<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 2000
REGISTRATION NO. 333-30134
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SANGAMO BIOSCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8731 68-0359556
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
501 CANAL BOULEVARD, SUITE A100
RICHMOND, CA 94804
(510) 970-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
EDWARD O. LANPHIER II
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SANGAMO BIOSCIENCES, INC.
501 CANAL BOULEVARD, SUITE A100
RICHMOND, CA 94804
(510) 970-6000
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
JOHN W. LARSON, ESQ. WILLIAM J. CERNIUS, ESQ.
ELIZABETH A. R. YEE, ESQ. JOSEPH G. MCCARTHY, ESQ.
BROBECK, PHLEGER & HARRISON LLP LATHAM & WATKINS
ONE MARKET 650 TOWN CENTER DRIVE, 20TH FLOOR
SPEAR STREET TOWER COSTA MESA, CA 92626
SAN FRANCISCO, CA 94105 (714) 540-1235
(415) 442-0900
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 14, 2000
PROSPECTUS
5,000,000 Shares
[SANGAMO LOGO]
SANGAMO BIOSCIENCES, INC.
Common Stock
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This is our initial public offering of shares of common stock. We are
offering 5,000,000 shares. No public market currently exists for our shares. We
currently anticipate the price range for the common stock to be between $15.00
and $17.00 per share.
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "SGMO."
INVESTING IN THE SHARES INVOLVES RISK. "RISK FACTORS" BEGIN ON PAGE 5.
<TABLE>
<CAPTION>
PER
SHARE TOTAL
-------- --------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting discounts...................................... $ $
Proceeds to Sangamo......................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 750,000
additional shares of common stock to cover any over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lehman Brothers expects to deliver the shares on or about April , 2000.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
CHASE H&Q
ING BARINGS
WILLIAM BLAIR & COMPANY
, 2000
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................ 1
Risk Factors...................... 5
Special Note Regarding Forward-
Looking Statements.............. 17
Use of Proceeds................... 18
Dividend Policy................... 18
Capitalization.................... 19
Dilution.......................... 20
Selected Financial Data........... 21
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 22
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Business.......................... 26
Management........................ 43
Related Party Transactions........ 57
Principal Stockholders............ 58
Description of Capital Stock...... 60
Shares Eligible for Future Sale... 63
Underwriting...................... 65
Legal Matters..................... 67
Experts........................... 68
Where You Can Find Additional
Information..................... 68
Index to Financial Statements..... F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different
from that contained in this prospectus. We are offering to sell, and seeking
offers to buy, shares of common stock only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of common stock.
This preliminary prospectus is subject to completion prior to this
offering. Among other things, this preliminary prospectus describes our company
as we currently expect it to exist at the time of this offering.
Universal Gene Recognition(TM), Universal GeneTools(TM),
ZFP-Diagnostics(TM), ZFP-Therapeutics(TM), ZFP-Transgenics(TM) and ZFP(TM) are
our trademarks. We will apply to register Universal Gene Recognition, Universal
GeneTools, ZFP-Diagnostics, ZFP-Therapeutics, ZFP-Transgenics and ZFP. All
trademarks and trade names appearing elsewhere in this prospectus are the
property of their respective holders.
Until , 2000, 25 days after the date of this prospectus, all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligations to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights some of the information found in greater detail
elsewhere in this prospectus. Unless otherwise indicated, information in this
prospectus assumes that the underwriters do not exercise their over-allotment
option, assumes the conversion of all of our preferred stock into common stock
upon effectiveness of this offering and a 2-for-1 stock split which will be
effected before completion of the offering.
Sangamo BioSciences, Inc. is a leader in the research and development of
novel transcription factors for the regulation of genes. Genes are composed of
DNA and control the expression and transmission of all inherited traits.
Transcription factors are proteins that turn genes on and turn genes off, or
regulate gene expression, by recognizing specific DNA sequences.
Our Universal Gene Recognition technology enables the engineering of a
class of transcription factors known as zinc finger DNA binding proteins, or
ZFPs. ZFPs are the most abundant class of transcription factors in humans and
other higher organisms and naturally function to regulate gene expression. By
engineering ZFPs so that they can recognize a specific gene, we have created ZFP
transcription factors that can control gene expression and, consequently, cell
function. We intend to establish Universal Gene Recognition as a widely used
technology for commercial applications in pharmaceutical discovery, therapeutics
for the treatment of human diseases, clinical diagnostics, and agricultural and
industrial biotechnology.
Enormous scientific and financial resources are being dedicated to the
identification of all human genes, referred to as the sequencing of the human
genome. The accelerating pace of genetic discovery creates significant
opportunities for pharmaceutical and other life science companies. The challenge
facing these companies is how to derive medically and commercially valuable
knowledge from this large accumulation of new genetic information.
We believe our Universal Gene Recognition technology has the potential to
address these challenges and has broad applicability to the sectors below, each
of which represents a significant target market with unmet needs:
- Universal GeneTools for Pharmaceutical Discovery are ZFP transcription
factors for the identification and evaluation of medically important
genes in humans, animals and other organisms, and for improved efficiency
in the screening of chemical compounds for pharmaceutical discovery;
- ZFP-Therapeutics are ZFP transcription factors developed as
pharmaceutical products to treat a broad spectrum of diseases through the
regulation of disease-related genes;
- ZFP-Diagnostics are developed to detect specific DNA sequences in
clinical samples of DNA, to determine an individual's potential
susceptibility to disease or probable response to drug therapy; and
- ZFP Transcription Factors for Agricultural and Industrial Biotechnology
are designed for use in the study of newly discovered plant genes,
agrochemical discovery, the engineering of plants with improved
properties and the biological production of industrial chemicals.
We believe our engineered ZFP transcription factors have numerous
advantages for the regulation of gene expression including:
- ZFP transcription factors normally and naturally regulate gene expression
in the cells of virtually all higher organisms;
- ZFPs can be designed to recognize unique DNA sequences resulting in the
ability to recognize a single gene within an organism's entire genome;
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<PAGE> 5
- ZFP transcription factors can turn on or turn off a target gene,
enhancing their versatility;
- ZFP transcription factors can be used to regulate gene expression in many
different organisms including humans, animals, plants, fungi, bacteria
and viruses; and
- ZFP transcription factors can turn genes on and turn genes off in a
reversible fashion, allowing regulation of gene expression for a defined
period of time.
To date, we have engineered hundreds of ZFP transcription factors and have
performed experiments to test their ability to recognize their target sequences
and to function in cells. We have also demonstrated the ability of ZFP
transcription factors to regulate a limited number of commercially important
genes.
We intend to develop our Universal Gene Recognition technology for
applications in pharmaceutical discovery, therapeutics for the treatment of
human diseases, clinical diagnostics, and agricultural and industrial
biotechnology. To establish Universal Gene Recognition as a widely used
technology in life sciences industries, and to fund internal research and
development activities, we have established and will continue to pursue
collaborations with selected pharmaceutical and biotechnology companies. We have
signed Universal GeneTools agreements, which we refer to as collaborations, with
18 pharmaceutical or biotechnology companies including the following companies
or their subsidiaries:
<TABLE>
<S> <C>
- Pfizer Inc., - F. Hoffmann-La Roche Ltd.,
- SmithKline Beecham plc, - Immunex Corporation,
- Millennium Pharmaceuticals, Inc., - Pharmacia & Upjohn Company,
- AstraZeneca PLC, - Genset SA,
- Schering AG, - Warner-Lambert Company,
- Bayer Corporation, - Merck KGaA,
- Glaxo Wellcome plc, - Zaiya Incorporated and
- DuPont Pharmaceuticals Company, - Procter & Gamble Pharmaceuticals.
- Japan Tobacco Inc.,
</TABLE>
We have also entered into a strategic partnership with Edwards LifeScience,
Inc., formerly the CardioVascular Group of Baxter Healthcare Corporation, for
the development and commercialization of ZFP-Therapeutics in cardiovascular and
peripheral vascular diseases. Under this agreement, Baxter has purchased a $5
million convertible note which will convert into common stock upon consummation
of this offering, and we have received $1 million in initial research funding
from Baxter. Baxter has exercised an option by purchasing an additional $7.5
million convertible note which will convert into common stock upon consummation
of this offering for a right of first refusal to negotiate a license for
additional ZFP-Therapeutics in cardiovascular and peripheral vascular diseases.
We expect to enter into other strategic partnerships to accelerate the
development of ZFP transcription factors as potential pharmaceutical candidates.
Sangamo was founded and incorporated in Delaware in 1995. Our principal
offices are located at 501 Canal Boulevard, Suite A100, Richmond, CA 94804, and
our telephone number is (510) 970-6000.
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<PAGE> 6
THE OFFERING
Common stock offered by Sangamo..... 5,000,000 shares
Common stock to be outstanding after
the offering........................ 22,300,147 shares
Use of proceeds..................... For research and development, capital
equipment and general corporate
purposes. See "Use of Proceeds" for
more information regarding our planned
use of the proceeds from this offering.
Proposed Nasdaq National Market
symbol.............................. SGMO
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999 adjusted to
reflect the issuance of 333,333 shares of preferred stock in January 2000 which
converts into 666,666 shares of common stock upon consummation of this offering
and, together with accrued interest, the issuance of a $5 million note in
January 2000 and a $7.5 million note in March 2000 which convert into common
stock at the initial public offering price upon the consummation of the
offering, and excludes:
- a total of 1,872,666 shares issuable upon the exercise of outstanding
options at a weighted average exercise price of $0.15 per share;
- a total of 259,962 shares issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $2.00 per share; and
- a total of 2,400,000 shares available for future issuance under our stock
plans.
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<PAGE> 7
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data for our company. You
should read this information together with the financial statements and the
notes to those statements appearing elsewhere in this prospectus and the
information under "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Please see the
financial statements and the notes to the statements appearing elsewhere in this
prospectus for the determination of the number of shares used in computing the
basic and diluted and pro forma basic and diluted net loss per share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
------- --------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................................. $ 1,152 $ 2,038 $ 2,182
Operating expenses:
Research and development................................. 1,700 4,259 4,266
General and administrative............................... 797 1,237 1,822
------- --------- -----------
Total operating expenses................................... 2,497 5,496 6,088
------- --------- -----------
Loss from operations....................................... (1,345) (3,458) (3,906)
------- --------- -----------
Interest income (expense), net............................. (55) 173 131
------- --------- -----------
Net loss................................................... $(1,400) $ (3,285) $ (3,775)
======= ========= ===========
Basic and diluted net loss per share....................... $ (0.26) $ (0.56) $ (0.63)
======= ========= ===========
Shares used in computing basic and
diluted net loss per share............................... 5,485 5,843 5,991
======= ========= ===========
Pro forma basic and diluted net loss per share
(unaudited).............................................. $ (0.29)
===========
Shares used in computing pro forma basic and diluted net
loss per share (unaudited)............................... 13,102
===========
</TABLE>
The following table is a summary of our balance sheet as of December 31,
1999. The pro forma column reflects the issuance in January 2000 of 333,333
shares of preferred stock for $1.5 million which converts into 666,666 shares of
common stock upon consummation of this offering and a $5 million note in January
2000 and a $7.5 million note in March 2000 which convert, together with accrued
interest, into common stock at the initial public offering price upon
consummation of this offering. The pro forma as adjusted column also reflects
our receipt of the estimated net proceeds from the sale of the shares of common
stock offered in this offering at an assumed initial public offering price of
$16.00 per share after deducting the estimated underwriting discount and
offering expenses payable by us. See "Use of Proceeds" and "Capitalization" and
Notes 1, 4, and 7 of Notes to Financial Statements.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments....... $ 7,503 $ 21,503 $ 94,703
Working capital.......................................... 7,206 21,206 94,406
Total assets............................................. 9,287 23,287 96,487
Long-term debt........................................... 250 250 250
Accumulated deficit...................................... (8,785) (8,918) (8,918)
Total stockholders' equity............................... 8,007 22,007 95,207
</TABLE>
4
<PAGE> 8
RISK FACTORS
An investment in our common stock is risky. You should carefully consider
the following risks, as well as the other information contained in this
prospectus. If any of the following risks actually occurs, it would harm our
business. In that case, the trading price of our common stock could decline, and
you might lose all or a part of your investment. The risks and uncertainties
described below are not the only ones facing us. Additional risks and
uncertainties not presently known to us or that we currently see as immaterial,
may also harm our business.
RISKS RELATED TO OUR BUSINESS
OUR GENE REGULATION TECHNOLOGY IS UNPROVEN AND IF WE ARE UNABLE TO USE THIS
TECHNOLOGY IN ALL OUR INTENDED APPLICATIONS, IT WOULD LIMIT OUR REVENUE
OPPORTUNITIES.
Our technology involves new and unproven approaches to gene regulation.
Although we have generated some ZFP transcription factors for some gene
sequences, we have not created ZFP transcription factors for all gene sequences
and we may not be able to create ZFP transcription factors for all gene
sequences which would limit the usefulness of our technology. In addition, while
we have demonstrated the function of engineered ZFP transcription factors in
cell cultures, we have not done so in animals and humans and many other
organisms, and the failure to do so could restrict our ability to develop
commercially viable products. If we and our Universal Gene Tools collaborators
or strategic partners are unable to extend our results to new gene sequences and
experimental animal models, we may be unable to use our technology in all its
intended applications. Also, delivery of ZFP transcription factors into cells in
these and other environments is limited by a number of technical challenges,
which we may be unable to surmount.
The utility of our ZFP transcription factors is in part based on the belief
that the regulation of gene expression may help scientists better understand the
role of human, animal, plant and other genes in drug discovery, as well as
therapeutic, diagnostic, agricultural and industrial biotechnology applications.
There is only a limited understanding of the role of genes in all these fields.
Life sciences companies have developed or commercialized only a few products in
any of these fields based on results from genomic research or the ability to
regulate gene expression. We, our Universal GeneTools collaborators or our
strategic partners may not be able to use our technology to identify and
validate drug targets or other targets in order to develop commercial products.
IF OUR TECHNOLOGY DOES PROVE TO BE EFFECTIVE, IT STILL MAY NOT LEAD TO
COMMERCIALLY VIABLE PRODUCTS, WHICH WOULD REDUCE OUR REVENUE OPPORTUNITIES.
Even if our Universal GeneTools collaborators or strategic partners are
successful in identifying drug targets or other targets based on discoveries
made using our ZFP transcription factors, they may not be able to discover or
develop commercially viable products or may determine to pursue products that do
not use our technology. To date, no company has developed or commercialized any
therapeutic, diagnostic, agricultural or industrial biotechnology products based
on our technology. The failure of our technology to provide safe, effective,
useful or commercially viable approaches to the discovery and development of
these products would significantly limit our business plan and future growth.
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<PAGE> 9
INITIAL EVALUATIONS OF OUR ENGINEERED ZFP TRANSCRIPTION FACTORS DELIVERED TO OUR
UNIVERSAL GENETOOLS COLLABORATORS HAVE PRODUCED MIXED RESULTS.
Some of our Universal GeneTools collaborators have been able to confirm the
potential utility of our gene regulation technology. Two of our collaborators,
however, have not yet been able to regulate gene expression using our
technology. We have taken steps to ascertain the reasons for these initial
observations. We are continuing to work with these collaborators to address and
remedy any issues that may be associated with the ZFP transcription factors,
including redesign of the ZFP transcription factors. These collaborators are
continuing to evaluate our technology. Further, most of our collaborators have
not yet started testing or have not yet generated the final results of their
testing. The ZFP transcription factors that we have generated for our other
collaborators or our strategic partner may not function as intended and the ZFP
transcription factors engineered in the future for other collaborators or
strategic partners may not function as intended. If we are unsuccessful in
engineering ZFP transcription factors that achieve positive results for our
collaborators or strategic partners, this would significantly harm our business
by reducing our revenues.
IF OUR COMPETITORS DEVELOP, ACQUIRE OR MARKET TECHNOLOGIES OR PRODUCTS THAT ARE
MORE EFFECTIVE THAN OURS, THIS WOULD REDUCE OR ELIMINATE OUR COMMERCIAL
OPPORTUNITY.
Any products that we or our collaborators or strategic partners develop
using our Universal Gene Regulation technology platform will participate in
highly competitive markets. Even if we are able to generate ZFP transcription
factors that achieve useful results, competing technologies may prove to be more
effective or less expensive which would limit or eliminate our revenue
opportunities. Competing technologies may include other methods of regulating
gene expression. Universal Gene Recognition has broad application in the life
sciences, and competes with a broad array of new technologies and approaches
being applied to genetic research by many companies. Competitive technologies
include those used to map and sequence DNA, analyze the expression of genes in
cells or tissues, determine gene function, discover new genes, analyze genetic
information and regulate genes. Our competitors include biotechnology companies
with:
- competing proprietary technology;
- substantially greater capital resources than ours;
- larger research and development staffs and facilities than ours;
- greater experience in product development and in obtaining regulatory
approvals and patent protection; and
- greater manufacturing and marketing capabilities than we do.
These organizations also compete with us to:
- attract qualified personnel;
- attract parties for acquisitions, joint ventures or other collaborations;
and
- license the proprietary technologies of academic and research
institutions that are competitive with our technology which may preclude
us from pursuing similar opportunities.
Accordingly, our competitors may succeed in obtaining patent protection or
commercializing products before us. In addition, any products that we develop
may compete with existing products or services that are well-established in the
marketplace.
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<PAGE> 10
FAILURE TO ATTRACT, RETAIN AND MOTIVATE SKILLED PERSONNEL AND CULTIVATE KEY
ACADEMIC COLLABORATIONS WILL DELAY OUR PRODUCT DEVELOPMENT PROGRAMS AND OUR
RESEARCH AND DEVELOPMENT EFFORTS.
We are a small company with 45 employees, and our success depends on our
continued ability to attract, retain and motivate highly qualified management
and scientific personnel, and our ability to develop and maintain important
relationships with leading academic and other research institutions and
scientists. Competition for personnel and academic and other research
collaborations is intense. The success of our technology development programs
depends on our ability to attract and retain highly trained personnel. If we
lose the services of personnel with these types of skills, it could impede
significantly the achievement of our research and development objectives. If we
fail to negotiate additional acceptable collaborations with academic and other
research institutions and scientists, or if our existing collaborations are
unsuccessful, our technology development programs may be delayed or may not
succeed.
At present the scope of our needs is somewhat limited to the expertise of
personnel who are able to engineer ZFP transcription factors and apply them to
gene regulation. In the future, we will need to hire additional personnel and
develop additional academic collaborations as we continue to expand our research
and development activities and to work on some of our planned projects because
these activities and projects will require additional expertise in disciplines
applicable to the products we would develop with them. Further, our planned
activities will require existing management to develop additional expertise. We
do not know if we will be able to attract, retain or motivate the required
personnel to achieve our goals.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH, WHICH MAY SLOW OUR GROWTH RATE OR
GIVE RISE TO INEFFICIENCIES WHICH WOULD REDUCE OUR PROFITS.
We have recently experienced, and expect to continue to experience, growth
in the number of our employees and the scope of our operating and financial
systems. This growth has resulted in an increase in responsibilities for both
existing and new management personnel. Our ability to manage growth effectively
will require us to continue to implement and improve our operational, financial
and management information systems and to recruit, train, motivate and manage
our employees. We may not be able to manage our growth and expansion, and the
failure to do so may slow our growth rate or give rise to inefficiencies which
would reduce our profits.
WE ARE AT AN EARLY STAGE OF DEVELOPMENT AND MAY NOT SUCCEED OR BECOME
PROFITABLE.
We began operations in 1995 and are at an early stage of development. We
have incurred significant losses to date, and our revenues have been limited to
federal government research grants and Universal GeneTools collaborators and a
strategic partner. Our Universal GeneTools collaborators are evaluating our
initial ZFP transcription factors. If the initial ZFP transcription factors do
not provide sufficient value to those collaborators, then they may not continue
to work with us. This may also impair our ability to attract additional
collaborators. As a result, our business is subject to all of the risks inherent
in the development of a new technology, which includes the need to:
- attract additional new Universal GeneTools collaborators and strategic
partners;
- attract and retain qualified scientific and technical staff and
management, particularly scientific staff with expertise to further apply
and develop our early stage technology;
- attract and enter into research collaborations with academic and other
research institutions and scientists;
- obtain sufficient capital to support the expense of developing our
technology platform and developing, testing and commercializing products;
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<PAGE> 11
- develop a market for our products; and
- successfully transition from a company with a research focus to a company
capable of supporting commercial activities.
In addition to competitive pressures, problems frequently encountered with
research, development and commercialization of new technologies and products
will likely affect us. Most of our ZFP design and testing procedures have been
initially developed on a relatively small scale. In the future, we intend to
apply ZFP design and testing procedures at a scale involving hundreds of genes
per year. We may not be able to successfully or efficiently achieve this scale.
In addition, while we have had success in applying ZFP gene regulation in our
laboratories, we may have difficulty in transferring our technology to our
collaborators' and strategic partners' laboratories.
WE ANTICIPATE CONTINUING TO INCUR OPERATING LOSSES FOR AT LEAST TWO YEARS. IF
MATERIAL LOSSES CONTINUE FOR A LONGER PERIOD, WE MAY BE UNABLE TO CONTINUE OUR
OPERATIONS.
We have generated operating losses since we began operations in 1995. The
extent of our future losses and the timing of profitability are highly
uncertain, and we may not be profitable in the foreseeable future. We have been
engaged in developing our Universal Gene Recognition technology since inception,
which has and will continue to require significant research and development
expenditures. To date, we have generated our revenues from federal government
research grants, Universal GeneTools collaboration agreements and a strategic
partnership agreement. As of December 31, 1999, we had an accumulated deficit of
approximately $8.8 million. Even if we succeed in increasing our current product
and research revenue or developing additional commercial products, we expect to
incur losses in the near future and may continue to incur losses for at least
the next two years. These losses may increase as we expand our research and
development activities. If the time required to generate significant product
revenues and achieve profitability is longer than we currently anticipate, we
may not be able to sustain our operations.
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO SUCCESSFULLY DEVELOP OUR TECHNOLOGY AND PRODUCTS.
Significant additional financing may be required to fund future operations.
We do not know whether additional financing will be available when needed, or
that, if available, it will be on terms favorable to our stockholders or us. We
have consumed substantial amounts of cash to date and expect capital outlays and
operating expenditures to increase over the next several years as we expand our
infrastructure and research and development activities. We may raise this
financing through public or private financings or additional Universal GeneTools
collaborations, strategic partnerships or licensing arrangements.
While we believe our current financial resources and the proceeds of this
offering should be adequate to sustain our operations for two years, it is not
possible to estimate our financial requirements thereafter. However, to the
extent we concentrate our efforts on proprietary human therapeutics, we will
require FDA approval and extensive clinical trials of our potential products.
This process can be expected to cost in excess of $100 million per product.
OUR TECHNOLOGY INFRASTRUCTURE IS NOT YET COMPLETE AND ANY DELAY OR FAILURE TO
COMPLETE IT COULD PREVENT US FROM EFFICIENTLY DELIVERING ZFP TRANSCRIPTION
FACTORS TO OUR UNIVERSAL GENETOOLS COLLABORATORS OR STRATEGIC PARTNERS.
Part of our strategy involves building additional technology infrastructure
to support our Universal Gene Recognition technology. This strategy includes the
continued research and
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development of improved and automated processes for design and production of our
ZFP transcription factors. In addition, we intend to continue to assemble large
collections, or libraries, of ZFPs for use in pharmaceutical target discovery.
Because this infrastructure is an important part of our platform, any delay or
failure to complete it could slow our growth and our ability to advance our
strategic initiatives.
OUR UNIVERSAL GENETOOLS COLLABORATION AGREEMENTS WITH COMPANIES ARE OF LIMITED
SCOPE, AND IF WE ARE NOT ABLE TO EXPAND THE SCOPE OF OUR EXISTING COLLABORATIONS
OR ENTER INTO NEW ONES, OUR REVENUES WILL BE NEGATIVELY IMPACTED AND OUR
RESEARCH INITIATIVES MAY BE SLOWED OR HALTED.
Our Universal GeneTools collaborations are important to us because they
permit us to introduce our technology to many companies by supplying them with a
specified ZFP transcription factor for a payment without licensing any of our
technology. The collaboration agreements, however, are of limited scope. Under
most of our current Universal GeneTools collaborations we receive a payment for
supplying ZFP transcription factors for gene targets specified by the companies.
These companies are not obligated to make continuing payments to us in
connection with their research efforts or to pursue any product development
program with us. As a result, we may not develop long-term relationships with
these companies that could lead to additional revenues. If we are not able to
expand the scope of our existing collaborations or enter into new ones, our
revenues will be negatively impacted and our research initiatives may be slowed
or halted.
COMMERCIALIZATION OF OUR TECHNOLOGIES DEPENDS ON STRATEGIC PARTNERING WITH OTHER
COMPANIES, AND IF WE ARE NOT ABLE TO FIND STRATEGIC PARTNERS IN THE FUTURE, WE
MAY NOT BE ABLE TO DEVELOP OUR TECHNOLOGIES OR PRODUCTS, WHICH COULD SLOW OUR
GROWTH AND DECREASE OUR REVENUES.
We expect to rely, to some extent, on our strategic partners to provide
funding in support of our research and to perform some independent research,
preclinical and clinical testing. We currently have only one strategic partner.
Since we do not currently possess the resources necessary to develop and
commercialize potential products that may result from our technologies, or the
resources or capabilities to complete any approval processes that may be
required for the products, we must enter into additional strategic partnerships
to develop and commercialize products.
Significant time may be required to secure additional collaborations or
strategic partners because we need to effectively market the benefits of our
technology to these future collaborators and strategic partners, which uses the
time and efforts of research and development personnel and our management.
Further, each collaboration or strategic partnering arrangement will involve the
negotiation of terms that may be unique to each collaborator or strategic
partner. These business development efforts may not result in a collaboration or
strategic partnership.
If we do not enter into additional strategic partnering agreements, our
revenue will be reduced and our potential products may not be developed or
commercialized. The loss of our current or any future strategic partnering
agreement would not only delay or terminate the potential development or
commercialization of any products we may derive from our technologies but also
delay or terminate our ability to test ZFP transcription factors for specific
genes. If any strategic partner fails to conduct the collaborative activities
successfully and in a timely manner, the preclinical or clinical development or
commercialization of the affected product candidates or research programs could
be delayed or terminated.
Our existing strategic partnering agreement is, and we would expect any
future arrangement to be based on the achievement of milestones. Under the
strategic partnering agreements, we expect to receive revenue for the research
and development of a therapeutic product based on achievement of specific
milestones. Achieving these milestones will depend, in part, on the efforts of
our strategic
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partner as well as our own. In contrast, our current Universal GeneTools
collaboration agreements only pay us to supply ZFP transcription factors for the
collaborator's independent use, rather than for future results of the
collaborator's efforts. If we or any strategic partner fails to meet specific
milestones, then the strategic partnership can be terminated which could
decrease our revenues.
OUR UNIVERSAL GENETOOLS COLLABORATORS AND STRATEGIC PARTNERS MAY DECIDE TO ADOPT
ALTERNATIVE TECHNOLOGIES OR MAY BE UNABLE TO DEVELOP COMMERCIALLY VIABLE
PRODUCTS USING OUR TECHNOLOGY, WHICH WOULD NEGATIVELY IMPACT OUR REVENUES AND
OUR STRATEGY TO DEVELOP THESE PRODUCTS.
Our collaborators or strategic partners may adopt the alternative
technology of our competitors which could decrease the marketability of our
technology. Because many of our Universal GeneTools collaborators or strategic
partners are likely to be working on more than one research project, they could
choose to shift their resources to projects other than those they are working on
with us. If they do so, that would delay our ability to test our technology and
would delay or terminate the development of potential products based on our gene
regulation technology. Further, our collaborators and strategic partners may
elect not to develop products arising out of our collaborative and strategic
partnering arrangements or to devote sufficient resources to the development,
manufacturing, marketing or sale of these products. If any of these events
occur, we may not be able to develop our technologies or commercialize our
products.
WE INTEND TO CONDUCT PROPRIETARY RESEARCH PROGRAMS TO DISCOVER THERAPEUTIC
PRODUCT CANDIDATES. THESE PROGRAMS INCREASE OUR RISK OF PRODUCT FAILURE, MAY
SIGNIFICANTLY INCREASE OUR RESEARCH EXPENDITURES, AND MAY INVOLVE CONFLICTS WITH
OUR COLLABORATORS AND STRATEGIC PARTNERS.
Conducting proprietary research programs may not generate corresponding
revenue and may create conflicts with our collaborators or strategic partners.
The implementation of this strategy will involve substantially greater business
risks and the expenditure of significantly greater funds than our current
research activities. In addition, these programs will require substantial
commitments of time from our management and staff. Moreover, we have no
experience in preclinical or clinical testing, obtaining regulatory approval or
commercial-scale manufacturing and marketing of therapeutic products, and we
currently do not have the resources or capability to manufacture therapeutic
products on a commercial scale. In order for us to commercialize these products
directly, we would need to develop, or obtain through outsourcing arrangements,
the capability to execute all of these functions, market and sell products. We
do not have these capabilities, and we may not be able to develop or otherwise
obtain the requisite preclinical, clinical, regulatory, manufacturing, marketing
and sales capabilities.
In addition, disagreements with our Universal GeneTools collaborators or
strategic partners could develop over rights to our intellectual property with
respect to our proprietary research activities. Any conflict with our
collaborators or strategic partners could reduce our ability to enter into
future collaboration or strategic partnering agreements and negatively impact
our relationship with existing collaborators and strategic partners, which could
reduce our revenue and delay or terminate our product development.
BECAUSE IT IS DIFFICULT AND COSTLY TO PROTECT OUR PROPRIETARY RIGHTS, AND THIRD
PARTIES HAVE FILED PATENT APPLICATIONS THAT ARE SIMILAR TO OURS, WE CANNOT
ENSURE THE PROPRIETARY PROTECTION OF OUR TECHNOLOGIES AND PRODUCTS.
Our commercial success will depend in part on obtaining patent protection
of our technology and successfully defending these patents against third party
challenges. The patent positions of pharmaceutical and biotechnology companies
can be highly uncertain and involve complex legal and
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factual questions. No consistent policy regarding the breadth of claims allowed
in biotechnology patents has emerged to date. Accordingly, we cannot predict the
breadth of claims allowed in patents we own or license.
We are a party to various license agreements that give us rights under
specified patents and patent applications. We currently hold an exclusive
sublicense for ZFP transcription factor technology which is limited to using the
technology in human and animal healthcare. The scope of this license may be
subject to dispute. We may need to license additional rights to commercialize
our technology outside human and animal healthcare. We will seek to obtain a
sublicense to these patent applications for use in our agricultural and
industrial biotechnology efforts. If we are not able, however, to license these
additional rights, it could harm our business. Similarly, our current licenses,
and our future licenses will, contain performance obligations, and if we fail to
meet those obligations, the licenses could be terminated. If we are unable to
continue to license these technologies on commercially reasonable terms, or at
all, our product development and research activities may be delayed or
terminated.
With respect to our present and any future sublicenses, since our rights
derive from those granted to our sublicensor, we are subject to the risk that
our sublicensor may fail to perform its obligations under the master license or
fail to inform us of useful improvements in, or additions to, the underlying
intellectual property owned by the original licensor.
We are unable to exercise the same degree of control over intellectual
property that we license from third parties as we exercise over our internally
developed intellectual property. We generally do not control the prosecution of
patent applications that we license from third parties; therefore, the patent
applications may not be prosecuted in a timely manner.
The degree of future protection for our proprietary rights is uncertain and
we cannot ensure that:
- we or our licensors were the first to make the inventions covered by each
of our pending patent applications;
- we or our licensors were the first to file patent applications for these
inventions;
- others will not independently develop similar or alternative technologies
or reverse engineer any of our products, processes or technologies;
- any of our pending patent applications will result in issued patents;
- any patents issued or licensed to us or our Universal GeneTools
collaborators or strategic partners will provide a basis for commercially
viable products or will provide us with any competitive advantages or
will not be challenged and invalidated by third parties;
- we will develop additional products, processes or technologies that are
patentable; or
- the patents of others will not have an adverse effect on our ability to
do business.
Others have filed and in the future are likely to file patent applications
that are similar to ours. We are aware that there are academic groups and other
companies that are attempting to develop technology which is based on the use of
zinc finger and other DNA binding proteins, and that these groups and companies
have filed patent applications. Several patents have been issued, although
Sangamo has no current plans to use the associated inventions. More
particularly, we are aware of pending patent applications with claims directed
to zinc finger libraries and methods of designing zinc finger DNA binding
proteins. These applications are not issued patents. If the pending claims were
granted in their present form, however, they could interfere with our right to
commercialize our products and processes. If these or other patents issue, it is
possible that the holder of any patent or patents granted on these applications
may bring an infringement action against our collaborators, strategic partner or
us claiming damages and seeking to enjoin commercial activities relating to the
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affected products and processes. The costs of litigating the claim could be
substantial. Moreover, we cannot predict whether our Universal GeneTools
collaborators, strategic partners or we would prevail in any actions. In
addition, if the relevant patent claims were upheld as valid and enforceable and
our products or processes were found to infringe the patent or patents, we could
be prevented from making, using or selling the relevant product or process
unless we could obtain a license or were able to design around the patent
claims. While we believe that our proprietary intellectual property would give
us substantial leverage to secure a cross-license, it is uncertain that any
license required under that patent or patents would be made available on
commercially acceptable terms, if at all. We believe that there may be
significant litigation in the genomics industry regarding patent and other
intellectual property rights which could subject us to litigation. If we become
involved in litigation, it could consume a substantial portion of our managerial
and financial resources.
We have received unsolicited invitations to license existing patented
technology from a number of third parties, at least one of which contained an
allegation of infringement. Upon careful analysis of each of these technologies,
we have determined that we already own rights to these technologies or that our
scientific and commercial interests would not benefit from the acquisition of
rights to these technologies. Further, we believe that the making, using or
selling of our products and processes need not infringe any claims in the
proffered patents. Accordingly, we have declined to enter into license
negotiations with these parties. It is possible, however, that these parties
will bring future actions against us, our Universal GeneTools collaborators or
our strategic partners alleging infringement of their patents. As detailed
above, the outcome of any litigation, particularly lawsuits involving
biotechnology patents, is difficult to predict and likely to be costly
regardless of the outcome. In these circumstances, the risks of a negative
impact on our business can neither be clearly defined nor entirely eliminated.
We rely on trade secrets to protect technology where we believe patent
protection is not appropriate or obtainable. Trade secrets, however, are
difficult to protect. While we require employees, academic collaborators and
consultants to enter into confidentiality agreements, we may not be able to
adequately protect our trade secrets or other proprietary information or enforce
these confidentiality agreements.
Our Universal GeneTools collaborators, strategic partners and scientific
advisors have rights to publish data and information in which we may have
rights. If we cannot maintain the confidentiality of our technology and other
confidential information in connection with our collaborations and strategic
partnerships, then our ability to receive patent protection or protect our
proprietary information will be imperiled. See "Business -- Intellectual
Property and Technology Licenses."
OUR POTENTIAL THERAPEUTIC PRODUCTS ARE SUBJECT TO A LENGTHY AND UNCERTAIN
REGULATORY PROCESS, AND IF THESE POTENTIAL PRODUCTS ARE NOT APPROVED, WE WILL
NOT BE ABLE TO COMMERCIALIZE THOSE PRODUCTS.
The Food and Drug Administration, or FDA, must approve any therapeutic and
some diagnostic products based on ZFP technology before it can be marketed in
the United States. The process for receiving regulatory approval is long and
uncertain, and even if we had a potential product, this product may not
withstand the rigors of testing under the regulatory approval processes.
Before commencing clinical trials in humans, we must submit and receive
approval from the FDA of an Investigational New Drug Application. Clinical
trials are subject to oversight by institutional review boards and the FDA and
these trials must meet particular conditions, such that they:
- must be conducted in conformance with the FDA's good clinical practice
regulations;
- must meet requirements for institutional review board oversight;
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- must meet requirements for informed consent;
- are subject to continuing FDA oversight;
- may require large numbers of test subjects; and
- may be suspended by us or the FDA at any time if it is believed that the
subjects participating in these trials are being exposed to unacceptable
health risks or if the FDA finds deficiencies in the Investigational New
Drug application or the conduct of these trials.
We must also demonstrate that the product is safe and effective in the
patient population that will be treated. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations that could delay,
limit or prevent regulatory clearances. In addition, delays or rejections may be
encountered based upon additional government regulation from future legislation
or administrative action or changes in FDA policy during the period of product
development, clinical trials and FDA regulatory review. Failure to comply with
applicable FDA or other applicable regulatory requirements may result in
criminal prosecution, civil penalties, recall or seizure of products, total or
partial suspension of production or injunction, as well as other regulatory
action against our potential products or us. Additionally, we have no experience
in conducting and managing the clinical trials necessary to obtain regulatory
approval.
In addition, we may also require approval from the Recombinant DNA Advisory
Committee, or RAC, which is the advisory board to the National Institutes of
Health, or NIH, focusing on clinical trials involving gene transfer.
We have not submitted an application with the FDA or any other regulatory
authority for any product candidate, and neither the FDA nor any other
regulatory authority has approved any therapeutic, diagnostic, agricultural or
industrial product candidate developed with our technology for commercialization
in the United States or elsewhere.
REGULATORY APPROVAL, IF GRANTED, MAY BE LIMITED TO SPECIFIC USES OR GEOGRAPHIC
AREAS WHICH COULD LIMIT OUR ABILITY TO GENERATE REVENUES.
Regulatory approval may limit the indicated use for which we can market a
product. Further, once regulatory approval is obtained, a marketed product and
its manufacturer are subject to continual review, and discovery of previously
unknown problems with a product or manufacturer may result in restrictions on
the product, manufacturer and manufacturing facility, including withdrawal of
the product from the market. In Japan and Europe, regulatory agencies also set
or approve prices.
Even if regulatory clearance of a product is granted, this clearance will
be limited to those specific states and conditions for which the product is
useful, demonstrated through clinical trials to be safe and effective. We cannot
ensure that any therapeutic product developed by us, alone or with others, will
prove to be safe and effective in clinical trials and will meet all of the
applicable regulatory requirements needed to receive marketing clearance.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities so we cannot predict whether or when we would be permitted to
commercialize our product. These foreign regulatory approval processes include
all of the risks associated with FDA clearance described above.
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LAWS OR PUBLIC SENTIMENT MAY LIMIT OUR PRODUCTION OF GENETICALLY ENGINEERED
AGRICULTURAL PRODUCTS IN THE FUTURE, AND THESE LAWS COULD REDUCE OUR ABILITY TO
SELL THESE PRODUCTS.
Genetically engineered products are currently subject to public debate and
heightened regulatory scrutiny, either of which could prevent or delay
production of agricultural products. We may develop genetically engineered
agricultural products for ourselves or with our strategic partners. The field
testing, production and marketing of genetically engineered plants and plant
products are subject to federal, state, local and foreign governmental
regulation. Regulatory agencies administering existing or future regulations or
legislation may not allow production and marketing of our genetically engineered
products in a timely manner or under technically or commercially feasible
conditions. In addition, regulatory action or private litigation could result in
expenses, delays or other impediments to our product development programs or the
commercialization of resulting products.
The FDA currently applies the same regulatory standards to foods developed
through genetic engineering as applied to foods developed through traditional
plant breeding. Genetically engineered food products, however, will be subject
to premarket review if these products raise safety questions or are deemed to be
food additives. Governmental authorities could also, for social or other
purposes, limit the use of genetically engineered products created with our gene
regulation technology.
Even if we are able to obtain regulatory approval of genetically engineered
products, our success will also depend on public acceptance of the use of
genetically engineered products including drugs, plants and plant products.
Claims that genetically engineered products are unsafe for consumption or pose a
danger to the environment may influence public attitudes. Our genetically
engineered products may not gain public acceptance. The subject of genetically
modified organisms has received negative publicity in Europe, which has aroused
public debate. The adverse publicity in Europe could lead to greater regulation
and trade restrictions on imports of genetically altered products. If similar
adverse public reaction occurs in the United States, genetic research and its
resulting products could be subject to greater domestic regulation and could
decrease the demand for our technology and products.
IF CONFLICTS ARISE BETWEEN US AND OUR COLLABORATORS, STRATEGIC PARTNERS,
SCIENTIFIC ADVISORS OR DIRECTORS, THESE PARTIES MAY ACT IN THEIR SELF-INTEREST,
WHICH MAY LIMIT OUR ABILITY TO IMPLEMENT OUR STRATEGIES.
If conflicts arise between us and our corporate or academic collaborators,
strategic partners or scientific advisors or directors, the other party may act
in its self-interest which may limit our ability to implement our strategies.
Some of our Universal GeneTools or academic collaborators or strategic partners
are conducting multiple product development efforts within each area that is the
subject of the collaboration with us. Generally, in each of our collaborations,
we have agreed not to conduct independently, or with any third party, any
research that is competitive with the research conducted under our
collaborations. Our collaborations may cause us to limit the areas of research
that we pursue, either alone or with others. Our collaborators or strategic
partners, however, may develop, either alone or with others, products in related
fields that are competitive with the products or potential products that are the
subject of these collaborations. Competing products, either developed by the
collaborators or strategic partners or to which the collaborators or strategic
partners have rights, may result in their withdrawal of support for our product
candidates.
Some of our collaborators or strategic partners could also become
competitors in the future. Our collaborators or strategic partners could develop
competing products, preclude us from entering into collaborations with their
competitors, fail to obtain timely regulatory approvals, terminate their
agreements with us prematurely or fail to devote sufficient resources to the
development and commercialization of products. Any of these developments could
harm our product development efforts.
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OUR COLLABORATIONS WITH OUTSIDE SCIENTISTS MAY BE SUBJECT TO CHANGE WHICH COULD
LIMIT OUR ACCESS TO THEIR EXPERTISE.
