased Premises, such request shall be in writing and shall set forth all the terms and conditions of the proposed assignment or sublet ( a copy of the proposed assignment or sublease to be provided to the Landlord) and shall be accompanied by the name and address of the proposed assignee or sub-tenant (and his/her birth date if an individual) together with such information as to the nature of the business and financial responsibility and standing of such proposed assignee or subtenant as the Landlord may reasonably require in order to make a reasonable determination. The Tenant’s request for consent shall also be accompanied by: (i) an unconditional and irrevocable written undertaking from the Tenant to the effect that the Tenant will reimburse the Landlord upon demand for all costs and expenses incurred by the Landlord to study the Tenant’s request, said costs and expenses to be payable as Additional Rent, whether the Landlord’s consent is granted or not; (ii) the waiver by the proposed subtenant of its rights under Article 1876 of the
Civil Code of Quebec
; and (iii) the consent of the proposed subTenant or assignee permitting the Landlord to collect, obtain and exchange personal and financial information in respect of the proposed subTenant or assignee. The Landlord shall within thirty (30) days from the receipt of the foregoing information and documents (and any and all other information and documentation which the Landlord may reasonably require in order to make its determination), notify the Tenant in writing either that (a) it consents or does not consent in accordance with the provisions and qualifications of this Article 15 to the proposed sublet or assignment and if it consents, the conditions on which its consent is given, or (b) it elects to terminate this Lease for that portion of the Leased Premises thus offered for sublet or assignment or for the whole of the Leased Premises if the proposed sublet or assignment is in respect of the whole thereof by giving to the Tenant a notice of its intention to so terminate and fixing a date of termination (such termination date to be not sooner than SIXTY (60) days nor more than NINETY (90) days following such election and communication to the Tenant). If the Landlord elects to terminate this Lease as aforesaid, the Tenant shall deliver vacant possession of the Leased Premises or such portion thereof offered for sublet or assignment to the Landlord on the date indicated as the date of termination in such election, and this Lease, with respect to the whole of the Leased Premises or for that portion of the Leased Premises thus offered for sublet or assignment (as the case may be), shall thereupon terminate on such dote. Should the Landlord not exercise its right to terminate this Lease as aforesaid, the Landlord shall not thereby be precluded from withholding its consent to the assignment or sublet provided such consent is not unreasonably withheld. No assignment or sublease shall take place nor be deemed to be consented to by reason of the failure of the Landlord to give notice to the Tenant within the aforesaid THIRTY (30) day period and the Tenant specifically waives the provisions of Article 1871 of the
Civil Code of Quebec
. Should Landlord consent and should the Tenant’s proposed assignment or subletting not materialize during the delay stipulated in the Landlord’s consent then the Landlord’s consent shall be deemed to have lapsed upon the expiry of such stipulated delay and the Tenant shall be required to begin again the process prescribed in this Article 15. Furthermore, the consent by the Landlord to any assignment or sublet shall not constitute a waiver of this Article 15 and shall not be deemed to permit any further assignment or sublet.
15.6
Deemed Assignment or Sublet
- Without limitation, the Tenant shall, for the purposes of this Article 15, be considered to assign or sublet in any case where:
15.6.1
the Leased Premises or any portion thereof or any business carried on therein are occupied or used or carried on by persons other than the Tenant, its employees and others engaged by the Tenant in carrying on the business of the Tenant, whether pursuant to on assignment, sublease, license, franchise or other right or whether any of the foregoing occurs by operation of law or otherwise:
15.6.2
there is a parting with or sharing of the possession of all or any part of the Leased Premises whether by operation of law or otherwise;
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15.6.3
the effective control (voting or otherwise) of the Tenant is acquired or exercised by any person not having effective control of the Tenant at the date of execution of this Lease, save if the Tenant becomes a publicly listed corporation.
Any change in the shareholders or in the share holdings of the Tenant unless such changes result from the Tenant becoming a publicly listed company whose shares are publicly held, shall be considered to be an assignment of this Lease and shall require the prior written approval of the Landlord, such consent not be unreasonably withheld;
15.6.4
the Tenant hypothecates, encumbers or charges the whole of or any of its right, title or interest under this Lease or in and to the Leased Premises or any part thereof; or
15.6.5
there is a corporate reorganization of the Tenant or where the corporate reorganization of the Tenant involves the assignment or transfer of all or substantially all of the Tenant’s assets to another corporation or the merger or amalgamation of the Tenant with another corporation. The Tenant shall, in the event of such assignment or transfer of all or substantially all of its assets or its merger or amalgamation with another corporation, deliver to the Landlord, in addition to the information required to be delivered to the Landlord pursuant to Section 15.5 hereof, copies of the most recent financial statements or opening financial statements of the proposed assignee or successor corporation as may be requested by the Landlord.
15.7
Limitation on Rights Transferred or Assigned
- The Tenant acknowledges that each of the rights and options provided under Schedule “D” annexed hereto are personal to
METHYLGENE INC.
and to any successor corporation thereof and may not be transferred to nor exercised by any assignee of the Lease nor to any subtenant of the Leased Premises or any part thereof.
15.8
Transfer of the Property by Landlord
- In the event of the sale, lease or other transfer or disposition by the Landlord of the Building, the Property, the Lands or any part thereof or the assignment by the Landlord of this Lease or any interest of the Landlord hereunder, and to the extent that the purchaser, Tenant or assignee assumes the obligation of the Landlord hereunder, the Landlord shall, thereupon
ipso facto
and without further agreement, be freed and relieved of all liability with respect to such obligations. In the event of any sale, lease, transfer, disposition or assignment by the Landlord, the Tenant agrees, if requested by the Landlord, to provide replacement letters of credit in the name of the purchaser, Tenant, transferee or assignee, for any letters of credit then held in the name of the Landlord.
16.