We work with scientific advisors and collaborators at academic research
institutions. These scientists are not our employees and may have other
commitments that would limit their availability to us. Although our scientific
advisors generally agree not to do competing work, if a conflict of interest
between their work for us and their work for another entity arises, we may lose
their services. Although our scientific advisors and academic collaborators sign
agreements not to disclose our confidential information, it is possible that
some of our valuable proprietary knowledge may become publicly known through
them.
IF WE USE BIOLOGICAL AND HAZARDOUS MATERIALS IN A MANNER THAT CAUSES INJURY OR
VIOLATES LAWS, WE MAY BE LIABLE FOR DAMAGES.
Our research and development activities involve the controlled use of
potentially harmful biological materials as well as hazardous materials,
chemicals and various radioactive compounds. We cannot completely eliminate the
risk of accidental contamination or injury from the use, storage, handling or
disposal of these materials. In the event of contamination or injury, we could
be held liable for damages that result, and any liability could exceed our
resources. We are subject to federal, state and local laws and regulations
governing the use, storage, handling and disposal of these materials and
specified waste products. The cost of compliance with these laws and regulations
could be significant.
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND DELAWARE LAW
COULD PREVENT A POTENTIAL ACQUIROR FROM BUYING YOUR STOCK.
Anti-takeover provisions of Delaware law, in our certificate of
incorporation and equity benefit plans may make a change in control of our
company more difficult, even if a change in control would be beneficial to our
stockholders. These provisions may allow our board of directors to prevent or
make changes in the management and control of our company. In particular, our
board of directors will be able to issue up to 5,000,000 shares of preferred
stock with rights and privileges that might be senior to our common stock,
without the consent of the holders of the common stock. Further, without any
further vote or action on the part of the stockholders, the board of directors
will have the authority to determine the price, rights, preferences, privileges
and restrictions of the preferred stock. This preferred stock, if it is ever
issued, may have preference over and harm the rights of the holders of common
stock. Although the issuance of this preferred stock will provide us with
flexibility in connection with possible acquisitions and other corporate
purposes, this issuance may make it more difficult for a third party to acquire
a majority of our outstanding voting stock. Similarly, our authorized but
unissued common stock is available for future issuance without stockholder
approval.
In addition, our certificate of incorporation:
- states that stockholders may not act by written consent but only at a
stockholders' meeting;
- establishes advance notice requirements for nominations for election to
the board of directors or proposing matters that can be acted upon at
stockholders' meetings; or
- limits who may call a special meeting of stockholders.
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RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS PURCHASING SHARES IN THIS OFFERING.
Volatility in the biotechnology market could cause you to incur substantial
losses. Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering. We will negotiate and determine the initial
public offering price with the representatives of the underwriters based on
several factors. In addition, the market price of our common stock may be highly
volatile. The market prices of securities of biotechnology companies are
currently highly volatile. The market price of our common stock may fluctuate
significantly in response to the following factors, some of which are beyond our
control:
- changes in market valuations of similar companies, since many
biotechnology companies have recently registered their securities to
trade publicly and may create a more volatile trading sector;
- announcements by us or our competitors of new or enhanced products,
technologies or services or significant contracts, acquisitions,
strategic relationships, joint ventures or capital commitments;
- regulatory developments;
- additions or departures of key personnel;
- deviations in our results of operations from the estimates of securities
analysts; and
- future sales of our common stock or other securities.
OUR STOCK PRICE COULD BE ADVERSELY AFFECTED BY ADDITIONAL SHARES BECOMING
AVAILABLE FOR SALE.
Sales of a substantial number of shares of our common stock, or the
perception that these sales could occur, could depress the market price of our
common stock and could impair our ability to raise capital through the sale of
additional equity securities. In addition, we have entered into registration
rights agreements with some investors that entitle these investors to have their
shares registered for sale in the public market. The exercise of these rights
could affect the market price of our common stock. See "Shares Eligible for
Future Sale" for further information concerning potential sales of our shares
after this offering.
PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
We expect that the initial public offering price of our common stock will
be substantially higher than the book value per share of the outstanding common
stock. As a result, you will incur immediate and substantial dilution of $11.73
per share in the net tangible book value per share of common stock from the
initial public offering price. In the past, we issued options and warrants to
acquire common stock at prices significantly below the initial public offering
price. The exercise of options and warrants currently outstanding could cause
additional, substantial dilution to you. See "Dilution" for more detailed
information regarding the potential dilution you may incur.
INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER SANGAMO AFTER THIS
OFFERING AND COULD DELAY OR PREVENT A CHANGE IN CORPORATE CONTROL.
The interest of management could conflict with the interest of our other
stockholders. Upon completion of this offering, our executive officers,
directors and principal stockholders will beneficially
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own, in the aggregate, approximately 31.3% of our outstanding common stock. As a
result, these stockholders, if they choose to act together, will be able to
exercise control over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. This
could have the effect of delaying or preventing a change of control of Sangamo,
which in turn could reduce the market price of our stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some statements contained in this prospectus are forward-looking statements
concerning our operations, economic performance and financial condition.
Forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, are included, for example, in specific and
general discussions about:
- our strategy;
- sufficiency of our cash resources;
- revenues from existing and new collaborations;
- product development;
- our research and development and other expenses;
- our operational and legal risks; and
- our plans, objectives, expectations and intentions and any other
statements that are not historical facts.
These statements involve risks and uncertainties. Various terms and
expressions similar to them are intended to identify forward-looking statements.
These terms include: "anticipates," "believes," "continues," "could,"
"estimates," "expects," "intends," "may," "plans," "seeks," "should" and "will."
Actual results may differ materially from those expressed or implied in those
statements. Factors that could cause these differences include, but are not
limited to, those discussed under "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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USE OF PROCEEDS
Our net proceeds from the sale of the 5,000,000 shares of common stock we
are offering are estimated to be $73.2 million, or $84.4 million if the
underwriters' over-allotment option is exercised in full, based on an assumed
initial offering price of $16.00 per share, after deducting the estimated
underwriting discount and commissions and the estimated offering expenses.
We currently expect to use the net proceeds of this offering for research
and development, capital equipment and general corporate purposes. We may also
use a portion of the net proceeds to acquire or invest in businesses, products
and technologies that are complementary to our own, although no acquisitions are
planned or being negotiated as of the date of this prospectus, and no portion of
the net proceeds has been allocated for any specific acquisition or for
acquisitions generally. Pending these uses, the net proceeds will be invested in
short term, investment grade, interest-bearing securities.
The principal purposes of the offering are to increase our capitalization
and financial flexibility, to provide a public market for our common stock and
to facilitate access to public equity markets. While it is not possible to
estimate with certainty how the net proceeds of this offering will be used over
the next three years, we believe that approximately $60 million will be used for
research and development, approximately $10 million for capital equipment and
the balance for general corporate purposes. Since these are only estimates, our
management will have broad discretion in the application of net proceeds.
DIVIDEND POLICY
We have never paid dividends on our common or preferred stock. We currently
intend to retain any future earnings to support the development of our business.
Therefore, we do not currently anticipate paying any cash dividends in the
foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of December
31, 1999:
- on an actual basis
- on a pro forma basis to give effect to:
- automatic conversion of all outstanding shares of preferred
stock into 9,711,834 shares of common stock upon consummation of
the offering;
- the issuance of 333,333 shares of preferred stock in January
2000 which converts into 666,666 shares of common stock upon
consummation of the offering;
- the issuance of a $5 million note in January 2000 and a $7.5
million note in March 2000 which convert, together with accrued
interest, into 789,587 shares of common stock at an assumed
initial public offering price upon consummation of the offering
of $16.00.
- on a pro forma as adjusted basis to give effect to the sale of
5,000,000 shares of our common stock at an assumed initial public
offering price of $16.00 per share in this offering, after
deducting the estimated underwriting discounts and commissions
and our estimated offering expenses.
You should read this table with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Financial Statements and Notes to the Financial Statements appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion........................ $ 250 $ 250 $ 250
------- ------- -------
Stockholders' equity:
Preferred stock, $0.01 par value, 6,000,000 shares
authorized, actual and pro forma, 5,000,000 shares
authorized, as adjusted; 4,855,917 shares issued and
outstanding, actual, no shares issued and outstanding,
pro forma and pro forma as adjusted.................... 15,187 -- --
Common stock, $0.01 par value, 15,000,000 authorized,
actual, 80,000,000 shares authorized, pro forma and pro
forma as adjusted; 6,132,060 shares issued and
outstanding, actual, 17,300,417 shares issued and
outstanding, pro forma and 22,300,417 shares issued and
outstanding, pro forma as adjusted..................... 3,258 32,578 105,778
Deferred stock compensation............................... (1,736) (1,736) (1,736)
Accumulated deficit....................................... (8,785) (8,918) (8,918)
Accumulated other comprehensive income.................... 83 83 83
------- ------- -------
Total stockholders' equity........................... 8,007 22,007 95,207
------- ------- -------
Total capitalization................................. $ 8,257 $22,257 $95,457
======= ======= =======
</TABLE>
The number of shares of common stock outstanding excludes:
- 1,872,666 shares of common stock issuable upon exercise of stock
options outstanding at a weighted average exercise price of $0.15
per share;
- 259,962 shares of common stock issuable upon the exercise of
outstanding warrants at a weighted average exercise price of
$2.00 per share; and
- a total of 2,400,000 shares of common stock available for future
issuance under our stock option plans.
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<PAGE> 23
DILUTION
Our pro forma net tangible book value at December 31, 1999 was $8.0
million, or $0.51 per share, assuming the conversion of our preferred stock into
common stock upon consummation of the offering. Pro forma net tangible book
value per share represents total net tangible assets less liabilities, divided
by pro forma common shares outstanding after giving effect to the conversion of
our preferred stock into common stock upon the consummation of this offering.
Subsequent to December 31, 1999, we issued 333,333 shares of preferred stock for
$1.5 million which converts into 666,666 shares of common stock upon
consummation of this offering, and a $5 million note in January 2000 and a $7.5
million note in March 2000 which convert, together with accrued interest, into
789,587 shares of common stock at an assumed initial offering price of $16.00,
upon consummation of this offering. These subsequent issuances increased our pro
forma net tangible book value per share by $0.76, assuming their conversion into
common stock.
After giving effect to our sale of shares of common stock in this offering
and after deducting the underwriting discounts and commissions and our estimated
offering expenses, our pro forma net tangible book value as of December 31, 1999
would have been $95.2 million, or $4.27 per share. This represents an immediate
increase in pro forma net tangible book value of $3.00 per share to existing
stockholders and an immediate dilution of $11.73 per share to new investors.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the pro forma net tangible book value per
share of our common stock immediately following this offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $16.00
Pro forma net tangible book value per share at December
31, 1999............................................... $ 0.51
Increase per share attributable to equity and convertible
note issuances subsequent to December 31, 1999......... 0.76
Increase per share attributable to the offering........... 3.00
------
Pro forma net tangible book value per share after the
offering.................................................. 4.27
------
Dilution per share to new investors......................... $11.73
======
</TABLE>
The following table summarizes, using the same pro forma assumptions as
above and assuming an initial public offering price of $16.00, the differences
between the existing stockholders and new investors with respect to the number
of shares of common stock purchased from us, the total consideration paid to us,
and the average price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 17,300,417 78% $ 29,478,000 27% $ 1.70
New investors....................... 5,000,000 22 80,000,000 73 16.00
---------- --- ------------ ---
Totals............................ 22,300,417 100% $109,478,000 100%
========== === ============ ===
</TABLE>
- -------------------------
This table excludes the following shares as of December 31, 1999:
- 1,872,666 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $0.15 per share;
- 259,962 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $2.00 per share; and
- a total of 2,400,000 shares available for future issuance under our stock
plans.
See "Management -- Stock Plans" and Note 4 of Notes to Financial
Statements.
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<PAGE> 24
SELECTED FINANCIAL DATA
Our audited financial statements, which have been audited by Ernst & Young
LLP, were used for the following selected statement of operations data for the
period from inception to December 31, 1995 and for the years ended December 31,
1996, 1997, 1998 and 1999, and the balance sheet data as of December 31, 1995,
1996, 1997, 1998 and 1999. The diluted net loss per share computation excludes
potential shares of common stock (preferred stock, options and warrants to
purchase common stock and common stock subject to repurchase rights that we
hold), since their effect would be antidilutive. See Note 1 of Notes to
Financial Statements for a detailed explanation of the determination of the
shares used to compute actual and pro forma basic and diluted net loss per
share. Our historical results are not necessarily indicative of results to be
expected for future periods. You should read the following selected financial
data along with our Financial Statements and related Notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................. $ 183 $ 632 $ 1,152 $ 2,038 $ 2,182
------ ------ ------- ------- -------
Operating expenses:
Research and development..................... 150 628 1,700 4,259 4,266
General and administrative................... 50 322 797 1,237 1,822
------ ------ ------- ------- -------
Total operating expenses.................. 200 950 2,497 5,496 6,088
------ ------ ------- ------- -------
Loss from operations........................... (17) (318) (1,345) (3,458) (3,906)
Interest income (expense), net................. -- 10 (55) 173 131
------ ------ ------- ------- -------
Net loss....................................... $ (17) $ (308) $(1,400) $(3,285) $(3,775)
====== ====== ======= ======= =======
Basic and diluted net loss per share........... $(0.00) $(0.06) $ (0.26) $ (0.56) $ (0.63)
====== ====== ======= ======= =======
Shares used in computing basic and diluted net
loss per share............................... 5,000 5,143 5,485 5,843 5,991
====== ====== ======= ======= =======
Pro forma basic and diluted net loss per share
(unaudited).................................. $ (0.29)
=======
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)....... 13,102
=======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------
1995 1996 1997 1998 1999
---- ----- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.................................... $243 $ 358 $ 6,314 $ 3,058 $ 7,503
Working capital.................................. 308 434 6,233 3,161 7,206
Total assets..................................... 346 539 6,896 4,219 9,287
Long-term debt................................... -- -- -- 250 250
Accumulated deficit.............................. (17) (325) (1,725) (5,010) (8,785)
Total stockholders' equity....................... 308 434 6,409 3,591 8,007
</TABLE>
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<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis along with the
"Selected Financial Data" and the financial statements and notes attached to
those statements included elsewhere in this prospectus.
OVERVIEW
We were incorporated in June 1995. From our inception through December 31,
1999, our activities related primarily to establishing a research and
development organization and developing relationships with our Universal
GeneTools collaborators. We have incurred net losses since inception and expect
to incur losses in the near future as we expand our research and development
activities. To date, we have funded our operations primarily through the
issuance of equity securities, borrowings, and payments from federal government
research grants and from Universal GeneTools collaborators. As of December 31,
1999, we had an accumulated deficit of $8.8 million.
Our revenues consist primarily of federal government research grant funding
and revenues from our Universal GeneTools collaborators. We expect that in the
near future, our revenues will also include payments from strategic partners for
technology access fees, committed research funding and research milestone
payments.
In January 2000, we announced that we had entered into a strategic partner
agreement with Edwards LifeScience, Inc., formerly the CardioVascular Group of
Baxter Healthcare Corporation for the development of ZFPs in cardiovascular and
peripheral vascular diseases. Under this agreement, Baxter has purchased a $5
million convertible note which will convert, together with accrued interest,
into common stock upon consummation of this offering, and we have received $1
million in initial research funding from Baxter. In March 2000, Baxter exercised
an option by purchasing a $7.5 million convertible note, which will convert,
together with accrued interest, into common stock upon consummation of this
offering, for a right of first refusal to negotiate a license for additional
ZFP-Therapeutics in cardiovascular and peripheral vascular disease. In the
future, we may receive option fees, milestone payments, royalties and additional
research funding from this agreement. See "Business -- Corporate Collaborations"
and Note 7 of Notes to Financial Statements.
Research and development expenses consist primarily of salaries and related
personnel expenses, subcontracted research expenses, and technology license
expenses. As of December 31, 1999, all research and development costs have been
expensed as incurred. We believe that continued investment in research and
development is critical to attaining our strategic objectives. We expect these
expenses will increase significantly in the future as we continue to develop our
Universal Gene Recognition technology platform.
General and administrative expenses consist primarily of salaries and
related personnel expenses for executive, finance and administrative personnel,
professional fees, and other general corporate expenses. As we add personnel and
incur additional costs related to the growth of our business, general and
administrative expenses will also increase.
STOCK COMPENSATION
During the years ended December 31, 1997, 1998 and 1999, in connection with
the grant of stock options to employees and directors, we recorded deferred
stock compensation totaling $449,000, $780,000 and $1.5 million, respectively,
representing the difference between the fair value of our common stock on the
date such options were granted and the exercise price. These amounts are
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<PAGE> 26
included as a reduction of stockholders' equity and are being amortized over the
vesting period of the individual options, generally four years, using the graded
vesting method. The graded vesting method provides for vesting of portions of
the overall award at interim dates and results in higher vesting in earlier
years than straight-line vesting. The fair value of our common stock for
purposes of this calculation was determined based on our retrospective review of
the primary business factors underlying the value of its common stock on the
date such option grants were made, viewed in light of this offering and the
expected initial public offering price per share. We recorded amortization of
deferred stock compensation of $46,000, $410,000 and $519,000, for the years
ended December 31, 1997, 1998 and 1999, respectively. At December 31, 1999, we
had a total of $1.7 million remaining to be amortized over the vesting periods
of the stock options. Through March 13, 2000 we recorded additional deferred
stock compensation of $5.8 million in connection with grants of stock options
subsequent to December 31, 1999 and we may record additional deferred stock
compensation for options granted prior to the closing of this offering. You
should read Note 4 of Notes to Financial Statements for more information.
RESULTS OF OPERATIONS
Years Ended December 31, 1999 and 1998
Total revenues. Total revenues consist of revenues from collaboration
agreements and federal government research grants. Revenues from our Universal
GeneTools agreements were $1.0 million in 1999, compared with $150,000 during
1998, an increase of $850,000. The increase in 1999 was principally attributable
to revenues recognized from collaboration agreements signed since the third
quarter of 1998. We expect revenues from these agreements to continue to
increase as additional agreements are signed or existing agreements are
expanded. Federal government research grant revenues were $1.2 million in 1999,
compared to $1.9 million in 1998, a decrease of $706,000. The decrease in 1999
was principally due to an increased focus on Universal GeneTools collaborations
and strategic partners in 1999 as some existing federal research government
grants ended. We plan to continue to apply for federal government research
grants.
Research and development expenses. Research and development expenses were
$4.3 million for 1999 and 1998 as reductions in laboratory supplies and
equipment expenses were offset by increases in stock compensation expense. We
expect research and development expenses to increase significantly in future
periods, particularly as we increase the scientific staff to continue to develop
the Universal Gene Recognition technology and to meet the needs of our Universal
GeneTools collaborators and strategic partners.
General and administrative expenses. General and administrative expenses
increased by $585,000, from $1.2 million in 1998 to $1.8 million in 1999. This
increase was primarily attributable to increased staffing to support our
expanded research and development activities and development of our Universal
Gene Recognition technology. We expect that general and administrative expenses
will increase in the future to support continued growth of our research and
development efforts.
Interest income (expense), net. Interest income (expense), net decreased by
$42,000 from $173,000 in 1998 to $131,000 in 1999. The decrease in interest
income, net resulted from lower average interest-bearing balances and higher
debt balances during 1999.
Years Ended December 31, 1998 and 1997
Total revenues. Federal government research grant revenues increased by
$736,000 from $1.2 million in 1997 to $1.9 million in 1998. This increase was
principally attributable to revenue
23
<PAGE> 27
from new federal government research grants, including a grant from the
Department of Commerce under the Advanced Technology Program initiated in late
1997.
Research and development expenses. Research and development expenses
increased $2.6 million from $1.7 million in 1997 to $4.3 million in 1998. This
increase was primarily attributable to increases in staffing as we added
additional employees to invest in the development of our Universal Gene
Recognition technology platform. In addition, we incurred additional expense
from expanded laboratory facilities in 1998, our first full year in our new
facility in Richmond, California.
General and administrative expenses. General and administrative expenses
increased by $440,000 from $797,000 in 1997 to $1.2 million in 1998. This
increase reflected increased administrative staffing in support of our expanding
research and development activities.
Interest income (expense), net. Interest income (expense), net increased by
$228,000 from net interest expense of $55,000 in 1997 to net interest income of
$173,000 in 1998. This increase was due to higher interest-bearing balances as a
result of preferred stock financings in late 1997, as well as the elimination of
interest expense as a result of conversion of a bridge loan into preferred stock
in the 1997 financings.
We incurred net operating losses in 1997, 1998 and 1999 and consequently we
did not pay any federal, state or foreign income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the
private placements of preferred stock, federal government research grants,
payments from Universal GeneTools collaborators and a strategic partner and
financing activities such as a bank line of credit. As of December 31, 1999, we
had cash, cash equivalents and short-term investments totaling $7.5 million.
Net cash used in operating activities was $2.4 million for 1999, $3.2
million in 1998 and $818,000 in 1997. In all periods, net cash used in operating
activities was primarily due to funding of net operating losses.
Net cash used in investing activities was $6.0 million in 1999, $2.2
million in 1998 and $124,000 in 1997. Cash was used during these periods to
purchase short-term investments and property and equipment.
Net cash provided by financing activities during 1999 was $7.5 million as a
result of the private placement of preferred stock. Net cash provided by
financing activities in 1998 was $253,000 primarily representing the proceeds
from a bank note payable used to finance equipment purchases. Net cash provided
by financing activities in 1997 was $6.9 million primarily from proceeds from
the private placement of preferred stock.
We believe that the net proceeds of this offering, together with available
cash resources, funds received under federal government research grants and from
Universal GeneTools collaborators and a strategic partner are sufficient to
finance our operations for at least two years. To date, we have been awarded
research grants from the National Institute of Standards and Technology and the
National Institutes of Health amounting to approximately $5.6 million, of which
approximately $5.0 million has been used from our inception through December 31,
1999. We may need to raise substantial additional capital to fund subsequent
operations. Funding, however, may not be available on favorable terms, if at
all.
As of December 31, 1999, we had federal and state net operating loss
carryforwards of approximately $7.9 million to offset future taxable income. We
also had federal research and
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<PAGE> 28
development tax credit carryforwards of approximately $100,000. If not used, net
operating loss and credit carryforwards will begin to expire in 2010. Use of the
net operating losses and credits may be subject to a substantial annual
limitation due to ownership change limitations provided by the Internal Revenue
Code of 1986. The annual limitation may result in the expiration of our net
operating losses and credits before they can be used. Also, if we do not become
profitable, we will not be able to use these net operating losses and credits.
DISCLOSURE ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to our cash equivalents and short-term investments. The short-term investments
are available for sale. We do not use derivative financial instruments in our
investment portfolio. We attempt to ensure the safety and preservation of our
invested funds by limiting default and market risks. Our cash and investments
policy emphasizes liquidity and preservation of principal over other portfolio
considerations. We select investments that maximize interest income to the
extent possible within these guidelines. We satisfy liquidity requirements by
investing excess cash in securities with different maturities to match projected
cash needs and limit concentration of credit risk by diversifying our
investments among a variety of high credit-quality issuers. We mitigate default
risk by investing in only investment-grade securities. The portfolio includes
marketable securities with active secondary or resale markets to ensure
portfolio liquidity. All short-term investments have a fixed interest rate and
are carried at market value, which approximates cost. Our investment portfolio
at December 31, 1999 had an average maturity of 104 days, and therefore we
believe we have insignificant market risk. If market interest rates were to
increase by 1% from December 31, 1999, the fair value of our portfolio would
decline by less than $25,000. The modeling technique used measures the change in
fair values arising from an immediate hypothetical shift in market interest
rates and assumes ending fair values include principal plus accrued interest.
YEAR 2000 ISSUES
We did not experience any significant problems associated with Year 2000
issues, and we are not aware that any of our vendors or suppliers experienced
any of these problems. We do not believe that any Year 2000 issues are likely to
have a material effect on our business, financial condition or results of
operations.
25
<PAGE> 29
BUSINESS
OVERVIEW
We are a leader in the research and development of novel transcription
factors for the regulation of genes. Genes are composed of DNA and control the
expression and transmission of all inherited traits. Transcription factors are
proteins that turn genes on and turn genes off, or regulate gene expression, by
recognizing specific DNA sequences.
Our Universal Gene Recognition technology enables the engineering of
transcription factors known as zinc finger DNA binding proteins, or ZFPs. ZFPs
are the most abundant class of transcription factors in humans and other higher
organisms and naturally function to regulate gene expression. By engineering
ZFPs so that they can recognize a specific gene, we have created ZFP
transcription factors that can control gene expression and, consequently, cell
function. We intend to establish Universal Gene Recognition as a widely used
technology for commercial applications in pharmaceutical discovery, therapeutics
for the treatment of human diseases, clinical diagnostics, and agricultural and
industrial biotechnology.
BACKGROUND
Genes and Gene Expression. Deoxyribonucleic acid, or DNA, is present in all
living cells and is responsible for determining the inherited characteristics of
all living organisms. DNA is arranged on chromosomes in individual units called
genes. Genes encode proteins, which are assembled through the processes of
transcription, whereby DNA is transcribed into ribonucleic acid, or RNA, and
translation, whereby RNA is translated into protein. DNA, RNA, and proteins
represent a large percentage of the targets for pharmaceutical drug discovery.
The human body is composed of specialized cells that perform different
functions and are thus organized into tissues and organs. All cells in the human
body contain the same set of genes. It is believed, however, that only about 10%
of these genes are turned on, or expressed, in an individual human cell. Genes
are turned on or turned off, or activated or repressed, in response to a wide
variety of stimuli and developmental signals. Different sets of genes are
expressed in distinct types of cells. It is this pattern of gene expression that
determines the structure, biological function and health of all cells, tissues
and organisms. The under- or over-expression of certain genes, can lead to
disease.
Transcription Factors. Regulation of gene expression is controlled by
proteins that bind to DNA called transcription factors. A transcription factor
regulates gene expression by recognizing and binding to a specific DNA sequence
associated with a particular gene and causing that gene to be activated or
repressed. In virtually all higher organisms, transcription factors consist of
two components: the first is a DNA binding element, or domain, that recognizes a
specific DNA sequence and thereby directs the transcription factor to the proper
chromosomal location; the second is a functional domain that determines whether
the gene is activated or repressed.
The Genomics Revolution. Genomics refers to the sequencing and functional
analysis of the complete set of genes of diverse organisms throughout the animal
and plant world. Enormous scientific and financial resources are being dedicated
to the sequencing of all human genes, including the Human Genome Project and
other publicly and privately funded genomics initiatives. It is expected that a
preliminary sequence of the human genome will be completed in the year 2000.
Over the past decade, genomics research has produced a significant quantity
of information on the location, sequence and structure of thousands of genes.
The human genome may contain upwards of 140,000 unique genes. The challenge
facing the pharmaceutical and other life science industries is
26
<PAGE> 30
how to derive medically and commercially valuable knowledge about the function
of these genes from this large accumulation of new genomic information.
Genome-Based Drug Discovery and Other Applications. The delivery of the
entire human DNA sequence, with its bounty of new genes and potential drug
discovery targets, simultaneously poses a competitive challenge and significant
commercial opportunity to every pharmaceutical company to:
- accelerate the identification of drug targets from thousands of newly
discovered genes whose functions are unknown;
- sort through the hundreds of potential drug targets to confirm those for
which proprietary drugs may be successfully developed;
- increase the accuracy and efficiency of the process by which
pharmaceutical researchers screen large libraries of chemical compounds
to identify those which have therapeutic activity, known as compound
screening; and
- discover new therapeutics that can control disease through the regulation
of genes.
The genomics revolution poses a similar set of challenges and opportunities
to agricultural biotechnology researchers, including identification of
agriculturally important genes, the assessment of which genes may be
commercially viable and the development of improved agrochemicals and crops. In
another application of genomics research, bacteria, yeast and plants may be used
for the biological production of industrial chemicals.
Commercial Opportunities Based on the Regulation of Gene Expression. The
ability to regulate genes has the potential to enable far-reaching applications
in the human healthcare, agricultural and industrial biotechnology sectors,
including:
- discovery of new genes and analysis of how they function;
- therapeutic products for the regulation of disease-related genes;
- manufacture of pharmaceutical products;
- modifying cells for the selection of new drugs;
- DNA sequence detection for applications in pharmaceutical research and
clinical diagnostics;
- engineering plants to improve their nutritional and growth properties;
and
- manufacture of industrial chemicals using biological systems.
A technology enabling the design of transcription factors to regulate genes
could have significant commercial utility in each of the applications listed
above.
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<PAGE> 31
SANGAMO'S UNIVERSAL GENE RECOGNITION TECHNOLOGY PLATFORM
Our Universal Gene Recognition platform is a proprietary technology for the
regulation of gene expression that is enabled by the engineering of a class of
transcription factors called zinc finger DNA binding proteins, or ZFPs. We
believe that Universal Gene Recognition is a fundamentally enabling technology,
widely applicable to pharmaceutical discovery, therapeutics for the treatment of
human diseases, clinical diagnostics, and agricultural and industrial
biotechnology. ZFP transcription factors have two distinct elements, or domains:
a DNA recognition domain that directs the transcription factor to the proper
chromosomal location by recognizing a specific DNA sequence and a functional
domain that causes the gene to be activated or repressed. This two-component
structure of our engineered ZFP transcription factors is modelled on the
structure of naturally occurring transcription factors in virtually all higher
organisms.
THE MODULAR STRUCTURE OF ZFP TRANSCRIPTION FACTORS
[MODULAR STRUCTURE OF ZFP]
[The figure is a "bar-bell" type structure identifying the DNA domain and the
functional domains of the ZFP transcription factor. Also included is a list of
functional domains.]
Consistent with this two-domain structure, we take a modular approach to
the design of ZFP transcription factors. The recognition domain is composed of
one or more ZFPs. Each ZFP recognizes and binds to a three base pair sequence of
DNA. Multiple ZFPs can be linked together to recognize longer stretches of DNA.
By modifying those portions of a ZFP that interact with DNA, we believe we can
create new ZFPs capable of recognizing DNA sequences in virtually any gene whose
sequence is known.
The ZFP DNA recognition domain is coupled to a functional domain, which
causes the ZFP transcription factor to control or regulate the gene in a desired
manner. For instance, an activation domain can cause a target gene to be
activated. Alternatively, a repression domain can cause the gene to be
repressed. Similarly, a detection domain could be used to identify or detect the
target DNA sequence in a diagnostic test. It is also possible to use the ZFP
transcription factor in a way that permits a gene to be temporarily activated or
repressed. This conditional regulation of a gene allows the effects of gene
expression to be controlled in a reversible fashion.
In order to regulate a gene, the ZFP transcription factor must be delivered
to a cell. We have licensed gene transfer technology from Targeted Genetics,
Inc. for use with our Universal GeneTools in pharmaceutical discovery. We are
evaluating this and other technologies for the delivery of ZFPs into cells.
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<PAGE> 32
To date, we have generated hundreds of ZFPs and have tested their affinity,
or tightness of binding, to their DNA target, and their specificity, or
preference for their intended DNA target. We have developed software and
standardized methods for the assembly of ZFPs capable of binding to a wide
spectrum of DNA sequences. We have linked ZFPs to functional domains to create
ZFP transcription factors and have demonstrated the ability of these ZFP
transcription factors to regulate a limited number of commercially important
genes. We have also shown that engineered ZFPs can detect discrete changes in
medically interesting genes.
THE SANGAMO ADVANTAGE
We believe that the unique features of ZFP transcription factors will
result in important technical advantages, as compared to alternative
technologies. Among the advantages of our ZFP transcription factor-based
approach to gene regulation are:
- ZFP transcription factors normally and naturally regulate genes in
virtually all higher organisms;
- ZFPs can be designed to recognize unique DNA sequences, resulting in the
ability to distinguish a single gene within the entire genome;
- ZFP transcription factors can activate or repress genes, enhancing their
versatility;
- ZFP transcription factors can be used to regulate gene expression in
humans, animals, plants, microbes and viruses; and
- ZFP transcription factors can themselves be activated and repressed,
allowing conditional and reversible regulation of a gene.
We believe that the technical advantages of Universal Gene Recognition will
create leverage across multiple applications, products, markets and commercial
partners:
Pharmaceutical Discovery Research
- DISCOVERY OF NEW GENES AND TARGETS. ZFP transcription factors can be used
to change patterns of gene expression in cells, to stimulate clinically
interesting changes in these cells, and to determine the genes associated
with these changes.
- VALIDATION OF GENE TARGETS. ZFP transcription factors can be used to
target specific genes which is critical to researchers trying to confirm
the function and validity of gene targets for drug development.
- ANIMAL MODELS OF HUMAN DISEASES. The reversible expression of ZFP
transcription factors is a desirable feature in animal models.
- ASSAY DEVELOPMENT. The regulation of multiple genes may be an effective
approach to the engineering of proprietary cells for the screening and
selection of new pharmaceutical products.
Human Therapeutics
- HUMAN THERAPEUTICS. ZFP-Therapeutics are transcription factors developed
as pharmaceutical products to treat a broad spectrum of diseases through
the regulation of disease-related genes.
- MANUFACTURING OF PROTEIN PHARMACEUTICALS. We believe ZFP-engineered human
cell lines can be used for production of commercially relevant protein
pharmaceuticals.
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<PAGE> 33
DNA Diagnostics
- SNP DETECTION. The specificity of ZFPs permits the detection of discrete
changes in DNA, also known as single nucleotide polymorphisms or SNPs. We
believe SNPs are likely to become increasingly important in clinical
diagnosis to determine an individual's susceptibility to disease or
probable response to drug therapy.
- AUTOMATION. Unlike conventional DNA detection technologies, ZFPs
recognize DNA in its natural form, which may permit a proprietary and
automated approach to the development of DNA diagnostic assays.
Agricultural and Industrial Biotechnology
- AGRICULTURAL BIOTECHNOLOGY. ZFP transcription factors can be used to
regulate genes in plants, potentially leading to applications in the
identification of plant genes, agrochemical discovery and the development
of new crops with enhanced nutritional properties.
- INDUSTRIAL BIOTECHNOLOGY. ZFP transcription factors may be used to
regulate genes in yeast, other micro-organisms and plants which may
permit the expanded use of engineered organisms for the manufacture of
industrial chemicals.
OUR STRATEGY
Our strategic objective is to be the worldwide leader in the research and
development of ZFP gene regulation technology and to commercialize this
technology broadly in pharmaceutical discovery, therapeutics for the treatment
of human diseases, clinical diagnostics, and agricultural and industrial
biotechnology. The key elements of our strategy are as follows:
Develop the Universal Gene Recognition Platform Across Multiple
Applications. Our core competence, the generation of ZFP transcription factors
for the regulation of genes in different organisms, creates leverage across many
commercial applications. We intend to establish ZFP gene regulation as a widely
accepted technology with applications and competitive advantages in each of our
target markets.
Build the Technical Infrastructure of ZFP Gene Regulation. Our objective is
to establish ZFPs as a widely used technology platform for the regulation of
gene expression and DNA sequence detection. We are currently building an
electronic "ZFP directory," or database that, when given a specific gene or DNA
sequence, is designed to select optimal sites for ZFP binding and the
corresponding ZFPs. Because of the modular nature of our engineered ZFP
transcription factors, these ZFPs can be efficiently combined with a variety of
functional domains, gene expression systems, and methods of delivery to target
cells. We also intend to automate the assembly and testing of engineered ZFP
transcription factors.
Develop Proprietary Drug Targets and Therapeutics. As we continue to build
our technology platform and expand our revenue base through Universal GeneTools
collaborations and strategic partnerships, we plan to apply ZFP transcription
factors to the identification and validation of drug targets, and to the
generation of proprietary data on new drug targets that can form the basis for
future strategic partnerships as well as internal product development (see
"Universal GeneTools for Pharmaceutical Discovery"). We also intend to develop
ZFP transcription factors as human therapeutics for the direct regulation of
disease-related genes (see "ZFP-Therapeutics").
Multi-tiered Business Model. We intend to leverage the broad applicability
of ZFP gene regulation into commercial opportunities across multiple product
markets. We are currently selling our proprietary Universal GeneTools on a
non-exclusive basis to collaborators engaged in target
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validation for pharmaceutical discovery. We also intend to develop ZFP
transcription factors for therapeutics with pharmaceutical and biotechnology
companies on an exclusive basis in milestone-and royalty-based strategic
partnerships. We plan to enter into several similar strategic partnerships
across the pharmaceutical discovery, therapeutics for the treatment of human
diseases, clinical diagnostics, and agricultural and industrial biotechnology
markets. We further intend to capture additional value through our proprietary
programs, which we may commercialize directly or enter into partnerships at a
later stage to increase the economic benefit we retain.
COMMERCIAL APPLICATIONS
We are pursuing commercial applications of our Universal Gene Recognition
technology in pharmaceutical discovery, therapeutics for the treatment of human
diseases, clinical diagnostics, and agricultural and industrial biotechnology.
SANGAMO'S BUSINESS PLATFORM
[UNIVERSAL GENE RECOGNITION GRAPH]
[Graphic showing the four different commercial applications of our Universal
Gene Recognition technology platform.]
Universal GeneTools for Pharmaceutical Discovery
We are applying Universal GeneTools to assist pharmaceutical researchers in
their efforts to capitalize on the large accumulation of new genetic information
being generated by the genomics revolution. Among the issues that researchers
must address are:
- identifying disease-related genes;
- confirming the validity of these genes and their protein products as
appropriate targets for drug discovery by determining the function and
suitability of targets for therapeutic intervention;
- for validated drug targets, screening large collections of chemicals to
identify chemical leads for drug development; and
- identifying variations in these gene sequences among patients and
determining the relationship of these genetic variations with
susceptibility to disease and probable response to drug therapy.
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We believe that Universal GeneTools can accelerate the pace and quality of
genome-based drug discovery at each of these critical steps.
Universal GeneTools for Validation of Drug Targets
As the number of genes identified as potential drug targets increases, the
need to rapidly and efficiently confirm their role in disease increases as well.
ZFP transcription factors are designed to regulate the expression of genes in
cells and animals to determine their role in a particular disease. We and our
Universal GeneTools collaborators have demonstrated the use of ZFP transcription
factors in gene regulation in several cell models of gene expression and our
collaborators are applying the technology to target validation in animal models
of human disease.
The use of ZFP transcription factors addresses a number of technical
challenges associated with target validation studies in transgenic animals.
Typically, transgenic animals are genetically engineered mice in which a target
gene has been inactivated, or knocked out. Generating a knockout mouse is labor
intensive and can take up to one year. We believe the generation time for mice
which have been engineered with ZFP transcription factors, or ZFP-Transgenic
mice, may be much faster than the generation time for standard knockouts. In
addition, researchers should gain more information from ZFP-Transgenics because
ZFP transcription factors can themselves be regulated thus permitting the
regulation of a target gene in a reversible fashion. This conditional control of
genes in ZFP transcription factors should be a distinct advantage for the
functional study of genes required in normal development. Typically, if an
essential gene is knocked out, the knockout mouse will not grow to maturity.
With ZFP gene regulation, however, we believe researchers can regulate essential
genes at virtually any point in the animal's development. This enables the study
of a gene's function in mature animals without altering the animal's normal
development. We are working closely with some of our Universal GeneTools
collaborators on ZFP-Transgenic models.
To date, we have entered into Universal GeneTools agreements with 18
leading pharmaceutical and biotechnology companies or their subsidiaries
including Pfizer Inc., SmithKline Beecham plc, Millennium Pharmaceuticals, Inc.,
AstraZeneca PLC, Schering AG, Bayer Corporation, Glaxo Wellcome plc, DuPont
Pharmaceuticals Company, Japan Tobacco Inc., F. Hoffmann-La Roche Ltd., Immunex
Corporation, Pharmacia & Upjohn Company, Genset SA, Warner-Lambert Company,
Merck KGaA, Zaiya Incorporated and Procter & Gamble Pharmaceuticals. These
collaborators are applying our ZFP transcription factors to the validation of
human gene targets for drug discovery. ZFP transcription factors are being
incorporated into both cells and animals for this purpose. We are working with
many of these companies to lay the basis for additional and expanded
collaborations and increased market acceptance of our Universal GeneTools. See
"Corporate Collaborations -- Universal GeneTools Collaborations."
ZFP-Engineered Cells for Identification of Drug Candidates
We plan to incorporate ZFP transcription factors into appropriate cell
lines for the purpose of screening chemical compounds for drug discovery. In
particular, we plan to engineer cell lines that permit the regulation of
validated gene targets. Activating a gene may allow pharmaceutical researchers
to increase the sensitivity, or responsiveness, to a given concentration of test
compound in an assay. In addition, if a response is observed when the gene is
both activated or repressed, it can be concluded that the test compound is not
acting through the protein encoded by that gene and may be showing a false
positive result.
We intend to commercialize ZFP-engineered cell lines for identification of
drug product candidates by developing relationships with strategic partners in
our Universal GeneTools business.
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Cell lines will be engineered and optimized by Sangamo scientists and
transferred to our partners for use in their drug screening operations.
ZFP Libraries for Target Discovery
Pharmaceutical researchers are also interested in accelerating an important
step in the first stages of genome-based drug discovery: the initial
identification of new drug targets.
ZFP transcription factors can be used to change patterns of gene expression
in cells, to stimulate clinically interesting changes in these cells, and to
determine the genes associated with these changes. ZFP libraries are large
collections of ZFP transcription factors that can be incorporated into
populations of cells such that each cell receives one ZFP transcription factor.
In any given cell, the ZFP transcription factor may change the function or
health of the cell, causing it to change in appearance. The ZFP transcription
factor that triggers this change can be purified, and its gene target
identified. In this manner, these genes could be identified as potential targets
for further study, validation, and drug screening.