DEFAULT OF TENANT\
16.1
Event of Default
- Each of the following events (hereinafter called an “Event of Default”) shall be a default hereunder by the Tenant and a breach of this Lease:
16.1.1
if the Tenant shall be in default under any provision of this Lease providing for the payment of Rent (whether Basic Minimum Rent or Additional Rent) hereunder when due and such default shall continue for FIVE (51 days or longer;
16.1.2
if the Tenant 1.1) files any proposal; or Oil makes or attempts to make any assignment for the benefit of creditors; or (iii) takes or makes or attempts to take or make any arrangement or compromise with its creditors; or (iv) becomes bankrupt; or (v) takes or attempts to take the benefit of or becomes or attempts to become subject to any legislation that may be in force relating to bankrupt or insolvent debtors; or (vi) if a petition in bankruptcy is granted against the Tenant; or (vii) if any application, petition,
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certificate or order is granted for the winding-up or dissolution or liquidation, voluntary or otherwise, of the Tenant or of its assets or (viii) if a receiver or receiver-manager or trustee or sequestrator is appointed for its property, or any port thereof; or (ix) if the Tenant takes any steps or suffers any order to be made for its winding-up or other termination of its corporate existence;
16.1.3
if any insurance policy upon the Property, the Building, the Lands or any part thereof from time to time effected by the Landlord or the Tenant shall be cancelled or about to be cancelled by Landlord or Tenant’s insurer by reason of the use or occupation of the Leased Premises by the Tenant or any assignee, sub-tenant or licensee of the Tenant, or anyone permitted by the Tenant to be upon the Leased Premises or if the Tenant fails to effect insurance required to be maintained by it hereunder and if the Tenant further fails within forty-eight (48) hours after receipt of notice in writing from the Landlord to effect such insurance or to take such immediate steps in respect of such use or occupation as shall enable the Landlord or Tenant to reinstate or avoid cancellation (as the case may be) of such insurance policy.
16.1.4
if the Leased Premises shall, without the prior written consent of the Landlord, be used by any persons other than the Tenant or its permitted assignees or permitted subtenants or for any purpose other than that for which they were leased or occupied or by any persons whose occupancy is prohibited by this Lease;
16.1.5
If the Leased Premises shall be vacated, abandoned or remain unoccupied without the prior written consent of the Landlord for five (5) consecutive days or more while capable of being occupied;
16.1.6
If a writ of execution is issued against the goods or property of the Tenant or this Lease or if any of the goods or movable property on the Leased Premises are the subject of a notice of crystallization, an advance registration, a prior notice of hypothecary right or are seized in execution, before or after judgement or otherwise, by any creditor of the Tenant unless, in the case of seizure before judgment, the Tenant diligently contests such seizure and deposits with the Landlord such security as requested by the Landlord in respect of such seizure;
16.1.7
if any legal hypothec or prior claim is registered against the Leased Premises or any part thereof or the property located therein by reason of any act or omission of the Tenant;
16.1.8
in the event that the Tenant shall be in default in observing any other covenant herein contained (other than as provided in any of Subsections 16.1.1 to 16.1.7, inclusive) or in performing any of its other obligations contained in this Lease and such default shall not be cured within TEN (101 days after written notice specifying such default is given to the Tenant by the Landlord, unless such default is incapable of being remedied with due diligence within such period of TEN (101 days, in which case, if the Tenant has failed to commence to remedy such default within such TEN (101 days period and thereafter to prosecute with due diligence the curing of such default until it is remedied.
16.2
Landlord’s Recourses
- In the event of an occurrence of an Event of Default, the Landlord may recover from the Tenant, without prejudice to the Landlord’s other rights and recourses, all arrears and amounts due hereunder, and moreover the current month’s Basic Minimum Rent plus Additional Rent plus the next ensuing SIX (6) month’s Basic Minimum Rent and Additional Rent shall immediately become due and payable. Furthermore, the Landlord may, without prejudice to any other rights or recourses it may have, terminate ipso facto this Lease without any formalities, notice
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or judicial proceedings and take immediate possession of the Leased Premises, in which case the Term of this Lease will, without prejudice to the Landlord’s other rights hereunder or by law, forthwith become forfeited and terminated and no payment or acceptance of rental subsequent to such termination will give the Tenant the right to continue occupancy of the Leased Premises or in any way affect the rights of the Landlord hereunder and the Tenant, upon said termination, shall thereupon peaceably surrender the Leased Premises to the Landlord. If the Landlord at any time terminates this Lease for any breach or by reason of the occurrence of an Event of Default or if any legal action is token for the recovery of possession of the Leased Premises or for the recovery of any amount due under this Lease, the Landlord„ in addition to any other remedies it may have hereunder or by low, may recover from the Tenant all damages and all expenses it may incur or suffer by reason thereof including, without limitation, attorney’s fees and legal costs and the cost of repossessing and re-letting the Leased Premises.
16.3
Landlord’s right to Repossess the Leased Premises
- Upon the occurrence of an Event of Default, the Landlord may, without notice to the Tenant and without prejudice to any other right of the Landlord hereunder or by law, enter and repossess the Leased Premises and it may use such force as it may deem necessary for that purpose and remove all property from the Leased Premises and it may expel all persons and remove all property from the Leased Premises and such property may be stored in a public warehouse or elsewhere at the cost and for the account of the Tenant, the whole without the Landlord being considered guilty of trespassing or becoming subject to any prosecution or becoming liable for any loss or damage which may be occasioned thereby, any statute or law to the contrary notwithstanding.
16.4
Landlord’s Right to Relet the Leased Premises
- If the Landlord elects to repossess the Leased Premises as herein provided or if it takes possession thereof pursuant to legal proceeding or pursuant to any notice provided for by law, it may from time to time, either with or without termination of this Lease, make such alterations and repairs as may be necessary in order to relet the Leased Premises or any part thereof, either in the name of the Landlord or otherwise for a term or terms which may, if the Landlord chooses, be less or greater than the balance of the Term and at such Rent and upon such other terms and conditions as the Landlord, in its sole discretion, deems advisable, and the Landlord may grant reasonable concessions in connection therewith. Upon each such reletting all Rent received by the Landlord from such reletting shall be applied firstly to the payment of any indebtedness other than Rent due hereunder from the Tenant to the Landlord, secondly to the payment of any costs and expenses of such reletting including legal costs, solicitors’ fees and brokerage fees and the expenses of keeping the Leased Premises in good order and of preparing the Leased Premises for reletting, thirdly to the payment of Rent due and unpaid hereunder, and the residue, if any, shall be held by the Landlord and applied in payment of other damages suffered by the Landlord as a result of the Event of Default and, if applicable, termination of this Lease.
16.5
Landlord’s Rights to Cure Defaults
- Notwithstanding the provisions of Section 16.1 hereof, if the Tenant shall default in the performance of any of its obligations under this Lease, the Landlord may from time to time, after giving such notice as it considers sufficient (or without notice in the case of an emergency), perform or cause to be performed any of such obligations and for such purposes may do such things as may be required, including, without limitation, entering upon the Leased Premises and doing such things upon or in respect of the Leased Premises or any part thereof as the Landlord reasonably considers necessary to remedy such default. All expenses incurred pursuant to this Section 16.5 shall be paid by the Tenant as Additional Rent forthwith upon demand together with an administration fee of FIFTEEN PERCENT (15%) thereof and shall bear interest at the Stipulated Rate of Interest. The Landlord shall not be liable to the Tenant for any loss or damage resulting from any such action or entry by the Landlord and the same shall not be considered a breach of any obligation for peaceable enjoyment contained in this Lease or implied by law.
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16.6
Cumulative Remedies
- Mention in this Lease of any particular remedy or remedies of the Landlord in respect of any default by the Tenant shall not preclude the Landlord from any other remedy in respect thereof, whether available in law or in equity or by statute or expressly provided herein. No remedy shall be exclusive or dependent upon any other remedy, but the Landlord may from time to time exercise any one or more of such remedies generally or in combination, such remedies being cumulative and not alternative.
17.
SIGNS, EXHIBIT OF LEASED PREMISES
17.1
For Sale Signs
- The Landlord shall have the right, of all times during the Term of this Lease, to place upon the Leased Premises a notice of reasonable dimensions and reasonably placed so as not to interfere with the business of the Tenant, stating that the Building of which the Leased Premises form a port is for sale.
17.2
For Rent Signs
- The Landlord shall have the right, at all times during the TWELVE (12) months immediately preceding the expiration of the Term, to place upon the Leased Premises a notice of reasonable dimensions and reasonably placed so as not to interfere with the business of the Tenant, stating that the Leased Premises are for rent.
17.3
Exhibition of Leased Premises
- Subject to giving prior notice to the Tenant, the Landlord shall have the right to exhibit the Leased Premises from time to time to any prospective hypothecary creditor or purchaser during reasonable business hours and, during the TWELVE (12) months immediately preceding the expiration of the Term and to exhibit the Leased Premises to any prospective tenant.
17.4
Exterior Identification
— The Tenant may, at Tenant’s expense, erect one sign to identify its firm name outside the Building. The design and location of such identification are subject to the master plan of the City of Saint-Laurent for the Technopark Saint-Laurent and also the design criteria established for the Technopark Saint-Laurent and the prior written approval of the Landlord’s Architect which approval will not be refused without reasonable grounds. This identification shall also be in conformity with all other applicable laws and regulations. The Tenant shall bear the cost of the installation, repair maintenance and removal of any such sign.
18.
COMPLIANCE WITH LAWS AND REGULATIONS
18.1
Tenant’s Obligation to Comply with Laws and Regulations
- The Tenant shall, at its own expense, promptly comply with the requirements of every applicable statute, by-law, law or ordinance and with every applicable regulation or order with respect to the condition, equipment, maintenance, use or occupation of the Leased Premise including, without limitation, the making of any alteration, addition to or removal of any structure upon, connected with or appurtenant to the Leased Premises; whether or not such alterations or improvements be required on account of any particular use to which the Leased Premises, or any part thereof, may be put and whether or not such requirement, regulation, or law or order be of a kind now existing or within the contemplation of the parties hereto. In addition the Tenant shall comply with any applicable regulation, requirement, recommendation or order of the insurers’ Advisory Organization of Canada, the Canadian Fire Underwriters’ Association or any body having similar functions or of any liability or fire insurance company by which the Landlord or the Tenant may be insured so as to maintain full insurance coverage and shall comply with all police, fire, health, safety and sanitary regulations or laws imposed by any governmental authority. Without limiting the generality of the foregoing, the tenant agrees that it shall, at its sole cost and expense, promptly observe and comply with all requirements relating to controls imposed by governmental authorities for ambient air and environmental standards and shall observe and comply with all police, fire, health, safety and sanitary regulations or laws imposed by any governmental authority or required by fire insurance underwriters.
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The Tenant agrees to obtain all certificates required by any governmental authorities pertaining to the operation of its business in the Leased Premises, including without limitation, the operation of a laboratory and provide promptly to the Landlord copies thereof.
18.2
Environmental Laws
- The Tenant hereby warrants and represents that it shall comply at all times with all laws, regulations or notices pertaining to environmental protection and/or control. Without limiting the foregoing and any other provisions of the Leased, the Tenant agrees to comply in all respects with all laws, ordinances, rules and regulations relating to the manufacture, storage, transport, use or disposal of contaminants, pollutants, toxic substances and hazardous materials and wastes (hereinafter called “Hazardous Substance”). As part of Tenant’s insurance, the Tenant shall be required to provide insurance coverage with regard to any potential environmental liabilities of the Tenant. The Tenant agrees to indemnify and hold the Landlord harmless from and against any and all claims, losses, costs, damages, liabilities, civil fines and penalties, criminal fines and penalties, expenses (including attorney fees) cleaning costs or other injury resulting directly from or arising out of the Tenant’s (including Tenant’s employees, contractors and agents) failure to comply with the foregoing obligations. The Tenant agrees to post and keep posted in a prominent location in the working area of the Leased Premises any memorandum or bulletin from the Landlord concerning Hazardous Substances. The foregoing indemnity shall survive the termination of this Lease and subsequent renewals and shall continue until the applicable statute of limitation or prescription runs out.
In addition to the foregoing the Tenant hereby agrees that:
18.2.1
it shall not cause or permit any Hazardous Substance to be brought upon, kept or used in or about the Leased Premises or any part thereof other than which is reasonably necessary for the Tenant’s permitted use of the Leased Premises and that any such Hazardous Substance will be used, kept and stored in areas designated by the Landlord and in accordance with industry standards and in any event, shall be used, kept, stored and disposed of in a manner that complies with all environmental laws and regulations regulating the Hazardous Substance;
18.2.2
it shall provide to the Landlord copies of any notices the Tenant receives of violation of or non-conformity with applicable environmental laws and regulations and shall promptly notify the Landlord of any such violation of or non-conformity and of any spill or release of Hazardous Substances in or from the Leased Premises of the Property;
18.2.3 the Landlord may, at any time and from time to time inspect the Leased Premises and the Tenant’s records for the purpose of identifying the (existence, nature and extent of any Hazardous Substance on the Leased Premises and the Tenant’s manufacture, use, transport, storage and disposal of any Hazardous Substance, and the Tenant agrees to cooperate with the Landlord in its performance of such inspection. If the Landlord, acting reasonably, determines, following any such. inspection, that further testing or investigation is required in order to monitor the Tenant’s compliance with any environmental laws and regulations, the Landlord may, at its option, require the Tenant, at the Tenant’s expense, to arrange for such testing or investigation, or may arrange for such testing or investigation itself, in which case the Landlord’s cost of any such testing or investigation shall be paid by the Tenant to the Landlord as Additional Rent forthwith upon demand;
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18.2.4
if any authority having jurisdiction shall require the cleanup of any Hazardous Substances held, released, spilled, abandoned or placed upon the Leased Premises or the Property or released into the environment by the Tenant in the course of the Tenant’s business or as a result of the Tenant’s use or occupancy of the Leased Premises, then the Tenant shall, at its own expense, prepare all necessary studies, plans and proposals and submit the same for approval, provide all bonds and other security required by such authorities having jurisdiction, carry out the work required, provide the Landlord full information with respect to proposed plans and the status from time to time of its cleanup work and comply with the Landlord’s reasonable requirements with respect to such plans;
18.2.5
if the Tenant creates or brings to the Leased Premises any Hazardous Substance or if the conduct of the Tenant’s business shall cause there to be any Hazardous Substance at the Leased Premises then, notwithstanding any provision in the Lease or rule of law to the contrary, such Hazardous Substance shall be and remain the sole and exclusive property of the Tenant or of clients on behalf of whom the Tenant is providing services and shall not become the property of the Landlord notwithstanding the degree of affixation to the Leased Premises of the Hazardous Substance or the goods containing the Hazardous Substance, and notwithstanding the expiry or earlier termination of the Lease; and
18.2.6
upon the expiration or early termination of the Term or any renewal thereof, the Tenant at its sole expense shall remove and dispose of all Hazardous Substances and all its storage tanks and other containers therefore in accordance with all environmental laws and regulations to the extent required by the Landlord, and to the extent that such removal and disposal involves any excavation work at the Leased Premises, the Building, the Lands or the Property, the Tenant shall restore the Leased Premises, the Building, t Lands or the Property, as the case may be, to the same grade level as immediately prior to excavation, using only clean uncontaminated soil or other material satisfactory to the Landlord.