We intend to commercialize our ZFP libraries by establishing strategic
partnerships. We anticipate that ZFP libraries will be optimized by Sangamo
scientists and used to identify targets in our partners' drug discovery
programs. We also plan to use ZFP libraries to discover novel gene targets in
our future, proprietary product development programs.
ZFP-Therapeutics
The promise of genome-based drug discovery includes the increasing supply
of new drug targets. ZFP transcription factors may offer a highly specific
approach to regulation of disease-related genes. We are developing ZFP
transcription factors for the treatment of human diseases, or ZFP-Therapeutics,
for cardiovascular, viral, and ophthalmic diseases and cancer.
Cardiovascular Disease
Cardiovascular disease is the leading cause of death in the United States
with nearly one million deaths annually. Approximately 400,000 Americans undergo
angioplasty, or opening, of coronary blood vessels each year due to
cardiovascular disease. Approximately 35% of these patients suffer from
restenosis, or partial reclosing of treated blood vessels, and require a second
procedure or more invasive surgery such as coronary bypass.
There is increasing interest in the development of therapeutic approaches
to cardiovascular disease that might stimulate the human body's natural ability
to form new blood vessels. This natural process is called angiogenesis. In
partnership with Edwards LifeScience, Inc., formerly the Cardiovascular Group of
Baxter Healthcare Corporation, or Baxter, we are developing ZFP transcription
factors designed to activate the expression of vascular endothelial growth
factors, or VEGFs.
ZFP transcription factors for therapeutic angiogenesis may also be used in
peripheral vascular diseases. We believe an advantage of the ZFP-Therapeutic
approach is the potential ability to activate multiple genes as necessary to
provide effective biological stimulation of angiogenesis. Our experiments on
VEGF activation are ongoing.
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Hepatitis B Viral Disease
Hepatitis B Virus, or HBV, is a worldwide health problem and is endemic in
many regions of Asia and Africa. Although HBV infection can generally be
prevented by vaccination, HBV remains a major clinical problem. It is estimated
that there are more than 350 million chronic HBV carriers worldwide. The
consequences of HBV infection include chronic active hepatitis and liver
cirrhosis, the latter of which is a major cause of mortality. The risk of liver
cancer in HBV carriers is estimated to be 100 times greater than in uninfected
individuals.
In 1998, we initiated a research collaboration with Dr. Alan McLachlan of
The Scripps Research Institute. The purpose of the collaboration is to evaluate
our ZFP transcription factors designed to repress the expression of HBV genes
and viral replication in liver cells. Dr. McLachlan is an expert in the
regulation of HBV gene expression and has developed several biological assays
for the measurement of HBV gene expression and viral replication. Preliminary
data suggest that our ZFP transcription factors can repress the expression of
HBV genes in liver cells. We are continuing these studies to confirm and extend
these results.
HIV Disease
HIV is the causative agent of AIDS, a disease that killed approximately
17,000 patients in the United States in 1998. Despite advances in pharmaceutical
therapy, there are currently approximately 400,000 HIV-infected individuals in
the United States and over 30 million people carrying the virus worldwide. The
new combination therapies, known as cocktail therapies, have been demonstrated
to be effective in clinical trials; however, the complexity of these regimens
often results in poor patient compliance and reduced efficacy.
In collaboration with Dr. Leonid Stamatatos of the Aaron Diamond AIDS
Research Center, we are testing our ZFP transcription factors designed to
repress HIV gene expression in human cells. These transcription factors could
provide the basis for the inhibition of HIV proliferation in patients infected
with HIV. Preliminary data suggest these ZFP transcription factors can repress
HIV gene expression in cells. Further experiments are ongoing.
In collaboration with Dr. Jeremy Berg of the Johns Hopkins University
School of Medicine, we are also testing ZFP transcription factors designed to
repress the expression of the human CCR5 gene, which encodes a protein used by
HIV to gain entry into cells of the immune system. Repression of CCR5 expression
in immune system cells may prevent HIV infection of these cells. Preliminary
data suggest that our ZFP transcription factors can repress CCR5 gene expression
in cells. Further experiments are ongoing.
Repression of Angiogenesis for Diabetic Retinopathy and Cancer
In contrast to cardiovascular disease, there are diseases that might
benefit from the inhibition of angiogenesis. Diabetic retinopathy, the leading
cause of blindness among diabetics, is the result of uncontrolled
vascularization of the retina and appears to be due to the secretion of
angiogenic factors such as VEGF. We believe that ZFP transcription factors
designed to repress the expression of VEGF and other angiogenic factors may
reverse this process.
Solid tumors require the ingrowth of new blood vessels if they are to grow
beyond even a few millimeters in diameter. Tumor cells frequently signal for
additional blood supply by secreting VEGF. Repression of VEGF expression in
tumor cells with ZFP-Therapeutics may prevent this angiogenesis and slow or halt
solid tumor growth.
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We have designed multiple ZFP transcription factors designed to repress the
expression of the VEGF gene. These ZFP transcription factors have shown
repression of VEGF expression in cultured human cells. We intend to test this
same approach in animal models of angiogenesis and cancer and, if successful, to
enter into human clinical trials with a future strategic partner.
Commercialization of ZFP-Therapeutics
We plan to develop and commercialize ZFP-Therapeutics in partnership with
pharmaceutical and biotechnology companies. We intend to negotiate partnerships
with terms that will provide partners with exclusive rights to the regulation of
specific genes, delineating in exact terms the clinical indications and
geographic areas covered under the agreement. We intend to commence additional
therapeutic programs and may retain commercial rights to some of these products.
ZFP-Engineered Cell Lines for the Production of Protein Pharmaceuticals
Protein pharmaceuticals manufactured with genetically modified cells now
account for more than $10 billion in annual worldwide sales. By using ZFP
transcription factors to activate the expression of genes encoding therapeutic
proteins in human cells, we are able to genetically engineer cells for
production of protein pharmaceuticals. We plan to develop ZFP-engineered cell
lines for production of commercially relevant proteins in partnership with
pharmaceutical and biotechnology companies.
ZFPs for Pharmacogenomics and Clinical Diagnostics
Single nucleotide polymorphisms, or SNPs, are DNA sequence variations at
specific chromosomal sites. SNPs have been the subject of increasing research in
recent years. It is now believed that some SNPs may be strongly associated with
some disease states, providing indicators of disease susceptibility and how
individual patients might respond to a particular drug therapy. The
pharmaceutical industry is investing in technology to monitor and record patient
SNPs in clinical trials and to correlate clinical outcomes with SNP status.
We have shown that ZFPs can effectively detect small variations in DNA
sequences and therefore may be used to detect SNPs in clinical samples. In
addition, ZFPs bind to DNA in its natural form, permitting simplified
preparation of DNA for analysis. Further, ZFPs are stable proteins and therefore
amenable to the types of assays and instrumentation used in standard clinical
and molecular biology laboratories. Combined with sensitive detection
technologies, ZFPs have the potential to eliminate the extensive manipulation of
patient DNA samples, reducing the time and cost, and increasing the accuracy of
diagnostic assays.
We intend to commercialize ZFPs for SNP detection and DNA diagnostics in
conjunction with partners engaged in the development of SNP diagnostic
technology or the manufacturing and marketing of clinical diagnostics.
ZFP Transcription Factors for Agricultural and Industrial Biotechnology
Agricultural Biotechnology
The multibillion-dollar agrochemical industry is undergoing a transition to
genome-based product discovery that is parallel to that of the worldwide
pharmaceutical industry. In a relatively recent development, the genomics
revolution has been applied to the sequencing of plant genes from some of the
world's largest commercial crops. We believe that the genomes of most
commercially important plants will be sequenced over the next several years.
Similar to trends in pharmaceutical research, discovery of thousands of plant
genes is creating enormous demand for technologies that can help
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ascertain gene function, identify important gene and agrochemical targets and
regulate those genes through improved transgenic plants.
ZFP transcription factors are a central mode of gene regulation in plants.
The ability to identify and subsequently regulate the expression of genes with
ZFP transcription factors could lead to the creation of new plants that may
increase crop yields, lower production costs, resist herbicides, pesticides and
plant pathogens, and permit the development of branded agricultural products
with unique nutritional and processing characteristics. In addition, ZFP
transcription factors may be used to confirm the role of newly discovered genes
in plant growth, metabolism and resistance to pathogens.
Modification of fatty acid composition in soybean seed oil is an example of
this approach. Americans annually consume approximately 7.0 million metric tons
of soybean seed oil. This oil is low in monounsaturated fatty acids as compared
with the oil extracted from other seeds, and has reduced value because it must
be chemically modified for some applications. Therefore, a genetically modified
strain of soybean that yielded a higher mix of monounsaturated fatty acids in
its seed oil would be highly desirable. FAD2-1 is a soybean gene that encodes an
enzyme responsible for lowering the levels of monounsaturated fatty acids. We
have generated ZFP transcription factors designed to recognize the FAD2-1 gene
and repress its expression in soybean seed. We have initiated studies of FAD2-1
repression in soybeans.
To commercialize ZFP transcription factors in agricultural biotechnology,
we intend to seek strategic relationships with corporate partners having
capabilities in the research, development and commercialization of agricultural
products.
Industrial Biotechnology
The U.S. chemical industry is undertaking a major strategic initiative to
develop bacterial, fungal and plant biological systems for the production of
industrial chemicals. This initiative is motivated by considerations of product
performance, capital costs, environmental impact and dependence on fossil fuels,
which provide the raw material for the production of many chemical feedstocks in
the United States and around the world.
A principal challenge in harnessing biological systems for this purpose is
engineering bacterial and fungal cells and plants to achieve predictable and
specific regulation of multiple genes. We believe ZFP transcription factors are
well suited to this task because of their natural ability to discriminate among
closely related genes and their ability to regulate gene expression in a
reversible fashion.
We believe that ZFP transcription factors will prove to be a commercially
feasible approach for the engineering of cells and plants for the biological
production of industrial chemicals and food additives. We intend to seek
strategic relationships with corporate partners in the chemical and food
processing industries to develop and commercialize applications of Universal
Gene Recognition in industrial biotechnology.
CORPORATE COLLABORATIONS
We intend to apply the ZFP technology platform in several commercial
applications where the products provide our strategic partners and collaborators
with technical and economic advantages. We have established and will continue to
pursue Universal GeneTools collaborations and strategic partnerships with
selected pharmaceutical and biotechnology companies to fund internal research
and development activities and to assist in product commercialization.
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Baxter CardioVascular Group Strategic Partnership
In January 2000, we announced the initiation of a multiyear, therapeutic
product development collaboration with Edwards LifeScience, Inc., formerly the
CardioVascular Group of Baxter Healthcare Corporation. Under the agreement, we
have licensed to Baxter on a worldwide, exclusive basis our ZFP-Therapeutics for
the activation of VEGFs and VEGF receptors in cardiovascular and peripheral
vascular diseases. In addition, Baxter has purchased a $5 million convertible
note which will convert, together with accrued interest, into common stock upon
consummation of this offering, and we have received $1 million in initial
research funding from Baxter. We will be responsible for advancing product
candidates into preclinical animal testing. Baxter will be responsible for
preclinical development, regulatory affairs, clinical development and the sales
and marketing of the ZFP-Therapeutic products. In March 2000, Baxter exercised
an option by purchasing a $7.5 million convertible note which will convert into
common stock, together with accrued interest, upon consummation of this offering
for a right of first refusal for three years to negotiate a license for
additional ZFP-Therapeutics in cardiovascular and peripheral vascular diseases.
In the future, we may receive option fees, milestone payments, royalties and
additional research funding from this agreement. Baxter has the right to
terminate the agreement at any time upon 90 days written notice. In the event of
termination, we retain all payments previously received.
Universal GeneTools Collaborations
We began marketing our Universal GeneTools products to the pharmaceutical
and biotechnology industry in 1998. Our Universal GeneTools business is based
upon the delivery of an engineered ZFP transcription factor which is capable of
regulating the expression of a gene for which it is specifically designed and
targeted. Our collaborators, which consist of pharmaceutical and large
biotechnology companies, provide us with the gene target they wish to study and
we design and deliver at least two ZFP transcription factors designed
specifically for that collaborator's gene target.
Our Universal GeneTools agreements generally contain the following terms:
- ZFP transcription factors are provided for the collaborator's internal
research purposes only;
- we retain all ZFP intellectual property rights, including the rights to
make, use, develop and sell any product or service utilizing ZFPs, ZFP
transcription factors and the genes that encode them; and
- we do not disclose to any third party a specific collaborator's
confidential gene target.
- typically, our collaborators are obligated to pay 50% of the agreed
amount for the ZFP transcription factors within 20 days after execution
of the agreement, and the balance 20 days after delivery of the ZFP
transcription factors.
For fiscal year 1999, we recognized $1.0 million in revenues from these
Universal GeneTools agreements.
To date, we have not licensed any intellectual property rights to our
current Universal GeneTools collaborators. Our Universal GeneTools collaborators
are under no obligation to pursue product development programs with us, to use
our technology, or to purchase any additional product from us. See "Risk
Factors -- Commercialization of our technologies depends on strategic partnering
with other companies, and if we are not able to find strategic partners in the
future, we may not be able to develop our technologies or products which could
slow our growth and decrease our revenues."
We have entered into 18 Universal GeneTools collaborations with the
following pharmaceutical or biotechnology companies or their subsidiaries
including: Pfizer Inc., SmithKline Beecham plc, Millennium Pharmaceuticals,
Inc., AstraZeneca PLC, Schering AG, Bayer Corporation, Glaxo
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Wellcome plc, DuPont Pharmaceuticals Company, Japan Tobacco Inc., F. Hoffmann-La
Roche Ltd., Immunex Corporation, Pharmacia & Upjohn Company, Genset SA,
Warner-Lambert Company, Merck KGaA, Zaiya Incorporated and Procter & Gamble
Pharmaceuticals.
RESEARCH GRANTS
We have received awards and government grants during the past several years
that have totaled approximately $5.6 million. These grants have provided
non-dilutive research funding to develop our technology platform for specific
applications, primarily in the areas of diagnostics and anti-viral therapeutics.
SUMMARY OF MAJOR U.S. GOVERNMENT GRANTS
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
AREA OF GRANT GRANTING AGENCY DESCRIPTION GRANT DATE DOLLAR AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
DNA Diagnostics National Institute of Generation and development of novel August 1995 $2,000,000
Standards and nucleic acid binding proteins and their (completed)
Technology use as DNA diagnostics
- ---------------------------------------------------------------------------------------------------------------------
Antiviral National Institute of Development of novel DNA binding proteins May 1997 $2,000,000
Therapeutics Standards and as antiviral therapeutics targeting HIV
Technology and Hepatitis B
- ---------------------------------------------------------------------------------------------------------------------
HIV National Institutes Designer DNA binding proteins targeting May 1998 $ 533,000
of Health HIV genes
- ---------------------------------------------------------------------------------------------------------------------
Agriculture U.S. Department of Demonstrating commercial potential of ZFPs September 1999 $ 220,000
Agriculture for generating value added crops
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
INTELLECTUAL PROPERTY AND TECHNOLOGY LICENSES
Our success and ability to compete is dependent in part on the protection
of our proprietary technology and information. We rely on a combination of
patent, copyright, trademark and trade secret laws, as well as confidentiality
agreements and licensing agreements, to establish and protect our proprietary
rights. We have licensed intellectual property covering the design, composition
and use of ZFPs and ZFP transcription factors for the recognition and regulation
of genes. To date, Sangamo has licensed rights to three issued U.S. patents and
five U.S. and four Patent Cooperation Treaty, or P.C.T., patent applications
covering the design, generation and use of ZFPs. We have also licensed five
issued U.S. patents covering the linking of DNA recognition domains to
additional functional domains that provide various DNA-related functions such as
detection and inactivation. We have also filed 11 U.S. and two P.C.T. patent
applications covering improvements in the design and use of ZFPs and ZFP
transcription factors. We plan to continue to license and to generate internally
intellectual property covering the design, selection, generation and composition
of ZFPs, the genes encoding these proteins and the application of ZFPs and ZFP
transcription factors in pharmaceutical discovery, therapeutics for the
treatment of human diseases, clinical diagnostics, and agricultural and
industrial biotechnology applications.
Although we have filed for patents on some aspects of our technology, we
cannot assure you that patents will issue as a result of these pending
applications or that any patent that has or may be issued will be upheld.
Despite our efforts to protect our proprietary rights, existing patent,
copyright, trademark and trade secret laws afford only limited protection, and
we cannot assure you that our intellectual property rights, if challenged, will
be upheld as valid or will be adequate to protect our proprietary technology and
information. In addition, the laws of some foreign countries may not protect our
proprietary rights to the same extent as do the laws of the United States.
Attempts may be made to copy or reverse engineer aspects of our technology or to
obtain and use information that we regard as proprietary. Our patent filings may
be subject to interferences. Litigation or opposition
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proceedings may be necessary in the future to enforce or uphold our intellectual
property rights, to determine the scope of our licenses, or determine the
validity and scope of the proprietary rights of others. The defense and
prosecution of intellectual property suits, United States Patent and Trademark
Office interference proceedings and related legal and administrative proceedings
in the United States and internationally involve complex legal and factual
questions. As a result, these proceedings are costly and time-consuming to
pursue, and result in diversion of resources. The outcome of these proceedings
is uncertain and could significantly harm our business.
We have received unsolicited invitations to license existing patented
technology from a number of third parties, at least one of which contained an
allegation of infringement. No litigation is being threatened and no license
fees are being proposed. Upon careful analysis of each of these technologies, we
have determined that we already own rights to these technologies or that our
scientific and commercial interests would not benefit from the acquisition of
rights to these technologies. Further, we believe that the making, using or
selling of our products and processes need not infringe any claims in the
proffered patents. Accordingly, we have declined to enter into license
negotiations with these parties. We cannot assure you, however, that these
parties will not bring future actions against us, our collaborators or strategic
partners alleging infringement of their patents. As detailed above, the outcome
of any litigation, particularly lawsuits involving biotechnology patents, is
difficult to predict and likely to be costly regardless of the outcome. In these
circumstances, litigation, the risks of a negative impact on our business can
neither be clearly defined nor entirely eliminated.
In the future, however, third parties may assert patent, copyright,
trademark and other intellectual property rights to technologies that are
important to our business. Any claims asserting that our products infringe or
may infringe proprietary rights of third parties, if determined adversely to us,
could significantly harm our business. Any claims, with or without merit, could
result in costly litigation, divert the efforts of our technical and management
personnel or require us to enter into or modify existing royalty or licensing
agreements, any of which could significantly harm our business. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, if at all. See "Risk Factors -- Because it is difficult and costly to
protect our proprietary rights, and third parties have filed patent applications
that are similar to ours, we cannot ensure the proprietary protection of our
technologies and products."
COMPETITION
We believe that we are a leader in the field of ZFP gene regulation. We are
aware that there are many companies focused on other methods for regulating gene
expression and a limited number of commercial and academic groups pursuing the
development of ZFP gene regulation technology. The field of regulation of gene
expression is highly competitive, and we expect competition to persist and
intensify in the future from a number of different sources, including
pharmaceutical and biotechnology companies, academic and research institutions,
and government agencies that will seek to develop technologies that will compete
with our Universal Gene Recognition technology platform.
Any products that we develop using our Universal Gene Recognition
technology will participate in highly competitive markets. Many of our potential
competitors in these markets, either alone or with their collaborative partners,
may have substantially greater financial, technical and personnel resources than
we do, and they may succeed in developing technologies and products that would
render our technology obsolete or noncompetitive. In addition, many of those
competitors have significantly greater experience than we do in their respective
fields.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA approval or commercializing ZFP transcription factors or other
competitive products before us. If we
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commence commercial product sales, we will be competing against companies with
greater marketing and manufacturing capabilities, areas in which we have limited
or no experience. In addition, any product candidate that we successfully
develop may compete with existing products that have long histories of safe and
effective use.
Competition may also arise from other drug development technologies and
methods of preventing or reducing the incidence of disease, small molecule
therapeutics, or other classes of therapeutic agents.
We expect to face intense competition from other companies for
collaborative arrangements with pharmaceutical, biotechnology, agricultural and
chemical companies, for establishing relationships with academic and research
institutions, and for licenses to proprietary technology. These competitors,
either alone or with their collaborative partners, may succeed in developing
technologies or products that are more effective or less costly than ours.
Our ability to compete successfully will depend, in part, on our ability
to:
- develop proprietary products;
- develop and maintain products that reach the market first, are
technologically superior to or are of lower cost than other products in
the market;
- attract and retain scientific and product development personnel;
- obtain and enforce patents, licenses or other proprietary protection for
our products and technologies;
- obtain required regulatory approvals; and
- manufacture, market and sell any product that we develop.
GOVERNMENT REGULATION
We have not applied for any regulatory approvals with respect to any of our
technology or products under development. We anticipate that the production and
distribution of any therapeutic or diagnostic products developed, either alone
or with our strategic partners or collaborators, will be subject to extensive
regulation in the United States and other countries. We intend to pursue
therapeutic, diagnostic, agricultural and industrial biotechnology products,
some of which may be subject to different government regulation.
Before marketing in the United States, any pharmaceutical, therapeutic or
diagnostic products developed by us must undergo rigorous preclinical testing
and clinical trials and an extensive regulatory clearance process implemented by
the FDA under the federal Food, Drug and Cosmetic Act. The FDA regulates, among
other things, the development, testing, manufacture, safety, efficacy, record
keeping, labeling, storage, approval, advertising, promotion, sale and
distribution of biopharmaceutical products. The regulatory review and approval
process, which includes preclinical testing and clinical trials of each product
candidate, is lengthy, expensive and uncertain. Securing FDA approval requires
the submission of extensive preclinical and clinical data and supporting
information to the FDA for each indication to establish a product candidate's
safety and efficacy. The approval process takes many years, requires the
expenditure of substantial resources, involves post-marketing surveillance, and
may involve ongoing requirements for post-marketing studies. Before commencing
clinical investigations in humans, we must submit to, and receive approval from,
the FDA of an Investigational New Drug application. We expect to rely on some of
our strategic partners to file Investigational New Drug applications and
generally direct the regulatory approval process for some products developed
using our Universal Gene Recognition technology.
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Clinical testing must meet requirements for:
- institutional review board oversight;
- informed consent;
- good clinical practices; and
- FDA oversight.
Before receiving FDA clearance to market a product, we must demonstrate
that the product is safe and effective on the patient population that will be
treated. If regulatory clearance of a product is granted, this clearance will be
limited to those specific states and conditions for which the product is useful,
as demonstrated through clinical studies. Marketing or promoting a drug for an
unapproved indication is generally prohibited. Furthermore, clearance may entail
ongoing requirements for post-marketing studies. Even if this regulatory
clearance is obtained, a marketed product, its manufacturer and its
manufacturing facilities are subject to continual review and periodic
inspections by the FDA. Discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions on this product or
manufacturer, including costly recalls or withdrawal of the product from the
market.
The length of time necessary to complete clinical trials varies
significantly and may be difficult to predict. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent
regulatory approvals. Additional factors that can cause delay or termination of
our clinical trials, or the costs of these trials to increase, include:
- slow patient enrollment due to the nature of the protocol, the proximity
of patients to clinical sites, the eligibility criteria for the study or
other factors;
- inadequately trained or insufficient personnel at the study site to
assist in overseeing and monitoring clinical trials;
- delays in approvals from a study site's review board;
- longer treatment time required to demonstrate effectiveness or determine
the appropriate product dose;
- lack of sufficient supplies of the product candidate;
- adverse medical events or side effects in treated patients; and
- lack of effectiveness of the product candidate being tested.
In addition, the field testing, production and marketing of genetically
engineered plants and plant products are subject to federal, state, local and
foreign governmental regulation. Regulatory action or private litigation could
also result in expenses, delays or other impediments to our product development
programs or the commercialization of resulting products.
The FDA currently applies the same regulatory standards to foods developed
through genetic engineering as applied to foods developed through traditional
plant breeding. Genetically engineered food products, however, will be subject
to premarket review if these products raise safety questions or are deemed to be
food additives. Our products or those of our strategic partners may be subject
to lengthy FDA reviews and unfavorable FDA determinations.
International Biosafety Protocols were recently announced in which
signatory states may require that genetically engineered food products be
labeled as such. Additional and more restrictive international or foreign
policies may be developed which further limit our ability to pursue our business
plan in relation to agricultural biotechnology.
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<PAGE> 45
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities. The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary widely from country to
country. At present, foreign marketing authorizations are applied for at a
national level, although within the European Community registration procedures
are available to companies wishing to market a product in more than one EC
member state. If the regulatory authority is satisfied that adequate evidence of
safety, quality and efficacy has been presented, a marketing authorization will
be granted. This foreign regulatory approval process involves all of the risks
associated with FDA clearance discussed above.
We intend to consult with, and when appropriate, to hire personnel with
expertise in regulatory affairs to assist us in obtaining appropriate regulatory
approvals as required. We also intend to work with our strategic partners and
collaborators that have experience in regulatory affairs to assist us in
obtaining regulatory approvals for collaborative products. See "Risk
Factors -- Our potential therapeutic products are subject to a lengthy and
uncertain regulatory process, and if these potential products are not approved,
we will not be able to commercialize those products" and "-- Regulatory
approval, if granted, may be limited to specific uses or geographic areas which
could limit our ability to generate revenues."
EMPLOYEES
As of March 14, 2000, we had 45 full-time employees, 14 of whom hold Ph.D.
degrees and 35 of whom hold other graduate or technical degrees. Of our total
workforce, 38 are engaged in research and development activities and seven are
engaged in business development, finance and administration. None of our
employees is represented by a collective bargaining agreement, nor have we
experienced work stoppages. We believe that our relations with our employees are
good.
FACILITIES
We lease approximately 15,000 square feet of research and office space
located at 501 Canal Boulevard in Richmond, California under two separate
leases. The leases expire in 2004. We believe that the facilities we currently
lease are sufficient for approximately the next 24 months.
LEGAL PROCEEDINGS
We are not a party to any material litigation.
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<PAGE> 46
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive
officers, directors and key employees as of March 14, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Edward O. Lanphier II................. 43 President, Chief Executive Officer and Director
Alan P. Wolffe, Ph.D. ................ 40 Senior Vice President and Chief Scientific
Officer
Casey C. Case, Ph.D. ................. 44 Vice President, Research
Peter Bluford......................... 45 Vice President, Corporate Development
Shawn K. Johnson...................... 32 Director of Finance
Eric T. Rhodes........................ 39 Director of Commercial Development
S. Kaye Spratt, Ph.D. ................ 47 Director of Delivery Technology
Herbert W. Boyer, Ph.D. .............. 63 Director
William G. Gerber, M.D. .............. 53 Director
John W. Larson........................ 64 Director
William J. Rutter, Ph.D. ............. 71 Director
Michael C. Wood....................... 47 Director
</TABLE>
Edward O. Lanphier II, the founder of Sangamo BioSciences, Inc., has served
as President, Chief Executive Officer and as a member of the board of directors
since inception. Mr. Lanphier has eighteen years of experience in the
pharmaceutical and biotechnology industry. From June 1992 to May 1997, he held
various positions at Somatix Therapy Corporation, a gene therapy company,
including Executive Vice President, Commercial Development and Chief Financial
Officer. Prior to Somatix, Mr. Lanphier was President and Chief Executive
Officer of BioGrowth, Inc., a biotechnology company that merged with Celtrix
Laboratories to form Celtrix Pharmaceuticals, Inc. in 1991. From 1986 to 1987,
Mr. Lanphier served as Vice President of Corporate Development at
Biotherapeutics, Inc. From 1984 to 1986 he served as Vice President of Corporate
Development at Synergen Inc. Prior to Synergen, he was employed by Eli Lilly and
Company, a pharmaceutical company, in the strategic business
planning-biotechnology group. Mr. Lanphier is a member of the Biotechnology
Industry Organization (BIO) Emerging Companies Section and the BIO board of
directors. Mr. Lanphier has a B.A. in biochemistry from Knox College.
Alan P. Wolffe, Ph.D. joined Sangamo as its Senior Vice President and Chief
Scientific Officer in March 2000. Dr. Wolffe is internationally recognized for
his research on chromatin structure and its role in the regulation of gene
expression, with over 250 research publications on this topic. He was Director
of the Department of Molecular Embryology at the National Institutes of Child
Health and Human Development from 1990 until March 2000. During this time, Dr.
Wolffe's laboratory discovered the determinants of chromosonal gene regulation
by ZFPs, including observations that have proven fundamental to the
understanding of histone acetylation and deacetylation in transcriptional
control. Dr. Wolffe has received numerous prizes for his research and serves as
an editor on the editorial boards of Biochemistry, Journal of Cell Science,
Molecular Biology of the Cell, Molecular Cell Biology, Nucleic Acids Research,
and Science. Dr. Wolffe received a Ph.D. in molecular biology from the Medical
Research Council and a B.A. in biochemistry from Oxford University.
Casey C. Case, Ph.D. has served as Vice President, Research since November
1997. From June 1993 to November 1997, Dr. Case served as Director, Cell Biology
at Tularik, Inc., a pharmaceutical company focusing on gene regulating drugs,
where he was part of the team that established Tularik's
43
<PAGE> 47
cell-based, high throughput screening of small molecule modulators of specific
transcription factors. From June 1989 to June 1993, Dr. Case was Director of
Transcriptional Research at Oncogene Science, Inc., a pharmaceutical company,
where he led Oncogene's research efforts in the development of mammalian
cell-based assays for gene transcription and the automation of these assays for
selection of therapeutic targets and compounds. Dr. Case earned a Ph.D. in
biochemistry from the University of California, Davis and a B.S. in biology from
San Diego State University.
Peter Bluford has served as Vice President, Corporate Development since
December 1997 and since joining us has had operating responsibility for
Sangamo's licensing, intellectual property and business planning activities. Mr.
Bluford also served as Senior Director, Corporate Development, from October 1996
to November 1997. From October 1992 to September 1996, Mr. Bluford served as
Director, Commercial Development at Somatix Therapy Corporation, where he was
responsible for Somatix's strategic business planning activities while also
serving as Project Team Leader, Oncology from 1995 to 1996. From 1991 to 1992,
Mr. Bluford was with Celtrix Pharmaceuticals, Inc. as Manager, Strategic Market
Planning. From 1990 to 1991, he was Manager of Strategic Planning with
BioGrowth, Inc. Mr. Bluford received an M.B.A. and a B.S. in biochemistry from
the University of California, Berkeley.
Shawn K. Johnson has served as Director of Finance since December 1997.
From July 1995 to October 1997, Mr. Johnson was Director of Finance at
Neurobiological Technologies, Inc., a neuroscience company developing drugs.
From July 1993 to June 1995, he managed various accounting functions for
Glycomed, Inc., a pharmaceutical company. Prior to Glycomed, Mr. Johnson was the
Controller for Cognitive Systems, Inc., a software technology company. He holds
an M.B.A. from the University of California, Berkeley and a B.S. in accounting
from City University in Bellevue, Washington.
Eric T. Rhodes has served as Director of Commercial Development since July
1998 and has primary responsibility for management of our Universal GeneTools
business. Prior to joining Sangamo, Mr. Rhodes served in a variety of capacities
at Incyte Pharmaceuticals, Inc., a genomic database and data management software
company, from March 1994 to July 1998. He initially served as part of the team
responsible for expansion of Incyte's high throughput sequencing capabilities
and later worked in the business development group where his primary focus was
the evaluation and acquisition of new technologies. From 1991 to 1994, Mr.
Rhodes directed the molecular biology group at Anergen, Inc., a biotechnology
company focusing on treatment of autoimmune disease and prior to that he was
with BioGrowth, Inc., from 1989 to 1991 and Triton BioSciences, a biotechnology
company, as a molecular biologist from 1987 to 1989. Mr. Rhodes received a B.S.
in microbiology and immunology from the University of California, Berkeley.
S. Kaye Spratt, Ph.D. has served as Director of Delivery Technology since
January 1998 and is currently directing Sangamo's cell biology and gene therapy
efforts for the evaluation and delivery of engineered zinc finger proteins. From
June 1997 to January 1998, Dr. Spratt was employed by Acacia Biosciences, a
biotechnology research company, as Project Manager. From June 1992 to June 1997,
Dr. Spratt was employed by Somatix Therapy Corporation as Section Manager and
Senior Scientist responsible for the design, development and production of
research and clinical grade gene therapy vectors. From 1987 to 1992, Dr. Spratt
was Senior Scientist and Project Leader for BioGrowth Inc. Dr. Spratt received a
Ph.D. in microbial genetics from Meharry Medical College and a B.S. in biology
from Langston University.
Herbert W. Boyer, Ph.D. has served as a Director since July 1997. Dr. Boyer
is the co-inventor of recombinant DNA technology with Dr. Stanley Cohen and
founded Genentech, Inc., a biopharmaceutical company, in 1976. Dr. Boyer is
currently Professor Emeritus at the University of California, San Francisco. Dr.
Boyer has served as a director of Genentech since 1976 and was Vice
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<PAGE> 48
Diagram is entitled "Universal Gene Recognition(TM)." Immediately below reads,
"Engineered ZFP(TM) Transcription Factors." A line leads from that language to
four boxes containing, respectively from left to right: "Universal Gene Tools,"
"ZFP Therapeutics," "ZFP Diagnostics," and "Agricultural and Industrial
Biotechnology." Below the "Universal Gene Tools" box is a bulleted list: "Drug
Target Discovery," "Drug Target Validation," and "Pharmaceutical Discovery."
Below the "ZFP Therapeutics" box is a bulleted list: "Therapeutic Regulation of
Disease-Related Genes," "Activation," "Repression," "Reversible Control," and
"Pharmaceutical Protein Production." Below the "ZFP Diagnostics" box is a
bulleted list: "Clinical Diagnostics" and "Pharmcogenomics." Below the
"Agricultural and Industrial Biotechnology" box is a bulleted list:
"Agrochemical Discovery," "ZFP-Transgenic Plants," and "Biological Production of
Industrial Chemicals."
<PAGE> 49
In the top left corner is the title "Universal Gene Recognition Technology
Platform." Immediately below the title reads, "ZFP, zinc finger DNA binding
protein, transcription factors regulate the expression of clinically and
commercially important genes." To the right of that language is a short coil on
top of a thin cylinder, with "A single zinc finger recognizes three base pairs,
3 bp, of DNA" immediately below. To the right of that is a medium length series
of coils on top of a thin cylinder, with "Three zinc fingers recognize nine base
pairs, 9 bp, of DNA. ZFPs can be linked together to recognize longer sequences
of DNA" immediately below. Near the top right corner is a long series of coils
on top of a thin cylinder labeled "Recognition domain." Immediately below reads,
"ZFP transcription factors have two parts:" along with two bulleted points, "The
ZFP recognition domain directs the ZFP to its target site in the DNA" and "The
functional domain causes the target gene to be activated or repressed." To the
right of the long series of coils is an oval, labeled "Functional domain," with
an arrow pointing to the coils.
In the left portion of the diagram is a double helix. Above and to the left of
the double helix states, "Different sets of genes are expressed in different
cell types. It is this pattern of gene expression that determines the structure,
biological function and health of all cells, tissues and organisms. Genes are
regulated, either activated or repressed, by DNA binding proteins called
transcription factors." To the right of that is a large coil on top of half a
tube divided lengthwise. Immediately below is a multi-colored strand. Above and
to the right reads, "Sangamo scientists design ZFP transcription factors to
recognize and regulate target genes." Below and to the right of the images is
the coil shown on top of the strand with the cylindrical portion below it
highlighted.
To the right of the middle is a long double helix with half of one helix
multi-colored. Resting on the multi-colored portion is a series of coils. To the
left of the coils is a green oval with a plus sign in the middle and a line
connecting it to the left-most portion of the coils. Immediately above this
image reads, "Once the ZFP transcription factor binds to its target DNA
sequence, it can regulate the target gene in a variety of ways. For example, the
target gene can be activated..."
To the right of the long double helix is a shorter double helix with half of one
helix multi-colored. Resting on the multi-colored portion is a series of coils.
To the left of the coils is a red oval with a minus sign in the middle and a
line connecting it to the left-most portion of the coils. Immediately above this
image reads, "...or repressed."
In the bottom right corner of the diagram reads, "ZFP transcription factors
can:" followed by bulleted points: "Activate genes," "Repress genes," "Switch
genes on or off temporarily," and "Detect specific DNA sequences." Below this
list reads, "The ability of engineered ZFPs to recognize and regulate genes has
broad-based applications in pharmaceutical discovery, therapeutics for the
treatment of human diseases, clinical diagnostics, and agricultural and
industrial biotechnology."
<PAGE> 50
President of Research from 1976 to 1990. Dr. Boyer was also a Professor of
biochemistry and biophysics at the University of California, San Francisco from
1966 to 1991 where he retains the position of Professor Emeritus. He was also an
Investigator for the Howard Hughes Medical Institute from 1976 to 1983. He has
authored over 100 scientific publications and is a member of the National
Academy of Sciences. Dr. Boyer has received numerous research awards including
the National Medal of Science, the National Medal of Technology and the Albert
Lasker Basic Medical Research Award. Dr. Boyer is Chairman of the Board of
Directors of Allergan, Inc., a pharmaceutical company and a trustee of the
Scripps Research Institute. Dr. Boyer received a Ph.D. in microbiology from the
University of Pittsburgh and a B.A. in biology from St. Vincent College.
William G. Gerber, M.D. has served as a member of our board of directors
since June 1997. Dr. Gerber is currently Chief Executive Officer and a Director
of Epoch Pharmaceuticals, Inc., a biomedical company, where he has been since
September 1999. From April 1998 to July 1999, he was President of diaDexus LLC,
a pharmacogenomics company. Previous to his appointment at diaDexus, he was
Chief Operating Officer of Onyx Pharmaceuticals. Before joining Onyx in 1995,
Dr. Gerber was with Chiron Corporation, a biopharmaceutical, vaccine and blood
testing company, where he was President of the Chiron Diagnostics business unit
after Chiron's merger with Cetus Corporation in December 1991. He joined Cetus
in 1987 as senior director of corporate ventures and was named Vice President
and General Manager of the PCR (Polymerase Chain Reaction) Division in November
1988. Dr. Gerber earned his B.S. and M.D. degrees from the University of
California, San Francisco School of Medicine.
John W. Larson has served as a member of our board of directors since
January 1996. Mr. Larson has served as senior partner at the law firm of
Brobeck, Phleger & Harrison LLP since March 1996. From 1988 until March 1996,
Mr. Larson was Chief Executive Officer of the firm. He has been a partner with
the firm since 1969, except for the period from July 1971 to September 1973 when
he was in government service as Assistant Secretary of the United States
Department of the Interior and Counselor to George P. Shultz, Chairman of the
Cost of Living Council. Mr. Larson holds an L.L.B. and a B.A., with distinction,
in Economics, from Stanford University.
William J. Rutter, Ph.D. has served as a member of our board of directors
since January 2000. He is the co-founder of Chiron Corporation, a
biopharmaceutical, vaccine and blood testing company, and served as its Chairman
of the Board of Directors from Chiron's inception in 1981 until May 1999. From
August 1983 through April 1989, in addition to his responsibilities at Chiron,
Dr. Rutter was the Director of the Hormone Research Institute at UCSF, and he
became a Professor Emeritus in 1991. In 1969, Dr. Rutter joined the faculty of
the University of California, San Francisco as a Herzstein Professor, and served
as the chairman of the Department of Biochemistry and Biophysics at UCSF from
1969 to 1982. Dr. Rutter has also served on the Board of Overseers at Harvard
University since 1992, on the Board of Trustees at the Carnegie Institution of
Washington since 1995 and several private company boards. Dr. Rutter received
his Ph.D. in biochemistry from the University of Illinois, an M.S. in
biochemistry from the University of Utah and a B.A. in biochemistry from Harvard
University.
Michael C. Wood has served as a member of our board of directors since our
inception. Mr. Wood is currently President of Knowledge Kids Enterprises, Inc.,
an educational company which he founded in January 1995. Mr. Wood has 15 years
of experience in the corporate legal representation of high technology firms and
venture capital partnerships. From 1991 through 1994, he was a partner of the
emerging technology companies group at Cooley Godward LLP. From 1979 to 1991,
Mr. Wood practiced corporate law in the high technology practice of Crosby Heafy
Roach & May. Mr. Wood received a J.D. from the Hastings College of Law, an
M.B.A. from the University of California, Berkeley and his B.A. in political
science from Stanford University.
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<PAGE> 51
SCIENTIFIC ADVISORY BOARD
We use scientists and physicians to advise us on scientific matters as a
part of our Scientific Advisory Board, including experts in molecular biology,
structural biology, biophysics, biochemistry, cell biology, and gene expression.
Generally, our scientific advisors have received options to purchase our common
stock as compensation for their consulting services.
The following individuals are members of our Scientific Advisory Board:
Carl Pabo, Ph.D. (Chairman) is a professor of biophysics and structural
biology at the Massachusetts Institute of Technology and an investigator in the
Howard Hughes Medical Institute. Dr. Pabo is a pioneer in the structural
analysis and modification of zinc finger DNA binding proteins and has made many
of the fundamental observations as to how ZFPs interact with their DNA binding
sites. Dr. Pabo received a Ph.D. in biochemistry and molecular biology from
Harvard University and a B.S. in molecular biophysics and biochemistry from Yale
College. He is a member of the National Academy of Sciences and of the American
Academy of Arts and Sciences.
Carlos F. Barbas III, Ph.D. is an Associate Member of The Scripps Research
Institute, where he has been since 1991. Dr. Barbas is an expert in the
selection of ZFPs and has published several papers on the use of ZFP
transcription factors to regulate gene expression. From 1989 to 1991, he was a
postdoctoral fellow at The Scripps Research Institute and Pennsylvania State
University. Dr. Barbas received his Ph.D. in chemistry from Texas A&M University
and a B.S. in chemistry and physics from Eckerd College.