The Tenant undertakes to remit to the Landlord, the environmental questionnaire attached hereto as Schedule “A”, duly completed, prior to occupying the Leased Premises and thereafter and throughout the Term or any renewal thereof, such environmental questionnaire will be updated as may be requested from time to time by the Landlord.
In addition and without prejudice to the Landlord’s other recourses hereunder or by law, in the event that the Leased Premises remain vacant or may only partially be occupied after the termination of this Lease directly or indirectly because of the breach by the Tenant of its Obligations under this Section 18.2, then, notwithstanding such termination of the Lease and in addition to any damages which the Landlord may claim from the Tenant, the Tenant shall be deemed to continue to occupy the Leased Premises on a tenancy from month to month and shall continue to pay to the Landlord rent at a monthly rate payable in advance equal to TWO HUNDRED PERCENT (200%) of the monthly installment of Rent payable for the last month of the Term. Such month to month tenancy shall be deemed to continue until such time as a clean up of the Leased Premises has been completed, all repairs to the Leased Premises have been made, the Leased Premises, the Building, the Lands, the Property or any portion thereof have been restored to their original condition, less ordinary wear and tear, and the Tenant has paid for all damages.
18.3
Landlord’s Representations
- The Landlord hereby represents that as of the date of completion of the construction of the Building, the Building complied and shall comply as of the Delivery Date, with all applicable building and zoning by-laws then in force.
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The Landlord warrants that the Building was not constructed with materials containing any contaminant or pollutant in excess of the levels permitted in policies of the Quebec Ministry of the Environment and Wildlife in effect at the date of completion of construction of the Building. This warranty and representation is limited to contaminants or pollutants as said terms are defined under applicable provincial laws, regulations or policies or municipal by-laws, codes or governmental ordinances as of the date of completion of construction of the Building,
19.
INDEMNIFICATION
19.1
Limitation of Landlord’s Liability
- Except if caused directly by the gross negligence of the Landlord, the Landlord shall not be liable or responsible in any way for any injury of any nature whatsoever that may be suffered or sustained by the Tenant or any employee, agent or customer of the Tenant or any other person who may be upon or in the Property, the building, the Lands or any part thereof or for any loss of or damage to any property belonging to the Tenant or to its employees or to any other person while such property is on the Leased Premises or on the Property, or the Lands, or in the Building or any part thereof and, in particular (but without limiting the generality of the foregoing), the Landlord shall not be liable for any damage or damages of any nature whatsoever to any such property caused by reason of a breakdown or other cause or failure to supply adequate drainage or caused by snow or the removal thereof, or by the interruption of any public utility service or by steam, water, rain or snow which may leak into, issue or flow into or from any part of the Leased Premises or from the water, steam, sprinkler or drainage pipes, or plumbing works of the some, or from any other place or quarter or for any damage caused by or attributable to the condition or arrangement of any electrical wiring or other wiring, nor shall the Tenant be entitled to any abatement or reduction of Rent under such circumstances in respect of any such condition or failure. Furthermore, the Landlord shall not be liable for any damage resulting from the disturbance of enjoyment of the Leased Premises by the act of any third person, Tenant or any person permitted to be on the Leased Premises, or in the Building, or on the Lands or on the Property nor shall the Tenant be entitled to abatement or reduction of Rend or resiliation of the Lease as a result of such disturbance.
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19.2
Landlord’s Indemnity
- Notwithstanding any other term, obligation or condition contained in this Lease including, without limitation, the Landlord’s obligation to repair and the Landlord’s obligation to take out insurance and the Tenant’s obligation to pay its share of the costs of insurance, the Tenant shall indemnify and save harmless the Landlord and all its servants, agents, employees, contractors and persons for whom the Landlord is in law responsible from and against any and all losses, claims, actions, damages, liabilities and expenses, including legal fees and disbursements in connection with loss of life, personal injury, damage to property or any other loss or injury, damage to property or any other loss or injury whatsoever arising from or out of this Lease (except if the same is caused directly by the gross negligence of the Landlord), or any occurrence in, upon or at the Leased Premises, or the occupancy or use by the Tenant of the Leased Premises or the Property or any part thereof, or occasioned wholly or in port by an act or omission of the Tenant or of any of its servants, agents, employees, invitees, licensees, sub-tenants or of persons for whom the Tenant is in law responsible or by any one permitted (by act or omission or otherwise) to be on the Leased Premises, in the Building, on the Lands, or on the Property or any part thereof by the Tenant. If the Landlord, without fault on its part, should be made a party to any litigation commenced by or against the Tenant, then the Tenant shall protect, indemnify and hold the Landlord harmless and shall pay all costs and expenses and reasonable legal fees incurred or paid by the Landlord in connection with such litigation. The Tenant shall also pay all costs, expenses and legal fees that may be incurred or paid by the Landlord in enforcing the terms, obligations and conditions of this Lease.
19.3
Landlord’s Servants, etc.
— it is agreed that every indemnity, exclusion or release of liability and waiver of subrogation herein contained for the benefit of the Landlord shall extend to and benefit all of the Landlord’s servants, agents, employees and those for whom the Landlord is in law responsible; solely for such purpose, and to the extent that the Landlord expressly chooses to enforce the benefits of Section 19.2 for its servants, agents, employees and those for whom the Landlord is in law responsible, it is agreed that the Landlord is the agent for its servants, agents, employees and those for whom the Landlord is in law responsible.