Jeremy M. Berg, Ph.D. is Professor and Director of the Department of
Biophysics and Biophysical Chemistry at The Johns Hopkins University School of
Medicine, where he has been since 1990. He is a leader in the field of ZFPs, and
the Berg laboratory was one of the first to demonstrate the use of designed zinc
finger arrays for the generation of novel, sequence-specific ZFPs. From 1986 to
1990, Dr. Berg was an associate professor in the Department of Chemistry at The
Johns Hopkins University, and a postdoctoral fellow in the School of Medicine
from 1984 to 1986. Dr. Berg received his Ph.D. in chemistry from Harvard
University and a B.S. and M.S. degrees in chemistry from Stanford University.
Judith Campisi, Ph.D. is Head, Center for Research and Education in Aging
Life Sciences Division of the Berkeley National Laboratory, where she has been
conducting aging and cancer research since 1990. From 1984 to 1990, Dr. Campisi
held professorships within the Department of Biochemistry at the Boston
University School of Medicine. Dr. Campisi received her Ph.D. in biochemistry
and a B.A. in chemistry from the State University of New York, Stony Brook.
Srinivasan Chandrasegaran, Ph.D. is an associate professor at The Johns
Hopkins University School of Hygiene and Public Health, and a leading expert on
the molecular biology, structure and function of type IIs restriction
endonucleases. He has collaborated with Sangamo on the development of our DNA
diagnostic program. Dr. Chandrasegaran received his Ph.D. in chemistry from
Georgetown University, and B.S. and M.S. degrees in chemistry from Madras
University.
George N. ("Joe") Cox, Ph.D. is President and Chief Scientific Officer of
Bolder Biotech, a protein delivery biotechnology company. Dr. Cox was Vice
President, Research and Development at Sangamo from March 1995 to June 1998. He
spent the previous 12 years of his career at Synergen, Inc., in various
positions including Group Leader, Discovery Research, Chairman of Synergen's
science counsel, Director of Animal Health Care, and Senior Scientist. He
received a Ph.D. in biology from the University of California, Santa Cruz and a
B.S. in biology from Wesleyan University.
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<PAGE> 52
Hamilton O. Smith, M.D. is currently a Professor Emeritus of molecular
biology and genetics at The Johns Hopkins University School of Medicine and
Director of DNA Resources at Celera Genomics Corporation. Dr. Smith received the
1978 Nobel Prize in Medicine for his co-discovery of type IIs restriction
enzymes. Dr. Smith has gone on to publish extensively on the genetic and genomic
analysis of haemophilus influenzae and its natural transformation system. Dr.
Smith is an American Cancer Society Research Professor and member of the
National Academy of Sciences. He received his M.D. from The Johns Hopkins
University School of Medicine, an A.B. in mathematics from the University of
California, Berkeley, and a B.S. from the University of Illinois, Urbana.
Kevin Struhl, Ph.D. is the David Wesley Gaiser Professor of Biological
Chemistry in the Department of Biological Chemistry and Molecular Pharmacology
at Harvard Medical School. Dr. Struhl has established many of the principles
involved in the molecular mechanisms of transcriptional activation and
repression in eukaryotic cells including the recruitment of gene-specific and
general transcription factors as well as histone deacetylases. Dr. Struhl
received his Ph.D. in biochemistry from Stanford University, and S.M. and S.B.
degrees from the Massachusetts Institute of Technology.
Elton T. ("Ted") Young, Ph.D. is a professor of biochemistry and genetics
at the University of Washington in Seattle. Dr. Young has published numerous
articles in the field of transcription factors and this remains a focus of his
ongoing research at the University of Washington. Dr. Young has served as an
editor for the Journal of Molecular and Cellular Biology since 1983. He received
his Ph.D. in biophysics from the California Institute of Technology and has a
B.A. in chemistry from the University of Colorado at Boulder.
Alan P. Wolffe, Ph.D. joined Sangamo as its Senior Vice President and Chief
Scientific Officer in March 2000. Dr. Wolffe is internationally recognized for
his research on chromatin structure and its role in the regulation of gene
expression, with over 250 research publications on this topic. He was Director
of the Department of Molecular Embryology at the National Institutes of Child
Health and Human Development from 1990 until March 2000. During this time, Dr.
Wolffe's laboratory discovered the determinants of chromosonal gene regulation
by ZFPs, including observations that have proven fundamental to the
understanding of histone acetylation and deacetylation in transcriptional
control. Dr. Wolffe has received numerous prizes for his research and serves as
an editor on the editorial boards of Biochemistry, Journal of Cell Science,
Molecular Biology of the Cell, Molecular Cell Biology, Nucleic Acids Research,
and Science. Dr. Wolffe received a Ph.D. in molecular biology from the Medical
Research Council and a B.A. in biochemistry from Oxford University.
BOARD COMMITTEES
Audit Committee. We have established an audit committee composed of
independent directors that review and supervise our financial controls,
including the selection of our auditors, reviews our books and accounts, meets
with our officers regarding our financial controls, acts upon recommendations of
our auditors and takes further actions as the audit committee deems necessary to
complete an audit of our books and accounts, as well as other matters that may
come before it or as directed by the board. The audit committee currently
consists of Dr. Gerber, Dr. Rutter and Mr. Wood.
Compensation Committee. We have also established a compensation committee
that reviews and approves the compensation and benefits for our executive
officers, administers our compensation and stock plans, makes recommendations to
the board of directors regarding such matters and performs other duties as may
from time-to-time be determined by the board. The compensation committee
currently consists of Dr. Boyer and Mr. Larson.
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<PAGE> 53
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee of the board of directors are Dr.
Boyer and Mr. Larson. None of our compensation committee members has been an
officer or employee of Sangamo at any time. Mr. Larson is a senior partner at
Brobeck, Phleger & Harrison LLP, our legal counsel. None of our executive
officers serves on the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of our board
or our compensation committee.
COMPENSATION OF DIRECTORS
Other than expenses in connection with attendance at meetings and other
customary expenses, we currently do not compensate any non-employee member of
the board. Directors who are also employees do not receive additional
compensation for serving as directors.
Under our 2000 Stock Incentive Plan, non-employee directors will receive
automatic option grants upon becoming directors each of which is determined by
the board of directors and 10,000 shares on the date of each annual meeting of
stockholders. The 2000 Stock Incentive Plan also contains a director fee option
grant program. Should this program be activated in the future, each non-employee
board member will have the opportunity to apply all or a portion of any annual
retainer fee otherwise payable in cash to the acquisition of an option with an
exercise price below the then fair market value of our shares. Non-employee
directors will also be eligible to receive discretionary option grants and
direct stock issuances under our 2000 Stock Incentive Plan. See
"Management -- Stock Plans."
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation earned
during the fiscal year ended December 31, 1999 by our Chief Executive Officer
and our other executive officers whose total annual compensation exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
FISCAL ------------------- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ------ -------- ------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Edward O. Lanphier II....... 1999 $195,000 $73,788 -- $ 12,500
President and Chief
Executive Officer
Casey C. Case, Ph.D. ....... 1999 131,250 10,000 30,000 --
Vice President, Research
Peter Bluford............... 1999 120,750 10,000 40,000 --
Vice President, Corporate
Development
</TABLE>
On January 4, 1998, Mr. Lanphier received a loan from us in the principal
amount of $250,000. The loan bears interest at a rate of 6% per year. As a
special bonus program for Mr. Lanphier the balance of the loan will be forgiven
in forty-eight equal monthly installments of principal, together with accrued
interest for the year, upon completion of each month of employment with us over
the forty-eight month period measured from the date the loan was made.
Accordingly, Mr. Lanphier's
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<PAGE> 54
reported bonus amount represents the $73,788 of loan forgiveness which occurred
on December 31, 1999.
Other compensation for Mr. Lanphier consists of an insurance premium paid
by Sangamo on a split dollar life insurance policy. Sangamo will be reimbursed
for these insurance premiums out of the cash surrender value of its policy paid
by Mr. Lanphier during his lifetime or out of the proceeds paid under the policy
upon his death. The face amount of the insurance policy is $2.0 million.
OPTION GRANTS
The following table sets forth summary information regarding the option
grants made to our Chief Executive Officer and the other executive officers
whose total annual compensation exceeded $100,000 for 1999. Options granted
under our 1995 Stock Option Plan are generally immediately exercisable for all
the option shares by the optionee but exercised shares are subject to a right of
repurchase according to the vesting schedule of each specific grant. In the
event that a purchaser ceases to provide service to Sangamo, we have the right
to repurchase any of that person's unvested shares of common stock at the
original option exercise price. The exercise price per share is equal to the
fair market value of our common stock on the date of grant as determined by our
board of directors. Twenty-five percent of the option shares vest on the one
year anniversary of employment and the remainder vest in a series of equal
monthly installments beginning on the one year anniversary of employment and
continuing over the next three years of service. The percentage of total options
was calculated based on options to purchase an aggregate of 305,500 shares of
common stock granted to employees under our 1995 Stock Option Plan in 1999. The
potential realizable value was calculated based on the ten-year term of the
options and assumed rates of stock appreciation of 5% and 10%, compounded
annually from the date the options were granted to their expiration date based
on the fair market value of the common stock on the date of grant.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL 1999 (PER SHARE) DATE 5% 10%
---- ----------- ------------- -------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward O. Lanphier II...... -- --% $ -- -- $ -- $ --
Casey C. Case, Ph.D. ...... 30,000 9.8 0.225 12/8/09 4,245 10,758
Peter Bluford.............. 40,000 13.1 0.225 12/8/09 5,660 14,343
</TABLE>
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<PAGE> 55
FISCAL YEAR-END 1999 OPTION VALUES
The following table sets forth summary information regarding the number and
value of options held as of December 31, 1999 for our Chief Executive Officer
and our most highly compensated executive officers whose total annual
compensation exceeded $100,000. Our Chief Executive Officer and our most highly
compensated executive officers did not acquire any shares upon exercise of
options in 1999. Amounts shown in the value of unexercised in-the-money options
at December 31, 1999 column are based on $0.225, the fair market value of the
common stock as of December 31, 1999, multiplied by the number of shares
underlying the option, less the aggregate exercise price payable for these
shares.
1999 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Edward O. Lanphier II............... 400,000 -- $ 24,000 $ --
Casey C. Case, Ph.D. ............... 210,000 -- 13,500 --
Peter Bluford....................... 260,000 -- 31,500 --
</TABLE>
STOCK PLANS
2000 STOCK INCENTIVE PLAN. The 2000 Stock Incentive Plan is intended to
serve as the successor program to our 1995 Stock Option Plan. The 2000 Stock
Incentive Plan was adopted by the board in February 2000 and was approved by the
stockholders in March 2000. The 2000 Stock Incentive Plan will become effective
when the underwriting agreement for this offering is signed. At that time, all
outstanding options under our 1995 Stock Option Plan will be transferred to the
2000 Stock Incentive Plan, and no further option grants will be made under the
1995 Stock Option Plan. The transferred options will continue to be governed by
their existing terms, unless our compensation committee decides to extend one or
more features of the 2000 Stock Incentive Plan to those options. Except as
otherwise noted below, the transferred options from the 2000 Stock Incentive
Plan have substantially the same terms as will be in effect for grants made
under the discretionary option grant program of our 2000 Stock Incentive Plan.
Authorized shares
A total of 3,616,832 shares of our common stock have been authorized for
issuance under the 2000 Stock Incentive Plan. This share reserve consists of the
number of shares we estimate will be carried over from the 1995 Stock Option
Plan including the shares subject to outstanding options thereunder, plus an
additional increase of approximately shares. The number of shares
authorized for issuance under our 2000 Stock Incentive Plan will automatically
increase on the first trading day of the fiscal year, beginning in 2001, by an
amount equal to three and one-half percent of the total number of shares of our
common stock outstanding on the last trading day immediately preceding fiscal
year, but in no event will this annual increase exceed 2,000,000 shares. In
addition, the 2000 Stock Incentive Plan prohibits stock option grants or direct
stock issuances for more than 2,000,000 shares of common stock in total in any
calendar year.
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<PAGE> 56
Stock Options
Our 2000 Stock Incentive Plan has five separate programs:
- the discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date;
- the stock issuance program, under which eligible individuals may be
issued shares of common stock directly through the purchase of such
shares at a price not less than 100% of the then fair market value at
time of issuance or as a bonus tied to the attainment of performance
milestones or the completion of a specified period of services;
- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of special below market stock option grants;
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
members of our board of directors to purchase shares of common stock at
an exercise price equal to the fair market value of those shares on the
grant date; and
- the director fee option grant program, under which non-employee members
of our board of directors may be given the opportunity to apply a portion
of any retainer fee otherwise payable to them in cash each year to the
acquisition of special below-market option grants.
The individuals eligible to participate in our 2000 Stock Incentive Plan
include our officers and other employees, our board members and any consultants
we hire.
Plan Administration
The discretionary option grant and stock issuance programs will be
administered by our compensation committee. This committee will determine which
eligible individuals are to receive option grants or stock issuances under those
programs, the time or times when the grants or issuances are to be made, the
number of shares subject to each grant or issuance, the status of any granted
option as either an incentive stock option or a non-statutory stock option under
the federal tax laws, the vesting schedule to be in effect for the option grant
or stock issuance and the maximum term for which any granted option is to remain
outstanding. The compensation committee will also have the authority to select
the executive officers and other highly compensated employees who may
participate in the salary investment option grant program if that program is put
into effect for one or more calendar years.
Our 2000 Stock Incentive Plan will include the following features:
- The exercise price for any options granted under the 2000 Stock Incentive
Plan may be paid in cash or in shares of our common stock valued at fair
market value on the exercise date. The option may also be exercised
through a same-day sale program without any cash outlay by the optionees.
The compensation committee may provide financial assistance to one or
more optionees in the exercise of their options by allowing such
individuals to deliver full-recourse interest-bearing promissory notes in
payment of the exercise price and any associated withholding taxes.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1995 Stock Option Plan, in return for the
grant of new options for the same or a different number of option shares
with an exercise price per share based upon the fair market value of our
common stock on the new grant date.
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<PAGE> 57
- Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. None of the options under our 1995
Stock Option Plan have any stock appreciation rights.
Changes in Control
The 2000 Stock Incentive Plan will include the following change in control
provisions which may result in the accelerated vesting of outstanding option
grants and stock issuances:
- If we are acquired by merger or asset sale, each outstanding option under
the discretionary option grant program which is not to be assumed by the
successor corporation will immediately become exercisable for all the
option shares, and all outstanding unvested shares will immediately vest,
except to the extent our repurchase rights with respect to those shares
are to be assigned to the successor corporation.
- The compensation committee will have complete discretion to grant one or
more options that will become exercisable for all the option shares if
those options are assumed in the acquisition but the optionee's service
with us or the acquiring entity is subsequently terminated. The vesting
of any outstanding shares under the stock issuance programs may be
accelerated upon similar terms and conditions. The compensation committee
will also have the authority to grant options which will immediately vest
in the event we are acquired, whether or not those options are assumed.
- The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections. This accelerated
vesting may occur either at the time of this type of transaction or upon
the subsequent termination of the individual's service.
- If we are acquired by merger or asset sale, the options currently
outstanding under the 1995 Stock Option Plan will accelerate in full if
the options are not assumed by the acquiring entity and the optionee's
employment with us is involuntarily terminated within 12 months following
the acquisition. If the options are not so assumed, they will accelerate
and become exercisable for fully vested shares immediately before the
acquisition and will terminate upon the completion of the acquisition.
Salary Investment Option Grant Program
If the compensation committee decides to put the salary investment option
grant program into effect for one or more calendar years, each of our executive
officers and other highly compensated employees may elect to reduce his or her
base salary for the calendar year by an amount not less than $10,000 nor more
than $50,000. Each selected individual who makes this election will
automatically be granted, on the first trading day in January of the calendar
year for which his or her salary reduction is to be in effect, an option to
purchase that number of shares of common stock determined by dividing the salary
reduction amount by two-thirds of the fair market value per share of our common
stock on the grant date. The option will have an exercise price per share equal
to one-third of the fair market value of the option shares on the grant date. As
a result, the option will be structured so that the fair market value of the
option shares on the grant date less the exercise price payable for those shares
will be equal to the amount of the salary reduction. The option will
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<PAGE> 58
become exercisable in a series of twelve equal monthly installments over the
calendar year for which the salary reduction is to be in effect.
Automatic Option Grant Program
Under the automatic option grant program, each individual who first becomes
a non-employee board member at any time after the effective date of this
offering will receive an option grant to purchase the number of shares of common
stock as determined by the board on the date the individual joins the board. In
addition, on the date of each annual stockholders meeting held in 2001 and
thereafter, each non-employee board member who is to continue to serve as a
non-employee board member, including each of our current non-employee board
members, will automatically be granted an option to purchase 10,000 shares of
common stock, provided the individual has served on the board for at least six
months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each initial
option grant will vest in a series of 36 equal monthly installments upon the
optionee's completion of each month of board service measured from the grant
date. The shares subject to each 10,000 share annual option grant will vest in a
series of 12 equal monthly installments upon completion of each month of board
service over the 12-month period measured from the grant date. The shares
subject to each option will immediately vest in full over the 36-month period
upon the optionee's death or disability while a board member.
Director Fee Option Grant Program
If the director fee option grant program is put into effect in the future,
then each non-employee board member may elect to apply all or a portion of any
cash retainer fee for the year to the acquisition of a below-market option
grant. The option grant will automatically be made on the first trading day in
January in the year for which the retainer fee would otherwise be payable in
cash. The option will have an exercise price per share equal to one-third of the
fair market value of the option shares on the grant date, and the number of
shares subject to the option will be determined by dividing the amount of the
retainer fee applied to the program by two-thirds of the fair market value per
share of our common stock on the grant date. As a result, the option will be
structured so that the fair market value of the option shares on the grant date
less the exercise price payable for those shares will be equal to the portion of
the retainer fee applied to that option. The option will become exercisable in a
series of 12 equal monthly installments over the calendar year for which the
election is in effect. The option, however, will become immediately exercisable
for all the option shares upon the death or disability of the optionee while
serving as a board member.
Our 2000 Stock Incentive Plan will also have the following features:
- Outstanding options under the salary investment option grant program and
the automatic and director fee option grant programs will immediately
vest if we are acquired by a merger or asset sale or if there is a
successful tender offer for more than 50% of our outstanding voting stock
or a change in the majority of our board through one or more contested
elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50%
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<PAGE> 59
of our outstanding voting stock. In return for the surrendered option,
the optionee will be entitled to a cash distribution from us in an amount
per surrendered option share based upon the highest price per share of
our common stock paid in that tender offer.
- The board may amend or modify the 2000 Stock Incentive Plan at any time,
subject to any required stockholder approval. The 2000 Stock Incentive
Plan will terminate no later than February 7, 2010.
EMPLOYEE STOCK PURCHASE PLAN. Our Employee Stock Purchase Plan was adopted
by the board in February 2000 and approved by the stockholders in March 2000.
The Employee Stock Purchase Plan will become effective immediately upon the
signing of the underwriting agreement for this offering. The plan is designed to
allow our eligible employees and the eligible employees in our participating
subsidiaries, if any, to purchase shares of common stock, at semi-annual
intervals, with their accumulated payroll deductions.
Authorized Shares
A total of 400,000 shares of our common stock will initially be reserved
for issuance under our Employee Stock Purchase Plan. The reserve will
automatically increase on the first trading day of the second fiscal quarter
each year, beginning in the year 2001, by an amount equal to one percent of the
total number of outstanding shares of our common stock on the last trading day
of the immediately preceding first fiscal quarter. In no event will any annual
reserve increase exceed 600,000 shares.
Plan Administration
The plan will have a series of successive overlapping offering periods,
with a new offering period beginning on the first business day of May and
November of each year. Each offering period will continue for a period of 24
months, unless otherwise determined by our compensation committee. The initial
offering period, however, will start on the date the underwriting agreement for
this offering is signed and will end on the last business day of April 2002. The
next offering period will start on the first business day of November 2000.
Individuals scheduled to work more than 20 hours per week for more than
five calendar months per year may join an offering period on the start date of
that period. Employees may participate in only one offering period at any time.
A participant may contribute up to 15% of his or her cash earnings through
payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on each semi-annual purchase date. Semi-annual purchase dates
will occur on the last business day of April and October each year, with the
first purchase to occur on the last business day of October 2000. The purchase
price per share on each semi-annual purchase date will be equal to 85% of the
fair market value per share on the start date of the offering period or, if
lower, 85% of the fair market value per share on the semi-annual purchase date.
A participant, however, may not purchase more than 2,000 shares on any purchase
date, and not more than 200,000 shares may be purchased in total by all
participants on any purchase date. Our compensation committee will have the
authority to change these limitations for any subsequent offering period.
Changes in Control
If the fair market value per share of our common stock on any purchase date
is less than the fair market value per share on the start date of the 24-month
offering period, then that offering period
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<PAGE> 60
will automatically terminate, and all participants in the terminated offering
will be transferred to the new offering period commencing immediately
thereafter.
Should we be acquired by merger or sale of substantially all of our assets
or more than 50% of our voting securities, then all outstanding purchase rights
will automatically be exercised immediately prior to the effective date of the
acquisition. The purchase price will be equal to 85% of the market value per
share on the start date of the offering period in which the acquisition occurs
or, if lower, 85% of the fair market value per share immediately prior to the
acquisition.
The following provisions will also be in effect under the Employee Stock
Purchase Plan:
- The plan will terminate no later than the last business day of January
2010.
- The board may at any time amend, suspend or discontinue the Employee
Stock Purchase Plan. Some amendments may require stockholder approval.
TERMINATION OF EMPLOYMENT ARRANGEMENT AND CHANGE IN CONTROL ARRANGEMENTS
In May 1997, we entered into an agreement with Edward O. Lanphier II, our
current President and Chief Executive Officer. Under the terms of the agreement,
Mr. Lanphier will receive an annual salary, an optional bonus payment and common
stock and stock options based on the achievement of some milestones. If Mr.
Lanphier is terminated without cause, he will be entitled to his base salary for
a period of twelve months plus customary benefits for that period. In the event
of a change in control, the unvested portion of his options will vest.
On January 4, 1998, Mr. Lanphier received a loan from us in the principal
amount of $250,000. The loan bears interest at a rate of 6% per year and will be
forgiven in forty-eight equal monthly installments of principal together with
all accrued interest upon his completion of each month of employment with us
over the forty-eight month period measured from the date the loan was made. If
Mr. Lanphier is terminated without cause, the balance of the loan will be
forgiven. A change of control will be deemed a termination without cause.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation eliminates, to the maximum extent allowed
by the Delaware General Corporation Law, directors' personal liability to us or
our stockholders for monetary damages or breaches of fiduciary duties. The
certificate of incorporation of Sangamo does not, however, eliminate or limit
the personal liability of a director for the following:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that we shall indemnify our directors and executive
officers to the fullest extent permitted under the Delaware General Corporation
Law and may indemnify our other officers, employees and other agents as set
forth in the Delaware General Corporation Law. In addition, we have entered into
an indemnification agreement with each of our directors and executive officers.
The indemnification agreements contain provisions that require us, among other
things, to indemnify our directors and executive officers against liabilities
(other than liabilities arising from intentional or knowing and culpable
violations of law) that may arise by reason of their status or service as
directors or executive officers of Sangamo or other entities to which they
provide service at our request and to
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<PAGE> 61
advance expenses they may incur as a result of any proceeding against them as to
which they could be indemnified. We believe that these bylaw provisions and
indemnification agreements are necessary to attract and retain qualified
directors and officers.
Prior to the consummation of the offering, we will obtain additional
insurance which covers directors and officers for claims they may otherwise be
required to pay or for which we are required to indemnify them and which will
become effective upon consummation of the offering.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
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<PAGE> 62
RELATED PARTY TRANSACTIONS
Since October 23, 1995, we have issued shares of our preferred stock and
warrants to purchase our preferred stock to investors in private placement
transactions as follows: a total of 791,250 shares of Series A preferred stock
at a price of $1.00 per share and warrants to purchase 65,000 shares of Series A
preferred stock at a price of $1.00 from October 1995 to June 1996; a total of
2,398,000 shares of Series B preferred stock at a price of $3.00 per share and
warrants to purchase 64,981 shares of Series B preferred stock at an exercise
price of $3.00 per share from November 1997 to February 1998; and a total of
2,000,000 shares of Series C preferred stock at a price of $4.50 per share from
August 1999 to January 2000. The following table summarizes the shares of
preferred stock purchased by, and warrants to purchase shares of preferred stock
issued to our executive officers, directors and 5% stockholders and persons and
entities associated with them in these private placement transactions. Shares
and warrants held by affiliated persons and entities have been aggregated. See
"Principal Stockholders." In connection with the above transactions, we entered
into and agreement with the investors providing for registration rights with
respect to these shares. See "Description of Capital Stock -- Registration
Rights."
<TABLE>
<CAPTION>
SERIES B
SERIES A SERIES B PREFERRED SERIES C
PREFERRED PREFERRED STOCK PREFERRED
STOCK STOCK WARRANTS STOCK
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
DIRECTORS
John W. Larson................................. 75,000 84,548 12,682 --
William J. Rutter, Ph.D. ...................... -- -- -- 333,333
5% STOCKHOLDERS
Entities affiliated with JAFCO Co., Ltd. ...... -- 1,000,000 -- 222,223
Lombard Odier & Cie............................ -- 1,000,000 -- 222,222
Stephens-Sangamo BioSciences LLC............... -- -- -- 1,000,000
</TABLE>
AGREEMENTS WITH OFFICERS AND DIRECTORS
In May 1997, we entered into an agreement with Edward O. Lanphier II, our
current President and Chief Executive Officer. Under the terms of the agreement,
Mr. Lanphier will receive an annual salary, an optional bonus payment, and
forgiveness of twenty-five percent of an outstanding loan, and common stock and
stock options based on the achievement of some milestones.
On January 4 , 1998, Mr. Lanphier received a loan from us in the principal
amount of $250,000. The loan bears interest at a rate of 6% per year and will be
forgiven in forty-eight equal monthly installments of principal, together with
all accrued interest, upon his completion of each month of employment with us
over the forty-eight month period measured from the date the loan was made.
$73,788 of the loan was forgiven in 1999. The loan is secured by 500,000 shares
of our common stock. If Mr. Lanphier is terminated without cause, the balance of
the loan will be forgiven. A change of control will be deemed a termination
without cause.
Mr. Larson, a Director, is also a partner at Brobeck, Phleger & Harrison
LLP, Sangamo's legal counsel.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between us and our officers, directors and principal stockholders and their
affiliates and any transactions between us and any entity with which our
officers, directors or 5% stockholders are affiliated, will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors of the board of directors and will be on terms
no less favorable to us than could be obtained from unaffiliated third parties.
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of our common stock as of February 29, 2000, and as adjusted for this offering,
by:
- each person or entity who is known by us to own beneficially more than 5%
of our outstanding stock;
- our Chief Executive Officer and our other executive officers whose total
annual compensation exceeded $100,000;
- each of our directors; and
- all directors and executive officers as a group.
Each stockholder's percentage ownership in the following table is based on
17,256,144 shares of common stock outstanding as of February 29, 1999. Unless
otherwise indicated, the principal address of each of the stockholders below is
c/o Sangamo BioSciences, Inc., 501 Canal Boulevard, Suite A100, Richmond, CA
94804. Except as otherwise indicated, and subject to applicable community
property laws, except to the extent authority is shared by both spouses under
applicable law, we believe the persons named in the table have sole voting and
investment power with respect to all shares of common stock held by them.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY --------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PRIOR TO OFFERING AFTER THE OFFERING
------------------------------------ ------------ ----------------- ------------------
<S> <C> <C> <C>
Entities Affiliated with JAFCO Co., Ltd.(1)..... 2,444,446 14.2% 10.6%
1-8-2 Marunouchi, Chiyoda-ku
Tokyo 100, Japan
Lombard Odier & Cie............................. 2,444,444 14.2 10.6
Toedistrasse 36, CH-8027
Zurich, Switzerland
Stephens-Sangamo BioSciences LLC................ 2,000,000 11.6 8.7
Edward O. Lanphier II(2)........................ 3,820,000 21.6 16.3
Casey C. Case, Ph.D.(3)......................... 210,000 1.2 *
Peter Bluford(4)................................ 260,000 1.5 *
Herbert W. Boyer, Ph.D.(5)...................... 100,000 * *
William G. Gerber, M.D.(6)...................... 100,000 * *
John W. Larson(7)............................... 474,460 2.7 2.1
William J. Rutter, Ph.D.(8)..................... 766,666 4.4 3.3
Michael C. Wood(9).............................. 1,460,000 8.4 6.3
All directors and executive officers as a group 7,591,126 41.0% 31.3%
(12 persons)(10)..............................
</TABLE>
- -------------------------
* Less than one percent.
(1) Represents 844,446 shares held by JAFCO Co., Ltd; 246,574 shares held by
JAFCO G-6(A) Investment Enterprise Partnership; 246,574 shares held by
JAFCO G-6(B) Investment Enterprise Partnership; 334,246 shares held by
JAFCO G-7(A) Investment Enterprise Partnership; 334,246 shares held by
JAFCO G-7(B) Investment Enterprise Partnership; 164,388 shares held by
JAFCO JS-3 Investment Enterprise Partnership; and 273,972 shares held by
JAFCO R-3 Investment Enterprise Partnership.
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<PAGE> 64
(2) Includes 400,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of February 29, 2000. Also
includes 400,000 shares held by Mr. Lanphier's minor children.
(3) Includes 210,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of February 29, 2000.
(4) Includes 260,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of February 29, 2000.
(5) Includes 62,624 shares of common stock which are subject to repurchase.
(6) Includes 64,583 shares of common stock which are subject to repurchase.
(7) Includes 50,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of February 29, 2000. Also
includes warrants to purchase 25,364 shares of common stock.
(8) Includes 100,000 shares of common stock which are subject to repurchase.
(9) Includes 50,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of February 29, 2000.
(10) Includes 1,206,364 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of February 29, 2000. Also
includes 35,790 shares which are subject to repurchase.
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<PAGE> 65
DESCRIPTION OF CAPITAL STOCK
At the closing of this offering, we will be authorized to issue 80,000,000
shares of common stock, $0.01 par value, and 5,000,000 shares of undesignated
preferred stock, $0.01 par value, following the conversion of our existing
preferred stock. The following description of capital stock gives effect to the
amended and restated certificate of incorporation to be filed prior to the
closing of this offering. Immediately following the completion of this offering,
and assuming no exercise of the underwriters' over-allotment option, a total of
22,300,417 shares of common stock will be issued and outstanding, and no shares
of preferred stock will be issued and outstanding. As of January 31, 2000, there
were 88 stockholders.
The following description of our capital stock is subject to and qualified
by our amended and restated certificate of incorporation and bylaws, which are
included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of the applicable Delaware law.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders. Subject to preferences that may
apply to any outstanding preferred stock that we may issue, the holders of
common stock are entitled to receive ratably those dividends, if any, as may be
declared from time to time by the board of directors out of funds legally
available for dividends. See "Dividend Policy." In the event of our liquidation,
dissolution or winding up, the holders of our common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. Our common
stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock outstanding upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
Our board of directors is authorized to issue, from time-to-time, without
stockholder authorization, in one or more designated series, any or all of our
authorized but unissued shares of preferred stock with any dividend, redemption,
conversion and exchange provisions as may be provided in the particular series.
Any series of preferred stock may possess voting, dividend, liquidation and
redemption rights superior to those of the common stock.
The rights of the holders of our common stock will be subject to, and may
be adversely affected by, the rights of the holders of any preferred stock that
may be issued in the future. Issuance of a new series of preferred stock, while
providing desirable flexibility in connection with financing possible
acquisitions and other corporate purposes, could have the effect of entrenching
our board of directors and making it more difficult for a third-party to
acquire, or discourage a third-party from acquiring, a majority of our
outstanding voting stock. We have no present plans to issue any shares of or
designate any series of preferred stock.
WARRANTS
At December 31, 1999, there were warrants outstanding to purchase a total
of 259,962 shares of our common stock, all of which will remain outstanding
after the completion of this offering and have various expiration dates. Some of
these warrants have net exercise provisions under which the 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 common stock at the
time of exercise of the warrant after deduction of the total exercise price.
60
<PAGE> 66
REGISTRATION RIGHTS
Pursuant to the Amended and Restated Investors Rights Agreement dated
January 20, 2000, some of our current stockholders and warrantholders have
registration rights for 5,697,948 shares of common stock held by them, or
issuable upon exercise of their warrants. Six months after the effective date of
this offering, the stockholders may demand that we file a registration statement
under the Securities Act covering all or a portion of the investors' registrable
securities. The stockholders demanding a registration must hold at least 40% of
the then outstanding registrable securities with an aggregate offering price,
net of underwriting discounts and commissions, of at least $7.5 million. These
registration rights are subject to our right to delay the filing of a
registration statement for a period not to exceed 120 days after receiving the
registration demand, although we cannot delay more than once in a twelve-month
period. In addition, the managing underwriter, if any, of the offering has the
right to limit the number of the registrable securities proposed to be included
in the registration. We are only obligated to effect one such demand
registration. However, stockholders with registration rights may require us to
file additional registration statements on Form S-3, subject to conditions and
limitations.
These stockholders also have "piggyback" registration rights. Subject to
exceptions, if we propose to register our securities under the Securities Act
other than pursuant to the stockholders' demand registration rights noted above,
the stockholders may require us to include all or a portion of their registrable
securities in the registration. Again, the managing underwriter has the right to
limit the number of the registrable securities proposed to be included in the
registration.
We will bear all registration expenses incurred in connection with a
registration effected pursuant to the rights described in the two foregoing
paragraphs, though limited to two registrations on Form S-3. The expenses for
all subsequent registrations on Form S-3 will be paid by the selling
stockholders pro rata in proportion to the number of securities sold. In any
registration, each selling stockholder will pay all underwriting discounts and
selling commissions applicable to the sale of its registrable securities.
These registration rights terminate on the earlier of two years after the
close of this offering or the date that all of its registrable securities may be
sold during any 90-day period under Rule 144 of the Securities Act. The
registration rights of each investor will also terminate when it owns less than
1% of our common stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE DELAWARE LAW AND FUTURE ISSUANCE OF
PREFERRED STOCK
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a 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 of the corporation 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% of our voting stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by:
(i) persons who are directors and also officers; and
(ii) employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to 2000
Employee Stock Purchase Plan will be tendered in a tender or exchange
offer; or
61
<PAGE> 67
- on or subsequent to that date, the business combination is approved by
the board of directors of the corporation and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that
is not owned by the interested stockholder.
Section 203 defines "business combination" to include the following:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- subject to some 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 stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- 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, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
Our amended and restated certificate of incorporation:
- provides that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting
of stockholders and not by written consent;
- provides that the authorized number of directors may be changed only by
our board of directors; and
- authorizes our board of directors to issue blank check preferred stock to
increase the amount of outstanding shares.
Our amended and restated by-laws provide that candidates for director may
be nominated, and proposals for business to be considered by the stockholders at
an annual meeting may be made, only by our board of directors or by a
stockholder who gives us written notice no later than 90 days or no earlier than
120 days prior to the first anniversary of the date of the preceding year's
annual meeting, subject to certain adjustments.
Delaware law and the foregoing provisions of our amended and restated
certificate of incorporation and by-laws and the issuance of preferred stock in
certain circumstances may have the effect of deterring hostile takeovers or
delaying changes in control of our management, which could depress the market
price of our common stock.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for our common stock is Equiserve L.P. Its
telephone number is (781) 575-2469.
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<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could reduce prevailing market prices. Furthermore, since no shares will
be available for sale shortly after this offering because of contractual and
legal restrictions on resale as described below, sales of substantial amounts of
our common stock in the public market after these restrictions lapse could
adversely affect the prevailing market price and our ability to raise equity
capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
22,300,417 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants issued
after December 31, 1999. Of these shares, all of the shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, unless these shares are purchased by affiliates. The
remaining 17,300,147 shares of common stock held by existing stockholders are
restricted securities. Restricted securities may be sold in the public market
only if registered for resale or if they qualify for an exemption from
registration described below under Rules 144, 144(k) or 701 promulgated under
the Securities Act.
Pursuant to the contractual restrictions described below and the provisions
of Rules 144, 144(k) and 701, the restricted shares will be available for sale
in the public market as follows:
- unless held by affiliates, the 5,000,000 shares sold in the public
offering will be freely tradable upon completion of this offering;
- no shares will be eligible for sale beginning 90 days after the date of
this prospectus;
- 14,255,790 shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, beginning 180 days after the date of
this prospectus.
Lock-Up Agreements. All of our executive officers and directors, and
stockholders holding an aggregate of at least 90% of the shares of our capital
stock, have agreed under lock-up agreements that, without the prior written
consent of Lehman Brothers Inc., they will not, directly or indirectly, offer,
sell or otherwise dispose of any shares of common stock or any securities which
may be converted into or exchanged for any such shares for the period ending 180
days after the date of this prospectus. Transfers or dispositions can be made
sooner only with the prior written consent of Lehman Brothers Inc. See
"Underwriting".
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus a person or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year, including the holding period of any prior owner except an affiliate, would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately 223,001 shares immediately after the offering;
or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Sangamo.
Rule 144(k). Under Rule 144(k), 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 two years,
including the holding period of any prior owner except an
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<PAGE> 69
affiliate, is entitled to sell these shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
14,255,790 shares of our common stock will qualify as "144(k) shares" within 180
days after the date of this prospectus.
Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchase or receive shares from us in connection with a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the date of this prospectus, subject
only to the manner of sale provisions of Rule 144, and by affiliates under Rule
144 without compliance with its holding period requirements.
Registration Rights. Upon completion of this offering, the holders of
15,035,896 shares of our common stock, or their transferees, will be entitled to
rights with respect to the registration of their shares for resale under the
Securities Act. Registration of their shares for resale under the Securities Act
would result in these shares becoming freely tradable without restriction under
the Securities Act, except for shares purchased by affiliates, immediately upon
the effectiveness of that registration statement.
Stock Options. Following the offerings, we intend to file a registration
statement on Form S-8 under the Securities Act covering the shares of common
stock reserved for issuance under our 1995 Stock Option Plan, 2000 Stock
Incentive Plan and 2000 Employee Stock Purchase Plan that will become effective
upon filing. Accordingly, shares registered under that registration statement
will, subject to Rule 144 volume limitations applicable to affiliates, be
available for sale in the open market after the filing, except those shares
subject to lockup agreements and unvested shares.
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<PAGE> 70
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Chase Securities Inc., ING Barings LLC,
William Blair & Company, L.L.C. and Fidelity Capital Markets, a division of
National Financial Services Corporation, are acting as representatives, have
each agreed to purchase from us the respective number of shares of common stock
shown opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Lehman Brothers Inc.........................................
Chase Securities Inc........................................
ING Barings LLC.............................................
William Blair & Company, L.L.C..............................
Fidelity Capital Markets, a division of National Financial
Services Corporation......................................
---------
Total..................................................... 5,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement. It also provides that, if any of the
shares of common stock are purchased by the underwriters under the underwriting
agreement, all of the shares of common stock that the underwriters have agreed
to purchase under the underwriting agreement, must be purchased. The conditions
contained in the underwriting agreement include the requirement that:
- the representations and warranties made by us to the underwriters are
true;
- that there is no material change in the financial markets; and
- we deliver to the underwriters customary closing documents.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at this public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After completion of the offering, the underwriters may change the offering price
and other selling terms.
We have granted the underwriters an option to purchase up to 750,000
additional shares of common stock, exercisable solely to cover over-allotments,
if any, at the public offering price less the underwriting discount shown on the
cover page of this prospectus. The underwriters may exercise this option at any
time until 30 days after the date of the underwriting agreement. If this option
is exercised, each underwriter will be committed, so long as the conditions of
the underwriting agreement are satisfied, to purchase a number of additional
shares of common stock proportionate to the underwriter's initial commitment as
indicated in the table above, and we will be obligated, under the over-allotment
option, to sell the shares of common stock to the underwriters.
We have agreed not to, without the prior consent of Lehman Brothers Inc.,
directly or indirectly, offer, sell or otherwise dispose of any shares of common
stock or any securities which may be
65
<PAGE> 71
converted into or exchanged for any such shares of common stock for a period of
180 days from the date of this prospectus. All of our executive officers and
directors, and some of our stockholders holding an aggregate of at least 90% of
the shares of our capital stock, have agreed under lock-up agreements that,
without the prior written consent of Lehman Brothers Inc., they will not,
directly or indirectly, offer, sell or otherwise dispose of any shares of common
stock or any securities which may be converted into or exchanged for any such
shares for the period ending 180 days after the date of this prospectus. See
"Shares Eligible for Future Sale."
The underwriting discount is equal to the public offering price per share
of common stock less the amount paid by the Underwriters to us per share of
common stock. The underwriting discount is expected to be approximately 7% of
the public offering price. We have agreed to pay the underwriters the following
total amount, assuming either no exercise or full exercise by the underwriters
of their over-allotment option:
<TABLE>
<CAPTION>
TOTAL FEES
---------------------------------------
FEE WITHOUT EXERCISE WITH FULL EXERCISE
PER OF OVER-ALLOTMENT OF OVER-ALLOTMENT
SHARE OPTION OPTIONS
------ ----------------- ------------------
<S> <C> <C> <C>
Underwriting discount paid by Sangamo....... $ $ $
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding the underwriting discount, will be approximately $1.2
million.
Before this offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions:
- our historical performance and capital structure;
- estimates of our business potential and earning prospects;
- an overall assessment of our management; and
- the consideration of the above factors in relation to market valuations
of companies in related businesses.
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "SGMO."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option. The underwriters have
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<PAGE> 72
informed us that they do not intend to confirm sales to discretionary accounts
that exceed 5% of the total number of shares of common stock offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that, if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it may discourage resales of the security by purchasers in an
offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as a selling group member in this offering and will be
facilitating electronic distribution of information through the Internet,
intranet and other proprietary electronic technology.
At our request, the underwriters have reserved up to 300,000 shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees and their family members and to our business associates at the initial
public offering price set forth on the cover page of this prospectus. These
persons must commit to purchase no later than the close of business on the day
following the date of this prospectus. The number of shares available for sale
to the general public will be reduced to the extent these persons purchase the
reserved shares.
Lehman Brothers Inc. and one of its affiliates are stockholders of Sangamo.
Together they own an aggregate of less than one percent of the issued and
outstanding shares of our common stock. In addition, we have entered into a
consulting agreement with an affiliate of Lehman Brothers Inc. that provides for
annual payments to the affiliate of $20,000.
LEGAL MATTERS
The validity of the common stock offered will be passed upon for us by
Brobeck, Phleger & Harrison LLP, San Francisco, California. John W. Larson, one
of our directors, is a senior partner of Brobeck, Phleger & Harrison LLP and
beneficially owns an aggregate of 474,460 shares of our common stock. Latham &
Watkins is acting as counsel for the underwriters in connection with selected
legal matters relating to the shares of common stock offered by this prospectus.
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<PAGE> 73
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999, and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We have included
our financial statements in this prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on the authority of
such firm as experts in accounting and auditing.
The statements in this prospectus in the sections entitled "Risk
Factors -- Because it is difficult and costly to protect our proprietary rights,
and third parties have filed patent applications that are similar to ours, we
cannot ensure the proprietary protection of our technologies and products" and
"Business -- Intellectual Property and Technology Licenses" have been passed
upon, as to patent matters, by Townsend and Townsend and Crew LLP, patent
counsel to us, and experts on such matters, and are included in this prospectus
in reliance upon its review and approval.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act a registration statement on Form S-1 relating to
the common stock offered by this prospectus. This prospectus does not contain
all of the information set forth in the registration statement and its exhibits
and schedules. For further information with respect to us and the shares we are
offering by this prospectus, you should refer to the registration statement and
its exhibits and schedules. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and you should refer to the copy of that contract or other
document filed as an exhibit to the registration statement. You may read or
obtain a copy of the registration statement, including exhibits, at the
commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. Each statement in this prospectus relating to a contract or document
filed as an exhibit is qualified in all respects by the filed exhibit. You may
obtain information on the operation of the public reference room by calling the
commission at 1-800-SEC-0330. The commission maintains a Web site that contains
reports, proxy information statements and other information regarding
registrants that file electronically with the commission. The address of this
Web site is http://www.sec.gov.
As a result of the offering, the information and reporting requirements of
the Securities Exchange Act of 1934 will apply to us. We intend to furnish
holders of our common stock with annual reports containing, among other
information, audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited condensed financial
information for the first three quarters of each fiscal year. We intend to
furnish other reports as we may determine or as may be required by law.
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<PAGE> 74
SANGAMO BIOSCIENCES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Stockholders' Equity........................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 75
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sangamo BioSciences, Inc.
We have audited the accompanying balance sheets of Sangamo BioSciences,
Inc. as of December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sangamo BioSciences, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
Ernst & Young LLP
Palo Alto, California
January 28, 2000,
except for Note 7, as to which the date is
March , 2000.
- --------------------------------------------------------------------------------
The foregoing opinion is in the form that will be signed upon the completion of
the stock split described in Note 7 to the financial statements.
/s/ Ernst & Young LLP
Palo Alto, California
February 24, 2000
F-2
<PAGE> 76
SANGAMO BIOSCIENCES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------ DECEMBER 31,
1998 1999 1999
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 1,250 $ 251
Short-term investments.............................. 1,808 7,252
Accounts receivable................................. 384 562
Prepaid expenses.................................... 97 171
------- -------
Total current assets............................. 3,539 8,236
Property and equipment, net........................... 436 612
Other assets.......................................... 244 439
------- -------
Total assets..................................... $ 4,219 $ 9,287
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............ $ 182 $ 348
Accrued compensation and employee benefits.......... 196 182
Deferred revenue.................................... -- 500
------- -------
Total current liabilities........................ 378 1,030
Note payable.......................................... 250 250
Commitments
Stockholders' equity:
Convertible preferred stock, $0.01 par value;
6,000,000 shares authorized, issuable in series,
3,148,000 and 4,855,917 shares issued and
outstanding at December 31, 1998 and 1999,
respectively (none pro forma); aggregate
liquidation preference of $15,485 at December 31,
1999, at amount paid in.......................... 7,743 15,187 $ --
Common stock, $0.01 par value; 15,000,000 shares
authorized, 5,931,018 and 6,132,060 shares issued
and outstanding at December 31, 1998 and 1999,
respectively, at amount paid-in (15,843,894
shares issued and outstanding, pro forma), at
amount paid in................................... 1,576 3,258 18,445
Deferred stock compensation......................... (773) (1,736) (1,736)
Accumulated deficit................................. (5,010) (8,785) (8,785)
Accumulated other comprehensive income.............. 55 83 83
------- ------- -------
Total stockholders' equity....................... 3,591 8,007 $ 8,007
------- ------- =======
Total liabilities and stockholders' equity....... $ 4,219 $ 9,287
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 77
SANGAMO BIOSCIENCES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenues:
Federal government research grants...................... $ 1,152 $ 1,888 $ 1,182
Collaboration agreements................................ -- 150 1,000
------- ------- -------
Total revenues....................................... 1,152 2,038 2,182
Operating expenses:
Research and development (including charges for stock
compensation of $25, $202, and $275 for 1997, 1998
and 1999, respectively).............................. 1,700 4,259 4,266
General and administrative (including charges for stock
compensation of $352, $208, and $244 for 1997, 1998
and 1999, respectively).............................. 797 1,237 1,822
------- ------- -------
Total operating expenses............................. 2,497 5,496 6,088
------- ------- -------
Loss from operations................................. (1,345) (3,458) (3,906)
Interest income........................................... 44 185 148
Interest expense.......................................... (99) (12) (17)
------- ------- -------
Net loss.................................................. $(1,400) $(3,285) $(3,775)
======= ======= =======
Basic and diluted net loss per share...................... $ (0.26) $ (0.56) $ (0.63)
======= ======= =======
Shares used in computing basic and diluted net loss per
share................................................... 5,485 5,843 5,991
======= ======= =======
Pro forma basic and diluted net loss per share
(unaudited)............................................. $ (0.29)
=======
Shares used in computing pro forma basic and diluted net
loss per share (unaudited).............................. 13,102
=======
</TABLE>
See accompanying notes.
F-4
<PAGE> 78
SANGAMO BIOSCIENCES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED ACCUMULATED
STOCK COMMON STOCK DEFERRED OTHER TOTAL
------------------- ------------------ STOCK ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT INCOME EQUITY
--------- ------- --------- ------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1996..................... 750,000 $ 750 5,472,500 $ 9 $ -- $ (325) $-- $ 434
Issuance of common stock
for services rendered
at $0.01 per share..... -- -- 303,800 331 -- -- -- 331
Issuance of common stock
upon exercise of
options at $0.05 per
share.................. -- -- 100,000 5 -- -- -- 5
Issuance of Series B
convertible preferred
stock for cash at $3.00
per share, net of
issuance costs of
$180................... 2,358,000 6,894 -- -- -- -- -- 6,894
Issuance of Series B
preferred stock
warrants............... -- 99 -- -- -- -- -- 99
Deferred stock
compensation........... -- -- -- 449 (449) -- -- --
Amortization of deferred
stock compensation..... -- -- -- -- 46 -- -- 46
Net loss and
comprehensive loss..... -- -- -- -- -- (1,400) -- (1,400)
--------- ------- --------- ------ ------- ------- --- -------
Balances at December 31,
1997..................... 3,108,000 7,743 5,876,300 794 (403) (1,725) -- 6,409
Issuance of common stock
upon exercise of
options at $0.01 and
$0.05 per share, net of
repurchases............ -- -- 54,718 2 -- -- -- 2
Issuance of Series B
convertible preferred
stock for services
related to the issuance
of preferred stock at
$0.01 per share........ 40,000 -- -- -- -- -- -- --
Deferred stock
compensation........... -- -- -- 780 (780) -- -- --
Amortization of deferred
stock compensation..... -- -- -- -- 410 -- -- 410
Unrealized gain on
investments............ -- -- -- -- -- -- 55 55
Net loss................. -- -- -- -- -- (3,285) -- (3,285)
-------
Comprehensive loss....... (3,230)
--------- ------- --------- ------ ------- ------- --- -------
Balances at December 31,
1998..................... 3,148,000 7,743 5,931,018 1,576 (773) (5,010) 55 3,591
Issuance of common stock
upon exercise of
options at $0.01 to
$0.15 per share........ -- -- 191,042 12 -- -- -- 12
Issuance of common stock
and options to purchase
common stock for
services rendered...... -- -- 10,000 188 -- -- -- 188
Issuance of Series A
convertible preferred
stock upon exercise of
warrants at $0.01 per
share.................. 41,250 -- -- -- -- -- -- --
Issuance of Series C
convertible preferred
stock for cash at $4.50
per share, net of
issuance costs of
$56.................... 1,666,667 7,444 -- -- -- -- -- 7,444
Deferred stock
compensation........... -- -- -- 1,482 (1,482) -- -- --
Amortization of deferred
stock compensation..... -- -- -- -- 519 -- -- 519
Unrealized gain on
investments............ -- -- -- -- -- -- 28 28
Net loss................. -- -- -- -- -- (3,775) -- (3,775)
-------
Comprehensive loss....... (3,747)
--------- ------- --------- ------ ------- ------- --- -------
Balances at December 31,
1999..................... 4,855,917 $15,187 6,132,060 $3,258 $(1,736) $(8,785) $83 $ 8,007
========= ======= ========= ====== ======= ======= === =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 79
SANGAMO BIOSCIENCES, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................. $(1,400) $(3,285) $(3,775)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 2 86 164
Amortization of deferred stock compensation........... 46 410 519
Issuance of common stock and options to purchase
common stock for technology and services rendered... 331 -- 188
Non-cash interest expense............................. 99 -- --
Changes in operating assets and liabilities:
Accounts receivable................................. (226) 20 (178)
Prepaid expenses and other assets................... (53) (284) (14)
Accounts payable and accrued liabilities............ 383 (305) 166
Accrued compensation and employee benefits.......... -- 196 (14)
Deferred revenue.................................... -- -- 500
------- ------- -------
Net cash used in operating activities............ (818) (3,162) (2,444)
INVESTING ACTIVITIES:
Purchases of short-term investments........................ -- (2,921) (8,242)
Maturities to and other changes in short-term
investments.............................................. -- 1,166 2,571
Purchases of property and equipment........................ (124) (400) (340)
------- ------- -------
Net cash used in investing activities............ (124) (2,155) (6,011)
FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock...... 5,934 -- 7,444
Proceeds from issuance of common stock..................... 5 3 12
Borrowings under note payable.............................. -- 250 --
Proceeds from issuance of convertible promissory notes..... 960 -- --
------- ------- -------
Net cash provided by financing activities........ 6,899 253 7,456
------- ------- -------
Net increase in cash and cash equivalents........ 5,957 (5,064) (999)
Cash and cash equivalents, beginning of period............. 357 6,314 1,250
------- ------- -------
Cash and cash equivalents, end of period................... $ 6,314 $ 1,250 $ 251
======= ======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest..................................... $ -- $ 12 $ 17
======= ======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Deferred compensation related to stock options............. $ 449 $ 780 $ 1,482
======= ======= =======
Conversion of convertible promissory notes to convertible
preferred stock.......................................... $ 960 $ -- $ --
======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 80
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SANGAMO AND BASIS OF PRESENTATION
Sangamo BioSciences, Inc. ("Sangamo") was incorporated in the State of
Delaware on June 22, 1995 and is focused on the development and
commercialization of novel transcription factors for the regulation of gene
expression. Sangamo's Universal Gene Recognition technology platform enables the
engineering of a class of transcription factors known as zinc finger DNA binding
proteins ("ZFPs"). Through December 31, 1998, Sangamo was considered to be in
the development stage. During 1999, Sangamo entered into several Universal
GeneTools collaborations and recognized revenues associated with these
agreements, and expects to continue to receive revenues under these, similar and
other agreements in the future. Consequently, Sangamo is no longer considered to
be in the development stage. Sangamo will require additional financial resources
to complete the development and commercialization of its products.
Sangamo anticipates working on a number of long-term development projects
that will involve experimental and unproven technology. The projects may require
several years and substantial expenditures to complete and ultimately may be
unsuccessful. Sangamo plans to finance its operations with available cash
resources, funds received under federal government research grants and Universal
GeneTools collaborations and strategic partnerships (see Note 7), and from the
issuance of equity or debt securities. To date, Sangamo has been awarded
research grants from the National Institute of Standards and Technology and the
National Institutes of Health amounting to approximately $5,600,000 of which
approximately $5,000,000 has been used from inception of the Company through
December 31, 1999. Sangamo believes that its available cash, cash equivalents
and short-term investments of $7,503,000 as of December 31, 1999, along with
expected federal government research grant reimbursements and revenues from
Universal GeneTools collaborations and strategic partnerships, will be adequate
to fund its operations through at least fiscal 2000. Sangamo will need to raise
substantial additional capital to fund subsequent operations. Sangamo intends to
seek funding through the issuance of equity securities, including this offering,
through additional Universal GeneTools collaborations, strategic partnerships,
and federal government research grants. Sangamo may seek to raise additional
capital when conditions permit. We cannot assure you that funding will be
available on favorable terms, if at all.
INITIAL PUBLIC OFFERING
In February 2000, the Board of Directors authorized the management of
Sangamo to file a registration statement with the Securities and Exchange
Commission permitting Sangamo to sell shares of its common stock to the public.
If the initial public offering is closed under the terms presently anticipated,
all of the convertible preferred stock outstanding will automatically convert
into common stock (see Note 7). Unaudited pro forma stockholders' equity, as
adjusted for the assumed conversion of the preferred stock, is set forth on the
balance sheet.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
F-7
<PAGE> 81
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Sangamo considers all highly liquid investments purchased with original
maturities of three months or less at the purchase date to be cash equivalents.
Sangamo's cash and cash equivalents are maintained with two financial
institutions. Cash equivalents of $1,236,000 and $249,000 at December 31, 1998
and December 31, 1999, respectively, consist of a certificate of deposit and
deposits in a money market investment account.
SHORT-TERM INVESTMENTS
Sangamo classifies its short-term investments as "available-for-sale" and
records its investments at market value in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Available-for-sale securities are
carried at amounts that approximate fair market value based on quoted market
prices. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in interest
income. Interest on securities classified as available-for-sale is also included
in interest income. Through December 31, 1999, Sangamo has experienced no losses
on its short-term investments.
At December 31, 1998 short-term investments consisted of US Treasury bills
and commercial notes with an amortized cost of $1,753,000 and a fair value of
$1,808,000. These investments matured during 1999. At December 31, 1999,
short-term investments consisted of commercial notes and a certificate of
deposit with an unamortized cost of $7,169,000 and fair value of $7,252,000 that
mature at various dates through May 2000.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method
based on the estimated useful lives of the related assets (generally three to
five years). For leasehold improvements, amortization is calculated using the
straight-line method based on the shorter of the useful life or the lease term.
Sangamo has not internally developed any software for use in its research
activities.
COMPREHENSIVE INCOME
In 1998, Sangamo adopted SFAS No. 130, "Reporting Comprehensive Income,"
which established new rules for the reporting and display of comprehensive
income and its components. Comprehensive income includes all changes in equity
during a period from non-owner sources. These items include unrealized gains and
losses on investments.
REVENUE RECOGNITION
Sangamo recognizes revenue from its Universal GeneTools agreements as
earned when ZFPs are delivered to the Universal GeneTools collaborators.
Generally, Sangamo receives up-front payments from these collaborations prior to
the delivery of ZFPs and the revenues from these payments are
F-8
<PAGE> 82
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deferred until the ZFPs are delivered. The risk of ownership has passed to the
collaborator and all performance obligations have been satisfied at the time
revenue is recognized.
Sangamo's federal government research grants provide for the reimbursement
of qualified expenses for research and development as defined under the terms of
the grant agreement. Revenue under grant agreements is recognized when the
related research expenses are incurred. Grant reimbursements are received on a
quarterly or monthly basis and are subject to the issuing agency's right of
audit.
RESEARCH AND DEVELOPMENT COSTS
Research and development expenses consist of costs incurred for
company-sponsored as well as collaborative research and development activities.
These costs include direct and research-related overhead expenses and are
expensed as incurred.
STOCK-BASED COMPENSATION
Sangamo accounts for employee and director stock options using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has adopted
the disclosure-only alternative of SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Stock options granted to non-employees, including
Scientific Advisory Board Members, are accounted for in accordance with Emerging
Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring or in Conjunction with Selling,
Goods or Services," which requires the value of such options to be remeasured as
they vest over a performance period. The fair value of such options is
determined using the Black-Scholes model.
INCOME TAXES
Sangamo uses the liability method to account for income taxes as required
by SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
NET LOSS PER SHARE
Basic and diluted net loss per share information for all periods is
presented under the requirements of SFAS No. 128, "Earnings per Share." Basic
net loss per share has been computed using the weighted-average number of shares
of common stock outstanding during the period, less shares subject to
repurchase, and excludes any dilutive effects of options, warrants, and
convertible securities. Potential dilutive securities have also been excluded
from the computation of diluted net loss per share as their inclusion would be
antidilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included
F-9
<PAGE> 83
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
above that will automatically convert to common shares upon completion of the
Company's initial public offering, using the if-converted method.
The following table presents the calculation of historical basic and
diluted net loss per share and pro forma basic and diluted net loss per share
(in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Historical:
Net loss.................................................. $(1,400) $(3,285) $(3,775)
======= ======= =======
Basic and diluted:
Weighted-average shares of common stock outstanding..... 5,519 5,919 6,053
Less: weighted-average shares subject to repurchase..... (34) (76) (62)
------- ------- -------
Shares used in computing basic and diluted net loss per
share................................................ 5,485 5,843 5,991
======= ======= =======
Basic and diluted net loss per share...................... $ (0.26) $ (0.56) $ (0.63)
======= ======= =======
Pro forma:
Net loss.................................................. $(3,775)
=======
Weighted-average shares of common stock outstanding (from
above).................................................. 5,991
Adjustment to reflect the weighted average effect of the
assumed conversion of convertible preferred stock from
the date of issuance
(unaudited)............................................. 7,111
-------
Shares used in computing pro forma basic and diluted net
loss per share (unaudited).............................. 13,102
=======
Pro forma basic and diluted net loss per share
(unaudited)............................................. $ (0.29)
=======
</TABLE>
If Sangamo had reported net income, the calculation of historical and pro
forma diluted earnings per share would have included approximately an additional
122,915, 284,994 and 927,652 common equivalent shares related to outstanding
stock options and warrants not included above (determined using the treasury
stock method) for 1997, 1998 and 1999, respectively.
SEGMENT REPORTING
As of January 1, 1998, Sangamo adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." SFAS 131 establishes annual
and interim reporting standards for an enterprise's operating segments and
related disclosures about its products, services, geographic areas, and major
customers. Sangamo has determined that it operates in only one segment.
Accordingly, the adoption of this statement had no impact on its financial
statements.
F-10
<PAGE> 84
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MAJOR CUSTOMERS
During 1999, Sangamo entered into Universal GeneTools agreements with 13
pharmaceutical and biotechnology companies and earned revenue of $1,000,000
under seven of these agreements. At December 31, 1999, Sangamo's accounts
receivable consisted of amounts due from two of these pharmaceutical companies.
These agreements generally require Sangamo to apply its research expertise and
technology to develop unique transcription factors, which are delivered to the
pharmaceutical companies for use in their research.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as
amended, which will be effective for fiscal 2001. SFAS 133 establishes
accounting and reporting standards requiring that every derivative instrument,
including derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 also requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. Sangamo believes the
adoption of SFAS 133 will not have a material effect on the financial
statements, since it currently does not hold derivative instruments or engage in
hedging activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes the SEC's views in applying generally accepted
accounting principles to revenue recognition, and specifically addresses revenue
recognition for upfront, non-refundable fees earned in connection with research
collaboration arrangements. It is the SEC's position that such fees should
generally be recognized over the term of the agreement. Sangamo expects to apply
this accounting to its future collaborations. Adoption of SAB 101 will not
impact on the Company's historical revenue recognition policy.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1999
----- ------
(IN THOUSANDS)
<S> <C> <C>
Laboratory equipment........................................ $137 $ 436
Furniture and fixtures...................................... 209 227
Leasehold improvements...................................... 178 201
---- -----
524 864
Less accumulated depreciation and amortization.............. (88) (252)
---- -----
$436 $ 612
==== =====
</TABLE>
F-11
<PAGE> 85
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COMMITMENTS AND NOTES PAYABLE
Sangamo occupies office and laboratory space under operating leases in
Richmond, California that expire in 2004. Rent expense for 1997, 1998 and 1999
was $74,000, $314,000, and $336,000, respectively. Future minimum payments under
non-cancelable operating leases at December 31, 1999 consist of the following:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
2000................................................ $ 304
2001................................................ 304
2002................................................ 306
2003................................................ 308
2004................................................ 206
------
$1,428
======
</TABLE>
In May 1998, Sangamo entered into a Loan and Security Agreement with a
financial institution that provides for notes payable totaling up to $500,000
for purchases of equipment. Outstanding notes payable bear interest at 6.5% per
annum and interest payments are due monthly. The outstanding balance at December
31, 1998 and 1999 was $250,000. Principal under the notes are due on May 2003.
Included in other assets in the accompanying balance sheets is $250,000 pledged
in the form of a certificate of deposit used to collateralize the notes payable.
4. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock consists of the following, by series:
<TABLE>
<CAPTION>
SHARES ISSUED AND
OUTSTANDING
DECEMBER 31,
----------------------
DESIGNATED 1998 1999
---------- --------- ---------
<S> <C> <C> <C>
Series
A.......................................... 856,250 750,000 791,250
B.......................................... 2,462,981 2,398,000 2,398,000
C.......................................... 2,000,000 -- 1,666,667
--------- --------- ---------
5,319,231 3,148,000 4,855,917
========= ========= =========
</TABLE>
The holders of Series A, B and C convertible preferred stock are entitled
to receive noncumulative dividends at the rate of 8% per share per year, if
declared, prior to and in preference to the payment of dividends to holders of
common stock. As of December 31, 1999, no dividends had been declared. Holders
of Series A, B and C convertible preferred stock are entitled to a liquidation
preference equal to $1.00, $3.00 and $4.50 per share, respectively, plus all
declared but unpaid dividends. In a liquidation, any assets remaining following
the payment of these amounts would be distributed to common stockholders.
Convertible preferred stock is convertible into common stock at the option
of the holder, initially at an exchange ratio of one-to-one (see Note 7).
Convertible preferred shares are automatically
F-12
<PAGE> 86
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
converted into common stock immediately upon the closing of an underwritten
public offering that is at a price to the public of at least $6.00 per share and
that results in aggregate proceeds to Sangamo of at least $7,500,000. All
convertible preferred shares have voting rights equal to common stock on an
as-if-converted basis.
COMMON STOCK
At December 31, 1999, 45,500 shares of outstanding common stock were
subject to the Company's contractual right of repurchase at a weighted average
price of $0.05 which rights generally lapse over periods not exceeding four
years.
In 1997, the Company sold a total of 303,800 shares to a consultant and an
officer for services rendered at $0.01 per share, which was below the fair value
of the Company's stock on the date of grant. As a result, the Company recognized
a charge of $331,000.
WARRANTS
At December 31, 1999, warrants to purchase 65,000 shares of Series A
convertible preferred stock were outstanding at an exercise price of $1.00 per
share, which are exercisable through September 2000, and warrants to purchase
64,981 shares of Series B convertible preferred stock were outstanding at an
exercise price of $3.00 per share, which are exercisable through August 2002.
The warrants to purchase Series B preferred stock were issued in connection with
a 1997 bridge loan transaction. Such warrants were assigned a value of $99,000
using the Black Scholes method which was charged to interest expense in 1997.
The valuation was determined using the following assumptions: risk free interest
rate -- 6%; term -- 5 years, dividend yield -- 0%; and volatility of the
Company's stock -- .5. Sangamo has reserved both preferred and common stock for
issuance upon exercise of the warrants.
STOCK OPTION PLAN
Sangamo's 1995 Stock Option Plan (the "1995 Option Plan") provides for the
issuance of common stock and grants of options for common stock to employees,
officers, directors and consultants. The exercise price per share will be no
less than 85% of the fair value per share of common stock on the option grant
date, and the option term will not exceed ten years. If the person to whom the
option is granted is a 10% stockholder, then the exercise price per share will
not be less than 110% of the fair value per share of common stock on the option
grant date, and the option term will not exceed five years. Options granted
under the 1995 Option Plan generally vest over four years at a rate of 25% one
year from the grant date and one thirty-sixth per month thereafter and expire
ten years after the grant, or earlier upon employment termination. Options
granted pursuant to the 1995 Option Plan may be exercised prior to vesting, with
the related shares subject to Sangamo's right to repurchase the shares at the
issue price if the option holder terminates employment. The right of repurchase
lapses over the original option vesting period, as described above. A total of
F-13
<PAGE> 87
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
3,700,000 shares were reserved for issuance pursuant to the 1995 Option Plan. A
summary of Sangamo's stock option activity follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
WEIGHTED-
SHARES AVAILABLE AVERAGE
FOR GRANT OF NUMBER OF EXERCISE PER
OPTIONS SHARES SHARE PRICE
---------------- --------- ------------
<S> <C> <C> <C>
Balance at December 31, 1996..................... 785,500 392,000 $0.04
Options granted................................ (816,000) 816,000 $0.08
Options exercised.............................. -- (100,000) $0.05
Options canceled............................... 125,000 (125,000) $0.04
--------- --------- -----
Balance at December 31, 1997..................... 94,500 983,000 $0.08
Additional shares authorized................... 1,200,000 -- --
Options granted................................ (828,000) 828,000 $0.16
Options exercised.............................. -- (101,750) $0.03
Shares repurchased............................. 47,032 -- $0.01
Options canceled............................... 35,250 (35,250) $0.08
--------- --------- -----
Balance at December 31, 1998..................... 548,782 1,674,000 $0.12
Additional shares authorized................... 1,000,000 -- --
Options granted................................ (459,500) 459,500 $0.22
Options exercised.............................. -- (191,042) $0.06
Options canceled............................... 69,792 (69,792) $0.10
--------- --------- -----
Balance at December 31, 1999..................... 1,159,074 1,872,666 $0.15
========= ========= =====
</TABLE>
Options outstanding at December 31, 1999 have a weighted average remaining
contractual life of 7.4 years and may be immediately exercised; however,
1,061,472 shares issued pursuant to these options would be subject to Sangamo's
right of repurchase. Vested options at December 31, 1999 total 811,194 and have
a weighted average remaining contractual life of 6.3 years. The weighted-
average fair value per share of options granted during 1997, 1998 and 1999 was
$0.44, $1.08 and $5.06, respectively. All such options were granted with
exercise prices below the fair value of the Company's common stock at the date
of grant, as determined in accordance with the procedure described below.
As permitted by SFAS 123, Sangamo accounts for its stock option and stock
incentive plans in accordance with APB 25 and recognizes no deferred stock
compensation expense for options granted with exercise prices equal to the fair
market value of Sangamo's common stock at the date of grant. In 1997, 1998 and
1999, Sangamo granted options to employees with exercise prices below the fair
value of Sangamo's common stock. Such fair value was determined based on the
Company's retrospective review of the primary business factors underlying the
value of its common stock on the date such option grants were made, viewed in
light of the Company's planned initial public offering and the expected initial
public offering price per share. Accordingly, the Company recognized deferred
stock compensation of $449,000, $780,000 and $1,482,000, in 1997, 1998 and 1999,
respectively, which is being amortized to expense over the vesting term of the
option.
F-14
<PAGE> 88
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
SFAS 123 requires the disclosure of pro forma information regarding net
loss and net loss per share determined as if Sangamo had accounted for its stock
options under the fair value method. For purposes of this pro forma disclosure,
the estimated fair value of the options is amortized to expense over the
options' vesting period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Pro forma net loss (in thousands)................. $(1,404) $(3,296) $(3,789)
======= ======= =======
Pro forma basic and diluted net loss per share.... $ (0.26) $ (0.56) $ (0.63)
======= ======= =======
</TABLE>
The above pro forma effect may not be representative of that to be expected
in future years, due to subsequent years including additional grants and related
vesting. The fair value for all options granted in 1997, 1998 and 1999 were
estimated at the date of grant using the minimum value method with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................ 5.8% 5.0% 6.0%
Expected life of option............................ 5 yrs 5 yrs 5 yrs
Expected dividend yield of stock................... 0% 0% 0%
</TABLE>
In 1998 and 1999, respectively, Sangamo granted 80,000 and 154,000,
nonqualified common stock options to consultants at exercise prices that range
from $0.15 to $0.23 per share for services rendered. Such options are included
in the option tables disclosed above. The options generally vest over four years
at a rate of 25% one year from the grant date and one thirty-sixth per month
thereafter and expire ten years after the grant date. Expense of $128,000 was
recognized in 1999 related to these transactions. The related expense for 1998
was not material. The fair value of these options was determined using the Black
Scholes model with the following assumptions: risk free interest rate -- 6%;
term -- 10 years; dividend yield -- 0%; and expected volatility of the Company's
common stock -- .6.
5. LOAN TO AN OFFICER
Sangamo advanced its President and Chief Executive Officer $250,000 under a
Note Receivable Agreement (the "Note"). The Note bears interest at 6.02% per
annum and is being forgiven one forty-eighth each month beginning January 1,
1998. As of December 31, 1998 and 1999, $187,000 and $125,000, respectively, of
this Note was outstanding, which is included in other assets in the accompanying
balance sheets. The loan is secured on 500,000 shares of common stock owned by
the Officer.
6. INCOME TAXES
There has been no provision for U.S. federal, U.S. state, or foreign income
taxes for any period because Sangamo has incurred operating losses in all
periods and for all jurisdictions. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of
F-15
<PAGE> 89
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of deferred tax assets are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 1,600 $ 2,500
Research and development credit carryforwards............. -- 100
Other reserves and accruals............................... -- 100
------- -------
1,600 2,700
Valuation allowance......................................... (1,600) (2,700)
------- -------
Net deferred tax assets..................................... $ -- $ --
======= =======
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. The valuation
allowance increased by $1,100,000 each in 1998 and 1999. As of December 31,
1999, Sangamo had net operating loss carryforwards for federal and state income
tax purposes of approximately $7,900,000. Sangamo also had federal research and
development credit carryforwards of approximately $100,000. The net operating
loss and credit carryforwards will expire at various dates beginning in 2010
through 2019, if not used. Use of the net operating loss may be subject to
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state provisions. The annual limitation
could result in the expiration of the net operating loss before use.
7. SUBSEQUENT EVENTS
CONVERTIBLE PREFERRED STOCK SALE
In January 2000, Sangamo sold 333,333 shares of its Series C convertible
preferred stock to a member of its Board of Directors for net proceeds of
approximately $1,500,000. Subsequent to the commencement of the initial public
offering process, Sangamo re-evaluated the deemed fair value of its common stock
as of January 2000 and determined it to be $12 per share. Accordingly, the
incremental fair value of $1,500,000 is deemed to be the equivalent of a
preferred stock dividend. Sangamo recorded the deemed dividend at the date of
issuance by offsetting charges and credits to preferred stock, without any
effect on total stockholders' equity. The preferred stock dividend increases the
loss applicable to common stockholders in the calculation of basic net loss per
share for the year ended December 31, 2000.
GRANT OF STOCK OPTIONS
During January through March 2000, Sangamo granted to directors and
employees options to purchase a total of 650,000 shares of common stock at an
exercise prices ranging from $0.625 to $8.00 per share. Sangamo will record
additional deferred stock compensation of $5,790,000 with regard to these
grants.
F-16
<PAGE> 90
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS (CONTINUED)
STRATEGIC PARTNERSHIP
In January 2000, Sangamo announced that it had entered into a strategic
partner agreement with Edwards LifeScience, Inc., formerly the CardioVascular
Group of Baxter Healthcare Corporation for the development of ZFPs in
cardiovascular and peripheral vascular diseases. Under this agreement, Baxter
has purchased a $5,000,000 convertible note which will convert into common stock
upon consummation of this offering, and Sangamo has received $1,000,000 in
initial research funding from Baxter which was recorded as deferred revenue and
will be recognized as revenue as related research services are performed. In
March 2000, Baxter purchased a $7,500,000 convertible note upon exercise of an
option for a right of first refusal for three years to negotiate a license for
additional ZFP-Therapeutics in cardiovascular and peripheral vascular diseases.
This note will convert into common stock upon consummation of this offering. In
the future, Sangamo may receive option fees, milestone payments, royalties and
additional research funding from this agreement.
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors adopted the 2000 Employee Stock Purchase Plan in
February 2000, pending stockholder approval, to be effective upon the completion
of Sangamo's initial public offering of its common stock. Sangamo has reserved a
total of 400,000 shares of common stock for issuance under the plan. Eligible
employees may purchase common stock at 85% of the lesser of the fair market
value of Sangamo's common stock on the first day of the applicable two-year
offering period or the last day of the applicable six-month purchase period.
STOCK INCENTIVE PLAN
In February 2000, the Board of Directors adopted the 2000 Stock Incentive
Plan (the "2000 Plan") and reserved 2,000,000 shares for future grant
thereunder, which shares include any shares remaining for future grant under the
1995 Option Plan. The terms of the 2000 Plan are substantially similar to the
1995 Option Plan. The 2000 Plan also provides for automatic grants to
non-employee directors.
STOCK SPLIT
In February 2000, Sangamo's Board of Directors approved a two-for-one stock
split of its common stock, effected as a common stock dividend, that will be
effective prior to the completion of its initial public offering. As a result of
the common stock split, the conversion ratio of Sangamo's convertible preferred
stock was automatically amended to two-to-one in accordance with the Company's
articles of incorporation. All common share and options and per share amounts in
the accompanying financial statements have been adjusted retroactively to
reflect the stock split.
F-17
<PAGE> 91
5,000,000 Shares
[SANGAMO LOGO]
SANGAMO BIOSCIENCES, INC.
Common Stock
-------------------------
PROSPECTUS
, 2000
-------------------------
LEHMAN BROTHERS
CHASE H&Q
ING BARINGS
WILLIAM BLAIR & COMPANY
LOGO
<PAGE> 92
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 27,800
NASD Filing Fee............................................. 12,000
Nasdaq National Market Listing Fee.......................... 95,000
Printing and Engraving Expenses............................. 200,000
Legal Fees and Expenses..................................... 500,000
Accounting Fees and Expenses................................ 300,000
Blue Sky Fees and Expenses.................................. 10,000
Transfer Agent Fees......................................... 25,000
Miscellaneous............................................... 30,200
----------
Total............................................. $1,200,000
==========
</TABLE>
- -------------------------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit the indemnification
under certain circumstances for liabilities (including reimbursement for
expenses incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VII, Section 6 of our bylaws provides for mandatory
indemnification of our directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. Our certificate of incorporation provides that, subject
to Delaware law, our directors will not be personally liable for monetary
damages for breach of the directors' fiduciary duty as directors to Sangamo
BioSciences, Inc. and its stockholders. This provision in the certificate of
incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to Sangamo or our stockholders for acts or omissions
not in good faith or involving intentional misconduct, for knowing violations of
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. We have entered into indemnification
agreements with our officers and directors, a form of which will be filed with
the Securities and Exchange Commission as an exhibit to our registration
statement on Form S-1. The indemnification agreements provide our officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. Reference is also made to the underwriting
agreement contained in exhibit 1.1 hereto, indemnifying our officers and
directors against specific liabilities, and our Second Amended and Restated
Registration Rights Agreement contained in Exhibit 10.4 hereto, indemnifying the
parties thereto, including controlling stockholders, against liabilities.
II-1
<PAGE> 93
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the registrant has issued unregistered
securities to a limited number of persons as described below:
1. Since inception through December 31, 1999, we have granted a total
of 2,818,000 options and stock purchase rights to purchase our common
stock, excluding options returned to our stock plans, with a weighted
average price of $0.11 to a number of our employees, directors and
consultants.
2. From October 31, 1995 to June 28, 1996, we issued warrants to
purchase 106,250 shares of Series A Preferred Stock, 41,250 at an exercise
price of $0.01 per share and 65,000 at an exercise price of $1.00 per share
to several investors.
3. From October 1995 to August 1999, we issued 791,250 shares of
Series A Preferred Stock to several investors for a total cash
consideration of $750,413.
4. In March 1996, we issued 38,000 shares of Common Stock to Colorado
Bio/Medical Venture Center, Inc. in connection with a sublease of space.
5. In June 1996, we issued 75,000 shares of Common Stock to The Johns
Hopkins University in connection with the License Agreement with us.
6. In July 1996, we issued 35,000 shares of Common Stock to Frederick
Frank as compensation for consulting services.
7. In August 1997, we issued convertible promissory notes in the
principal amount of $960,000 and warrants to purchase 64,981 shares of
Series B Preferred Stock at an exercise price of $3.00 per share to several
investors. The notes were cancelled and converted into shares of Series B
Preferred Stock on November 6, 1997.
8. In September 1997, we issued 3,800 shares of common stock to John
Colin Cahill as compensation for consulting services.
9. From September 1997 to December 1997, we issued 2,358,000 shares
of Series B Preferred Stock to several investors for a total cash
consideration of $7,074,000, which includes conversion of the convertible
promissory notes and accrued interest thereon described in Item 7 above
into a total of 324,666 shares of Series B Preferred Stock.
10. In December 1997, we issued 300,000 shares of Common Stock to
Edward O. Lanphier II pursuant to the terms of his employment agreement
with us.
11. In February 1998, we issued 40,000 shares of Series B Preferred
Stock to Lehman Brothers, Inc. as compensation for a finder's fee.
12. From August 1999 to January 2000, we issued 2,000,000 shares of
Series C Preferred Stock to several investors for a total cash
consideration of $9,000,000.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 with respect to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients in each transaction
represented their intention to acquire 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 share certificates and
II-2
<PAGE> 94
instruments issued in these transactions. All recipients had adequate access,
through their relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 * Form of Underwriting Agreement.
3.1 * Amended and Restated Certificate of Incorporation.
3.2 * Amended and Restated Bylaws.
4.1 * Form of Specimen Common Stock Certificate.
5.1 Opinion of Brobeck, Phleger & Harrison LLP regarding the
legality of the common stock being registered.
10.1++ 2000 Stock Incentive Plan.
10.2++ 2000 Employee Stock Purchase Plan.
10.3 * Second Amended and Restated Investors' Rights Agreement,
among Sangamo and certain of its stockholders, dated January
20, 2000.
10.4++ Form of Indemnification Agreement to be entered into between
Sangamo and each of its directors and executive officers.
10.5++ Triple Net Laboratory Lease, between Sangamo and Point
Richmond R&D Associates II, LLC, dated May 23, 1997.
10.6++ Form of collaboration agreement.
10.7+++ License Agreement, between Sangamo and Baxter Healthcare
Corporation, dated January 11, 2000.
10.8+++ Sublicense Agreement, by and between Sangamo and Johnson &
Johnson, dated May 9, 1996.
10.9+++ ZFP Material Transfer Agreement, between Sangamo and Japan
Tobacco Inc., dated March 8, 1999.
10.10++ Financial Assistance Award from U.S. Department of Commerce,
dated March 31, 1997.
10.11++ Notice of Grant Award from National Institute of Allergy and
Infectious Diseases, dated August 9, 1999.
10.12+ Patent License Agreement between Sangamo and Massachusetts
Institute of Technology dated May 9, 1996.
10.13+ License Agreement between Sangamo and the Johns Hopkins
University dated July 16, 1998.
10.14+ License Agreement between Sangamo and the Medical Research
Council dated September 1, 1996.
10.15 Employment Agreement, between Sangamo and Edward O. Lanpher
II, dated June 1, 1997.
10.16 1995 Stock Option Plan.
10.17 Research Funding Agreement, by and between Sangamo and
Baxter Healthcare Corporation, dated January 11, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 * Consent of Brobeck, Phleger & Harrison LLP (contained in
their opinion filed as Exhibit 5.1).
23.3++ Consent of Townsend and Townsend and Crew LLP.
</TABLE>
II-3
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
24.1++ Power of Attorney. (see Page II-5)
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Confidential treatment requested as to portions of this exhibit.
++ Previously filed.
(b) FINANCIAL STATEMENT SCHEDULE
Schedules not listed have been omitted because the information required to
be set forth therein is not applicable or is shown in the financial statements
on the notes thereto.
ITEM 17. UNDERTAKINGS
We undertake to provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
To the extent indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
according to the Delaware General Corporation Law, our certificate of
incorporation or our bylaws, indemnification agreements entered into between us
and our officers and directors, the underwriting agreement, or otherwise, we
have been advised that in the opinion of the commission this indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. If a claim for indemnification against these liabilities (other
than the payment by us of expenses incurred or paid by any of our directors,
officers or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether this indemnification
by us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of the issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by us under Rule 424(b)(1) or (4) or 497(h) of the
Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective;
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of those securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 96
SIGNATURES
Under the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Francisco, State of California, on March 14, 2000.
SANGAMO BIOSCIENCES, INC.