20.
EXPROPRIATION
20.1
Leased Premises-Rendered Unsuitable for Conduct of Business
- In the event of the expropriation or other forceable taking or condemnation by any competent authority for any purpose whatsoever of the whole of the Leased Premises or such part thereof which, in the reasonable opinion of the Landlord, will render the remainder unsuitable or insufficient for the economical conduct of the Tenant’s normal business operation, this Lease shall cease and terminate from the date the Tenant is forced to vacate the Leased Premises and all Rent and other payments for which the Tenant is liable hereunder shall be apportioned and paid in full to the date of such termination.
20.2
Leased Premises Not Rendered Unsuitable for Conduct of Business
- In the event of any expropriation or forceable taking or condemnation by any competent authority for any purpose whatsoever of a port only of the Leased Premises which does not, in the reasonable opinion of the Landlord, render the remainder of the Leased Premises unsuitable or insufficient for the economical conduct of the Tenant’s normal business operation, this Lease shall remain in full force and effect with respect to the remainder of the Leased Premises and the Landlord shall restore and repair the portion of the Leased Premises not expropriated to a tenantable condition. The Rent payable by the Tenant hereunder shall be reduced so as to give due allowance for the port expropriated according to the nature and extent of such part. For greater certainty, if such expropriation, forceable taking or condemnation affects the Lands only, there shall be no abatement of Rent.
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20.3
No Claim in Damages by Tenant
- The Tenant shall have no claim in damages against the Landlord relating to or arising out of the expropriation, forceable taking or condemnation or arising out of the cancellation of this Lease. The Landlord and Tenant shall cooperate, each with the other, in respect of any public taking of the Leased Premises of any part thereof so that, subject to the following rights of the Landlord (which include, without limitation, the right to receive compensation for the Landlord’s Work, the Tenant’s Fit-Up and Tenant’s Leasehold Improvements), the Tenant may receive the maximum award to which it is entitled in law for relocation costs, business interruption and such other costs (including any required higher rent in new premises) that it may be entitled to receive from the expropriating authority and so that the Landlord may receive the maximum award for all other compensation arising from or relating to such public taking (including all compensation for the Tenant’s Leasehold Improvements, the Tenant’s Fit-up and the Landlord’s Work which are the subject of the public taking) and any right of the Tenant to such compensation is hereby assigned to the Landlord.
21.
PERMITS
21.1
Approvals, Permits and Licenses
- The Tenant shall obtain and maintain all approvals, permits and licences required for its occupation of the Leased Premises and for the conduct of its business therein, the Landlord making no warranties whatsoever regarding zoning, permits or licences which may be required by the Tenant.
22.
FORBEARANCE OR INDULGENCE
22.1
Non-Waiver
- The failure of the Landlord to insist upon strict performance of any of the agreements, terms, covenants and conditions hereof to be performed by the Tenant shall not be deemed a waiver of any rights or remedies that the Landlord and may have and shall not be deemed a waiver of any subsequent breach or default of any such agreements, terms, covenants and conditions.
23.
INTEREST
23.1
Interest
— Rent and all other sums payable by the Tenant to the Landlord hereunder shall, if not paid when due, bear interest at the Stipulated Rate of Interest from the date due until payment thereof.
24.
RELOCATION OF THE LEASED PREMISES
24.1
Landlord’s Right to Relocate the Tenant
- The Landlord shall have the right, at any time upon SIXTY (60) day’s written notice, to relocate the Tenant to other premises in any other building owned by the Landlord in the aforementioned Technoparc Saint-Laurent of which the Leased Premises form part (the “Relocated Premises”) and the following terms and conditions shall be applicable:
24.1.1
the Relocated Premises shall contain approximately the same area as the Leased Premises ;
24.1.2
the Landlord shall provide, of its expense, Landlord’s Work in the Relocated Premises substantially equal to the standards of the Landlord’s Work and the Tenant’s Fit-Up in the Leased Premises immediately prior to such relocation;
24.1.3
the Landlord shall pay for the moving costs (if any) of the Tenant’s trade fixtures and furnishings from the Leased Premises to the Relocated Premises;
24.1.4
Basic Minimum Rent and Tenant’s Proportionate Share of Operating Costs for the Relocated Premises shall be no greater than the Basic Minimum Rent and Tenant’s Proportionate Share of Operating Costs for the Leased Premises; and
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24.1.5
all other terms and conditions of this Lease shall apply to the Relocated Premises except as are inconsistent with the terms and conditions of this Article 24.
25.
MOVABLE HYPOTHEC
25.1
Movable Hypothec
- As collateral security for the fulfillment of the obligations, terms and conditions of this Lease (but without novation of or in any manner, being construed as discharging or satisfying the Tenant’s obligations under this Lease nor of any other security given by the Tenant or others for the performance of the Tenant’s obligations hereunder), the Tenant hereby hypothecates, by way of a first-ranking fixed movable hypothec, the Landlord hereto present and accepting, with effect as and from the date of this Lease, to the extent of the sum of ONE HUNDRED AND FIFTY THOUSAND DOLLARS ($150,000.00), together, with interest thereon at the rate of FIFTEEN PERCENT (15%) per annum, calculated half-yearly, not in advance, the universality of all the Movable Property of the Tenant, present or future, corporeal or incorporeal, situated in, on about or near the Leased Premises. The Hypothec created in this Lease shall subsist without reduction until complete performance by the Tenant of all its obligations under this Lease and the payment of the rentals and all other sums that may be payable by the Tenant to the Landlord pursuant to this Lease from time to time or pursuant hereto. Such hypothec shall rank ahead or all hypothecs, prior claims or rights of any nature or kind in favour of any and all creditors. The costs of publishing this hypothec shall be borne by the Tenant. The Tenant also undertakes to execute such further any other forms and documents that may be necessary in order give effect to the provisions of this Section 25.1 and the hypothec herein created.
For the purpose hereof, “Movable Property” shall mean all movable property, furniture, stock-in-trade, inventory, trade fixtures and equipment of whatsoever nature or kind, present or future, corporal or incorporeal situated in, on, about or near the Leased premises, including, without limitation, sums of money, share, bonds, other securities, works of art, books and records and all indemnities payable pursuant to and rights resulting from all contract of insurance relating to the aforesaid property.