By: /s/ SHAWN K. JOHNSON
------------------------------------
Shawn K. Johnson
Director of Finance
Under the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President, Chief Executive March 14, 2000
- ----------------------------------------------------- Officer and Director
Edward O. Lanphier II (Principal Executive Officer)
/s/ SHAWN K. JOHNSON Director of Finance March 14, 2000
- ----------------------------------------------------- (Principal Accounting
Shawn K. Johnson Officer)
Director March 14, 2000
- -----------------------------------------------------
Herbert W. Boyer, Ph.D.
* Director March 14, 2000
- -----------------------------------------------------
William G. Gerber, M.D.
* Director March 14, 2000
- -----------------------------------------------------
John W. Larson
* Director March 14, 2000
- -----------------------------------------------------
William J. Rutter, Ph.D.
* Director March 14, 2000
- -----------------------------------------------------
Michael C. Wood
*By: /s/ Shawn K. Johnson
Shawn K. Johnson
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 * Form of Underwriting Agreement.
3.1 * Amended and Restated Certificate of Incorporation.
3.2 * Amended and Restated Bylaws.
4.1 * Form of Specimen Common Stock Certificate.
5.1 Opinion of Brobeck, Phleger & Harrison LLP regarding the
legality of the common stock being registered.
10.1++ 2000 Stock Incentive Plan.
10.2++ 2000 Employee Stock Purchase Plan.
10.3 * Second Amended and Restated Investors' Rights Agreement,
among Sangamo and certain of its stockholders, dated January
20, 2000.
10.4++ Form of Indemnification Agreement to be entered into between
Sangamo and each of its directors and executive officers.
10.5++ Triple Net Laboratory Lease, between Sangamo and Point
Richmond R&D Associates II, LLC, dated May 23, 1997.
10.6++ Form of collaboration agreement.
10.7+++ License Agreement, between Sangamo and Baxter Healthcare
Corporation, dated January 11, 2000.
10.8+++ Sublicense Agreement, by and between Sangamo and Johnson &
Johnson, dated May 9, 1996.
10.9+++ ZFP Material Transfer Agreement, between Sangamo and Japan
Tobacco Inc., dated March 8, 1999.
10.10++ Financial Assistance Award from U.S. Department of Commerce,
dated March 31, 1997.
10.11++ Notice of Grant Award from National Institute of Allergy and
Infectious Diseases, dated August 9, 1999.
10.12+ Patent License Agreement between Sangamo and Massachusetts
Institute of Technology dated May 9, 1996.
10.13+ License Agreement between Sangamo and the Johns Hopkins
University dated July 16, 1998.
10.14+ License Agreement between Sangamo and the Medical Research
Council dated September 1, 1996.
10.15 Employment Agreement, between Sangamo and Edward O. Lanphier
II, dated June 1, 1997.
10.16 1995 Stock Option Plan.
10.17 Research Funding Agreement, by and between Sangamo and
Baxter Healthcare Corporation, dated January 11, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 * Consent of Brobeck, Phleger & Harrison LLP (contained in
their opinion filed as Exhibit 5.1).
23.3++ Consent of Townsend and Townsend and Crew LLP.
24.1++ Power of Attorney. (see Page II-5)
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Confidential treatment requested as to portions of this exhibit.
++ Previously filed.
<PAGE> 1
EXHIBIT 5.1
[BROBECK, PHLEGER & HARRISON LLP LETTERHEAD]
March 14, 2000
Sangamo BioSciences, Inc.
Point Richmond Tech Center
501 Canal Boulevard
Suite A-100
Richmond, CA 94804
Ladies and Gentlemen:
We have acted as counsel to Sangamo BioSciences, Inc., a Delaware
corporation (the "Company"), in connection with the proposed issuance and sale
by the Company of up to Five Million Seven Hundred Fifty Thousand (5,750,000)
shares of the Company's Common Stock (the "Shares") pursuant to the Company's
Registration Statement on Form S-1 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act").
This opinion is being furnished in accordance with the requirements of
Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
/s/ BROBECK, PHLEGER & HARRISON LLP
------------------------------------
Brobeck, Phleger & Harrison LLP
<PAGE> 1
EXHIBIT 10.12
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
and
SANGAMO BIOSCIENCES,INC.
PATENT LICENSE AGREEMENT
<PAGE> 2
11-7-94 TLO: LLN:jbw.sangamo.lic.ag41796
Patent Exclusive April 17, 1996
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
WITNESSETH ...................................................... 1
1 DEFINITIONS .................................................. 2
2 GRANT ........................................................ 3
3 DILIGENCE .................................................... 4
4 ROYALTIES .................................................... 5
5 REPORTS AND RECORDS .......................................... 6
6 PATENT PROSECUTION ........................................... 7
7 INFRINGEMENT ................................................. 8
8 PRODUCT LIABILITY ............................................ 9
9 EXPORT CONTROLS .............................................. 10
10 NON-USE OF NAMES ............................................. 10
11 ASSIGNMENT ................................................... 10
12 DISPUTE RESOLUTION ........................................... 10
13 TERMINATION .................................................. 11
14 PAYMENTS, NOTICES AND OTHER COMMUNICATIONS ................... 12
15 MISCELLANEOUS PROVISIONS ..................................... 13
APPENDIX A ...................................................... 14
</TABLE>
<PAGE> 3
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
and
SANGAMO BIOSCIENCES, INC.
PATENT LICENSE AGREEMENT
This Agreement is made and entered into this 9 day of MAY, 1996, (the
"EFFECTIVE DATE") by and between the MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139, U.S.A. (hereinafter referred to as "M.I.T."),
and Sangamo BioSciences, Inc. a corporation duly organized under the laws of
DELAWARE and having its principal office at 950 MARINA VILLAGE PKWY, SUITE 100,
ALAMEDA, CA 94501 (hereinafter referred to as "LICENSEE").
WITNESSETH
WHEREAS, M.I.T. is the owner of certain PATENT RIGHTS (as later defined
herein) relating to *
and
has the right to grant licenses under said PATENT RIGHTS, subject only to a
royalty-free, nonexclusive license heretofore granted to the United States
Government;
WHEREAS, M.I.T. desires to have the PATENT RIGHTS developed and
commercialized to benefit the public and is willing to grant a license
thereunder;
WHEREAS, LICENSEE has represented to M.I.T., to induce M.I.T. to enter
into this Agreement, that LICENSEE is experienced in the development,
production, manufacture, marketing and sale of products similar to the LICENSED
PRODUCT(s) (as later defined herein) and/or the use of the LICENSED
PROCESS(es) (as later defined herein) and that it shall commit itself to a
thorough, vigorous and diligent program of exploiting the PATENT RIGHTS so that
public utilization shall result therefrom; and
WHEREAS, LICENSEE desires to obtain a license under the PATENT RIGHTS upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
-1-
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 4
1-DEFINITIONS
For the purposes of this Agreement, the following words and phrases shall
have the the following meanings:
1.1 "LICENSEE" shall include a related company of Sangamo BioSciences,
Inc. the voting stock of which is directly or indirectly at least Fifty Percent
(50%) owned or controlled by Sangamo BioSciences, Inc., an organization which
directly or indirectly controls more than Fifty Percent (50%) of the voting
stock of Sangamo BioSciences, Inc. and an organization, the majority ownership
of which is directly or indirectly common to the ownership of Sangamo
BioSciences, Inc.
1.2 "PATENT RIGHTS" shall mean all of the following M.I.T. intellectual
property:
a. the United States patents listed in Appendix A;
b. the United States patent applications listed in Appendix A, and
divisionals, continuations and claims of continuation-in-part
applications which shall be directed to subject matter
specifically described in such patent applications, and the
resulting patents;
c. any patents resulting from reissues or reexaminations of the
United States patents described in a. and b. above;
1.3 A "LICENSED PRODUCT" shall mean any product or part thereof which:
a. is covered in whole or in part by an issued, unexpired claim or
a pending claim contained in the PATENT RIGHTS in the country in
which any such product or part thereof is made, used or sold; or
b. is manufactured by using a process or is employed to practice a
process which is covered in whole or in part by an issued,
unexpired claim or a pending claim contained in the PATENT
RIGHTS in the country in which any LICENSED PROCESS is used or
in which such product or part thereof is used or sold.
1.4 A "LICENSED PROCESS" shall mean any process which is covered in whole
or in part by an issued, unexpired claim or a pending claim contained in the
PATENT RIGHTS.
1.5 "NET SALES" shall mean LICENSEE's and its sublicensees' billings for
LICENSED PRODUCTS and LICENSED PROCESSES less the sum of the following:
a. discounts allowed in amounts customary in the trade for quantity
purchases, cash payments, prompt payments, wholesalers and
distributors;
b. sales, tariff duties and/or use taxes directly imposed and with
reference to particular sales;
c. outbound transportation prepaid or allowed; and
d. amounts allowed or credited on returns.
-2-
<PAGE> 5
No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by LICENSEE and
on its payroll, or for cost of collections. NET SALES shall occur when a
LICENSED PRODUCT or LICENSED PROCESS shall be invoiced. If a LICENSED PRODUCT
or LICENSED PROCESS shall be distributed or invoiced for a discounted price
substantially lower than customary in the trade or distributed at no cost to
affiliates or otherwise, NET SALES shall be based on the customary amount
billed for such LICENSED PRODUCTS or LICENSED PROCESSES.
1.6 "TERRITORY" shall mean worldwide.
1.7 "FIELDS OF USE" shall mean *
* of LICENSED PRODUCTS or LICENSED PROCESSES
*
Note: LICENSEE's rights to practice under the PATENT RIGHTS shall be in
all FIELDS OF USE. The purpose of this FIELDS OF USE definition is to
define the fields in which exclusivity is granted under this license under
P. 2.3 below and in which LICENSEE may grant sublicenses under P. 2.6
below.
2 - GRANT
2.1 M.I.T. hereby grants to LICENSEE the right and license in the
TERRITORY to practice under the PATENT RIGHTS and, to the extent not prohibited
by other patents, to * LICENSED
PRODUCTS and to * the LICENSED PROCESSES, until the expiration of the
last to expire of the PATENT RIGHTS, unless this Agreement shall be sooner
terminated according to the terms hereof.
2.2 LICENSEE agrees that LICENSED PRODUCTS * in the United
States shall be * substantially in the United States.
2.3 In order to establish exclusivity in the FIELDS OF USE for LICENSEE,
M.I.T. hereby agrees that it shall not grant any other license to *
* LICENSED PRODUCTS or to utilize LICENSED
PROCESSES subject to the royalty-free, nonexclusive license rights of the
United States Government per FAR 52.227-11, in the TERRITORY for the FIELDS OF
USE.
2.4 M.I.T. agrees that prior to granting a license to any third party
outside the defined FIELDS OF USE, it shall notify LICENSEE of its intent to
grant such a license and LICENSEE shall have sixty (60) days in which to
present to M.I.T. reasons for widening LICENSEE's exclusive FIELD OF USE beyond
that defined in P.1.7 above. M.I.T. shall consider granting such widening to
LICENSEE, for suitable consideration, depending upon LICENSEE's scientific
progress, development plans and financial resources to develop the widened
FIELD OF USE.
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Any decision to widen the exclusive FIELD OF USE granted to LICENSEE shall be
at M.I.T.'s sole discretion.
2.5 M.I.T. reserves the right to practice under the PATENT RIGHTS and to
allow third parties to practice under the PATENT RIGHTS in all fields of use
for noncommercial research purposes.
2.6 LICENSEE shall have the right to enter into * agreements
for the rights, privileges and licenses granted hereunder only in the FIELDS
OF USE. Upon any termination of this Agreement, * rights shall also
terminate, subject to Paragraph 13.6 hereof.
2.7 LICENSEE agrees to incorporate Articles 2, 5, 7, 8, 9, 10, 12, 13 and
15 of this Agreement into its * agreements, so that these Articles
shall be binding upon such * as if they were parties to this
Agreement.
2.8 LICENSEE agrees to forward to M.I.T. a copy of any and all *
agreements promptly upon execution by the parties.
2.9 Nothing in this Agreement shall be construed to confer any rights upon
LICENSEE by implication, estoppel or otherwise as to any technology or patent
rights of M.I.T. or any other entity other than the PATENT RIGHTS, regardless
of whether such patent rights shall be dominant or subordinate to any PATENT
RIGHTS.
3 - DILIGENCE
3.1 LICENSEE shall use its best efforts to bring one or more LICENSED
PRODUCTS or LICENSED PROCESSES to market through a thorough, vigorous and
diligent program for exploitation of the PATENT RIGHTS and to continue active,
diligent marketing efforts for one or more LICENSED PRODUCTS or LICENSED
PROCESSES throughout the life of this Agreement.
3.2 LICENSEE shall deliver to M.I.T. on or before December 31, 1996 a
business plan showing the amount of money, number and kind of personnel and
time budgeted and planned for each phase of development of the LICENSED
PRODUCTS and LICENSED PROCESSES and shall provide similar reports to M.I.T. on
or before December 31 of each year.
3.3 LICENSEE's failure to perform in accordance with either Paragraph 3.1
or 3.2 above shall be grounds for M.I.T. to terminate this Agreement pursuant
to Paragraph 13.3 hereof.
4 - ROYALTIES
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to M.I.T. in the manner hereinafter provided to the end of
the term of the PATENT RIGHTS or until this Agreement shall be terminated:
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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a. License Issue Fee of * , which said
License Issue Fee shall be deemed earned and due immediately upon
* .
b. License Maintenance Fees of * *
per year payable on January 1, 1997 and on January 1 of
each year thereafter; provided, however, License Maintenance Fees
may be credited to Running Royalties subsequently due on NET SALES
for each said year, if any. License Maintenance Fees paid in excess
of Running Royalties shall not be creditable to Running Royalties
for future years.
c. Running Royalties in an amount equal to * of NET
SALES of the LICENSED PRODUCTS and LICENSED PROCESSES *
* LICENSEE and/or its * .
d. A milestone payment of *
* upon * a
LICENSED PRODUCT or LICENSED PROCESS in the FIELDS OF USE which
falls under the claims of the PATENT RIGHTS.
e. A milestone payment of * ) upon the
* a LICENSED PRODUCT or
LICENSED PROCESS outside the FIELDS OF USE which falls under the
claims of the PATENT RIGHTS.
f. A milestone payment of *
upon * a LICENSED
PRODUCT or LICENSED PROCESS in the FIELDS OF USE which falls under
the claims of the PATENT RIGHTS.
g. A milestone payment of *
upon * a LICENSED
PRODUCT or LICENSED PROCESS outside the FIELDS OF USE which falls
under the claims of the PATENT RIGHTS.
h. * per * , plus *
per year * maintenance fees.
4.2 All payments due hereunder shall be paid in full, without deduction of
taxes or other fees which may be imposed by any government, except as otherwise
provided in Paragraph 1.5(b).
4.3 No multiple royalties shall be payable because any LICENSED PRODUCT, its
* are or shall be covered by more than one PATENT
RIGHTS patent application or PATENT RIGHTS patent licensed under this Agreement.
4.4 Royalty payments shall be paid in United States dollars in Cambridge,
Massachusetts, or at such other place as M.I.T. may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
any currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange rate
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prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the
calendar quarterly reporting period to which such royalty payments relate.
5 - REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing
the amounts payable to M.I.T. hereunder. Said books of account shall be kept at
LICENSEE's principal place of business or the principal place of business of the
appropriate division of LICENSEE to which this Agreement relates. Said books and
the supporting data shall be open at all reasonable times for five (5) years
following the end of the calendar year to which they pertain, to the inspection
of M.I.T. or its agents for the purpose of verifying LICENSEE's royalty
statement or compliance in other respects with this Agreement. Should such
inspection lead to the discovery of a greater than Ten Percent (10%) discrepancy
in reporting to M.I.T.'s detriment, LICENSEE agrees to pay the full cost of such
inspection.
5.2 LICENSEE shall deliver to M.I.T. true and accurate reports, giving
such particulars of the business conducted by LICENSEE and its sublicensees
under this Agreement as shall be pertinent to diligence under Article 3 and
royalty accounting hereunder:
a. before the first commercial sale of a LICENSED PRODUCT or LICENSED
PROCESS, annually, on January 31 of each year; and
b. after the first commercial sale of a LICENSED PRODUCT or LICENSED
PROCESS, quarterly, within sixty (60) days after March 31, June 30,
September 30 and December 31, of each year.
These reports shall include at least the following:
a. number of LICENSED PRODUCTS manufactured, leased and sold by and/or
for LICENSEE and all sublicensees;
b. accounting for all LICENSED PROCESSES used or sold by and/or for
LICENSEE and all sublicensees;
c. accounting for NET SALES, noting the deductions applicable as provided
in Paragraph 1.5;
d. Running Royalties due under Paragraph 4.1(c);
e. royalties due on other payments from sublicensees under paragraph
4.1(d);
f. total royalties due; and
g. names and addresses of all sublicensees of LICENSEE.
5.3 With each such report submitted, LICENSEE shall pay to M.I.T. the
royalties due and payable under this Agreement. If no royalties shall be due,
LICENSEE shall so report.
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5.4 On or before the ninetieth (90th) day following the close of
LICENSEE's fiscal year, LICENSEE shall provide M.I.T. with LICENSEE's certified
financial statements for the preceding fiscal year including, at a minimum, a
balance sheet and an income statement.
5.5 The amounts due under Articles 4 and 6 shall, if overdue, bear
interest until payment at a per annum rate * the prime
rate in effect at the Chase Manhattan Bank (N.A.) on the due date. The
payment of such interest shall not foreclose M.I.T. from exercising any other
rights it may have as a consequence of the lateness of any payment.
6 - PATENT PROSECUTION
6.1 M.I.T. shall apply for, seek prompt issuance of, and maintain the
PATENT RIGHTS during the term of this Agreement. The filing, prosecution and
maintenance of all PATENT RIGHTS applications and patents shall be the primary
responsibility of M.I.T.; provided, however, LICENSEE shall have reasonable
opportunities to advise M.I.T. and shall cooperate with M.I.T. in such filing,
prosecution and maintenance.
6.2 Payment of all fees and costs relating to the filing, prosecution and
maintenance of the PATENT RIGHTS after the EFFECTIVE DATE shall be the
responsibility of LICENSEE, whether such fees and costs were incurred before or
after the EFFECTIVE DATE. LICENSEE shall pay such fees and costs to M.I.T.
within thirty (30) days of invoicing; late payments shall accrue interest and
shall be subject to Paragraph 5.5.
7 - INFRINGEMENT
7.1 LICENSEE shall inform M.I.T. promptly in writing of any alleged
infringement of the PATENT RIGHTS by a third party and of any available
evidence thereof.
7.2 M.I.T. shall have the right, but shall not be obligated, to prosecute
at its own expense all infringements of the PATENT RIGHTS and, in furtherance
of such right, LICENSEE hereby agrees that M.I.T. may include LICENSEE as a
party plaintiff in any such suit, without expense to LICENSEE. The total cost of
any such infringement action commenced or defended solely by M.I.T. shall be
borne by M.I.T., and M.I.T. shall keep any recovery or damages for past
infringement derived therefrom.
7.3 If within six (6) months after having been notified of an alleged
infringement, M.I.T. shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought and shall not be diligently
prosecuting an infringement action, or if M.I.T. shall notify LICENSEE at any
time prior thereto of its intention not to bring suit against any alleged
infringer in the TERRITORY for the FIELDS OF USE, then, and in those events
only, LICENSEE shall have the right, but shall not be obligated, to prosecute
at its own expense any infringement of the PATENT RIGHTS in the TERRITORY for
the FIELDS OF USE, and LICENSEE may, for such
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<PAGE> 10
purposes, use the name of M.I.T. as party plaintiff; provided, however, that
such right to bring such an infringement action shall remain in effect only
during the EXCLUSIVE PERIOD. No settlement, consent judgment or other voluntary
final disposition of the suit may be entered into without the consent of
M.I.T., which consent shall not unreasonably be withheld. LICENSEE shall
indemnify M.I.T. against any order for costs that may be made against M.I.T. in
such proceedings.
7.4 In the event that LICENSEE shall undertake litigation for the
enforcement of the PATENT RIGHTS, or the defense of the PATENT RIGHTS under
Paragraph 7.5, LICENSEE may withhold up to * of the payments
otherwise thereafter due M.I.T. under Article 4 hereunder and apply the same
toward reimbursement of up to * of LICENSEE's expenses, including reasonable
attorneys' fees, in connection therewith. Any recovery of damages by LICENSEE
for such suit shall be applied first in satisfaction of any unreimbursed
expenses and legal fees of LICENSEE relating to such suit, and next toward
reimbursement of M.I.T. for any payments under Article 4 past due or withheld
and applied pursuant to this Article 7. The balance remaining from any such
recovery shall be divided equally between LICENSEE and M.I.T.
7.5 In the event that a declaratory judgment action alleging invalidity or
noninfringement of any of the PATENT RIGHTS shall be brought against M.I.T. or
LICENSEE, M.I.T., at its option, shall have the right, within thirty (30) days
after commencement of such action, to take over the sole defense of the action
at its own expense. If M.I.T. shall not exercise this right, LICENSEE may take
over the sole defense at LICENSEE's sole expense, subject to Paragraph 7.4.
7.6 In any infringement suit as either party may institute to enforce the
PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at the
request and expense of the party initiating such suit, cooperate in all respects
and, to the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.
7.7 LICENSEE shall have the sole right in accordance with the terms and
conditions herein to sublicense any alleged infringer in the TERRITORY for the
FIELDS OF USE for future use of the PATENT RIGHTS.
8 - PRODUCT LIABILITY
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold M.I.T., its trustees, directors,
officers, employees and affiliates,
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<PAGE> 11
harmless against all claims, proceedings, demands and liabilities of any kind
whatsoever, including legal expenses and reasonable attorneys' fees, arising
out of the death of or injury to any person or persons or out of any damage to
property, resulting from *
of the LICENSED PRODUCTS(s) and/or LICENSED
PROCESS(es) or arising from any obligation of LICENSEE hereunder.
8.2 LICENSEE shall obtain and carry in full force and effect commercial,
general liability insurance which shall protect LICENSEE and M.I.T. with
respect to events covered by Paragraph 8.1 above. Such insurance shall be
written by a reputable insurance company authorized to do business in the
Commonwealth of Massachusetts, shall list M.I.T. as an additional named insured
thereunder, shall be endorsed to include product liability coverage and shall
require thirty (30) days written notice to be given to M.I.T. prior to any
cancellation or material change thereof. The limits of such insurance shall not
be less than One Million Dollars ($1,000,000) per occurrence with an aggregate
of Three Million Dollars ($3,000,000) for personal injury or death, and One
Million Dollars ($1,000,000) per occurrence with an aggregate of Three Million
Dollars ($3,000,000) for property damage. LICENSEE shall provide M.I.T. with
Certificates of Insurance evidencing the same.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, M.I.T.,
ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES MAKE NO
REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING,
AND THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE.
NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE OR
WARRANTY GIVEN BY M.I.T. THAT THE PRACTICE BY LICENSEE OF THE LICENSE GRANTED
HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY. IN NO EVENT
SHALL M.I.T., ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES AND AFFILIATES BE
LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC
DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER M.I.T.
SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE
POSSIBILITY OF THE FOREGOING.
9 - EXPORT CONTROLS
LICENSEE acknowledges that it is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other
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<PAGE> 12
commodities (including the Arms Export Control Act, as amended and the United
States Department of Commerce Export Administration Regulations). The transfer
of such items may require a license from the cognizant agency of the United
States Government and/or written assurances by LICENSEE that LICENSEE shall not
export data or commodities to certain foreign countries without prior approval
of such agency. M.I.T. neither represents that a license shall not be required
nor that, if required, it shall be issued.
10 - NON-USE OF NAMES
LICENSEE shall not use the names or trademarks of the Massachusetts
Institute of Technology or Lincoln Laboratory, nor any adaptation thereof, nor
the names of any of their employees, in any advertising, promotional or sales
literature without prior written consent obtained from M.I.T., or said
employee, in each case, except that LICENSEE may state that it is licensed by
M.I.T. under one or more of the patents and/or applications comprising the
PATENT RIGHTS.
11 - ASSIGNMENT
This Agreement is not assignable and any attempt to do so shall be void.
12 - DISPUTE RESOLUTION
12.1 Except for the right of either party to apply to a court of
competent jurisdiction for a temporary restraining order, a preliminary
injunction, or other equitable relief to preserve the status quo or prevent
irreparable harm, any and all claims, disputes or controversies arising
under, out of, or in connection with the Agreement, including any dispute
relating to patent validity or infringement, which the parties shall be
unable to resolve within sixty (60) days shall be mediated in good faith. The
party raising such dispute shall promptly advise the other party of such
claim, dispute or controversy in a writing which describes in reasonable
detail the nature of such dispute. By not later than five (5) business days
after the recipient has received such notice of dispute, each party shall
have selected for itself a representative who shall have the authority to
bind such party, and shall additionally have advised the other party in
writing of the name and title of such representative. By not later than ten
(10) business days after the date of such notice of dispute, the party
against whom the dispute shall be raised shall select a mediation firm in the
Boston area and such representatives shall schedule a date with such firm for
a mediation hearing. The parties shall enter into good faith mediation and
shall share the costs equally. If the representatives of the parties have not
been able to resolve the dispute within fifteen (15) business days after such
mediation hearing, then any and all claims, disputes or controversies arising
under, out of, or in connection with this Agreement, including any dispute
relating to patent validity or infringement,
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shall be resolved by final and binding arbitration in Boston, Massachusetts
under the rules of the American Arbitration Association, or the Patent
Arbitration Rules if applicable, then obtaining. The arbitrators shall have no
power to add to, subtract from or modify any of the terms or conditions of this
Agreement, nor to award punitive damages. Any award rendered in such
arbitration may be enforced by either party in either the courts of the
Commonwealth of Massachusetts or in the United States District Court for the
District of Massachusetts, to whose jurisdiction for such purposes M.I.T. and
LICENSEE each hereby irrevocably consents and submits.
12.2 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
13 - TERMINATION
13.1 If LICENSEE shall cease to carry on its business, this Agreement
shall terminate upon notice by M.I.T.
13.2 Should LICENSEE fail to make any payment whatsoever due and payable
to M.I.T. hereunder, M.I.T. shall have the right to terminate this Agreement
effective on thirty (30) days' notice, unless LICENSEE shall make all such
payments to M.I.T. within said thirty (30) day period. Upon the expiration of
the thirty (30) day period, if LICENSEE shall not have made all such payments
to M.I.T., the rights, privileges and license granted hereunder shall
automatically terminate.
13.3 Upon any material breach or default of this Agreement by LICENSEE
(including, but not limited to, breach or default under Paragraph 3.3), other
than those occurrences set out in Paragraphs 13.1 and 13.2 hereinabove, which
shall always take precedence in that order over any material breach or default
referred to in this Paragraph 13.3, M.I.T. shall have the right to terminate
this Agreement and the rights, privileges and license granted hereunder
effective on ninety (90) days' notice to LICENSEE. Such termination shall become
automatically effective unless LICENSEE shall have cured any such material
breach or default prior to the expiration of the ninety (90) day period.
13.4 LICENSEE shall have the right to terminate this Agreement at any
time on six (6) months' notice to M.I.T., and upon payment of all amounts due
M.I.T. through the effective date of the termination.
13.5 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination; and Articles
1,8,9,10,12,13.5,13.6 and 15 shall survive any such termination. LICENSEE and
any sublicensee thereof may, however, after the effective date of such
termination, sell all LICENSED PRODUCTS, and complete LICENSED PRODUCTS in the
process of manufacture at the time of such termination and sell the same,
provided that LICENSEE shall make
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<PAGE> 14
the payments to M.I.T. as required by Article 4 of this Agreement and shall
submit the reports required by Article 5 hereof.
13.6 Upon termination of this Agreement for any reason, any sublicensee
not then in default shall have the right to seek a license from M.I.T. M.I.T.
agrees to negotiate such licenses in good faith under reasonable terms and
conditions.
14 - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Any payments, notice or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such party
by certified first class mail, return receipt requested, postage prepaid,
addressed to it at its address below or as it shall designate by written notice
given to the other party:
In the case of M.I.T.:
Director
Technology Licensing Office
Massachusetts Institute of Technology
77 Massachusetts Avenue, Room E32-300
Cambridge, Massachusetts 02139
In the case of LICENSEE:
15 - MISCELLANEOUS PROVISIONS
15.1 All disputes arising out of or related to this Agreement, or the
performance, enforcement, breach or termination hereof, and any remedies
relating thereto, shall be construed, governed, interpreted and applied in
accordance with the laws of the Commonwealth of Massachusetts, U.S.A., except
that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent shall have been
granted.
15.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument signed by the parties.
15.3 The provisions of this Agreement are severable, and in the event
that any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
15.4 LICENSEE agrees to mark the LICENSED PRODUCTS sold in the United
States with all applicable United States patent numbers. ALL LICENSED PRODUCTS
shipped to or sold
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in other countries shall be marked in such a manner as to conform with the
patent laws and practice of the country of manufacture or sale.
15.5 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the day
and year set forth below.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY SANGAMO BIOSCIENCES, INC.
By /s/ Lita Nelsen By /s/ Edward O. Lanphier
------------------------------- -----------------------------
Name LITA L. NELSEN, DIRECTOR Name EDWARD LANPHIER
----------------------------- ---------------------------
Title TECHNOLOGY LICENSING OFFICE Title PRESIDENT
---------------------------- ---------------------------
Date April 17, 1996 Date May 9, 1996
----------------------------- ---------------------------
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FIRST AMENDMENT
This Amendment, with the effective date of 12/10/97, is to the License
Agreement dated May 9, 1996, between Sangamo Biosciences, Inc. and
Massachusetts Institute of Technology.
The parties thereto now further agree as follows:
1. Paragraph 1.7 shall be deleted, including the "Note", and replaced with the
following:
1.7 "FIELDS OF USE" shall mean * .
2. Paragraph 2.4 shall be deleted and replaced with:
2.4 LICENSEE and M.I.T. agree that neither party shall assert the Patent
Rights against not-for-profit institutions in their conduct of research,
provided, however, that if a not-for-profit institution practices under the
Patent Rights to conduct high throughput drug screening on behalf of a
commercial entity, then the Patent Rights may be asserted against that
institution.
3. The following shall be inserted as Paragraph 3.4:
3.4 After January 1, 2002, if M.I.T. notifies LICENSEE of a request by a
third party for a license to the Patent Rights for an application or
product (such as drug screening for a particular disease state, or
development of a Licensed Product for a particular disease state) not
currently under development by LICENSEE (or its sublicensee), and no such
application or product (nor any directly competing application or product)
is then currently under development or being sold by LICENSEE or a
sublicensee, then LICENSEE shall either:
(a) within three months of the request submit to M.I.T. plans to
begin development of the application or product within six months of
the original request, at a level of effort appropriate to success of
the development in a commercially reasonable time; or
(b) begin good faith negotiations with the third party toward
granting a sublicense to the Patent Rights for the application
or product.
If LICENSEE does not begin (or abandons) efforts under (a) above, and does
not reach a sublicense agreement with the third party within 6 months
thereafter, M.I.T. shall have the right to grant a nonexclusive license to
the Patent Rights to the third party for the particular application or
product, under terms no more favorable to the third party than are granted
hereunder to LICENSEE, and including diligent development milestones.
M.I.T. shall share with LICENSEE * of any revenue it
derives from such license.
4. Royalties:
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 17
(a) LICENSEE shall pay to M.I.T. a First Amendment Issue Fee of
* due upon * .
(b) The License Maintenance Fees due under P. 4.1b shall be increased to
* on January 1, 1998 and * per year
beginning January 1, 1999 and beyond.
(c) Subparagraphs 4.1e and 4.1g shall be deleted.
(d) The sublicense fees of P. 4.1h shall be increased to *
per sublicense granted plus * per year per * .
(e) The following subparagraph shall be added to P. 4.1, and shall be designated
as subparagraph P. 4.1i
4.1i: * OF ANY MILESTONE FEES OR ROYALTIES PAID TO LICENSEE
FROM * OR OTHER THIRD PARTIES FOR PRODUCTS DISCOVERED OR DEVELOPED
THROUGH THE USE OF LICENSED PRODUCTS OR LICENSED PROCESSES. HOWEVER, IF THESE
MILESTONE FEES AND ROYALTIES ARE ON PRODUCTS WHOSE COMPOSITION AND/OR PRODUCTION
ARE COVERED BY OTHER PATENTS OWNED OR CONTROLLED BY LICENSEE, AND IF THESE FEES
AND ROYALTIES ARE ALSO INTENDED TO COMPRISE COMPENSATION FOR PRACTICE UNDER SUCH
LICENSEE PATENTS, THEN THE PAYMENTS DUE TO M.I.T. SHALL BE *
OF THE MILESTONE FEES AND ROYALTIES.
Agreed to for:
MASSACHUSETTS INSTITUTE OF TECHNOLOGY SANGAMO BIOSCIENCES, INC.
By /s/ Lita Nelsen By /s/ Edward O. Lanphier
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Name LITA L. NELSEN, DIRECTOR Name EDWARD LANPHIER
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Title TECHNOLOGY LICENSING OFFICE Title PRESIDENT & CEO
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Date Dec 1, 1997 Date 12/10/97
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EXHIBIT 10.13
LICENSE AGREEMENT
This Agreement, made and entered into as of this 29th day of June 1995
(the "Effective Date") by and between THE JOHNS HOPKINS UNIVERSITY, a
corporation duly organized and existing under the laws of the State of Maryland
and having its principal place of business at Charles and 34th Streets,
Baltimore, Maryland 21218, U.S.A. (hereinafter referred to as "JOHNS HOPKINS")
and SANGAMO BIOSCIENCES, INC. a corporation duly organized under the laws of
Delaware and having its principal office at P.O. Box 334, Ross, California
94957 (hereinafter referred to as "LICENSEE").
WITNESSETH
WHEREAS, JOHNS HOPKINS is the owner of certain Patent Rights (as later
defined herein) relating to inventions from its laboratories directed by
* concerning *******************************
***************************************************************************
*************************************************** and has the right to grant
licenses under said Patent Rights, subject only to certain march-in-rights
retained by the United States Government, including royalty-free, nonexclusive
licenses;
WHEREAS, JOHNS HOPKINS desires to have the Patent Rights utilized in the
public interest and is willing to grant a license thereunder;
WHEREAS, JOHNS HOPKINS and LICENSEE are parties to a Research Agreement
having even date herewith (Appendix D);
WHEREAS, JOHNS HOPKINS is acting herein for itself;
WHEREAS, LICENSEE has represented JOHNS HOPKINS to induce JOHNS
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HOPKINS to enter into this Agreement that LICENSEE shall commit itself to a
thorough, vigorous and diligent program of exploiting the Patent Rights so that
public utilization shall result therefrom;
WHEREAS, * will continue to have full academic freedom to
continue his scientific investigations and interactions with his colleagues; and
WHEREAS, LICENSEE desires to obtain a license under the Patent Rights upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
For the purposes of this Agreement, in addition to other terms defined
herein, the following words and phrases shall have the following meanings:
1.1 "LICENSEE" shall mean SANGAMO BIOSCIENCES and any Subsidiary of
SANGAMO BIOSCIENCES.
1.2 "Subsidiary" shall mean any corporation, company or other entity more
than fifty percent (50%) of whose voting stock is owned or controlled directly
or indirectly by SANGAMO BIOSCIENCES; any parent corporation, company or other
entity which owns, directly or indirectly, more than fifty percent (50%) of the
voting stock of SANGAMO BIOSCIENCES; and any corporation, company or other
entity in which such parent corporation, company or other entity owns, directly
or indirectly, more than fifty percent (50%) of the voting stock.
1.3 "Patent Rights" shall mean the inventions disclosed and claimed in
the United States and foreign patents and/or patent applications listed in
Appendix A.
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1.4 A "Licensed Product" shall mean any product or part thereof which:
(a) is covered in whole or in part by an issued, valid, enforceable,
unexpired claim or a pending claim contained in the Patent Rights
in the country in which any Licensed Product is made, used or
sold;
(b) is manufactured by using a process which is covered in whole or
in part by a valid, enforceable, issued, unexpired claim or a
pending claim contained in the Patent Rights in the country in
which any Licensed Process is used or in which the Licensed
Product is used or sold.
1.5 A "Licensed Process" shall mean any process which is covered in whole
or in part by a valid, enforceable, issued, unexpired claim or a pending claim
contained in the Patent Rights.
1.6 "Net Sales" shall mean the invoiced sales price of Licensed Products
to an end-user that is not a Subsidiary or a sublicensee in a country in which
such sales would infringe a valid claim contained in the Patent Rights in such
country after deducting:
(a) Discounts allowed in amounts customary in the trade;
(b) Sales taxes, tariffs, duties, use taxes and/or other
governmental levies directly imposed and with reference to
particular sales;
(c) Outbound transportation prepaid or allowed; and
(d) Amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals whether they be
with independent sales agencies or regularly employed by LICENSEE and on its
payroll, or for cost of collections. Licensed Products shall be considered
"sold" when billed out or invoiced.
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1.7 "Invention" shall mean custom designed novel DNA-binding proteins.
ARTICLE II - GRANT
2.1 JOHNS HOPKINS hereby grants to LICENSEE the * right
and license to * the Licensed Products, and
to practice the Licensed Processes, *
subject to 35USC200-211 and the regulations promulgated thereunder, to the end
of the term for which the Patent Rights are granted by the applicable
governmental authority, unless sooner terminated as hereinafter provided (the
"Term"). JOHNS HOPKINS reserves the non-transferable royalty-free right to
practice the subject matter of any claim within the Patent Rights for its own
internal purposes. If * leaves JOHNS HOPKINS, he shall have
the non-transferable, royalty-free right to practice any claim within the
Patent Rights for his own academic purposes.
2.2 In order to establish a period of exclusivity for LICENSEE, JOHNS
HOPKINS hereby agrees that it shall not grant any other license to *
* Licensed Products or to * Licensed Processes
except for its internal research activities during the period of time (the
"Exclusive Period") commencing with the Effective Date of this Agreement and
terminating with expiration of the last-to-expire patent licensed under this
Agreement, unless converted earlier to a nonexclusive license pursuant to
Paragraph 4.4 hereof or pursuant to a requirement by the United States
Government in accordance with 35USC200-211.
2.3 LICENSEE shall have the right to * all or any part of this
license. LICENSEE agrees that any * granted by it shall provide that
the obligations to JOHNS HOPKINS of Articles II, VIII, IX, X, XIII, XV, and
Paragraphs 5.1 and 5.2 of this
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omitted portions.
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Agreement shall be binding upon the * as if it were a party to this
Agreement. LICENSEE further agrees to attach copies of these Articles to
* agreements.
2.4 LICENSEE agrees to forward to JOHNS HOPKINS a copy of any and all
fully executed * agreements, and further agrees to forward to JOHNS
HOPKINS, quarterly, pursuant to Paragraph 5.2 a copy of such reports received
by LICENSEE from its * during the preceding twelve (12) month period
under the * as shall be pertinent to a royalty accounting under said
* agreements.
2.5 Subject to Sections 2.6, 2.7 and 15.7 below, the license granted
hereunder shall not be construed to confer any rights upon LICENSEE by
implication, estoppel or otherwise as to any technology not specifically set
forth in Appendix A, Appendix B, Appendix C, and Appendix D hereof.
2.6 JOHNS HOPKINS hereby also grants to LICENSEE a right of first
negotiation at then commercially reasonable terms, to obtain an exclusive
license to any Inventions, as previously defined, developed during the term of
this Agreement and any extension thereof and pursuant to any Research Agreement
between the parties hereto (Appendix D). JOHNS HOPKINS shall promptly give
LICENSEE written notice of any such Inventions, as defined, and LICENSEE shall
have one hundred and twenty (120) days from the date of receipt of such notice
to give JOHNS HOPKINS written notice of its intent to exercise such option and
complete negotiations. JOHNS HOPKINS shall not negotiate with any third party
regarding these Inventions during the period of LICENSEE's right to negotiate.
During the term of this Agreement and any extension thereof, *
shall be free to pursue any scientific investigations of his choice through
collaboration with colleagues. Should any such collaboration involve a Licensed
Product or Licensed Process, JOHNS HOPKINS will take the initiative of promptly
communicating
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with these colleagues for the purpose of using its reasonable best efforts to
have such colleagues agree to be bound by the terms of this Agreement with
regard to Licensed Products and Licensed Processes.
2.7 Appendix B attached hereto contains ideas conceived by
* for developing ***********************************
*****************************************************************.
* shall give written notice of any Invention resulting under the
Advanced Technology Program within sixty (60) days of the completion of the
funding of such program. Any Invention resulting in whole or in part from said
ideas which are made pursuant to an award under the Advanced Technology Program
where a grant application was filed on March 29, 1995 (Appendix C) shall be
assigned to LICENSEE pursuant to Section 15.7 below and * will
be named as sole inventor unless another individual makes a creative input to
said Invention. LICENSEE shall have the first right of negotiation, under then
commercially reasonable terms, to obtain an exclusive, royalty-bearing license
under any Invention resulting from said ideas in Appendix B made by
* with funding from a source other than the Advanced Technology
Program grant.
ARTICLE III - DUE DILIGENCE
3.1 In order to assure the diligent development of the Licensed Products
and Licensed Processes, LICENSEE shall either fulfill the due diligence
milestones set forth in Paragraph 3.2 below or make the minimum royalty
payments set forth in Paragraph 3.3 below.
3.2 LICENSEE's due diligence milestones shall be a follows:
(a) Within six (6) months from the date of this Agreement, LICENSEE
shall deliver a business plan describing a program for the
development of the Patent Rights.
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omitted portions.
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(b) Within four (4) years from the Effective Date of this Agreement,
LICENSEE shall have spent or caused to be spent, either directly
by LICENSEE or indirectly pursuant to agreements entered into by
LICENSEE (including Research Agreement funding and grant funding
provided by or associated with LICENSEE to JOHNS HOPKINS), a
total of One Million Dollars ($1,000,000) on activities relating
to the *
of Licensed Products and Licensed Processes. All
amounts expended on Licensed Products and Licensed Processes
shall be credited toward the above indicated amounts, including
but not limited to salaries, overhead salaries, overhead,
capital, equipment, consulting fees and cost of materials.
(c) Within four (4) years from the Effective Date of this Agreement,
LICENSEE shall submit an Experimental Plan for, and begin
experimental work on, an appropriate testing program for at least
one (1) Licensed Product. Such Experimental Plan shall be
sufficiently detailed and comprehensive that, in the good faith
opinion of LICENSEE and its counselors, the Plan shall, if
successful, be reasonably adequate to support a credible and
potentially successful Investigative New Drug (IND) application
to the U.S. Food and Drug Administration within seven (7) years
from the Effective Date of this Agreement.
(d) Within seven (7) years of the Effective Date of this Agreement,
LICENSEE shall have submitted a complete Investigative New Drug
application to the U.S. FDA, such IND to be supported with
appropriate studies and other toxicity and safety tests as may be
required by the FDA.
(e) Within three (3) years of the Effective Date of this Agreement,
LICENSEE shall have made a first commercial sale of at least one
(1) Licensed Product.
3.3 In the event that LICENSEE has failed to meet any particular due
diligence milestone set forth in Paragraph 3.2 above on or before the date set
forth therein with respect to each such milestone, JOHNS HOPKINS shall notify
LICENSEE thereof and LICENSEE shall have ninety (90) days following such
notification either to establish to the
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reasonable satisfaction of JOHNS HOPKINS that it has met such milestone or to
make the initial penalty payment referred to in Paragraph 3.4 below.
3.4 In the event that LICENSEE shall have failed to establish its
achievement of any particular milestone to the reasonable satisfaction of JOHNS
HOPKINS as set forth in Paragraph 3.3 above, JOHNS HOPKINS shall have the right
to terminate this Agreement, unless LICENSEE shall make to JOHNS HOPKINS the
following penalty payments:
(a) To maintain the exclusive rights granted herein on an exclusive
basis as set forth in Paragraph 2.2, the amount of *
in the year of the breach and *
annually thereafter until the breach is cured;
with such amount increasing to *
annually commencing the eighth year following the
Effective Date of this Agreement.
(b) To maintain its rights granted herein without the exclusivity
provisions of Paragraph 2.2, the sum of *
in the year of the breach and *
per year thereafter until cured.
The penalty payments described in (a) and (b) above shall only be due
within thirty (30) days following the failure of LICENSEE to achieve a
milestone or cure such failure within the ninety (90) days set forth in
Paragraph 3.3 above. LICENSEE's obligation to make such penalty payments shall
terminate when the applicable milestone has been met.
ARTICLE IV - ROYALTIES
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay to JOHNS HOPKINS in the manner hereinafter provided for so long as
LICENSEE by its activities would, but for the licenses granted herein, infringe
a valid, enforceable claim of an unexpired Patent Right or until this Agreement
shall be terminated as hereinafter
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provided:
(a) At the time that LICENSEE closes financing equal to a total
cumulative equity investment of at least Five Hundred Thousand
Dollars ($500,000) ("Initial Financing"), LICENSEE shall issue to
JOHNS HOPKINS that number of common units equal to that portion
of the total number of common and preferred units issued with
respect to the first * in
equity capital invested in the LICENSEE multiplied by * . If
the preferred units issued in any financing have antidilution
protection, JOHNS HOPKINS shall be entitled to equivalent
protection for its common units. JOHNS HOPKINS shall also be
entitled, at its sole option, to invest its own funds in the
second and any subsequent round of investment funding at a price
per unit which is the same price as is offered to other second
round investors, for up to a total number of shares such that
JOHNS HOPKINS' share of equity in the Company would remain at
* .
(b) At the time that the cumulative equity capital invested in the
Company is equal to Two Million Dollars ($2,000,000), LICENSEE
shall pay to JOHNS HOPKINS:
(i) a License Issue Fee of *
* of said License Issue Fee
shall be considered an Administrative Signing Fee); and
(ii) shall commence annual maintenance fees of *
* due on January 1 of each year following the
financing date.
(c) LICENSEE shall also pay to JOHNS HOPKINS a running royalty on
Licensed Products during the Exclusive Period for such products
as follows:
(i) For sales by LICENSEE and it Subsidiaries:
(1) for ******* ********, *
* of Net Sales; *
* of Net Sales; and
*
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* ;
(2) for ********** ********, * of Net Sales;
* of Net Sales; and *
* of Net Sales in excess of *
* ; and
(3) for *********** ********, *
* of Net Sales; * of Net Sales; and
* of Net Sales in excess of *
* .
(ii) for sales by * :
(1) for ******** *******, the greater of * of Net Sales
or * royalties received by LICENSEE;
(2) for ********** ********, the greater of * of Net
Sales or * of * royalties
received by LICENSEE; and
(3) for ********** ********, the greater of * of Net
Sales or * of * royalties
received by LICENSEE.
(d) LICENSEE shall pay to JOHNS HOPKINS * of initial License Fees
(excluding all other forms of payment including, but not limited
to, research funding) LICENSEE receives from all * .
(e) During the nonexclusive period for any Licensed Product,
LICENSEE shall pay to JOHNS HOPKINS a running royalty on the Net
Sales of such Licensed Products sold by LICENSEE, its
Subsidiaries and its * equal to * the
royalty set forth in (c) above for sales during the Exclusive
Period.
4.2 No multiple royalties shall be payable because any Licensed Product,
its
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* are or shall be covered by more than one patent
application or patent licensed under this Agreement or acquired under a license
pursuant to Paragraph 2.6 or 2.7. If a Licensed Product is covered by this
Agreement and a License Agreement pursuant to Paragraph 2.6 and/or 2.7 the
highest applicable royalty rate will apply. If, as to any Licensed Product,
LICENSEE is required to pay a royalty to any third party, the royalty rates set
forth in Paragraph 4.1 shall be reduced by * of the royalty rates
paid to the third party, but in no event shall the rates in Paragraph 4.1 be
reduced by more than * .
4.3 Royalty payments shall be paid in United States dollars in Baltimore,
Maryland, at the time and in the manner provided in Article V below. If any
currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange rate
prevailing at the Bank of America Corporation on the last business day of the
calendar quarterly reporting period to which such royalty payments relate.
4.4 At the end of the first calendar year beginning after the first
commercial sale of a Licensed Product by LICENSEE, a subsidiary, or a
* , and each calendar year thereafter (hereinafter "Royalty Year"),
LICENSEE shall pay JOHNS HOPKINS the greater of royalties payable pursuant to
Paragraph 4.1(c) or a minimum annual royalty according to the following
schedule:
At the End of the First Royalty Year - *
At the End of the Second Royalty Year - *
At the End of the Third and Through
the Ninth Royalty Year - *
At the End of the Tenth and Each
Subsequent Royalty Years - *
Said minimum annual royalty shall be paid to JOHNS HOPKINS within thirty (30)
days of
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the end of each Royalty Year. Failure by LICENSEE to pay the minimum annual
royalty required by this Paragraph 4.4 shall give JOHNS HOPKINS the right to
convert the * license granted by this Agreement to *
license.
ARTICLE V - REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to JOHNS HOPKINS hereunder. Said books of account shall be kept
at LICENSEE's principal place of business or the principal place of business of
the appropriate Division of LICENSEE to which this Agreement relates. Said
books and the supporting data shall be open at all reasonable times for five
(5) years following the end of the calendar year to which they pertain, to the
inspection of JOHNS HOPKINS or its agents for the purpose of verifying
LICENSEE's royalty statement or compliance in other respects with this
Agreement.
5.2 Commencing with the first commercial sale of a Licensed Product,
LICENSEE, within sixty (60) days after March 31, June 30, September 30 and
December 31, of each year, shall deliver to JOHNS HOPKINS true and accurate
reports, giving such particulars of the business conducted by LICENSEE, its
Subsidiaries and its sublicensees during the preceding three-month period under
this Agreement as shall be pertinent to a royalty accounting hereunder. These
shall include at least the following:
(a) All Licensed Products manufactured and sold.
(b) Total billings for Licensed Products sold.
(c) Accounting for all Licensed Processes used or sold.
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(d) Deductions applicable as provided in Paragraph 1.6.
(e) Total royalties due.
(f) Names and addresses of all sublicensees of LICENSEE.
Where reasonably practical, LICENSEE shall, to the best of its knowledge,
subcategorize the Licensed Products sold so as to assign the royalties paid to
individual patent(s) of Appendix A. Such subcategorization shall be for JOHNS
HOPKINS administrative purposes only and shall in no way affect any obligations
of any part or the amounts of royalties to be paid under this Agreement. Until
there has been a first commercial sale of a Licensed Product, the LICENSEE
shall give an annual report of LICENSEE's efforts to achieve a first commercial
sale.
5.3 With each such report submitted, LICENSEE shall pay to JOHNS HOPKINS
the royalties due and payable under this Agreement. If no royalties shall be
due, LICENSEE shall so report.
5.4 The royalty payments set forth in this Agreement shall, if overdue,
bear interest until payment at a per annum rate * the
prime rate in effect at Bank of America on the due date. The payment of such
interest shall not foreclose JOHNS HOPKINS from exercising any other rights it
may have as a consequence of the lateness of any payments.
ARTICLE VI - PATENT PROSECUTION
6.1 JOHNS HOPKINS represents that Appendix A, as amended from
time-to-time, contains an accurate and complete listing of the patent
applications and issued patents included within the Patent Rights. JOHNS
HOPKINS agrees to promptly amend Appendix A within thirty (30) days of any new
Invention made pursuant to the ATP.
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6.2 JOHNS HOPKINS warrants that it has the right to grant the rights and
licenses granted herein to LICENSEE free and clear of all liens and
encumbrances, except to the extent set forth in Article XII.
6.3 Within ninety (90) days of the completion of the financing set forth
in Paragraph 4.1(b), LICENSEE shall reimburse JOHNS HOPKINS for
previously-incurred as well as future expenses paid to third parties relating
to drafting, filing, prosecuting and maintaining U.S. and foreign patent
applications and patents included in the Patent Rights; provided, however, if
such reimbursement amount exceeds Fifty Thousand Dollars ($50,000), then the
amount above $50,000 shall be due twenty-four (24) months from the date of the
initial payment, JOHNS HOPKINS shall, on LICENSEE's request and expense, file,
prosecute, and maintain appropriate additional foreign patent applications and
patents directed to the inventions which will be included in the Patent Rights
and LICENSEE shall be licensed thereunder. If LICENSEE elects not to pay
expenses associated with filing, prosecuting, and maintaining U.S. and foreign
patent applications and patents directed to the inventions, JOHNS HOPKINS may
file, prosecute, and maintain such U.S. and foreign patent applications and
patents at its own expense and LICENSEE shall not be licensed thereunder.
6.4 With regard to substantive correspondence, patent applications and
patents included in the Patent Rights, JOHNS HOPKINS shall in a timely manner
send LICENSEE (a) copies of all proposed patent applications and correspondence
to the respective patent office, give LICENSEE an opportunity to comment
thereon, and incorporate such changes as reasonably requested by LICENSEE; and
(b) copies of correspondence from the patent office.
6.5 JOHNS HOPKINS shall reasonably respond to LICENSEE's request for
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change in outside patent counsel.
ARTICLE VII - INFRINGEMENT
7.1 Each party to this Agreement shall promptly notify the other party in
writing of any alleged infringement and of any available evidence of
infringement by a third party of any patents within the Patent Rights of which
it becomes aware.
7.2 During the term of this Agreement, LICENSEE shall have the right, but
shall not be obligated, to prosecute at its own expense any such infringements
of the Patent Rights and, in furtherance of such right, LICENSEE hereby agrees
that JOHNS HOPKINS may join LICENSEE as a party plaintiff in any such suit,
without expense to JOHNS HOPKINS, provided, however, that such right to bring
an infringement action shall remain in effect only for so long as the license
granted herein remains exclusive. No settlement, consent judgment or other
voluntary final disposition of the suit may be entered into without the consent
of JOHNS HOPKINS, which consent shall not unreasonably be withheld. LICENSEE
shall indemnify JOHNS HOPKINS against any order for costs or other expenses
that may be made against JOHNS HOPKINS in such proceedings. The total cost of
any such infringement action commenced or defended solely by LICENSEE shall be
borne by LICENSEE, and LICENSEE shall keep any recovery damages for past
infringement derived therefrom, after payments to JOHNS HOPKINS of the royalty
rate set forth in Paragraph 4.1(c)(i) applied to the sum of the recovery,
damages or any other amount received in any form of disputation and/or in
settlement of any infringement or alleged infringement of the Patent Rights
remaining after LICENSEE has reimbursed itself for all costs, including legal
costs, associated with the prosecution.
7.3 If within six (6) months after having been notified of any alleged
infringement,
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LICENSEE shall have been unsuccessful in persuading the alleged infringer to
desist and shall not have brought and shall not be diligently prosecuting any
infringement action, or if LICENSEE shall notify JOHNS HOPKINS at any time
prior thereto of its intention not to bring suit against any alleged
infringer, then, JOHNS HOPKINS shall have the right, but shall not be obligated
to prosecute at its own expense any infringement of the Patent Rights, and
JOHNS HOPKINS may, for such purposes, use the name of LICENSEE as party
plaintiff without expense to LICENSEE, and JOHNS HOPKINS shall keep any
recovery or damages derived therefrom.
7.4 In the event that a declaratory judgment action alleging invalidity
or noninfringement of any of the Patent Rights shall be brought against
LICENSEE, JOHNS HOPKINS at its option, shall have the right, within thirty (30)
days after commencement of such action, to intervene and participate in the
defense of the action at their own expense.
7.5 In any infringement suit that any party hereto may institute to
enforce the Patent Rights pursuant to this Agreement, the other party hereto
shall, at the request and expense of the party initiating such suit, cooperate
in all respects and, to the extent possible, have its employees testify when
requested and make available relevant records, papers, information, samples,
specimens, and the like.
7.6 LICENSEE, during the Exclusive Period of this Agreement, shall have
the sole right in accordance with the terms and conditions herein to sublicense
any alleged infringer under the Patent Rights to avoid future infringements.
Amounts received from any such * constituting retroactive royalties
shall be considered amounts received in settlement and accounted for under
Paragraph 7.2 above. Otherwise, amounts received from such sublicensee shall be
treated in accordance with Paragraph
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4.1(c) above.
ARTICLE VIII - LIABILITY
8.1 Inasmuch as JOHNS HOPKINS will not, under the provisions of this
Agreement or otherwise, have control over the manner in which LICENSEE, or its
Subsidiaries or its agents or its sublicensees or those operating for its
account, or third parties who purchase Licensed Products from any of the
foregoing entities, practice any invention encompassed by the license granted
herein, LICENSEE shall defend and hold JOHNS HOPKINS, it trustees, officers,
employees, students, and affiliates harmless as against any judgments, fees,
expenses or other costs (including reasonable attorneys' fees) arising from or
incidental to any product liability or other lawsuit brought as a consequence
of the practice of said invention by any of the foregoing entities, whether or
not JOHNS HOPKINS is named as party defendant in any such lawsuit. LICENSEE
shall have the right to defend such a product liability lawsuit with counsel of
its own choosing and JOHNS HOPKINS will cooperate in the defense of such action
at LICENSEE's expense. Practice of the Invention encompassed by the license
granted herein by a Subsidiary or an agent or a * , or a third party
on behalf of or for the account of LICENSEE or by a third party who purchases
Licensed Products from any of the foregoing shall be considered LICENSEE's
practice of said invention for purposes of this Paragraph 8.1. The provisions
of this Paragraph 8.1 shall survive termination of this Agreement.
8.2 LICENSEE shall maintain or cause to be maintained, prior to the first
planned use of Licensed Products or Licensed Processes in humans, product
liability insurance or other protection reasonably acceptable to JOHNS HOPKINS
which shall
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protect LICENSEE and JOHNS HOPKINS in regard to events covered by Paragraph 8.1
above. LICENSEE will disclose to JOHNS HOPKINS the amount and kind of product
liability insurance it obtains, will give JOHNS HOPKINS a copy of the
certificate of insurance, and will increase or change the kind of insurance at
the reasonable request of JOHNS HOPKINS, provided such insurance is available
to LICENSEE at commercially reasonable rates.
8.3 Except as otherwise expressly set forth in this Agreement, JOHNS
HOPKINS makes no representations and extend no warranties of any kind, either
express or implied, including but not limited to warranties of merchantability,
fitness for a particular purpose, and validity of Patent Rights claims, issued
or pending.
8.4 No liability under this Agreement shall result to a party from delay
in performance caused by force majeure, that is, circumstances beyond the
reasonable control of the party affected thereby, including, without
limitation, acts of God, earthquake, fire, flood, war, government regulations,
labor unrest, or shortage of or an inability to obtain material or equipment.
ARTICLE IX - EXPORT CONTROLS
It is understood that JOHNS HOPKINS is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended and the Export Administration Act of 1979), and that their
obligations hereunder are contingent on compliance with applicable United
States export laws and regulations. The transfer of certain technical data and
commodities may require a license from the cognizant agency of the United
States Government and/or written assurances by
-18-
<PAGE> 19
LICENSEE that LICENSEE shall not export data or commodities to certain foreign
countries without prior approval of such agency. JOHNS HOPKINS neither
represents that a license shall not be required nor that, if required, it shall
be issued.
ARTICLE X - NON-USE OF NAMES
LICENSEE shall not use the name of JOHNS HOPKINS, nor any of its
employees, or any adaptation thereof, in any advertising, promotional or sales
literature without prior written consent obtained from JOHNS HOPKINS in each
case, except that LICENSEE may state that it is licensed by JOHNS HOPKINS under
one or more of the patents and/or applications comprising the Patent Rights.
ARTICLE XI - ASSIGNMENT
This Agreement may not be assigned, in whole or in part, except in
conjunction with the sale of the entire business, or an operating business
division, of LICENSEE to which the Patent Rights relate, without the prior
consent of JOHNS HOPKINS, which consent shall not be unreasonably withheld.
ARTICLE XII - GOVERNMENT RIGHTS
12.1 Pursuant to 35USC202, JOHNS HOPKINS has elected to take all rights,
title and interest in the inventions forming the basis of the Patent Rights.
12.2 LICENSEE hereby specifically agrees to cooperate with JOHNS HOPKINS
in abiding by the terms and conditions imposed on JOHNS HOPKINS pursuant to
35USC200-211 and the regulations promulgated thereunder.
19
<PAGE> 20
12.3 JOHNS HOPKINS warrants that it has compiled with and will continue
to comply with all duties and obligations running from JOHNS HOPKINS to the
Government pursuant to 35USC200-211 and the regulations promulgated thereunder.
12.4 LICENSEE agrees to * in the United States those Licensed
Products which are * in the United States.
ARTICLE XIII - TERMINATION
13.1 This Agreement shall terminate if LICENSEE dissolves, unless this
Agreement has been assigned prior to the date of dissolution.
13.2 Should LICENSEE fail to pay JOHNS HOPKINS royalties due and payable
hereunder, JOHNS HOPKINS shall have the right to terminate this Agreement on
sixty (60) days' written notice, unless LICENSEE shall pay JOHNS HOPKINS within
the sixty (60) day period, all such royalties and interest due and payable.
Upon the expiration of the sixty (60) day period, if LICENSEE shall not have
paid all such royalties and interest due and payable, the rights, privileges
and license granted hereunder shall terminate.
13.3 Upon any material breach or default of this Agreement by LICENSEE
other than those occurrences set out in Paragraphs 13.1 and 13.2 hereinabove,
which shall always take precedence in that order over any material breach or
default referred to in this Paragraph 13.3, JOHNS HOPKINS shall have the right
to terminate this Agreement and the rights, privileges and license granted
hereunder by giving ninety (90) days' notice to LICENSEE. Such termination
shall become effective unless LICENSEE shall have cured any such breach or
default prior to the expiration of the ninety (90) day period.
13.4 LICENSEE shall have the right to terminate this Agreement at any
time on six (6) months' notice to JOHNS HOPKINS and upon payment of all amounts
due JOHNS
20
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 21
HOPKINS.
13.5 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination. LICENSEE and any Subsidiary
and sublicensee thereof may, however, after the effective date of such
termination, * all Licensed Products, and complete Licensed Products in the
process of * at the time of such termination and * the same,
provided that LICENSEE shall pay to JOHNS HOPKINS the royalties thereon as
required by Article IV of this Agreement and shall submit the reports required
by Article V hereof on the sales of Licensed Products.
13.6 Upon termination of this Agreement for any reason during the
Exclusive Period, any * not then in default shall have the right to
seek a license from JOHNS HOPKINS under the same terms and conditions as set
forth hereunder.
13.7 The provisions of Paragraph 8.1, Article IX, and Article X shall
survive termination of this Agreement.
ARTICLE XIV - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such
party by certified first class mail, postage prepaid, addressed to it at its
address below or as it shall designate by written notice given to the other
party:
In the case of JOHNS HOPKINS:
Johns Hopkins University
300 Whitehead Hall
Charles and 34th Streets
Baltimore, Maryland 21218
Attention: Edwin T. Yates, Ph.D.
21
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 22
[Blank]
22
<PAGE> 23
With a copy to:
Associate Dean for Corporate Affairs
Johns Hopkins University
School of Hygiene and Public Health
111 Market Place, Suite 840
Baltimore, Maryland 21202-6709
Attention: Alan M. Goldberg, Ph.D.
In the case of LICENSEE:
Edward Lanphier
Sangamo BioSciences, Inc.
P.O. Box 334
Ross, California 94957
With a copy to:
Stephan Dolezalek, Esq.
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
ARTICLE XV - MISCELLANEOUS PROVISIONS
15.1 This Agreement shall be construed, governed, interpreted and applied
in accordance with the laws of the State of Maryland, U.S.A., except that
questions affecting the validity, construction and effect of any patent
licensed hereunder, shall be determined by the law of the country in which the
patent was granted.
15.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
23
<PAGE> 24
15.3 The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
15.4 LICENSEE agrees to mark the Licensed Products sold in the United
States with all applicable United States patent numbers. All Licensed Products
shipped to or sold in other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or sale.
15.5 The failure of any party to assert a right hereunder or to insist upon
compliance with any term or condition of this Agreement shall not constitute a
waiver of that right or excuse a similar subsequent failure to perform any such
term or condition by the other party.
15.6 Claims, disputes, or controversies concerning the validity,
construction, or effect of any patent licensed hereunder shall be resolved in
any court having jurisdiction thereof.
15.7 A grant application under the Advanced Technology Program was filed on
March 29, 1995 (Appendix C). If a grant is awarded, any Invention made pursuant
thereto where an investigator at JOHNS HOPKINS is the sole inventor or a
coinventor shall be assigned to LICENSEE. Such Invention shall be assigned
hereunder and shall thereafter fall within the definition of Patent Rights and
therefore shall be subject to Sections 3.2, 3.3 and 3.4 hereof and to the
royalty payments required by Sections 4.1(c)(i), 4.1(d) and 4.4 hereof as part
of the rights licensed hereunder.
24
<PAGE> 25
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
and duly executed this Agreement the day and year set forth below.
JOHNS HOPKINS UNIVERSITY
By:
-------------------------------------------------------
Herbert R. Hansen, Jr., MBA, CPA
Senior Associate Dean, Finance and Administration
Date:
----------------------------------
OR
By: /s/ Alan M. Goldberg
-------------------------------------------------------
Alan M. Goldberg, Ph.D.
Associate Dean, Corporate Affairs
Date: July 10th, 1995
----------------------------------
AND
By: /s/ John Groopman
-------------------------------------------------------
John Groopman, Ph.D.
Chairman, Environmental Health Sciences
Date: 7/10/95
----------------------------------
SANGAMO BIOSCIENCES, INC.
By: /s/ Edward O. Lanphier II
-------------------------------------------------------
Edward O. Lanphier II
President
Date: June 30, 1995
----------------------------------
25
<PAGE> 26
APPENDIX A
PATENTS:
APPENDIX B
INVENTION DISCLOSURES:
APPENDIX C
ADVANCED TECHNOLOGY PROGRAM GRANT PROPOSAL:
APPENDIX D
RESEARCH AGREEMENT:
26
<PAGE> 27
THE JOHNS HOPKINS UNIVERSITY
BALTIMORE, MD 21218-2696
Nina M. Siegler, C.F.A. Office of Technology Transfer
Director 708 N Wyman Park Center
3400 N. Charles Street
(410) 516-8137
Fax (410) 516-7811
AMENDMENT NO. 1
TO THE LICENSE AGREEMENT between
Johns Hopkins University and Sangamo Biosciences, Inc.
This Amendment No. 1, dated June 1, 1998 ("Effective Date") to the License
Agreement dated June 29, 1995 concerning the licensing and other matters of
patent properties referred to in the License Agreement as
*
and other Patent Rights, is
entered into between Johns Hopkins University, a not-for-profit educational
institution having an address at 3400 N. Charles Street, Baltimore, MD ("JOHNS
HOPKINS" or "JHU") and Sangamo Biosciences, Inc., a corporation of the State of
Delaware and having a principal place of business at Point Richmond Tech
Center, 501 Canal Blvd, Suite A-100, Richmond, CA ("LICENSEE").
This document amends the License Agreement by the following:
1. In Paragraph 4.1, delete in its entirety paragraph 4.1.(c). Replace with
new Paragraph 4.1.(c):
4.1.(c) LICENSEE shall also pay to JOHNS HOPKINS a running
royalty on Licensed Products as follows:
(i) for therapeutic products, * of Net
Sales
(ii) for diagnostic products, * of Net
Sales
(iii) for reagent products, * of
Net Sales
2. Delete in its entirety Paragraph 4.4, and replace with the following new
Paragraph 4.4:
4.4 LICENSEE shall pay to JOHNS HOPKINS a minimum annual royalty
according to the following schedule and within thirty (30) days
of the end of the calendar year:
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 28
Amendment No. 1
Sangamo License Agreement
page 2
1999,2000 * per year
2001-2005 * per year
2006 and until termination * per year
Failure by LICENSEE to pay the minimum annual royalty required by
this Paragraph 4.4 shall give JOHNS HOPKINS the right to convert
the exclusive license granted by this Agreement to a nonexclusive
license.
3. Add new Paragraph 4.5 as follows:
4.5 For the rights, privileges and license granted by Amendment
No. 1, dated ______, LICENSEE agrees to pay to JOHNS HOPKINS the
sum of * ,
payable in equal installments within eighteen months of the
Effective Date of Amendment No. 1.
4. Add new Paragraph 6.6 as follows:
6.6 LICENSEE shall have the right, but not the obligation, to
assume primary responsibility for patent prosecution. JOHNS
HOPKINS hereby agrees to reasonably cooperate with the transfer
of case files, execution of appropriate documents and any other
matters needed for LICENSEE to assume such responsibility. In
such case, LICENSEE shall provide to JHU copies of all
correspondence from and to the US PTO and international
equivalents with sufficient time to allow for comment by JHU.
LICENSEE shall endeavor to accommodate JHU's comments into a
reasonable patent prosecution strategy. In no case shall LICENSEE
abandon any application or patent in any country without prior
approval from JHU. In any country where the LICENSEE elects not
to have a patent application filed or to pay expenses associated
with filing, prosecuting, or maintaining a patent application or
patent, LICENSEE shall notify JHU allowing at least thirty (30)
days for JHU to assume such responsibilities. JHU may file,
prosecute, and/or maintain a patent application or patent at its
own expense and for its own exclusive benefit and the LICENSEE
thereafter shall not be licensed under such patent or patent
application. Upon termination of this Agreement, LICENSEE shall
immediately transfer all case files, execute any appropriate
documents related to patent matters and cooperate in any other
matters needed for JHU to assume responsibility for patent
prosecution.
2
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 29
Amendment No. 1
Sangamo License Agreement
page 3
5. In Paragraph 13.7, add after "Article X", insert, "Paragraph 4.5 and
Paragraph 6.6".
6. Add new Paragraph 15.8 as follows:
15.8 With respect to *
, LICENSEE hereby acknowledges
and agrees that * is the sole inventor of this
property.
7. In Appendix A, add:
*
*
8. Except as expressly modified by this Amendment No. 1, the License Agreement
shall remain in full force and effect.
9. In Paragraph 3.2(e) change it to read, "Within seven (7) years of the
Effective Date of this Agreement, LICENSEE shall have made a commercial
sale of at least one (1) Licensed Product."
3
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 30
Amendment No. 1
Sangamo License Agreement
page 4
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the date first written above.
For Sangamo Biosciences, Inc.:
/s/ Edward O. Lanphier II 7/16/98
- -------------------------------------- ---------------
Edward O. Lanphier II Date
President
For Johns Hopkins University:
/s/ Herbert R. Hansen, J. 7/8/98
- -------------------------------------- ---------------
Herbert R. Hansen, J., MBA, CPA Date
Senior Associate Dean, Finance and
Administration
Sangamo Amendment #1 (6/29/98)
4
<PAGE> 1
EXHIBIT 10.14
MEDICAL RESEARCH COUNCIL
-AND-
SANGAMO BIOSCIENCES
L I C E N C E
FOR
ZINC FINGERS PATENT
<PAGE> 2
EXHIBIT 10.14
THIS AGREEMENT is made the 1 day of September One thousand nine hundred and
ninety six between MEDICAL RESEARCH COUNCIL of 20 Park Crescent, London W1N 4AL
(hereinafter called "MRC" which expression includes its successors and assigns)
of the one part and Sangamo Biosciences of 950 Marina Village Parkway, Alameda,
CA 94501, U.S.A. (hereinafter called "the Licensee" which expression includes
its successors and permitted assigns) of the other part.
WHEREAS:-
(A) MRC is the proprietor of certain applications for patent rights in respect
of *
.
(B) The Licensee wishes to obtain a licence to the applications from MRC, and
MRC is willing to grant such licence on the terms, and subject to the
conditions, which follow.
NOW IT IS HEREBY AGREED as follows:-
1. Definitions
(1) In this Agreement the following words and expression shall be
construed as follows:-
"Affiliate" shall mean any corporation, company, partnership or other
entity which directly or indirectly controls, is controlled by or is under
common control with either party to this Agreement.
"Control" means the ownership of more than 50% of issued share capital or
the legal power to direct or cause the direction of the general management
and policies of the party in question.
1
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 3
"THE EFFECTIVE DATE" shall mean the date of execution above written.
"NET INVOICE PRICE" shall mean in relation to a Product sold by Licensee or
sub-licensee of Licensee, the price invoiced by Licensee (or sub-licensee
as appropriate) to the relevant purchaser (or in the case of a sale or
other disposal otherwise than at arm's length, the price which would have
been invoiced in a bona fide arm's length contract of sale), but deducting
the costs of packing, transport and insurance, customer duties, any credits
actually given for returned or defective Products, normal trade discounts
actually given, and sales taxes, VAT or other similar tax charged on and
included in the invoice price to the purchaser.
"THE PATENT RIGHTS" shall mean:-
(a) the patent applications short particulars of which are set out in
Schedule 1;
(b) all patents which may be granted pursuant to any of the foregoing
applications;
(c) any patents which derive from the foregoing patent applications
including any divisions, renewals, continuations,
continuations-in-part, extensions or reissues thereof.
"THE PRODUCTS" shall mean products whose development (including use of the
methods claimed in the Patent Rights), manufacture use or sale would, but
for this licence, infringe the Patent Rights.
(2) In this Agreement the singular shall where the context so permits
include the plural and vice versa.
2. Commencement
This Agreement shall be deemed to have come into force on the Effective
Date and shall be read and construed accordingly.
2
<PAGE> 4
3. Grant of Rights
(1) MRC agrees to grant to the Licensee a * licence
under the Patent Rights to * Products.
(2) The Licensee shall have the right to * of the rights granted
to it under this Agreement but only in conjunction with a licence of
Licensee's complementary technology and in a defined field equivalent
to that licensed technology. Any such * shall be granted on and
shall contain substantially similar terms and conditions as the clauses
of this Agreement including, but without limitation, the terms herein
relating to indemnity.
(3) Prior to the first anniversary of the Effective Date MRC shall review
the scope and desirability for entering negotiations with Licensee for
conversion of this agreement to * licence in whole or in
part, and MRC shall inform Licensee on or about the first anniversary
of the Effective Date whether it wishes to enter such negotiations. For
the avoidance of doubt, neither party is under any obligation to enter
such negotiations, or committed to accept specific terms for conversion
of * licence.
4. Payments
(1) In consideration for the non-exclusive licence granted pursuant to
Clause 3.1 hereof the Licensee shall pay to MRC the following sums:
(i) * to be paid upon * .
(ii) * to be paid on the 1st anniversary of the Effective
Date.
(iii) * to be paid on the 2nd anniversary of the Effective
Date.
(iv) * to be paid on the 3rd anniversary of the Effective
Date.
3
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 5
(2) In further consideration for the licence granted pursuant to Clause 3.1
hereof the Licensee shall pay to * the following milestone payments:-
(i) * to be paid on
*
relating to products derived in whole or in part from the
technology described and claimed in the Patent Rights.
(ii) * to be paid on
*
relating to products derived in whole or in part from the technology
described and claimed in the Patent Rights.
(iii) * to be paid on
*
relating to products derived in whole or in part from the technology
described and claimed in the Patent Rights.
(3) In further consideration of the licence granted by MRC to Licensee under
Clause 3(1), Licensee shall pay to MRC a royalty of * of the Net
Invoice Price on all sales of Products by Licensee or any Affiliate or any
* where the Products are either manufactured and/or sold in a
country where a patent under the Patent Rights is granted valid and
subsisting at the date of such sale.
(4) If the Licensee is required to pay total royalties in excess of * of
Net Invoice Price to parties other than MRC the royalty payable to MRC may
be reduced by the amount of royalty in excess of * payable to such
other parties but in no event shall the royalty payable to the MRC be
reduced by * from the royalty rate specified in Clause 4(3). If
the Licensee avails itself of the provision of this paragraph, the Licensee
agrees to provide the MRC with proof of such royalties paid to other
parties.
4
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 6
(5) Licensee agrees to keep true and accurate records and books of account
containing all data necessary for the calculation of the milestone
payments and royalties payable to MRC under Clause 4(2) and 4(3). Such
records and books of account shall upon reasonable notice having been
given by MRC be open at all reasonable times during business hours for
inspection by MRC or its duly authorised representative.
(6) Licensee shall prepare a statement in respect of each calendar quarter of
this Agreement which shall show for the calendar quarter in question the
quantity of Products * by the Licensee and *
in each country and the Net Invoice Price of each Product so sold and the
royalty due to MRC thereon pursuant to Clause 4(3) above. Such statement
shall be submitted to MRC within 60 days following the end of the calendar
quarter or part thereof to which it relates together with a remittance for
the royalties due to MRC. If MRC shall give notice to Licensee within 60
days of the receipt of any such statement that it does not accept the same
such statement shall be certified by an independent chartered accountant
appointed by agreement between the parties or, in default of agreement
within 14 days, by the President for the time being of the Institute of
Chartered Accountants of England and Wales in London. Licensee shall make
available all books and records required for the purpose of such
certification at reasonable times during normal business hours and the
statement so certified shall be binding between the parties. The costs of
such certification shall be the responsibility of MRC if the certification
shows the original statement to have been accurate and otherwise shall be
the responsibility of Licensee. Following any such certification the
parties shall make any adjustments necessary in respect of the royalties
already paid to MRC in relation to the period in question.
(7) The Licensee shall pay royalties to MRC free and clear of and without
deduction or deferment in respect of any demand, set-off, counterclaim or
other dispute and so far as is legally possible such payment shall be made
free and clear of any taxes imposed by or under the authority of any
government or public authority and in particular but
5
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 7
without limitation where any sums due to be paid to MRC hereunder are
subject to any withholding or similar tax, the Licensee shall pay such
additional amount as shall be required to ensure that the net amount
received by MRC hereunder will equal the full amount which would have
been received by it had not such tax been imposed or withheld. The
Licensee and, without prejudice to the foregoing, MRC shall use their
best endeavors to do all such lawful acts and things and to sign all
such lawful deeds and documents as will enable the Licensee to take
advantage of any applicable legal provision or any double taxation
treaties with the object of paying the sums due to MRC without
imposing or withholding any tax.
Sums are expressed in this agreement as exclusive of any value added
tax (VAT) which might be applicable. MRC agrees to provide Licensee
with a VAT invoice in respect of every payment affected by VAT.
(8) Where MRC does not receive payment of any sums due to it within the
period specified hereunder in respect thereof interest shall accrue on
the sum outstanding at the rate of * per month calculated on a daily
basis without prejudice to MRC right to receive payment on the due
date therefor.
5. Patent Prosecution and Infringement
(1) MRC shall be responsible for seeking issuance and maintenance of the
Patent Rights.
(2) If the Licensee becomes aware of a suspected infringement of the
Patent Rights it shall notify MRC giving full particulars thereof. If
the alleged infringement consists of any act which (if done by the
Licensee) would be within the scope of the licences granted under this
Agreement MRC and the Licensee shall (within a reasonable time of the
said notification) consult together with a view to agreeing upon a
course of action to be pursued.
6
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 8
6. Term and Termination
(1) Subject as hereinafter provided this Agreement and the licence granted
pursuant thereto shall continue in force in each territory during the
subsistence of the last to expire of the Patent Rights.
(2) MRC may terminate this Agreement and the said licences forthwith by
notice to the Licensee to that effect upon the happening of any of the
following events:-
(i) if the Licensee fails to perform or observe any of the
obligations on its part to be performed or observed and if the
breach is one capable of remedy has not been remedied within
three (3) months of the giving of a notice informing the Licensee
of such breach;
(ii) if the Licensee files a voluntary petition in bankruptcy or
applies to any Tribunal for a Receiver Trustee or similar officer
to be appointed by any Court or Executive Department to liquidate
or conserve the Licensee or any substantial part of its property
or assets due to insolvency or to the threat thereof or if the
Licensee suffers any trusteeship or receivership to continue
undischarged for a period of sixty days or suffers any similar
procedure for the relief of distressed debtors entered into by
the Licensee voluntarily or involuntarily or if the Licensee is
otherwise divested of its assets for a period of sixty days or
makes a general assignment for the benefit of its creditors;
(3) The Licensee may terminate this Agreement and the Licences granted
pursuant hereto by giving to MRC 6 months notice to that effect. Such
termination shall be without prejudice to the right of MRC to enforce
the Patent Rights in the event of subsequent * of Products
by the Licensee.
(4) Termination of this Agreement or of the said Licences shall be without
prejudice to any rights of either party against the other which may
have accrued up to the date of
7
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 9
such termination and the licensee shall pay to MRC the appropriate
royalties hereunder on all stocks of the Products (on which royalties
have not already been paid) held at the date of termination by the
Licensee or any person engaged by the same to * the
Products and shall thereafter be free to * such products on which
royalty has been paid.
7. Warranties
(1) MRC hereby represents and warrants that MRC owns the Patent Rights or
is otherwise authorised to licence the Patent Rights to the Licensee.
(2) Nothing in this Agreement or in any licences to be granted pursuant
thereto shall be construed as a representation or warranty that any of
the said Patent Rights are valid or that any
* of the Products is not an
infringement of any patents or other rights not vested in the MRC.
(3) The Licensee shall promote the sale of the Products of good marketable
quality and shall use reasonable endeavours to meet the market demand
therefore.
8. Liability and Indemnity
Licensee hereby undertakes and agrees to be solely responsible at its own
cost and expense for dealing with and for any liability arising from any
contractual tortious or other claims or proceedings concerning the Products
or their development production marketing distribution or sale and in
particular product liability claims or proceedings. Further, Licensee
hereby grants MRC an indemnity against any loss damage costs or expense
incurred or suffered by MRC arising out of any such claims or proceedings.
9. Waiver
The waiver by MRC of any breach default or omission in the performance or
observance of
8
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 10
any of the terms of this Agreement by the Licensee shall not be deemed to
be a waiver of any other such breach default or omission.
10. Notices
Any notice consent or other communication authorised or required to be
given hereunder or for the purposes hereof shall be in writing and be
deemed to be duly given to MRC if left at or sent by recorded delivery or
registered post addressed to its principal office and to the Licensee if
left at or sent by recorded delivery or registered post to its principal
place of business. Any such notice consent or other communication if served
by post shall be deemed to have been given at the time when it would have
been received in due course of the post.
11. Non-assignability
Save for an assignment to an Affiliate of the Licensee, the Licensee shall
not be entitled to assign the benefit of this Agreement or any rights
granted or to be granted under the Agreement.
12. Non-Use of Names
Licensee shall not use the name of MRC nor of any of its employees or
agents in any advertising promotional or sales literature without obtaining
the prior written consent of MRC in each case, except that Licensee may
state that it is licensed by MRC under one or more patents and/or
applications comprising the Patent Rights.
13. Law and Jurisdiction
This Agreement is to be read and construed in accordance with and governed
by the Laws of England so far as the subject matter allows and the parties
hereby submit to the jurisdiction of the English courts in relation to any
dispute arising out of this Agreement.
9
<PAGE> 11
In witness whereof the parties hereto have caused this Agreement to be executed
in the matter legally binding upon them by causing authorised representatives to
sign this Agreement.
Signed by: /s/ Martin R. Wood, 21 August 1996
----------------------------------
For and on behalf of Martin R. Wood Ph.D.
MEDICAL RESEARCH COUNCIL Head of Technology Transfer Group
Signed by: /s/ Edward O. Lanphier
---------------------------------
For and on behalf of EDWARD O. LANPHIER
SANGAMO BIOSCIENCES PRESIDENT
10
<PAGE> 1
EXHIBIT 10.15
June 1, 1997
Edward O. Lanphier II
16 Oak Way
Ross, CA 94957
Re: Employment Agreement
Dear Edward:
Sangamo BioSciences, Inc. proposes to enter into the following
employment agreement ("Agreement") with you.