Provided the Tenant is not in default, the Landlord agrees that if the Tenant from time to time wishes to acquire specialized equipment (including laboratory, computer and telecommunication equipment) to be placed in the Leased Premises and if the Tenant requires that the acquisition of such specialized equipment be financed with a
bona fide
arms-length financial institution requires as security for its loan, or other financing, given for the acquisition of such specialized equipment, a first-ranking movable hypothec on such specialized equipment to be so acquired, then the Landlord will postpone its hypothec in favour of such
bona
fide arms-length financial institution in respect of such equipment, but to the extent only of the lesser of the purchase price of such equipment and the amount of such financing and will execute documentation as reasonably necessary to give effect thereto, the whole at the cost of the Tenant.
Notwithstanding the foregoing, the Tenant shall furnish and maintain in the Leased Premises, throughout the Term and any renewal thereof, Movable Property all free and clear of any hypothecs, conditional sales contracts and other encumbrances whatsoever, save for the Landlord’s hypothec, which has a value equal to or greater than the aforesaid principal amount of the hypothec plus TWENTY PERCENT (20%).
If the Tenant shall be in default under the terms of this Lease, the Landlord, in addition to any other available remedy hereunder or at law, may exercise any or all of its hypothecary rights in respect of the Movable Property of the Tenant at any place to which the Tenant or other person may have removed such Movable Property had remained upon the Leased Premises.
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26.
STATUS CERTIFICATES AND SUBORDINATION
26.1
Landlord’s Right to Hypothecate or Assign its Rights
- The Landlord declares and the Tenant acknowledges that the Landlord may hypothecate or assign its rights under this Lease to a lending institution or any Hypothecary Creditor or lender as collateral security for any loan and in the event that any such hypothec or assignment is given and executed by the Landlord and notification thereof is given to the Tenant, the Tenant hereby agrees that it will, if and whenever reasonably required to do so by the Landlord, subordinate this Lease to any such mortgage, hypothec or loon arranged by the Landlord on the security of the Leased Premises, provided the lender delivers to the Tenant a non-disturbance agreement in the lender’s form to the effect that, so long as the Lease is in good standing and the Tenant is not in default hereunder, the Tenant may remain in quiet possession of the Leased Premises,
26.2
Tenant’s Obligation to Deliver Statements
- The Tenant shall, at any time and from time to time upon not less than FIVE (5) days’ prior notice, execute and deliver to the Landlord, in the Landlord’s form or as the Landlord may direct, a statement in writing certifying that this Lease has been validly executed and delivered by the Tenant pursuant to due corporate action properly taken by it and is unmodified and in full force and effect for if modified, stating the modification and stating that the same is in full force and effect as modified), the Commencement Date and the termination date, the amount of the Basic Minimum Rent and any other amounts then being paid hereunder, the dates to which, by installment or otherwise, Rent and amounts and other charges payable hereunder have been paid, whether or not there is any existing default on the part of the Landlord of which the Tenant is aware and such other matters as the Landlord or Hypothecary Creditor or any prospective purchaser may reasonably request. Any such statement may be conclusively relied upon by any prospective purchaser or purchasers or by the Hypothecary Creditor.
27.
LEGAL HYPOTHECS
27.1
Tenant’s Obligation to Ensure that No Legal Hypothecs be Registered
- The Tenant shall throughout the Term promptly pay all its contracts suppliers and workmen for any work or services performed or materials supplied which might give rise to a legal hypothec and shall ensure that no legal hypothec is registered against the Building, the Lands, the Property or any part thereof. Should a legal hypothec be registered against the Building, the Lands, the Property or any part thereof as a result of work or services performed by or on behalf of the Tenant or as the result of materials supplied to the Tenant, the Tenant shall cause the legal hypothec to be discharged forthwith and should the Tenant fail to discharge same promptly, then in such event and in addition to any other right or remedy of the Landlord, the Landlord may but shall not be obliged, to, discharge the same by paying the amount claimed directly to the hypothecary creditor and the amount so paid, together with all costs and expenses including attorney’s fees incurred for the discharge of the legal hypothec together with an administration fee of FIFTEEN PERCENT (15%), shall be immediately due and payable by the Tenant to the Landlord as Additional Rent upon demand. Notwithstanding the foregoing, the Tenant may contest the validity or the amount of any such legal hypothec, provided such contestation is effected in good faith and with due diligence and provided further that the Tenant lodges with the Landlord security in the amount and of the nature determined by the Landlord, the whole subject to any and all requirements of the Hypothecary Creditor.
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27.2
Tenant’s Obligation to Obtain Renunciations or Cessions of Priority
- The Tenant hereby agrees to obtain from all its architects, engineers, contractors, subcontractors, suppliers and workmen and from any other person which may be entitled to a legal hypothec, a renunciation of or (at the Landlord’s option) cession of priority for their respective legal hypothecs in connection with work performed or materials supplied in respect of the Leased Premises. If the Tenant is unable to obtain such renunciations or cessions of priority after having used reasonable efforts to do so, it shall place with the Landlord security in an amount considered sufficient and satisfactory to the Landlord in order to guarantee completion of the Work and payment of the cost thereof.
28.
PEACEABLE ENJOYMENT
28.1
Tenant’s Right to Peaceable Enjoyment
- The Landlord agrees that the Tenant, upon paying the Rent covenanted to be paid herein and observing and performing all the covenants, agreements and conditions herein contained on the Tenant’s part to be observed and performed, may peacefully enjoy the Leased Premises during the Term of this Lease, subject, nevertheless, to all the provisions of this Lease.
29.
OUTSIDE AREAS
29.1
Outside Area
— The Tenant shall not use any part of the Property which is not built upon for any purpose other than as may be designated by the Landlord. Without limiting the generality of the foregoing, the Tenant shall not use the exterior parking areas for any other purpose than the parking of automobiles and in the case of paved areas specifically designated by the Landlord as shipping and receiving areas for any other purpose than shipping and receiving goods to and from the Leased Premises. No outside storage is permitted.
30.
SECURITY DEPOSIT
30.1
Security Deposit
— The Tenant shall remit, upon execution of the present, to the Landlord, as a deposit a sum of
TWENTY-FIVE THOUSAND DOLLARS ($25,000.00)
. Such deposit shall be security, in part, for the performance of all of the obligations and covenants of Tenant under this Lease, it being expressly understood, however, that such deposit shall not be construed as discharging or satisfying Tenant’s obligations under this Lease. If the Tenant is not otherwise in default of its obligations under this Lease, said deposit shall be applied to the payment of the Rent for the first month of the Term and thereafter, to the Rent for the last month of the Term. In order to secure; the obligations of the Tenant under Section 18.2 hereof, any remaining balance of the said security deposit shall only be released to the Tenant(2)
six—(6)
months after the date on which the Term of the Lease expired. The Landlord may apply the said remaining balance of the security deposit towards the fulfillment of the Tenant’s obligations under Section 18.2 of this Lease.
30.2
Application of Security Deposit - In the event of the termination or cancellation of this Lease prior to the expiration of the Term hereof, which termination is due to the fault of the Tenant, then the Landlord shall have the right, at its option, to apply any portion of the deposit not yet applied by the Landlord in accordance with Section 30.1 hereof to damages or other sums due hereunder or at law without prejudice to the Landlord’s rights to claim for accelerated rent or damages or other sums due.
(2) Three (3)
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31.
MISCELLANEOUS
31.1
Overholding - No Tacit Renewal
- Notwithstanding Articles 1878 and 1879 of the
Civil Code of Quebec
or any law or custom to the contrary, the present Lease shall not be subject to tacit renewal and the Tenant is not to have the right to such occupancy beyond the expiry of the Term, unless the landlord and the Tenant have agreed in writing on the terms and conditions of a renewal or extension prior to the expiry. In the event that the Tenant remains in possession of the leased Premises after the expiry of the Term without a written agreement as provided above, such occupancy shall be deemed to be a tenancy from month to month and such continued occupancy shall be at a monthly rate payable in advance equal to TWO HUNDRED PERCENT (200 %) of the monthly installment of Rent payable for the last month of the Term and shall be without prejudice to the Landlord’s right to re-enter and take possession of the Leased Premises and remove the Tenant there from without notice or indemnity to the Tenant and without prejudice to the Landlord’s other recourses hereunder or by law.
31.2
Governing Law and Severability
— This Lease shall be construed by and governed in accordance with the laws of Province of Quebec. If for any reason whatsoever any term, obligation or condition of this Lease or the application thereof to any person or circumstance is to any extent held or rendered invalid, unenforceable or illegal, then such term, obligation or condition shall be deemed severable and divisible from the remainder of this Lease and its validity, unenforceability or illegality shall not affect impair or invalidate the remainder of the Lease or any part thereof an such term, obligation or condition shall continue to be applicable to and enforceable against any other person or circumstance other than those to which it has been held or rendered invalid, unenforceable or illegal.
31.3
Entire Agreement
— This Lease together with the Schedules referred to herein and the Rules and Regulations adopted and promulgated by the Landlord pursuant to the provisions hereof set forth the entire agreement and understanding between the parties concerning the Leased Premises and the Tenant acknowledge that there have been no promises, representations, agreements, conditions or understandings, either oral or written between the Landlord and the Tenant other than as herein set forth. Except as otherwise expressly provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon the Landlord or the Tenant unless in writing and duly signed by the Tenant and the Landlord.
31.4
Unavoidable Delay
— In the event that the Landlord or the Tenant is delayed, hindered or prevented from the performance of any act or covenant required hereunder to be performed by it by reason of Unavoidable Delay, then the performance of such act or covenant by the Landlord or the Tenant (as the case may be) shall be excused for the period during which such performance is rendered impossible and the time for the performance thereof shall be extended accordingly. Notwithstanding the foregoing, provisions of this Section 31.4 do not cancel or postpone or delay the due date of any payment to be made by the Tenant hereunder or operate to excuse the Tenant from the prompt payment of Basic Minimum Rent or Additional Rent or other payments required to be made by it under the terms of this Lease.
31.5
Commissions
- The Tenant represents and covenants to the Landlord that no broker or agent introduced the Tenant to the Leased Premises or negotiated or was instrumental in negotiating or consummating the offer to lease Of any) entered into between the Landlord and the Tenant in respect of the Leased Premises nor this Lease. The Tenant agrees to indemnify and hold harmless the Landlord from all actions token by brokers or agents for the payment of fees or commissions relating to the offer to lease (if any) entered into between the Landlord and the Tenant and this Lease.
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31.6
Registration
- The Tenant shall have the right to register this Lease solely against such portion of the Property as described below in this Section 31.6 and solely by presenting a notice prepared in accordance with and containing the information set tout in section 2999.1 of the Civil Code of Quebec. Such notice shall not contain any mention of the rental terms or other financial conditions contained in this Lease. The preparation of such notice and registration of same shall be at the Tenant’s expense and may be registered only after the form and terms of such notice shall have been approved by the Landlord, which approval shall not be unreasonably withheld nor delayed. The Tenant shall supply at its expense a registered copy of such notice to the Landlord. Upon the termination of this Lease, the Tenant shall radiate, at its expense, the registration of this Lease, the Tenant hereby expressly and irrevocably appointing the Landlord as attorney and representative for the Tenant for such purposes with full power and authority to radiate such registration and to execute and deliver in the name of the Tenant any instruments or documents required for such purpose.
The sole property against which this Lease may be registered is ONE MILLION, ONE HUNDRED AND SIXTY-FIVE THOUSAND, SIX HUNDRED AND TWENTY-FIVE (1,165,625) of the Cadastre of Quebec, Registration Division of Montreal.
31.7
Solidarity
- When several persons companies, firms or entities are named as Tenant or Indemnifiers, they are solidarily liable for fulfillment of the obligations undertaken by the Tenant or the Indemnifiers, as the case may be, under the terms hereof the whole without the benefit of division, discussion or subrogation.
31.8
Successors and Assigns
— All rights and liabilities herein granted to or imposed upon the respective parties hereto extend to and bind the successors and assigns of the Landlord and the heirs, executors, administrators and permitted successors and assigns of the Tenant, as the case may be. No right, however, shall enure to the benefit of any assignee or successor of the Tenant unless such successor or the assignment to such assignee has been made in accordance with Article 15 hereof. Provided further that any rights stated herein to be personal to
METHYLGENE INC.
shall not enure to it’s assignees or subTenants.
31.9
Relationship
— The Landlord does not, in any way or for any purpose, including, without limitation, the provision of Article 13 of this Lease, become a partner of the Tenant in the conduct of its business or otherwise or a joint venturer or a member of a joint enterprise with the Tenant and neither any provision contained herein nor any acts of the parties hereto shall create a relationship between the parties other than that of landlord and tenant.
31.10
Financial and Corporate Information
— The Tenant has forwarded to the Landlord, a copy of its most recent audited financial statements and business plan and for every year during the Term of the Lease, the Tenant shall provide to the Landlord, within ONE HUNDRED AND TWENTY (120) days of the end of its financial year, a certified copy of its audited financial statements for the financial year just ended. Further, the Tenant shall, upon request and without undue delay, provide the Landlord with such information as to the Tenant’s financial standing and corporate organization as the Landlord or any Hypothecary Creditor may reasonably require.