I have incorporated the terms we have discussed regarding your
employment into this agreement and the proposed terms and conditions are set
forth below. If the terms of the Agreement are satisfactory, please indicate
your acceptance of the Agreement by executing this letter and returning it to
me.
1. Definitions. The terms defined in this section shall have the
meanings set forth below for purposes of this Agreement.
a. "Board of Directors" shall mean the Board of Sangamo
BioSciences, Inc.
b. "Sangamo" or "Company" shall mean Sangamo BioSciences,
Inc.
c. "Employee" shall refer to you, Edward O. Lanphier II.
d. "Without Cause" shall mean that Sangamo has without
"Cause," as defined below, and without the Employee's
written consent:
(1) terminated the Employee's services with the
Company;
(2) materially reduced the Employee's duties,
responsibilities and status with Sangamo;
<PAGE> 2
(3) reduced the Employee's base salary by more than
five percent (except pursuant to Company
mandated pay cuts or pay reductions which are
uniformly applied to the Company's management);
or
(4) required that the Employee be based at a
location more than 40 miles from the Employee's
home location.
e. "Cause" shall mean misconduct, including but not limited
to the following:
(1) embezzlement, theft, misuse of confidential
information or any other illegal or improper act
by the Employee against Sangamo;
(2) conduct that constitutes a material breach of
Sangamo policy, after thirty (30) days' notice
and failure to cure;
(3) unauthorized conduct that causes, or could
potentially cause, harm to the health or safety
of other Employees; and/or
(4) any other unauthorized conduct that causes, or
could potentially cause, material harm to the
business or reputation of Sangamo, after thirty
(30) days' notice and failure to cure.
f. "Change of Control" solely for purposes of this Agreement
shall mean any transaction or series of related
transactions in which (i) substantially all of the assets
of the Company are sold; or (ii) any merger,
reorganization or acquisition in which the stockholders of
the Company immediately prior to such transaction or
series of related transactions hold less than 51% of the
equity securities of the surviving entity (or any parent
thereof) immediately after such transaction, unless, such
surviving entity elects in writing to assume this
Agreement and the obligations of the Company hereunder in
its entirety.
2. Duties and Obligations.
a. The Employee shall serve as the Company's President and
Chief Executive Officer which title was approved at the
Company's Board of Directors (the "Board") meeting on
April 5, 1997. Employee's duties shall include overseeing
all corporate functions and directing the organization to
ensure the attainment of the goals and objectives set
forth from time to time by the Board of Directors.
2.
<PAGE> 3
b. Employee agrees to abide by the terms and conditions of
the Company's standard Proprietary Information and
Inventions Agreement between Employee and the Company.
Employee further agrees that at all times both during his
employment by the Company and after his Termination
(hereinafter as defined in Section 6(a)), he will keep in
confidence and trust, and will not use or disclose, except
as directed by the Company, any confidential or
proprietary information of the Company.
c. Employee agrees to indemnify and hold the Company harmless
against any liability, damage, claims, or suits and
related costs and expenses that may arise directly or
indirectly out of Employee's Termination of any prior
employment relationship or agreement. Further, Employee
represents that he has not entered into, and agrees not to
enter into, any agreement in conflict with the terms of
this Agreement or his employment with the Company.
3. Devotion of Time to the Company's Business.
a. Employee shall devote substantially all of his business
time, attention, knowledge, skills and interests to the
business of the Company and the Company shall be entitled
to all of the benefits and profits arising from or
incident to such work, services and advice of Employee.
b. During the term of this Agreement, Employee shall not,
whether directly or indirectly, render any services of a
commercial or professional nature to any other person or
organization, whether for compensation or otherwise,
without the prior consent of the Board of Directors.
c. During the term of this Agreement, Employee shall not,
directly or indirectly, engage or participate in any
business that is in competition with the business of the
Company.
4. Compensation and Benefits.
a. Base Compensation. Beginning June 1, 1997, the Company
shall pay to Employee an annual salary of one hundred
seventy-five thousand dollars ($175,000), less all
applicable withholdings, prorated for any partial
employment period and payable in equal monthly
installments in accordance with the Company's payroll
schedule. The Compensation Committee of the Board shall
annually review the then-current level of Employee's
salary to determine the amount, if any, of salary change,
provided that the foregoing shall not serve to exempt
Employee from any Company mandated pay cuts or pay
reductions which are uniformly applied to the Company's
management, any pay increase or pay cut will be effective
as of December 31 of the year such adjustment is made and
the Board shall advise Employee of such adjustment, if
any.
3.
<PAGE> 4
b. Bonus. The Employee will be eligible to receive a cash
bonus in addition to the Employee's current base salary.
The Compensation Committee of the Board shall annually
review the contributions of the Employee to the Company
and determine the appropriate bonus, with the initial
bonus target being 50% of the Employee's base salary. The
actual bonus may be more or less than the target amount
based upon the Employee's achievements over the year,
provided that in no event shall the actual bonus be less
than $43,750 during the first year of this Agreement.
c. Long Term Loan. In lieu of any relocation or recruiting
expenses, the Employee will receive a loan of two hundred
fifty thousand dollars ($250,000). This loan shall be
forgiven annually on a pro-rated basis over a four-year
period beginning January 1, 1999 and shall bear interest
at the minimum rate otherwise imputed thereto by the
Internal Revenue Service. Upon any Termination of Employee
other than for Cause, the Company agrees to forgive any
remaining amount of the loan payoff made as part of this
Agreement. Should the Employee resign without cause, the
remaining balance will be due and payable within ninety
(90) days.
d. Benefits. At the time of this Agreement or for such time
as otherwise provided in this Agreement, Employee shall be
entitled to participate in such fringe benefits that are
available to employees of the Company at that time,
including: family health insurance, dental insurance,
group term life insurance, short-term disability
insurance, long-term disability insurance, vacation pay,
sick pay, 401(k) and other benefits that may be added to
the Company's benefit program from time to time.
(1) Life Insurance. In addition to the group term
life insurance coverage provided to all
employees of the Company, the Company will
assist you in providing additional life
insurance protection through the establishment
of a split-dollar life insurance program, as
detailed in the Split-Dollar Life Insurance
Agreement included as Attachment A.
(2) Disability Insurance. In addition to the
short-term and long-term disability insurance
coverage provided to all employees of the
Company, the Company will assist you in
providing additional long-term disability
insurance protection through the purchase of an
individual policy that will, without offsets for
social security, workers' compensation or other
disability benefits, provide insurance coverage
in the amount of $3,500 per year. Upon your
resignation or Termination from employment, this
disability insurance policy and any dividends
accrued thereon shall be released to you or your
successor employer upon written request.
e. Stock Options. Upon entering this Agreement, the Employee
shall receive stock options totalling Two Hundred Thousand
(200,000) shares of the Company's Common Stock (the
"Option Shares") under the Company's 1996 Stock Option
Plan (the "Plan"), which options shall have an exercise
price of $0.10 per share,
4.
<PAGE> 5
and from time to time may be granted additional stock
options. If there is a Change of Control all unvested
stock options will vest and Employee will have up to three
years to exercise the stock options.
f. Stock Bonus. Upon completion of a financing or financings
totalling at least $7,000,000 on terms and conditions
acceptable to the Board of Directors, the Employee shall
receive a one-time stock bonus of One Hundred Fifty
Thousand (150,000) shares of the Company's Common Stock.
5. Eligibility for Severance Benefits.
a. General Rule. Except as otherwise provided in this
Agreement, should the employment of the Employee be
terminated Without Cause, the Employee shall be entitled
to Severance Benefits as set forth in Section 6. A Change
of Control shall be deemed to be a Termination Without
Cause.
b. Death or Disability. If the Employee dies after he has
ceased to be an Employee but prior to receiving full
payment of his Severance Benefits (as defined in Section
6(a)(i), if any, any portion of the Severance Benefits
that remains to be paid shall be paid to the surviving
spouse of the Employee, or, if there is no surviving
spouse, to the Employee's estate.
6. Termination of Employment.
a. The Company may terminate Employee's employment under this
Agreement at any time, for any reason, with or Without
Cause by giving written notice of its intent to terminate
the employment (a "Termination").
(1) Should the Employee be terminated Without Cause,
the Company will thereafter pay twelve (12) months
base salary and a pro-rated bonus to the Employee
(the "Severance Benefits").
b. Continue Insurance Coverage. Sangamo shall continue to
provide the Employee and his family with medical and
dental insurance coverage by paying the COBRA payments for
a period equal to twelve (12) months. Notwithstanding the
foregoing, to the maximum extent permitted by law, the
number of months of continued insurance coverage provided
to the Employee under this section shall reduce the number
of months of continued coverage that must be made
available to the Employee (and his dependents, if
applicable) under COBRA.
c. Time and Form of Payment. The Employee shall not be
entitled to receive Severance Benefits during any period
in which he remains an Employee. The Employee must elect
to have his Severance Benefits paid in one of the
following ways:
5.
<PAGE> 6
(1) A single lump sum distribution paid upon, or as
soon as reasonably practicable after the
Termination of his employment; or
(2) A deferred lump sum distribution paid in January of
the year following the year his employment
terminates; or
(3) Two installments, which do not have to be of equal
amounts, with the first paid upon, or as soon as
reasonably practicable after, the Termination of
his employment and the second paid in January of
the year following the year his employment
terminates.
Election of one of the above methods is
accomplished by providing written notice to the Company of
such election within fifteen calendar days of the
Employee's Termination. If no election is made within that
period, the Severance Benefits will automatically be paid
pursuant to Section 6(e)(1). Without regard to the payment
method elected, no interest shall accrue or be paid with
respect to the amount of the Employee's Severance
Benefits.
d. Reductions. The Severance Benefits paid to the
Employee shall be reduced to the extent legally
permissible by any amount that the Employee owes to
the he Company on the date he ceases to be an
Employee.
Except for any payments for earned salary, accrued
but unused vacation, 401(k) Plan distributions, and the
above mentioned Severance Benefits, if applicable, neither
party will be obligated to pay the other any payment as a
result of, or in connection with, the Termination of
Employee's employment with Sangamo (including but not
limited to any salary or benefits following the date of
Termination).
7. Miscellaneous.
a. Governing Law. This Agreement shall be interpreted,
construed, governed and enforced according to the laws of
the State of California.
b. Attorneys' Fees. In the event of any controversy, claim or
dispute between the parties, arising out of or relating to
this Agreement or the breach hereof, or the interpretation
hereof, each party shall bear its own legal fees and
expenses. Notwithstanding the foregoing, in the event of a
finding by any court having jurisdiction over such matter
that any party initiating an action under this Agreement
failed to have a reasonable prospect of prevailing on its
claim, the court shall have discretion to award the
prevailing party attorneys' fees and costs incurred by it
with respect to such claim or action. The "prevailing
party" means the party determined by the court to have
most nearly prevailed, even if such party did not prevail
in all matters, not necessarily the one in whose favor a
judgment is rendered.
6.
<PAGE> 7
c. Amendments. No amendment or modification of the terms or
conditions of this Agreement shall be valid unless in
writing and signed by the parties hereto.
d. Severability. All agreements and covenants contained
herein are severable, and in the event any of the above
shall be held to be invalid or unenforceable, this
Agreement shall be interpreted as if such invalid
agreements or covenants were not contained herein.
e. Successors and Assigns. The rights and obligations of the
Company under this Agreement shall inure to the benefit of
and shall be binding upon the successors and assigns of
the Company. The Employee shall not be entitled to assign
any of his rights or obligations under this Agreement.
f. Entire Agreement. This Agreement, along with any other
Agreements set forth herein, including without limitation,
the Proprietary Information and Inventions Agreement,
constitutes the entire agreement between the parties with
respect to the employment of Employee.
If you have any questions, please do not hesitate to call me at (415)
442-1123.
Very truly yours,
SANGAMO BIOSCIENCES, INC.
By: /s/ JOHN W. LARSON
--------------------------------
John W. Larson
Board of Directors
AGREED TO AND ACCEPTED BY:
/s/ EDWARD O. LANPHIER II
- --------------------------------------
Edward O. Lanphier II
Employee
Date:
--------------------------------
7.
<PAGE> 8
ATTACHMENT A
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
This agreement, made and entered into this 1st day of June, 1997 by
and between Sangamo BioSciences, Inc., a Delaware corporation, hereinafter
referred to as the "Company," and Edward O. Lanphier II, hereinafter referred to
as the "Executive" and "Insured."
Whereas the Executive has been a trusted and valued employee of the
Company for a number of years and the Company highly values the efforts,
abilities and accomplishments of the Executive; and
Whereas the Company is concerned with the welfare of its employees
and their families and believes it is meritorious to assist them in providing
for their financial security; and
Whereas the Board of Directors of the Company has determined that it
would be in the Company's best interest to participate in a Split-Dollar
Insurance Plan with the Executive; and
Whereas the Executive has acquired a life insurance policy with a
face amount of $2,000,000; and
Whereas, the Company and the Executive desire to make said insurance
policy subject to a Split-Dollar arrangement;
Now therefore, the parties hereto mutually agree as follows:
I. Title to Policy and Incidents of Ownership
The Executive shall be the owner of the policy and shall have all
incidents of ownership except those assigned pursuant to the provisions of
Article III for security purposes only, including but not limited to:
A. The right to designate and to change the beneficiary.
B. The right to receive and to have his successor or assigns receive any
amount in excess of the amount payable to the Company as hereinafter provided in
Article IV at the time of the death of the insured; and
C. The right, at any time, to repay the amounts hereinafter described in
Article II, thereby releasing any claim which the Company might have against
such contract.
<PAGE> 9
The intention of the parties is that the Company possess no policy
rights or incidents of ownership, other than those assigned as security for the
indebtedness, which will permit the Company to unilaterally impair the right or
interests of the Executive, or his designee or assignee in any way.
The Executive hereby agrees, however, that while this agreement is
in effect, he shall notify the Company of any intent to exercise any right of
ownership in the policy other than the right to change the beneficiary at least
thirty (30) days prior to the exercise of such right of ownership.
II. Premium Payments
A. The Company will pay the premium of the policy. The Company's portion
for this premium will be a minimum of $12,000 annually for split-dollar life.
Such premium may be paid annually or more frequently as the Company may elect.
The Company's premium payments shall be remitted to the insurer before the
expiration of the grace period for premium payments. The Executive may repay any
amount of such premiums advanced for his benefit at any time.
B. The total amount of such payments by the Company, less the total
amount of any repayments by the Executive shall constitute an indebtedness to
the Company.
III. Security
A. In order to secure the repayment of the indebtedness, the Executive
agrees to execute a Collateral Assignment of the insurance policy in a form
approved by the insurance company and shall deliver physical custody of the
policy to the Company.
B. In the event of the termination of this agreement, pursuant to the
provisions of Article V hereof, the Company shall, upon receipt of an amount
equal to the total amount of the indebtedness then due to the Company, cancel
and release the Collateral Assignment of the insurance policy and redeliver
physical custody thereof to the Executive.
In the event the Executive does not satisfy the indebtedness to the
Company within thirty (30) of the termination of this agreement, the Company
shall have the right, without further notice to the Executive, to exercise its
right as Collateral Assignee to obtain a cash loan from the Insurer in
accordance with the loan provisions of the policy, provided, however, that the
total amount of any cash loan or loans so obtained shall not exceed the total
amount of the indebtedness of the Executive then due under the terms of this
agreement.
IV. Death Benefits
A. The portion of the death benefit to be paid to the Company shall be
the amount equal to the net cash surrender value of the policy up to, but not
exceeding, the then remaining balance of any indebtedness incurred for the
purposes of paying premiums under the policy. Such value shall be determined as
of the end of the period for which premiums have been paid.
B. The portion of the death benefit payable to the beneficiary or
beneficiaries designated by the Executive shall be the balance of the proceeds,
if any as provided in the policy.
2.
<PAGE> 10
V. Term
This agreement shall be effective as of the date of this agreement
and shall continue until terminated by the death of the insured or mutual
agreement of the parties hereto.
VI. Amendment
This agreement may be amended at any time by the mutual consent of
the parties hereto.
VII. Applicable Law
This agreement shall be governed by the laws of the State of
California.
VIII. Benefit
This agreement shall be binding upon the parties hereto, the
Executive's heirs, executors and administrators, and either party's successors
or assigns. The parties hereto hereby agree for themselves, their heirs,
executors, administrators, successors or assigns to execute any and all
instruments and to perform all acts which may be necessary and proper to carry
out the purposes of this agreement.
IX. Administrator
Cameron M. Lanphier shall serve as the administrator of this plan.
3.
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this agreement on the
date indicated.
Company
SANGAMO BIOSCIENCES, INC.
By:
---------------------------------------
Witness
---------------------------------------
Executive
-------------------------------------------
Edward O. Lanphier II
Witness
---------------------------------------
4.
<PAGE> 12
ATTACHMENT B
PREMIUM SCHEDULE FOR SPLIT-DOLLAR LIFE INSURANCE POLICY
Royal Maccabees Life Insurance Company
Diplomat MFC
FPAL-892
AN ILLUSTRATION OF PROJECTED VALUES AND BENEFITS
Insured: Edward O. Lanphier II Agent: Brian L. Dunn
Male, Age 40
Rating Class: Preferred Non-Smoker
Mode of Premium Payment: Annual
<TABLE>
<CAPTION>
End Year Age Premium Death Benefit
<S> <C> <C> <C>
1 41 12,000 2,000,000
2 42 12,000 2,000,000
3 43 12,000 2,000,000
4 44 12,000 2,000,000
5 45 12,000 2,000,000
6 46 12,000 2,000,000
7 47 12,000 2,000,000
8 48 12,000 2,000,000
9 49 12,000 2,000,000
10 50 12,000 2,000,000
</TABLE>
<PAGE> 1
EXHIBIT 10.16
SANGAMO BIOSCIENCES, INC.
1995 STOCK OPTION PLAN
(As Amended on December 8, 1999)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the interests of
Sangamo BioSciences, Inc., a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or shares issued thereunder.
III. ELIGIBILITY
A. The persons eligible to receive option grants under the Plan are
as follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, and
(iii) consultants who provide services to the Corporation (or
any Parent or Subsidiary).
<PAGE> 2
B. The Plan Administrator shall have full authority to determine
which eligible persons are to receive option grants under the Plan, the time or
times when such option grants are to be made, the number of shares to be covered
by each such grant, the status of the granted option as either an Incentive
Option or a Non-Statutory Option, the time or times at which each option is to
become exercisable, the vesting schedule (if any) applicable to the option
shares and the maximum term for which the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed
1,850,000(1) shares.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the original exercise or issue price paid per share, pursuant to
the Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event shall
any such adjustments be made in connection with the conversion of one or more
outstanding shares of the Corporation's preferred stock into shares of Common
Stock.
- --------
(1) Includes the 500,000 share increase approved by the Board on
December 8, 1999, subject to approval of the Stockholders.
2.
<PAGE> 3
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The exercise price per share shall not be less than
eighty-five percent (85%) of the Fair Market Value per share of Common
Stock on the option grant date.
(ii) If the person to whom the option is granted is a 10%
Stockholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Three
and the documents evidencing the option, be payable in cash or check made
payable to the Corporation. Should the Common Stock be registered under Section
12(g) of the 1934 Act at the time the option is exercised, then the exercise
price may also be paid as follows:
(i) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or
(ii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions (a)
to a Corporation-designated brokerage firm to effect the immediate sale
of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
3.
<PAGE> 4
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time of cessation
of Service or death:
(i) Should the Optionee cease to remain in Service for any
reason other than Disability, death or Misconduct, then the Optionee
shall have a period of three (3) months following the date of such
cessation of Service during which to exercise each outstanding option
held by such Optionee.
(ii) Should such Service terminate by reason of Disability,
then the Optionee shall have a period of six (6) months following the
date of such cessation of Service during which to exercise each
outstanding option held by such Optionee. However, should such
Disability be deemed to constitute Permanent Disability, then the period
during which each outstanding option held by the Optionee is to remain
exercisable shall be extended by an additional six (6) months so that
the exercise period shall be the twelve (12)-month period following the
date of the Optionee's cessation of Service by reason of such Permanent
Disability.
(iii) Should the Optionee die while holding one or more
outstanding options, then the personal representative of the Optionee's
estate or the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of
descent and distribution shall have a period of twelve (12) months
following the date of the Optionee's death during which to exercise each
such option.
(iv) Under no circumstances, however, shall any such option
be exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent it is not exercisable for
vested shares on the date of such cessation of Service.
(vi) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options at the time held by the
Optionee shall immediately terminate and cease to be outstanding.
4.
<PAGE> 5
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock under
the Plan. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, all or (at the discretion of the Corporation and with the consent of
the Optionee) any of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right. The Plan Administrator may not impose a vesting schedule upon
any option grant or any shares of Common Stock subject to the option which is
more restrictive than twenty percent (20%) per year vesting, with the initial
vesting to occur one (1) year after the option grant date. However, this minimum
vesting requirement shall not be applicable with respect to any option granted
to a director, officer or consultant. All of the outstanding repurchase rights
under the Plan shall be assignable to the successor corporation in any Corporate
Transaction and shall terminate upon the occurrence of such Corporate
Transaction to the extent the successor corporation does not accept such
assignment.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is
first registered under Section 12(g) of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death.
H. WITHHOLDING. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options. Options which
are specifically designated as Non-Statutory Options shall not be subject to the
terms of Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
5.
<PAGE> 6
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION
A. Each outstanding option shall be assumable by the successor
corporation (or parent thereof) in any Corporate Transaction and shall, to the
extent not so assumed, terminate and cease to be outstanding on the effective
date of such Corporate Transaction.
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in the consummation of such Corporate Transaction,
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
C. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
6.
<PAGE> 7
ARTICLE Three
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. Promissory notes may be authorized with or without security
or collateral. In all events, the maximum credit available to the Optionee may
not exceed the sum of (i) the aggregate option exercise price payable for the
purchased shares (less the par value of such shares) plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee in
connection with the option exercise.
II. ADDITIONAL AUTHORITY
The Plan Administrator shall have the discretion, exercisable either
at the time an option is granted or at any time while the option remains
outstanding, to (i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service or death from the
limited period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and (ii) permit the option to be exercised,
during the applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but also with respect to one or
more additional installments in which the Optionee would have vested had the
Optionee continued in Service.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective when adopted by the Board on June 30,
1995 and was approved by the Corporation's stockholders on June 30, 1995. The
Plan was restated and amended on February 10, 1998 to increase the number of
shares issuable thereunder (the "1998 Restatement"). The 1998 Restatement was
adopted by the Board of February 10, 1998 and approved by the Corporation's
stockholders on July 13, 1998. The Plan was amended on December 8, 1999 to
increase the number of shares issuable thereunder by an additional 500,000
shares of Common Stock (the "1999 Amendment"), but no option granted under the
Plan on the basis of any such increase shall become exercisable unless and until
such increase shall have been approved by the Corporation's stockholders. If
such stockholder approval is not obtained within twelve (12) months after the
date of the adoption of the increase, then all options previously granted under
the Plan on the basis of such increase shall terminate and cease to be
outstanding, and no further options shall be granted. Subject to such
limitation, the Plan Administrator may grant options under the Plan at any time
after the effective date of the Plan and before the date fixed herein for
termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) June 29, 2005,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued or (iii) the
7.
<PAGE> 8
termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options and unvested stock
issuances outstanding under the Plan shall continue to have full force and
effect in accordance with the provisions of the documents evidencing such
options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall, without the consent of the Optionees, adversely affect
their rights and obligations under their outstanding options. In addition, the
Board shall not, without the approval of the Corporation's stockholders, (i)
increase the maximum number of shares issuable under the Plan, except for
permissible adjustments in the event of certain changes in the Corporation's
capitalization, (ii) materially modify the eligibility requirements for Plan
participation or (iii) materially increase the benefits accruing to Plan
participants.
B. Options may be granted under the Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided any such options actually granted may not be exercised until
there is obtained stockholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the excess grants are first made, then any options granted on the basis of
such excess shares shall terminate and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under
the Plan and the issuance of any shares of Common Stock upon the exercise of any
option shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options granted under it and the shares of Common Stock issued pursuant to
it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of the Optionee, which rights are
hereby expressly reserved by each, to terminate the Optionee's Service at any
time for any reason, with or without cause.
8.
<PAGE> 9
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
9.
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Sangamo BioSciences, Inc., a Delaware
corporation.
G. DISABILITY shall mean the inability of the Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute PERMANENT DISABILITY in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
J. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National
A-1.
<PAGE> 11
Association of Securities Dealers on the Nasdaq National Market or any
successor system. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
K. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
L. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by Optionee of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by Optionee
adversely affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other person in the Service of the Corporation (or any Parent or
Subsidiary).
M. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
N. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
O. OPTIONEE shall mean any person to whom an option is granted under the
Plan.
P. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
Q. PLAN shall mean the Corporation's 1995 Stock Option Plan, as set
forth in this document.
R. PLAN ADMINISTRATOR shall mean either the Board or the Committee, to
the extent the Committee is at the time responsible for the administration of
the Plan.
A-2.
<PAGE> 12
S. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant, except to the
extent otherwise specifically provided in the documents evidencing the option
grant.
T. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
U. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
V. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-3.
<PAGE> 1
EXHIBIT 10.17
RESEARCH FUNDING AGREEMENT
This Agreement is effective as of January 11, 2000, by and between Baxter
Healthcare Corporation, a Delaware corporation, acting through its
CardioVascular Group, having offices at 17221 Red Hill Avenue, Irvine,
California 92614 (hereinafter referred to as "BAXTER") and Sangamo Biosciences,
Inc., a Delaware corporation, having an office at Point Richmond Tech Center,
501 Canal Blvd., Suite A100, Richmond, California 94840 (hereinafter referred to
as "SANGAMO").
RECITALS
WHEREAS, BAXTER and SANGAMO have entered into a License Agreement,
contemporaneously herewith (the "License Agreement"); and
WHEREAS, SANGAMO wishes to undertake research relating to the further
development of its proprietary zinc finger binding protein and gene therapy
technology and BAXTER wishes to fund such research to facilitate SANGAMO's
ability to license such technology to BAXTER under the License Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1. Definitions
All terms used in this agreement (other than names of the parties and Article
headings) which are set forth in upper case letters, but not defined herein,
shall have the respective meanings set forth in the License Agreement.
ARTICLE 2. Research Activity
2.1 Research Program. The research program which is contemplated by this
Agreement is set forth in the research plan (the "Research Plan") attached as
Exhibit A. The Research Plan sets forth the research tasks and objectives to be
performed by SANGAMO. SANGAMO agrees to use its commercially reasonable efforts
consistent with international practice in the biotechnology industry, SANGAMO's
sound business judgment, and research, regulatory and market conditions, to
conduct the SPONSORED RESEARCH in accordance with the Research Plan in
consideration for the funding provided in Section 2.2.
2.2 Funding. BAXTER agrees to fund the SPONSORED RESEARCH as follows: (i) One
Million Dollars ($1,000,000) on or before January 21, 2000; and (ii) One
Million Dollars ($1,000,000) on the earlier of April 1, 2001, or the date on
which SANGAMO has fulfilled its obligations set forth in Clause 5.1(b) of the
License Agreement. If the parties mutually agree to extend the term of this
Agreement for additional research projects, the parties shall amend this
<PAGE> 2
Agreement to establish a mutually acceptable research plan, budget and payment
schedule for such extension; provided, however, that the budget and payment
schedule therefor shall be calculated on the basis of the reasonably
anticipated fully burdened cost to SANGAMO to perform the additional research
projects under the new research plan at rates not to exceed SANGAMO's then
standard FTE rate for performing similar research programs.
2.3 Evaluation of Research Plan. Within thirty (30) days after the end of each
calendar quarter during the term of the SPONSORED RESEARCH, SANGAMO shall
submit to BAXTER a written report describing any INVENTIONS conceived or
reduced to practice, and the progress of the SPONSORED RESEARCH, including
without limitation, a written report and analysis of all experimentation
conducted pursuant to performing the SPONSORED RESEARCH during such calendar
quarter. If the STEERING COMMITTEE determines pursuant to the LICENSE AGREEMENT
that modifications of the existing Research Plan are required, the Research Plan
will be amended as mutually agreed to in writing by the parties.
2.4 Exclusivity of Research. SANGAMO agrees that during the term of the
License Agreement it will not perform any research in the FIELD OF RESEARCH
similar to the SPONSORED RESEARCH for any other entity, nor assist any other
entity, in pursuing any work in the FIELD OF RESEARCH, without the written
approval of BAXTER.
2.5 Personnel Agreements. SANGAMO represents and warrants that it has
agreements with any individual employed to perform the SPONSORED RESEARCH under
this Agreement sufficient to procure and implement the rights and restrictions
granted and imposed by this Research Funding Agreement.
2.6 Access to Records. SANGAMO agrees to maintain and preserve the documents,
laboratory notebooks, graphs and charts and other original records and data
that result from the SPONSORED RESEARCH, and agrees to provide BAXTER access to
such records upon reasonable notice during normal business hours during the
term of this Agreement and the License Agreement solely for the purpose of
exercising its rights under the LICENSE AGREEMENT.
2.7 Compliance with Laws. SANGAMO agrees to comply in all material respects
with all applicable national and local laws of the jurisdiction wherein it
conducts business, including compliance at all times with applicable Good
Laboratory Practice guidelines as established by the FDA. SANGAMO further agrees
that any compensation it receives under this Agreement shall not be disbursed
for any purpose which is unlawful or unethical under those laws.
ARTICLE 3. Property Rights
3.1 Property Rights. Any and all INVENTIONS shall be owned by or otherwise
assigned to SANGAMO and licensed back to BAXTER pursuant to the terms of the
License Agreement. BAXTER agrees to assign to SANGAMO and hereby assigns any
and all of its rights to BAXTER INVENTIONS and to JOINT INVENTIONS, including
rights under the patent, copyright and other intellectual property laws of the
United States or any other country.
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<PAGE> 3
3.2 Disclosure of INVENTIONS. SANGAMO and BAXTER shall disclose promptly to
each other such INVENTIONS within thirty (30) days of conceiving and/or
reducing to practice such INVENTIONS.
ARTICLE 4. Term and Termination
4.1 The term of this Agreement shall be three (3) years commencing on its
effective date and shall expire automatically unless sooner terminated in
accordance with this Article 4.
4.2 In addition to any rights it may have hereunder, a party may terminate
this Agreement upon (30) days prior written notice following the occurrence of
any of the following:
(a) the bankruptcy, insolvency, dissolution or winding up of the other
party (other than dissolution or winding up for the purposes of a solvent
reconstruction or amalgamation); or
(b) the failure of the other party to cure the breach of any provision of
this Agreement for the payment of funds within thirty (30) days after written
notice thereof by the non-breaching party; or
(c) the failure of the other party to cure the breach of any material
provision of this Agreement, except nonpayment of funds, within sixty (60) days
after written notice thereof by the non-breaching party.
4.3 Performance under this Agreement may be terminated by BAXTER upon one
hundred eighty (180) days prior written notice to SANGAMO. If circumstances
beyond SANGAMO's control preclude continuation of the SPONSORED RESEARCH,
SANGAMO may terminate this Agreement upon one hundred eighty (180) days prior
written notice to BAXTER, provided that SANGAMO explains its reasons for
terminating.
4.4 This Agreement automatically shall terminate upon termination of the
LICENSE AGREEMENT.
4.5 Upon termination of this Agreement pursuant to Section 4.2, SANGAMO agrees
that BAXTER's only obligation is to reimburse SANGAMO for all costs and
non-cancelable commitments incurred to date in the performance of the SPONSORED
RESEARCH, such reimbursements not to exceed the total amount specified in this
Agreement for the SPONSORED RESEARCH. SANGAMO acknowledges and agrees that it
will have no recourse against BAXTER for such termination beyond the described
reimbursements. Furthermore, SANGAMO agrees to be bound by the terms of Articles
3, 5, 6 and 7 in the event of the termination of this Agreement.
ARTICLE 5. Confidentiality
5.1 This Article 5 applies, except as otherwise provided in this Article 5,
during the term of this Agreement, and thereafter for a period of five (5)
years. Both SANGAMO and BAXTER shall maintain in confidence, not disclose to
any Third Party and use only for the purposes of this Agreement information and
data which is not generally known and which (a) results from the use or
development of the Technology and Inventions pursuant to this Agreement or the
License
-3-
<PAGE> 4
Agreement, or (b) is supplied by SANGAMO or BAXTER after April 13, 1999 in
connection with this Agreement or the License Agreement (or discussions leading
up to them) and is marked, identified or otherwise acknowledged to be
confidential ("Information").
5.2 To the extent it is reasonably necessary to fulfill their obligations
or exercise their rights pursuant to this Agreement, BAXTER and SANGAMO may
disclose Information they are otherwise obligated pursuant to this Article 5
not to disclose, to its Affiliates, its bona fide proposed sublicensees and
its permitted sublicensees, and shall limit disclosure of such Information to
its and their respective officers, directors, employees and consultants on a
need-to-know basis, in each case provided that such persons and entities
agree to keep the Information confidential for the same time periods and to
the same extent as the disclosing party is required to keep the Information
confidential. BAXTER and SANGAMO may also disclose such information to
government or other regulatory authorities to the extent that such disclosure
is required to be disclosed to obtain a patent or authorization to conduct a
clinical trial or to commercially market any product arising out of the
Technology or is otherwise required by applicable law, regulation or court
order, in each case provided that the disclosing party shall provide written
notice to the other party and sufficient opportunity to object to such
disclosure or to request confidential treatment thereof. The obligation not
to disclose Information shall not apply to any part of such Information that:
(a) is or becomes patented, published or otherwise part of the
public domain other than by acts of the person obligated not to disclose such
Information in contravention of this Agreement;
(b) is disclosed to the receiving party by a Third Party, provided
such Information was not obtained from such Third Party directly or indirectly
from SANGAMO or BAXTER (as the case may be);
(c) prior to disclosure pursuant to this Agreement, was already in
the possession of the receiving party, provided such Information was not
obtained directly or indirectly from SANGAMO or BAXTER (as the case may be);
(d) is developed independently of the Information obtained from
SANGAMO or BAXTER (as the case may be), by persons without access to or use of
the Information, as demonstrated by written evidence; or
(e) is disclosed by either SANGAMO or BAXTER with the prior written
consent of the other.
5.3 SANGAMO and BAXTER agree to not disclose the existence of or the
financial terms or conditions of this Agreement or the License Agreement to any
Third Party without the prior written consent of the other, except as required
by applicable law or regulatory authority.
5.4 Notwithstanding the provisions of Article 5, neither BAXTER nor SANGAMO
shall release any media release or other oral or written announcement for
dissemination to the media concerning or arising from this Agreement or the
License Agreement without the written consent of the other party.
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<PAGE> 5
5.5 This Article 5 survives the termination of this Agreement.
ARTICLE 6. Limitation of Liability and Indemnity
6.1 SANGAMO agrees to indemnify, hold harmless and defend BAXTER, its
directors, trustees, officers, employees and agents against any and all losses,
liabilities, damages and expenses (including reasonable attorneys' fees and
costs) incurred as a result of any Third Party claims, suits, demands, causes
of action or other proceedings to the extent arising out of SANGAMO's
performance of the Sponsored Research, except to the extent arising from the
negligence or willful misconduct of BAXTER, or its directors, officers,
employees, and agents.
6.2 BAXTER agrees to indemnify, hold harmless and defend SANGAMO, its
directors, trustees, officers, employees and agents, against any and all
losses, liabilities, damages and expenses (including reasonable attorneys' fees
and costs) incurred as a result of any Third Party claims, suits, demands,
causes of action or other proceedings to the extent arising out of the
negligence or willful misconduct of BAXTER, or its directors, officers,
employees and agents.
6.3 This Article 6 survives the termination of this Agreement.
ARTICLE 7. Insurance
7.1 SANGAMO shall maintain insurance, including product liability insurance,
with respect to its performance of the SPONSORED RESEARCH in such amount as is
customarily maintained in accordance with good practice for the
biopharmaceutical industry. SANGAMO shall maintain such insurance for so long
as it continues to conduct the SPONSORED RESEARCH, and thereafter for so long
as SANGAMO maintains insurance for itself covering such activities. The
liability insurance requirement of this Section may be satisfied through
self-insurance with reserves consistent with industry practices.
7.2 SANGAMO shall, upon the request of BAXTER:
(a) produce evidence of the currency of such insurance; and
(b) note the interest of BAXTER on the policy in respect of such
insurance.
ARTICLE 8. Miscellaneous
8.1 Any notice, demand, consent or other communication ("Notice") given or
made under this Agreement:
(a) must be in writing and signed by a person duly authorized by the
sender;
(b) must either be delivered to the intended recipient as follows:
(i) to Sangamo
Biosciences, Inc.: Point Richmond Tech Center
501 Canal Blvd., Suite A 100
Richmond, California 94840
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<PAGE> 6
Attention: President
Fax No.: (510) 236-8951
(ii) to Baxter Healthcare
Corporation: 17221 Red Hill Avenue
Irvine, California, 92614-5686
Attention: Group Vice President
CardioVascular Group
Fax No.: (949) 250-6850
(c) will be effective upon receipt by the intended recipient.
8.2 This Agreement and the License Agreement contain the entire agreement
between the parties with respect to its subject matter and supersede all prior
agreements and understandings between the parties in connection with them.
8.3 No amendment or variation of this Agreement is valid or binding on a party
unless made in writing executed by all parties.
8.4 Except as provided in this Section 8.4, neither BAXTER nor SANGAMO may
assign or otherwise transfer this Agreement or any of its rights or obligations
herein without the prior written consent of the other party, which consent
shall not be unreasonably withheld.
(a) Either party may assign this Agreement together with the License
Agreement, the Convertible Debenture Purchase Agreement and the Convertible
Debenture, without the prior written consent of the other party in connection
with the sale or transfer of all or substantially all of its stock or assets to
which this Agreement relates, by merger, divestiture, spin-off or similar
transaction, provided that such assignee undertakes in writing to be bound by
all the terms and conditions in this Agreement and the other party is notified
within thirty (30) days of such assignment taking place; and
(b) SANGAMO and BAXTER may assign this Agreement together with the
License Agreement, the Convertible Debenture Purchase Agreement and the
Convertible Debenture to an Affiliate provided that such Affiliate undertakes
to be bound by the terms and conditions of this Agreement.
8.5 No failure to exercise nor any delay in exercising an right, power or
remedy by a party operates as a continuing waiver. A single or partial exercise
of any right, power or remedy does not preclude any other or further exercise
of that or any other right, power or remedy. A waiver is not valid or binding
on the party granting the waiver unless made in writing.
8.6 Each party agrees to do all things and execute all deeds, instruments,
transfers or other documents as may be necessary or desirable to give full
effect to the provisions of this Agreement and the transactions contemplated by
it.
8.7 This Agreement does not constitute an employer/employee relationship,
partnership of any kind, an association or trust between the parties, each party
being individually responsible only for its obligations as set out in this
Agreement and in addition the parties agree that their
-6-
<PAGE> 7
relationship is one of independent contractors. BAXTER is not authorized or
empowered to act as agent on behalf of SANGAMO and BAXTER shall not on behalf
of SANGAMO enter into any contract, warranty or representation as to any
matter. SANGAMO shall not be bound by the acts or conduct of BAXTER. SANGAMO is
not authorized or empowered to act as agent on behalf of BAXTER and SANGAMO
shall not enter any contract, warranty or representations as to any matter on
behalf of BAXTER. BAXTER shall not be bound by the acts or conduct of SANGAMO.
8.8 This Agreement is governed by the laws of the State of California, USA.
8.9 This Agreement may be executed in any number of counterparts. All
counterparts together will be taken to constitute one instrument.
8.10 In the event of any delay in performance by either party of any of its
obligations or liabilities pursuant to this Agreement to the extent due to any
cause arising from or attributable to acts, events, non-happenings, omissions,
accidents or acts of God beyond the reasonable control of the party to perform
(including but not limited to strikes, lock-outs, shortage of labor, civil
commotion, riot, war, threat of or preparation for war, breaking off of
diplomatic relations, fire, explosion, sabotage, storm, flood, earthquake, fog,
subsidence, pestilence, epidemics, computer system or machinery breakdown,
failure of plant, collapse of structures, voluntary or mandatory compliance with
any direction, request or order of any person having or appearing to have
authority whether for defense or other governmental or national purposes, or any
requisition for materials or services apparently or stated to be used for the
purposes of defense, inability to obtain suitable raw material, equipment, fuel,
power, components or transportation), the party so delayed or prevented will be
under no liability for loss or injury suffered by the other party and any such
delay or failure to perform will not constitute a breach of this Agreement to
the extent due to such cause, provided that the party so delayed uses
commercially reasonable efforts to remedy the effect of such cause.
IN WITNESS THEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first above
written.
BAXTER HEALTHCARE CORPORATION SANGAMO BIOSCIENCES, INC.
CARDIOVASCULAR GROUP
By: /s/ J. H. Kehl, Jr. By: /s/ Edward O. Lanphier
-------------------------------- ------------------------------
VP Business Development
Title: Cardiovascular Group Title: President & CEO
----------------------------- ---------------------------
Date: 1/10/2000 Date: 1/7/2000
------------------------------ ----------------------------
-7-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 28,
2000, except for Note 7, as to which the date is March , 2000, in Amendment
No. 2 to Registration Statement (Form S-1 No. 333-30134) and related Prospectus
of Sangamo BioSciences, Inc. for the registration of 5,750,000 shares of its
common stock.
ERNST & YOUNG LLP
Palo Alto, California
March , 2000
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon completion of
the stock split described in Note 7 to the financial statements.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 14, 2000
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