31.11
Personal Information
- The Tenant hereby authorizes and acknowledges that the Landlord may establish a file containing personal information relating to the Tenant and/or any partner of the Tenant if the Tenant is a partnership, the object of such file being to maintain at all times throughout the term of this Lease, up to date personal and financial information regarding the Tenant and the partners of the Tenant, as the case may be. Such information shall be used in the administration, management, evaluation and enforcement of this Lease and may also be used for the purposes of obtaining and maintaining financing for the Property and/or Building and/or of the Landlord and/or for the purposes of the sale, transfer or other alienation ‘of the property, of the Building or of the Landlord’s interest therein.
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The Tenant agrees that the Landlord’s employees in charge of management and administration of this Lease or enforcement hereof, mandataries, insurers, lenders and internal and external auditors may have access to information collected on the Tenant. The Landlord shall keep such information at its offices situated at the address indicated ‘in Subsection 32.1.1 of this Lease where the Tenant may have access to the file and, as the case may be, present a request for rectification. The Tenant also authorizes the Landlord to collect personal and financial information regarding its financial situation and that of the partners of the Tenant if the Tenant is a partnership and their respective abilities to fulfill their obligations hereunder from third persons, as the case may be, and to communicate it to any of the foregoing persons, any hypothecary creditor or lender of the Landlord (or of the Property, of the Lands or of the Building) and to any future assignee of the Landlord’s rights hereunder.
31.12
Changes Requested by Hypothecary Creditors(s)
- If a Hypothecary Creditor requires reasonable changes to this Lease, the Tenant shall execute such documents or other instruments necessary to give effect to such changes, provided no such change shall affect the Term, the location of the Leased Premises, the Rentable Area of the Leased Premises or any Basic Minimum Rent payable hereunder.
31.13
Adequate Explanation
- The Tenant declares that it has received from its legal counsel, sufficient explanation of the nature and extent of the terms and conditions of this Lease and of the obligations and rights deriving therefrom for the Tenant and for the Landlord. The Tenant further acknowledges that it had the opportunity to negotiate and that the provisions of this Lease were freely negotiated by it and, agrees that the provisions of this Lease shall be interpreted according to its fair construction and shall not be construed more strictly against either party.
31.14
Authority
— The Tenant represents and warrants that it is duly formed and in good standing, and has full corporate or partnership power and authority, as the case may be, to enter into this Lease and has taken all corporate or partnership action, as the case may be, necessary to carry out the transaction contemplated herein, so that when executed, this Lease constitutes a valid and binding obligation enforceable in accordance with its terms. The Tenant shall provide the Landlord with corporate resolutions or other proof in a form acceptable to the Landlord, authorizing the execution of this lease.
31.15
Specific Waivers
— The Tenant renounces by these presents the benefit of and waives its rights and recourses under Articles 1859, 1861, 1863(2), 1865, 1867, 1868, 1869 and 1883 of the
Civil Code of Quebec
.
31.16
Waiver of Liability —
Notwithstanding any law, usage or custom to the contrary, the Landlord shall not be liable to the Tenant for damages resulting from the act of a third person and the Tenant does hereby expressly renounce to any fight or recourse it may have against the Landlord as a result of such act and, without limiting the generality of the foregoing, the Tenant renounces and waives its right to obtain a reduction of Rent, cancellation of the Lease or damages.
31.17
Waiver of Rights under Section 65.2 of the Bankruptcy and Insolvency Act —
The Tenant hereby waives any right which it may have pursuant to or by virtue of Section 65.2 of the Bankruptcy and Insolvency Act, as the same may be amended, replaced or modified from time to time, to repudiate this Lease.
31.18
Confidentiality —
This Lease and any other related or inherent documents shall be treated in a strict and confidential manner and shall not be duplicated except for necessary steps in order to conclude this leasing transaction which include disclosure to the legal counsel of respectively the Tenant and the Landlord.
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32.
NOTICES
32.1
Notices —
All notices, statements, demands, consents, requests or waivers required or permitted to be given or made hereunder shall be in writing and shall be delivered by hand or mailed by prepaid registered mail or sent by telecopier, addressed:
32.1.1
if to the Landlord, as follows :
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GE Q-TECH REAL ESTATE HOLDINGS INC.
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440 Armand Frappier, Suite 300,
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Laval (Québec) H7V 4B4
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Attention:
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Regional Director — Quebec
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Telecopier:
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(450) 686-6700
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32.1.2
if to Tenant, as follows:
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METHYLGENE INC.
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7150 Frederick-Bating, Suite 200
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Saint-Laurent, Quebec H4S 2A1
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Attention:
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Klaus Kepper
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Telecopier:
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Any such notice, statement, demand, consent, request or waiver, if delivered, shall be deemed to have been given on the date of delivery, if mailed, on the THIRD (3
rd
) Business Day following the date of mailing thereof as aforesaid and if sent by telecopier, on the FIRST (1
st)
Business Day following the day of delivery thereof by telecopier. Either party may change its address, telecopier number or the name of the person indicated as the recipient by notice to the other in the manner aforesaid. In the event of interruption or threatened interruption in postal service, such notice shall be delivered addressed as aforesaid or sent by telecopier.
33.
ADDITIONAL SECURITY
33.1
Letter of Credit —
N/A.
34.
ADDITIONAL CLAUSES AND LANGUAGE
34.1
Additional Clauses —
The parties agree that the additional clauses set out in Schedule “D” annexed hereto form part of this Lease. The Tenant acknowledges that each of the rights and options provided under Schedule “D” annexed hereto are personal to METHYLGENE INC. and to any successor corporation thereof and may not be transferred to nor exercised by any assignee of the Lease nor to any subtenant of the Leased Premises or any part thereof.
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INITIALS
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TENANT
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LANDLORD
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/s/ KK
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/s/ TM
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34.2
Language Clause —
The parties declare that they have requested and do hereby confirm their request that the present agreement be in English.
Les parties déclarent qu’elles ont exigé et par les présentes confirment leur demande que la présente convention soit rédigée en anglais.
IN WITNESS WHEREOF, THE TENANT HAS SIGNED THE PRESENT LEASE IN THE CITY OF ST. LAURENT ON THIS 26
TH
DAY OF JANUARY, 2012.
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METHYLGENE INC.
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Per
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/s/
Klaus Kepper
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Witness
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Klaus Kepper
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Witness
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IN WITNESS WHEREOF, THE LANDLORD HAS SIGNED THE PRESENT LEASE IN THE CITY OF LAVAL, PROVINCE OF QUEBEC ON THIS 2
ND
DAY OF FEBRUARY, 2012.
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GE Q-TECH REAL ESTATE HOLDINGS INC.
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Per
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/s/
Joe ladeluca
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Witness
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Joe ladeluca
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Per
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/s/ Tony Maduri
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Witness
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Tony Maduri
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